<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1997
REGISTRATION NO. 333-31825
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DIVERSIFIED CORPORATE RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TEXAS 7371 75-1565578
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
J. MICHAEL MOORE M. TED DILLARD
CHIEF EXECUTIVE OFFICER PRESIDENT
DIVERSIFIED CORPORATE RESOURCES, INC. DIVERSIFIED CORPORATE RESOURCES, INC.
12801 NORTH CENTRAL EXPRESSWAY 12801 NORTH CENTRAL EXPRESSWAY
SUITE 350 SUITE 350
DALLAS, TEXAS 75243 DALLAS, TEXAS 75243
(972) 458-8500 (972) 458-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL AND TELEPHONE NUMBER, INCLUDING
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK D. WIGDER, ESQ. LAWRENCE B. LOW, ESQ.
GREGORY J. SCHMITT, ESQ. DAVID M. NIEBAUER, ESQ.
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION GRAHAM & JAMES, LLP
1445 ROSS AVENUE, SUITE 3200 ONE MARITIME PLAZA, SUITE 300
DALLAS, TEXAS 75202 SAN FRANCISCO, CALIFORNIA 94111
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH OFFERING PRICE AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.10 par value 1,187,500 shares $ 12.50 $ 14,843,750 $ 4,498.11
</TABLE>
(1) Includes 112,500 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. A fee of $3,636.36 was paid with the initial filing on
July 22, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1997
1,075,000 SHARES
[LOGO]
DIVERSIFIED CORPORATE RESOURCES, INC.
COMMON STOCK
Of the 1,075,000 shares of common stock, par value $0.10 per share (the
"Common Stock"), offered hereby (the "Offering"), 750,000 shares are being sold
by Diversified Corporate Resources, Inc., a Texas corporation (the "Company"),
and 325,000 shares are being sold by certain shareholders of the Company (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Use of Proceeds."
The Common Stock is currently traded in the over-the-counter market and is
listed in the pink sheets under the symbol "HIRE." Prior to the Offering, there
has been a limited public market for the Company's Common Stock. On August 19,
1997, 1,000 shares of the Common Stock were traded and the last reported sales
price, as reported by a market maker for the Common Stock, was $6.50 per share.
See "Price Range of Common Stock." It is currently estimated that the public
offering price will be between $12.00 and $13.00 per share. See "Underwriting"
for a discussion of factors to be considered in determining the offering price.
Application has been made to have the Common Stock approved for listing on the
Nasdaq National Market under the symbol "HIRE."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share................................................... $ $ $ $
Total(3).................................................... $ $ $ $
</TABLE>
(1) Excludes additional compensation to the Underwriters in the form of warrants
granted to the Representative of the Underwriters to purchase 75,000 shares
of Common Stock, exercisable over a period of four years commencing one year
from the date of this Prospectus (the "Representative's Warrants"). In
addition, the Company and the Selling Shareholders have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $620,000 payable by the Company,
including the Representative's non-accountable expense allowance and
expenses of the Selling Shareholders. See "Principal and Selling
Shareholders."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 112,500 shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Shareholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the right of the Underwriters to reject any order
in whole or in part and certain other conditions. It is expected that delivery
of the certificates for the Common Stock will be made against payment therefor
at the offices of Cruttenden Roth Incorporated, Irvine, California, on or about
September , 1997.
------------------------
[LOGO]
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY" REFER TO
DIVERSIFIED CORPORATE RESOURCES, INC. AND ITS SUBSIDIARIES AND PREDECESSORS
COLLECTIVELY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE
REPRESENTATIVE'S WARRANTS.
THE COMPANY
Diversified Corporate Resources, Inc. is an employment services firm that
provides professional and technical personnel on a permanent, temporary and
contract placement basis to high-end niche employment markets with a primary
emphasis on the information technology ("IT") market. While the majority of the
Company's revenues are derived from providing IT staffing solutions, the Company
also fills other high-end niche employment positions in the
engineering/technical, accounting/finance and professional/ technical sales
disciplines. The Company offers permanent placement, temporary and contract
staffing services in this broad variety of disciplines in order to position
itself as a single source provider of solutions that meets all the high-end
staffing needs of its clients. In addition to maintaining this competitively
balanced business model, the Company focuses on recruiting qualified applicants
for placement and enhancing its training capabilities. The Company manages its
operations as a group of profit centers, each of which is incentivized to share
leads and draw from each other's information resources, as well as to achieve
strong independent performance. The Company serves its clients, including
several Fortune 500 companies, through its network of offices located in Dallas,
Houston and Austin, Texas, Atlanta, Georgia, Chicago, Illinois, Kansas City,
Missouri and Raleigh, North Carolina.
The employment services industry has experienced significant growth.
According to a May 16, 1997 Staffing Industry Report, 1995 and 1996 revenues for
the U.S. staffing industry and its segments were estimated at $63.7 billion and
$74.4 billion, respectively, a 17% increase, and 1997 revenues are projected to
be $86.6 billion, a 16% increase. Such growth reflects fundamental changes in
the employer-employee relationship which have caused employers to impose
heightened hiring criteria for permanent employees and have increased the demand
for project-oriented contract hiring. These employers require the ability to
outsource their staffing needs and the use of permanent, temporary or contract
personnel to help them keep personnel costs variable, achieve maximum
flexibility and avoid the negative effects of layoffs. These trends have been
compounded by the ever increasing rate at which companies must respond to, and
take advantage of, advances in IT, particularly because these advances create a
significant corresponding need for access to professionals with up-to-date IT
skills.
The IT services industry has undergone and continues to undergo rapid
evolution and growth. "IT" is a term that now encompasses not only computer and
communications systems hardware but also the personnel who design, manage and
maintain those systems. According to a May 16, 1997 Staffing Industry Report,
1995 and 1996 revenues for the IT services sector were estimated at $8.9 billion
and $11.7 billion, respectively, a 31% increase, and 1997 revenues are projected
to be $14.9 billion, a 27% increase.
The growth of the IT services industry has been driven by: (i) businesses'
increasing reliance on information technology as a strategic tool; (ii) the
shift to distributed computing through the movement from mainframe to
client/server environments; (iii) the fact that these computer networks are
comprised of interdependent hardware and software products produced by a wide
variety of independent vendors; and (iv) the integration of telecommunications
and computers. As businesses struggle to integrate multiple processing platforms
and software applications which serve an increasing number of end-users, systems
and applications development has become increasingly challenging. Furthermore,
as businesses continue to focus on their core competencies, but at the same time
strive to operate more efficiently with fewer people, managing and planning
staffing requirements to meet IT needs becomes more difficult. To keep up with
3
<PAGE>
these changes, companies are increasingly seeking employment services firms like
the Company to provide IT professionals on a permanent, temporary or contract
basis.
The Company's objective is to become a nationally recognized leader in
permanent placement and contract specific personnel solutions for high-end niche
employment markets. The Company's business strategy is to: (i) maintain its high
margin niche focus; (ii) build on its single source provider strategy for
staffing services; (iii) focus on recruiting, management and retention of highly
skilled professionals; (iv) improve and expand its training programs; and (v)
broaden its geographic coverage. The Company believes that its business strategy
will provide it with certain competitive advantages that will enable it to
address the demands of the high-end niche employment markets it serves.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company................................. 750,000 shares
The Selling Shareholders.................... 325,000 shares
Common Stock to be outstanding after the
Offering...................................... 2,540,312 shares(1)
Use of Proceeds................................. For enhancement of the Company's training
facilities, for expansion and improvement
of its applicant database capabilities,
to retire certain factoring and/or other
credit facilities, for possible
acquisitions and for general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... "HIRE"
</TABLE>
- ------------------------
(1) Excludes an aggregate 315,000 shares of Common Stock reserved for issuance
under options granted to certain members of management under the Company's
1996 Amended and Restated Nonqualified Stock Option Plan (the "1996 Stock
Option Plan") and 75,000 shares of Common Stock issuable upon exercise of
the Representative's Warrant. See "Management--Stock Option Plans" and
"Underwriting."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
OPERATING DATA:
Net service revenues............................. $ 15,233 $ 19,358 $ 27,430 $ 13,027 $ 15,653
Cost of services................................. 11,132 14,332 19,675 9,250 10,969
---------- ---------- ---------- ---------- ----------
Gross margin................................... 4,101 5,026 7,755 3,777 4,684
Selling, general and administrative
expenses(1).................................... 4,147 4,497 5,703 2,707 3,717
Other income (expenses).......................... 62 (183) (288) (169) (40)
---------- ---------- ---------- ---------- ----------
Income before income taxes and extraordinary
item......................................... 16 346 1,764 901 927
Income taxes, net................................ -- (60) (225) (112) (93)
Extraordinary item, net.......................... 208 175 246 -- 43
---------- ---------- ---------- ---------- ----------
Net income(1).................................. $ 224 $ 461 $ 1,785 $ 789 $ 877
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Primary earnings per share(1).................... $ .13 $ .26 $ .98 $ .43 $ .48
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding............................. 1,758,211 1,758,211 1,814,016 1,853,064 1,828,141
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<CAPTION>
AS OF DECEMBER 31,
---------------------------------- AS OF
1994 1995 1996 JUNE 30, 1997
---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 46 $ 6 $ 613 $ 272
Working capital (deficit)........................ (1,142) (1,060) 95 297
Total assets..................................... 2,563 3,007 5,204 6,563
Total liabilities................................ 3,476 3,459 4,016 4,535
Stockholders' equity (capital deficiency)........ (913) (452) 1,188 2,028
</TABLE>
- ------------------------
(1) Included in selling, general and administrative expenses are litigation
expenses of $12,000 and $237,000 for the six month periods ended June 30,
1996 and 1997, respectively. If such litigation expenses were excluded, net
income would have been $801,000 and $1,114,000 and primary earnings per
share would have been $0.43 and $0.61 for the six month periods ended June
30, 1996 and 1997, respectively.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OF THE COMPANY INVOLVES CERTAIN RISKS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. CERTAIN INFORMATION CONTAINED IN
THIS PROSPECTUS CONSTITUTES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT, AND SECTION 31E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH CAN BE IDENTIFIED BY THE USE
OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE,"
"ANTICIPATE," "ESTIMATE," "PLAN" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE STATEMENTS BELOW CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.
DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL
The Company depends upon its ability to attract, retain and place qualified
personnel, particularly technical and professional personnel, who possess the
skills and experience necessary to meet the staffing requirements of its
clients. Competition for individuals with proven technical or professional
skills is intense and demand for such individuals is expected to remain very
strong for the foreseeable future. The Company must continually evaluate and
upgrade its base of available qualified personnel to keep pace with changing
client needs and emerging technologies. There can be no assurance that qualified
personnel will continue to be available to the Company in sufficient numbers and
upon economic terms acceptable to the Company or that the Company will be able
to attract, retain and place qualified personnel who can meet client needs. See
"Business--Competition."
LIMITED OPERATING HISTORY
The Company reentered the permanent and contract professional placement
business in 1993. Consequently, the Company has a limited operating history upon
which prospective investors may base an evaluation of its performance. While the
Company has been profitable and its revenues have grown in each of the last
three fiscal years, there can be no assurance that the Company will continue to
be profitable or that its revenues will continue to grow. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The Company's periodic operating results have fluctuated in the past due to
many factors. In view of the Company's significant growth in recent years, the
Company believes that period-to-period comparisons of its financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. The Company's operating results are adversely affected when
client facilities close due to holidays. In particular, the Company generally
experiences a certain amount of seasonality in its fourth quarter due to the
number of holidays in that period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results."
COMPETITION
The Company believes that the availability and quality of candidates, the
quality of service, the scope of geographic service and the price of service are
the principal elements of competition. Although the Company believes it competes
favorably with respect to these factors, it expects competition to increase, and
there can be no assurance that the Company will remain competitive. See
"Business--Competition."
The employment services industry is very competitive and fragmented. There
are relatively limited barriers to entry and new competitors frequently enter
the market. A number of the Company's competitors possess substantially greater
resources than the Company. The Company faces substantial competition
6
<PAGE>
for potential clients and for technical and professional personnel from
providers of outsourcing services, systems integrators, computer systems
consultants, other providers of staffing services, temporary personnel agencies
and search firms, ranging from large national companies to local employment
staffing entities. Large national companies that offer employment staffing
services include Robert Half International, Computer Horizons, Inc., and
Alternative Resources Corporation. Other firms that the Company competes with
include RCM Technologies, Professional Staff, Personnel Management, Joulet,
ROMAC International, Inc., Source Services Corp., Data Processing Corp. and
General Employment Enterprises. Local employment staffing entities are typically
operator-owned, and each market generally has one or more significant
competitors. In addition, the Company competes with national clerical and light
industrial staffing firms that also offer temporary staffing services. These
companies include Interim Services, Inc., Norrell Corporation, AccuStaff
Incorporated and Olsten Corp. In addition, national and regional accounting
firms also offer certain employment staffing services. Finally, the Company also
faces the risk that certain of its current and prospective clients will decide
to provide similar services internally. There can be no assurance that the
Company will be able to continue to compete effectively with existing or
potential competitors. See "Business--Competition."
POSSIBLE ADVERSE EFFECTS OF FLUCTUATIONS IN THE GENERAL ECONOMY
Historically, the general level of economic activity has significantly
affected the demand for the employment services provided by the Company and the
employment services industry at large. As economic activity increases, temporary
and contract personnel often are added to the work force before permanent
employees are hired. During these periods of increased economic activity and
generally higher levels of employment, the competition among staffing services
firms for qualified temporary and contract personnel is intense. There can be no
assurance that during these periods the Company will be able to recruit the
temporary and contract personnel necessary to fill its clients' needs or that
other competitive factors will not adversely affect the Company's results of
operations or financial condition. Similarly, an economic downturn may adversely
affect the demand for permanent, temporary and contract personnel and may have a
material adverse effect on the Company's business, results of operations or
financial condition.
RELIANCE ON KEY EXECUTIVES AND QUALIFIED OPERATING EMPLOYEES
The Company is highly dependent on its key executive management and its
regional/district managers. The Company expects that its continued success will
largely depend upon the efforts and abilities of J. Michael Moore, the Company's
Chairman of the Board and Chief Executive Officer, M. Ted Dillard, the Company's
President, Douglas G. Furra, its Chief Financial Officer and its
regional/district managers. The loss of services of Mr. Moore, Mr. Dillard, Mr.
Furra or any other key executive for any reason could have a material adverse
effect upon the Company. The Company's success also depends upon its ability to
identify, develop and retain qualified operating managers, and recruiting and
account management personnel. The Company expends significant resources in
recruiting and training its employees, and the pool of available applicants for
these positions is limited. There can be no assurance that the Company will
continue to be able to identify, develop and retain qualified operating
management and client servicing employees. In addition, the loss of some of the
Company's operating management and client servicing employees could have a
material adverse effect on the Company's operations, including the Company's
ability to establish and maintain client relationships. See
"Management--Employment Agreements."
ABILITY TO MANAGE GROWTH
The Company has experienced significant recent growth and expansion. This
rapid growth and expansion has placed and could continue to place a significant
strain on the Company's management, resources and operating systems, and the
failure to manage growth effectively could have a material adverse effect on the
Company's business, results of operations or financial condition. See
"Management."
7
<PAGE>
IMPLEMENTATION OF BUSINESS STRATEGY AND ABILITY TO ACHIEVE GROWTH
The Company's continued growth depends on a number of factors, including the
ability to maintain profit margins in the face of competitive pressures and
changing regulatory environments, the ability to continue to develop successful
additional service offerings, the availability of sufficient working capital on
commercially reasonable terms, the success of its continuing efforts to improve
the recruitment, motivation and retention of its key executives, operating
employees and applicants, the strength of demand in the Company's markets and
the ability to develop and successfully expand and upgrade its information
processing capabilities. The Company has developed a number of business
strategies that are designed to continue the growth in the Company's business.
However, there can be no assurance that the Company will be able to successfully
implement such strategies, or that the Company's business strategies will
produce the desired results. See "Business--Business Strategy."
Where appropriate, the Company plans to pursue acquisitions of employment
services firms. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired businesses into its operations, or expand into new markets.
Once integrated, acquisitions may not achieve comparable levels of revenues,
profitability or productivity as those historically achieved by the Company, or
otherwise perform as expected. The Company is unable to predict whether or when
any prospective acquisition candidate will become available or the likelihood
that any acquisition will be completed. The Company competes for acquisition and
expansion opportunities with entities that have substantially greater resources
than the Company. In addition, acquisitions involve a number of special risks,
such as diversion of management's attention, difficulties in the integration of
acquired operations and retention of personnel, unexpected problems or legal
liabilities and tax and accounting issues, some or all of which could have a
material adverse effect on the Company's business, results of operations or
financial condition. The Company currently has no definitive arrangements or
understandings in effect regarding possible acquisitions.
DEPENDENCE ON CERTAIN CLIENTS; TERMINABILITY OF CLIENT ARRANGEMENTS
The Company's largest client accounted for approximately 6.6% and 8.0% of
revenues in fiscal 1995 and 1996, respectively. The Company's top ten clients
accounted for approximately 21.8% of revenues in fiscal 1996. The loss of a
significant client or clients could have a material adverse effect on the
Company's business, results of operations or financial condition. Substantially,
all of the Company's arrangements with clients are terminable by the client at
will or on 30 days' notice and without any penalty. There can be no assurance
that existing clients will continue to engage the Company's services at
historical levels, if at all.
EMPLOYMENT LIABILITY RISK
The Company employs and places people in the workplaces of other businesses.
An inherent risk of such activity includes possible claims against the Company
for errors and omissions, misuse of client proprietary information,
misappropriation of funds, discrimination and harassment, employment of illegal
aliens, theft of client property, other criminal activity or torts and other
claims. Damages to the Company's clients could arise from a variety of mistakes
or failures to act by personnel placed by the Company (e.g., the negligent
action or inaction of a computer technician could cause disruption to a client's
management information systems or the mistake of an accountant could result in a
client's financial statements being inaccurate). A failure of any Company
employee or personnel to observe a client's or the Company's policies and
guidelines intended to reduce exposure to these risks, or applicable federal,
state, or local laws, rules and regulations, or other circumstances that cannot
be predicted, could result in negative publicity, injunctive relief, and the
liability of the Company for monetary damages or fines, or have other material
adverse effects upon the Company. There can be no assurance that the Company
will not experience such problems in the future. To reduce its exposure to these
risks, the Company maintains insurance covering general liability and errors and
omissions for contract and temporary placements. There can be no assurance that
such insurance coverage will continue to be available economically in
8
<PAGE>
amounts adequate to cover any such liability. The Company is also exposed to
potential claims with respect to the candidates it places on a permanent basis,
particularly because of legal constraints and considerations that might make it
difficult for the Company to perform background investigations into certain
matters. See "Business--Insurance."
GOVERNMENT REGULATION
The Company is required to pay a number of federal, state and local payroll
and related costs, including unemployment taxes, workers' compensation and
insurance, FICA and Medicare, among others, for its employees and personnel.
Significant increases in the effective rates of any payroll related costs would
likely have a material adverse effect upon the Company. The Company's costs
could also increase as a result of health care reforms or the possible
imposition of additional requirements and restrictions related to the placement
of personnel. Recent federal and state legislative proposals have included
provisions extending health insurance benefits to personnel who currently do not
receive such benefits. There can be no assurance that the Company will be able
to increase the fees charged to its clients in a timely manner and in a
sufficient amount to cover increased costs, if any such proposals are adopted or
that the Company will be able to adapt to future regulatory changes.
In addition, most states require permanent placement firms to be licensed in
order to conduct business. Such licenses may be revoked upon material
noncompliance with state regulations. Any such revocations would have a material
adverse effect on the business of the Company. Various government agencies have
advocated proposals from time to time to license or regulate the placement of
temporary personnel. The Company does not believe that such proposals, if
enacted, would have a material adverse effect on its business. See
"Business--Regulation."
CONCENTRATION OF OWNERSHIP
Upon completion of the Offering, the Company's Chairman of the Board, Chief
Executive Officer and principal shareholder, Mr. J. Michael Moore, will own,
directly or indirectly, approximately 24.6% of the Company's outstanding shares
of Common Stock. As a result, Mr. Moore will be able to exercise significant
influence over almost all matters requiring shareholder approval. This
concentration of ownership could have the effect of making it difficult for a
third party to acquire control of the Company and may discourage third parties
from attempting to do so. Further, future sales of substantial amounts of Common
Stock by Mr. Moore, or the potential for such sales, could adversely affect the
prevailing market price of the Common Stock. As security for a $2.25 million
loan from Imperial Bank (the "Imperial Loan") USFG-DHRG L.P. No. 2, Inc. a/k/a
DCRI L.P. No.2, Inc., an entity controlled by Mr. Moore (the "Controlling
Shareholder"), has pledged 818,500 shares of Common Stock, representing
approximately 45.7% of the outstanding shares of Common Stock as of July 31,
1997 and has granted Imperial Bank an option to acquire 75,000 shares of Common
Stock (the "Imperial Option"). See "Principal and Selling Shareholders." The
Controlling Shareholder is obligated to cause the repayment of the Imperial Loan
from the proceeds of shares of Common Stock sold by the Controlling Shareholder
in the Offering. If, however, the Imperial Loan is not repaid pursuant to its
terms, Imperial Bank may foreclose on such security interest, which could result
in the transfer of Mr. Moore's significant influence over matters requiring
shareholder approval to a third party. Mr. Moore and the Controlling Shareholder
are defendants in an action filed by Ditto Properties Company which, if
adversely decided, could result in liabilities which Mr. Moore and the
Controlling Shareholder may seek to satisfy from the proceeds of the sale of
Common Stock held by either of them. Such a sale could result in the transfer of
Mr. Moore's significant influence over matters requiring shareholder approval to
a third party. See "Business--Legal Proceedings," and "Principal and Selling
Shareholders."
9
<PAGE>
MANAGEMENT DISCRETION CONCERNING USE OF PROCEEDS
The Company intends to use the net proceeds of the Offering for enhancement
of the Company's training facilities, for expansion and improvement of its
applicant database capabilities, to retire certain factoring and/or other credit
facilities, for possible acquisitions and for general corporate purposes;
however, management will have substantial discretion in the application of the
net proceeds to be received by the Company. Pending such uses, the net proceeds
will be invested in short-term, investment grade securities, certificates of
deposit or direct guaranteed obligations of the United States government. See
"Use of Proceeds."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to operating results of the Company, changes in general
conditions in the economy, the financial markets, the employment services
industry or other developments affecting the Company, its clients or its
competitors, some of which may be unrelated to the Company's performance. See
"Price Range of Common Stock."
OFFERING PRICE DETERMINATION; LIMITED PUBLIC MARKET
The public offering price of the Common Stock will be determined by
arms-length negotiations among the Company, the Selling Shareholders and
Cruttenden Roth Incorporated (the "Representative") and does not necessarily
bear any relationship to assets, book value, earnings history or other
investment criteria. The primary factors considered in determining such offering
price include the trading price for and trading volume of the Company's Common
Stock, the history of and prospects for the industry in which the Company
competes, market valuation of comparable companies, market conditions for public
offerings, the history of and prospects for the Company's business, the
Company's past and present operations and earnings and the trend of such
earnings, the prospects for future earnings of the Company, the Company's
current financial position, an assessment of the Company's management, the
general condition of the securities markets, the demand for similar securities
of comparable companies and other relevant factors. Prior to the Offering, there
has been a limited public market for the Company's Common Stock. The average
daily trading volume of the Common Stock from January 8, 1997 through August 19,
1997 was 1,172 shares. Although application has been made to have the Common
Stock approved for quotation on the Nasdaq National Market, there can be no
assurance that such application will be approved or that, if approved, an active
trading market will develop or that the prices at which the Common Stock will
trade in the public market following the Offering will not be lower than the
initial public offering price. See "Price Range of Common Stock" and
"Underwriting."
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying any cash dividends on the Common Stock in the foreseeable
future. In addition, a significant subsidiary of the Company is prohibited under
the terms of its revolving line of credit from paying dividends without the
consent of the lender. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Stock will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock (including shares
issued upon the exercise of options or warrants, including the Representative's
Warrants) in the public market following the Offering, or the perception that
such sales could occur, could adversely affect prevailing market prices of the
Common Stock. Upon completion of the Offering, the Company will have 2,540,312
shares of Common Stock outstanding. Of this amount, 1,704,012 shares (1,816,572
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable
10
<PAGE>
without restriction. The remaining shares may only be sold pursuant to a
registration statement under the Securities Act, or an applicable exemption from
the registration requirements of the Securities Act, including the exemption
provided by Rule 144. The Company, and certain of its executive officers,
directors and current shareholders have agreed that they will not, without the
prior written consent of the Representative, directly or indirectly, offer,
sell, contract to sell, grant any option to sell or otherwise dispose of any
shares of Common Stock or other securities which are substantially similar to
the Common Stock or securities convertible into or exercisable or exchangeable
for any rights to purchase or acquire Common Stock or securities which are
substantially similar to the Common Stock for a period of 365 days after the
date of this Prospectus. See "Principal and Selling Shareholders," "Shares
Eligible For Future Sale," and "Underwriting."
POSSIBLE ISSUANCE OF PREFERRED STOCK
In addition to the Common Stock, the Company's Articles of Incorporation
authorize the issuance of up to 1,000,000 shares of preferred stock. Immediately
following the Offering, no shares of preferred stock of the Company will be
outstanding, and the Company has no current plans to issue any shares of
preferred stock. However, because the rights and preferences for any series of
preferred stock may be set by the Board of Directors in its sole discretion,
those rights and preferences may be superior to the rights of holders of the
Common Stock and thus may adversely affect the rights of holders of Common
Stock. See "Description of Capital Stock--Preferred Stock."
LIMITATION OF LIABILITY
The Company's Articles of Incorporation provide that directors of the
Company shall not be personally liable for monetary damages to the Company or
its shareholders for a breach of fiduciary duty as a director, subject to
limited exceptions. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission, the
presence of these provisions in the Articles of Incorporation could prevent the
recovery of monetary damages against directors of the Company.
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Prospectus that reflect projections or expectations of
future financial or economic performance of the Company, and statements of the
Company's plans and objectives for future operations, including those relating
to the Company's services and business strategies, are "forward-looking"
statements. No assurance can be given that actual results or events will not
differ materially from those projected, estimated, assumed or anticipated in any
such forward looking statements. Important factors that could result in such
differences, in addition to the risk factors identified above, include: general
economic conditions in the Company's markets, including inflation, recession,
interest rates and other economic factors; the availability of qualified
personnel; the level of competition experienced by the Company; the Company's
ability to implement its business strategies and to manage its growth; and other
factors that affect businesses generally.
11
<PAGE>
THE COMPANY
Diversified Corporate Resources, Inc. is a Texas corporation that was
incorporated in 1977 under the name of Diversified Human Resources Group, Inc.
The Company changed its name in 1994 to its current name. The Company's Common
Stock traded on the Nasdaq over-the-counter market from November 21, 1985 to
December 31, 1991. Since that time the Common Stock has been traded on the
over-the-counter market and listed in the pink sheets. The Company has filed an
application for listing on the Nasdaq National Market.
Prior to September 1991, the Company was primarily engaged in the permanent
and temporary placement of professional personnel. In September 1991, the
Company consummated four separate transactions relating to the sale of
substantially all of the Company's assets. As consideration for the Company's
agreements to sell its assets, the various purchasers: (i) executed interest
bearing secured promissory notes that were payable to the Company over periods
of three to six years; (ii) assumed various liabilities and obligations of the
Company in connection with the purchased assets; and (iii) agreed to pay the
Company a monthly royalty fee for six years equal to specified percentages of
the gross revenues of the respective divisions. Between December 1992 and
January 1994, the Company foreclosed on certain assets which secured the
promissory notes issued to the Company and began its current permanent,
temporary and contract staffing business.
The Company's principal executive offices are located at 12801 North Central
Expressway, Suite 350, Dallas, Texas 75243, and its telephone number is (972)
458-8500.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 shares of
Common Stock offered by the Company hereby are estimated to be $8,005,000
($9,270,625 if the Underwriters' over-allotment option is exercised in full),
assuming an offering price of $12.50 per share, after deducting the underwriting
discount and estimated offering expenses. The Company will not receive any
proceeds from the sale of 325,000 shares of Common Stock by the Selling
Shareholders. See "Principal and Selling Shareholders" and "Underwriting."
The Company intends to use its net proceeds from the Offering for
enhancement of the Company's training facilities, for expansion and improvement
of its applicant database capabilities, to retire certain factoring and/or other
credit facilities, for possible acquisitions and for general corporate purposes.
Pending such uses, the net proceeds will be invested in short term, investment
grade securities, certificates of deposit or direct or guaranteed obligations of
the United States government.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1997: (i) the capitalization
of the Company; and (ii) the capitalization of the Company as adjusted to give
effect to the sale of the 750,000 shares of Common Stock offered by the Company
hereby at an assumed offering price of $12.50 per share and the application of
the estimated net proceeds to the Company therefrom as described under "Use of
Proceeds." This information is qualified in its entirety by, and should be read
in conjunction with, the Consolidated Financial Statements of the Company, and
related notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
--------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 272 $ 8,142
--------- --------------
--------- --------------
Current portion of long-term debt and other borrowings.................................. $ 610 $ 475
--------- --------------
--------- --------------
Long-term debt.......................................................................... $ 67 $ 67
Stockholders' equity:
Preferred Stock, $1.00 par value; 1,000,000 shares authorized; no shares outstanding;
no shares outstanding as adjusted................................................... -- --
Common Stock, $0.10 par value; 10,000,000 shares authorized; 1,785,312 shares
outstanding; 2,535,312 shares outstanding as adjusted (1)........................... 203 278
Additional paid-in capital............................................................ 3,675 11,605
Retained earnings (deficit)........................................................... (1,424) (1,424)
Common stock held in treasury (245,849 shares) at cost................................ (185) (185)
Receivables from related party........................................................ (241) (241)
--------- --------------
Stockholders' equity.............................................................. 2,028 10,033
--------- --------------
Total capitalization.............................................................. $ 2,095 $ 10,100
--------- --------------
--------- --------------
</TABLE>
- ------------------------
(1) Excludes an aggregate 315,000 shares of Common Stock reserved for issuance
under options granted to certain directors and members of management under
the Company's 1996 Stock Option Plan and 75,000 shares of Common Stock
issuable upon exercise of the Representative's Warrant. See
"Management--Stock Option Plans" and "Underwriting."
13
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and is
listed in the pink sheets under the symbol "HIRE." The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
for the Common Stock, which prices were obtained from a market maker for the
Company's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1995
1st Quarter................................................................ $ .13 $ .13
2nd Quarter................................................................ .13 .13
3rd Quarter................................................................ .25 .25
4th Quarter................................................................ .25 .25
FISCAL YEAR 1996
1st Quarter................................................................ $ .62 $ .25
2nd Quarter................................................................ 1.75 .50
3rd Quarter................................................................ 3.75 2.00
4th Quarter................................................................ 4.00 3.00
FISCAL YEAR 1997
1st Quarter................................................................ $ 8.00 $ 2.50
2nd Quarter................................................................ 6.00 3.50
3rd Quarter (through August 19, 1997)...................................... 7.50 4.50
</TABLE>
The Company had approximately 180 holders of record of Common Stock as of
July 31, 1997. While the Company knows that a number of beneficial owners of its
Common Stock hold shares in street name, no estimate has been made as to the
number of shareholders owning stock of the Company in street name.
DIVIDEND POLICY
The Company has not paid any cash dividends on its stock since its
inception. The Company expects that it will retain all available earnings
generated by its operations for the development and growth of its business and
does not anticipate paying any cash dividends in the foreseeable future. Any
future determination as to dividend policy will be made in the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of Directors
may deem relevant. In addition, a significant subsidiary of the Company is
prohibited under the terms of its revolving line of credit from paying dividends
without the consent of the lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company as of
the dates and for the periods indicated. The selected financial data as of and
for the years ended December 31, 1994, 1995 and 1996 have been derived from the
audited consolidated financial statements of the Company. The selected financial
data as of and for the periods ended June 30, 1996 and 1997 are unaudited but,
in the opinion of management, reflect all adjustments necessary for a fair
statement of the results for such periods and as of such dates. All such
adjustments are of a normal recurring nature. The results for the six months
ended June 30, 1997, are not necessarily indicative of the results to be
expected for the full fiscal year. In September 1991, the Company consummated
the sale of substantially all of its assets. Between December 1992 and January
1994, the Company repossessed certain of those assets. See "The Company."
Because no audited financial statements with respect to such assets are
available for 1992 or 1993, and because such assets represented a substantial
portion of the assets of the Company in 1992 and 1993, no financial information
for 1992 and 1993 has been provided. The selected financial data should be read
in conjunction with the Consolidated Financial Statements of the Company and
notes thereto contained elsewhere in this Prospectus, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net service revenues............................. $ 15,233 $ 19,358 $ 27,430 $ 13,027 $ 15,653
Cost of services................................. 11,132 14,332 19,675 9,250 10,969
---------- ---------- ---------- ---------- ----------
Gross margin................................... 4,101 5,026 7,755 3,777 4,684
Selling, general and administrative
expenses(1).................................... 4,147 4,497 5,703 2,707 3,717
Other income (expenses).......................... 62 (183) (288) (169) (40)
---------- ---------- ---------- ---------- ----------
Income before income taxes and extraordinary
item......................................... 16 346 1,764 901 927
Income taxes, net................................ -- (60) (225) (112) (93)
Extraordinary item............................... 208 175 246 -- 43
---------- ---------- ---------- ---------- ----------
Net income (1)................................. $ 224 $ 461 $ 1,785 $ 789 $ 877
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Primary earnings per share (1)................... $ .13 $ .26 $ .98 $ .43 $ .48
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding............................. 1,758,211 1,758,211 1,814,016 1,853,064 1,828,141
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<CAPTION>
AS OF DECEMBER 31,
---------------------------------- AS OF
1994 1995 1996 JUNE 30, 1997
---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 46 $ 6 $ 613 $ 272
Working capital (deficit)........................ (1,142) (1,060) 95 297
Total assets..................................... 2,563 3,007 5,204 6,563
Total liabilities................................ 3,476 3,459 4,016 4,535
Stockholders' equity (capital deficiency)........ (913) (452) 1,188 2,028
</TABLE>
- ------------------------
(1) Included in selling, general and administrative expenses are litigation
expenses of $12,000 and $237,000 for the six month periods ended June 30,
1996 and 1997, respectively. If such litigation expenses were excluded, net
income would have been $801,000 and $1,114,000 and primary earnings per
share would have been $0.43 and $0.61 for the six month periods ended June
30, 1996 and 1997, respectively.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE PRECEDING "SELECTED
FINANCIAL DATA." MOREOVER, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
ADDITIONALLY, THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES
THERETO, AS WELL AS OTHER DATA INCLUDED IN THIS PROSPECTUS, SHOULD BE READ AND
ANALYZED IN COMBINATION WITH THE ANALYSIS BELOW.
OVERVIEW
Diversified Corporate Resources, Inc. is an employment services firm that
provides professional and technical personnel on a permanent, temporary and
contract placement basis to high-end niche employment markets with a primary
emphasis on the information technology ("IT") market. While the majority of the
Company's revenues are derived from providing IT staffing solutions, the Company
also fills other high value-added employment positions in the
engineering/technical, accounting/finance and professional/ technical sales
disciplines. The Company offers permanent placement, temporary and contract
staffing services in this broad variety of disciplines in order to position
itself as a single source provider of solutions that meets all the high-end
staffing needs of its clients. In addition to maintaining this competitively
balanced business model, the Company focuses on recruiting qualified applicants
for placement and enhancing its training capabilities. The Company manages its
operations as a group of profit centers, each of which is incentivized to share
leads and draw from each other's information resources, as well as to achieve
strong independent performance. The Company serves its clients, including
several Fortune 500 companies, through its network of offices located in Dallas,
Houston and Austin, Texas, Atlanta, Georgia, Chicago, Illinois, Kansas City,
Missouri and Raleigh, North Carolina.
Fees for permanent placement of personnel are recognized as income at the
time the applicants accept employment. Provision is made for estimated losses in
realization (principally due to applicants failing to commence employment or not
remaining employed for the guaranteed period). Revenue from specialty services
and contract personnel placements is recognized upon performance of services by
the Company. Cost of services consists of expenses for the operation of offices,
principally commissions, direct wages paid to contract personnel and payroll
taxes.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the composition of the Company's net service
revenues and certain items in the Company's consolidated statements of income as
a percentage of net service revenues for the indicated periods:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Revenues:
Permanent placement..................................... 49.0% 47.1% 45.8% 45.8% 51.0%
Specialty services...................................... 18.9 21.8 27.2 25.8 24.7
Contract placement...................................... 32.1 31.1 27.0 28.4 24.3
--------- --------- --------- --------- ---------
Net service revenues.................................. 100.0 100.0 100.0 100.0 100.0
Gross margin.............................................. 26.9 26.0 28.3 29.0 29.9
Selling, general and administrative expenses (1).......... 27.2 23.2 20.8 20.8 23.7
Other income (expenses)................................... 0.4 (1.0) (1.1) (1.3) (0.3)
--------- --------- --------- --------- ---------
Income before taxes and extraordinary item................ 0.1% 1.8% 6.4% 6.9% 5.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (1)........................................ 1.5% 2.4% 6.5% 6.1% 5.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Included in selling, general and administrative expenses are certain
litigation expenses which, if excluded, would have resulted in selling,
general and administrative expenses as a percentage of net service revenues
of 20.7% and 22.2% and net income as a percentage of net service revenues of
6.1% and 7.1% for the six month periods ended June 30, 1996 and 1997,
respectively.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET SERVICE REVENUES. Net service revenues increased approximately $2.6
million or 20.2% to $15.7 million in the first six months of 1997, compared to
$13.0 million for the comparable 1996 period. Permanent placement revenues
increased approximately $2.0 million or 33.9% to $8.0 million for the first six
months of 1997, compared to $6.0 million for the comparable 1996 period.
Specialty service revenues increased approximately $506,000 or 15.0% to $3.9
million for the six months of 1997, compared to $3.4 million for the comparable
1996 period. Contract placement revenues increased approximately $99,000 or 2.7%
to $3.8 million in the first six months of 1997, compared to $3.7 million for
the comparable 1996 period. The increases in net service revenues were primarily
attributable to the Company's continued focus on high margin, high-end niche
employment markets, such as the information technology and engineering/
technical disciplines.
GROSS MARGIN. Gross margin increased approximately $907,000 or 24.0% to
$4.7 million in the first six months of 1997, compared to $3.8 million for the
comparable 1996 period. Gross margin as a percentage of net service revenues
increased to approximately 29.9% in the first six months of 1997, compared to
approximately 29.0% for the comparable period in 1996, primarily due to an
increase in permanent placement revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $1.0 million or 37.3% to $3.7
million in the first six months of 1997, compared to $2.7 million for the
comparable 1996 period. Selling, general and administrative expenses as a
percentage of net service revenues increased to approximately 23.7% in the first
six months of 1997, from approximately 20.8% for the comparable 1996 period. The
increase was primarily the result of increased expenditures on the Company's
back office to support the growth in sales, litigation expenses and an increase
in the provision for uncollectible accounts. Included in these increases were
increases in litigation expenses of approximately $225,000, provision for
uncollectible accounts of approximately $185,000, and approximately $76,000 for
the enhancement of the Company's training facilities.
17
<PAGE>
OTHER EXPENSES. Other expenses declined approximately $130,000 to $40,000
in the first six months of 1997, compared to approximately $170,000 for the
comparable 1996 period. The decrease was the result of a decrease in the loss
from joint venture operations, a decrease in interest expense as a result of a
lower cost of funds and the collection of a receivable, previously written off,
associated with a prior year sale of assets.
INCOME TAXES. Income tax expense decreased approximately $19,000 to $93,000
in the first six months of 1997, compared to approximately $112,000 for the
comparable 1996 period. The decrease resulted primarily from a first quarter
1997 credit of approximately $68,000 relating to an estimated prior year
provision taken by the Company for state income tax expense.
EXTRAORDINARY ITEMS. The extraordinary item-gain on debt restructuring, net
of income taxes, of approximately $43,000 during the first six months of 1997
resulted from the Company settling certain prior year delinquent accounts
payable on a discounted basis.
NET INCOME. Net income increased approximately $88,000 or 11.1% to
approximately $877,000 in the first six months of 1997, compared to
approximately $789,000 for the comparable 1996 period.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SERVICE REVENUES. Net service revenues increased approximately 41.7% to
$27.4 million in 1996, compared to $19.3 million for 1995. Permanent placement
revenues increased approximately 37.8% to $12.6 million in 1996, compared to
$9.1 million in 1995. Specialty service revenues increased approximately 77.0%
to $7.4 million in 1996, compared to $4.2 million in 1995. Contract placement
revenues increased approximately 22.9% to $7.4 million in 1996, compared to $6.0
million in 1995. The increases in revenues in 1996 were primarily attributable
to the Company's continued focus on high margin, high-end niche employment
markets as demonstrated by the redeployment of Company management and marketing
resources and the opening of two new local offices (Austin, Texas and Raleigh,
North Carolina) to service IT clients in those areas, further implementation of
the Company's single source provider strategy through the continued training and
development of the Company's local office management staff which resulted in
sales growth within existing offices and continued demand for the Company's
services.
GROSS MARGIN. Gross margin increased approximately 54.3% to $7.8 million in
1996, compared to $5.0 million in 1995. Gross margin as a percentage of net
service revenues increased to 28.3% in 1996 from 26.0% in 1995, primarily as a
result of the Company's focus on higher margin business, particularly IT, and
the Company implementing cost reduction programs allowing fixed costs to be
spread over a larger revenue base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately 26.8% to $5.7 million in 1996,
compared to $4.5 million in 1995; representing approximately 20.8% of 1996
revenues. The increase was primarily the result of increased marketing and
recruiting expenses, increased expenditures on the Company's back office,
including accounting, support staff and management information systems to
support the Company's growth strategies, as well as the overall growth in the
Company's business. Included in the increase in selling, general and
administrative expenses was an increase in selling expenses of $261,000 in 1996
over the comparable period in 1995, an increase of $773,000 in general and
administrative expenses, primarily for back office administration to support the
Company's growth, and an increase of $172,000, primarily related to certain
litigation matters. See "Business--Legal Proceedings."
OTHER EXPENSES. Other expenses increased approximately $105,000 to $288,000
in 1996, compared to $183,000 in 1995, primarily due to increased losses from
joint venture operations and a writedown of a long-lived asset.
18
<PAGE>
INCOME TAXES. Provisions for income taxes increased to approximately
$225,000 in 1996 from approximately $60,000 in 1995, as a result of increases in
the Company's taxable income.
NET INCOME. Net income increased approximately 287.5% to $1.8 million in
1996, compared to $461,000 in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SERVICE REVENUES. Net service revenues increased approximately 27.1% to
$19.3 million in 1995, compared to $15.2 million in 1994. Permanent placement
revenues increased approximately 22.1% to $9.1 million in 1995, compared to $7.4
million in 1994. Specialty service revenues increased approximately 46.2% to
$4.2 million in 1995, compared to $2.9 million in 1994. Contract placement
revenues increased approximately 23.4% to $6.0 million in 1995, compared to $4.9
million in 1994. The increases in revenues in 1995 were primarily attributable
to the implementation of the Company's strategy to focus on high margin,
high-end niche employment markets, the Company's expansion of its specialty
service offerings in all of its offices as part of the Company's strategy to
become a single source provider of staffing solutions and continued demand for
the Company's services.
GROSS MARGIN. Gross margin increased approximately 22.6% to $5.0 million in
1995, compared to $4.1 million in 1994. Gross margin as a percentage of net
service revenues decreased to approximately 26.0% in 1995 from approximately
26.9% in 1994, primarily as a result of increases in employee payroll expenses,
as well as specialty service and contract labor compensation, to meet
competitive pressures.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately 8.4% in 1995 to $4.5 million,
compared to $4.1 million in 1994; representing approximately 23.2% of 1995
revenues. The increase was primarily the result of increased expenditures on the
Company's back office, including accounting, support staff and management
information systems, to support the Company's growth strategies, as well as the
overall growth in the Company's business. Included in the increase in selling,
general and administrative expenses was an increase in selling expenses of
$114,000 in 1995 over the comparable period in 1994, and an increase of $236,000
in general and administrative expenses, primarily for back office administration
to support the Company's growth.
OTHER EXPENSES. Other expenses increased approximately $245,000 in 1995 to
$183,000, compared to other income of $62,000 in 1994, primarily due to
decreased gains on foreclosed assets, losses from joint venture operations and
increased interest expense resulting from an increase in factored accounts
receivable.
INCOME TAXES. Provision for income taxes increased to approximately $60,000
in 1995 from zero in 1994, as a result of increases in the Company's taxable
income.
NET INCOME. Net income increased approximately 105.2% to $461,000 in 1995,
compared to $224,000 in 1994.
QUARTERLY RESULTS
The Company's quarterly operating results have varied in the past and can be
expected to vary in the future. Fluctuations in operating results generally are
caused by a number of factors, including changes in the Company's services mix,
the degree to which the Company encounters competition in its existing or target
markets, general economic conditions, the volume and timing of orders received
during the period, sales and marketing expenses related to entering new markets,
the timing of new service introductions by the Company or its competitors and
changes in prices for services offered by the Company or its competitors. In
addition, the Company generally experiences a certain amount of seasonality in
its fourth quarter due to the number of holidays in that period.
19
<PAGE>
The following table presents selected quarterly financial information for
the periods indicated. This information has been derived from unaudited
Consolidated Financial Statements which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such information. These operating results are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net service revenues............................. $ 6,214 $ 6,813 $ 7,228 $ 7,175 $ 7,279 $ 8,374
Cost of services................................. 4,506 4,842 5,153 5,174 5,195 5,774
----------- ----------- ----------- ----------- ----------- -----------
Gross margin................................... 1,708 1,971 2,075 2,001 2,084 2,600
Selling, general and administrative expenses..... 1,227 1,382 1,604 1,490 1,926 1,791
Other income (expenses).......................... (93) (76) (57) (62) (10) (30)
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes and extraordinary
item......................................... 388 513 414 449 148 779
Income (taxes) benefit, net...................... (50) (62) (77) (36) 43 (136)
Extraordinary item............................... -- -- -- 246 43 --
----------- ----------- ----------- ----------- ----------- -----------
Net income..................................... $ 338 $ 451 $ 337 $ 659 $ 234 $ 643
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $297,000 at June 30, 1997, compared to
working capital of approximately $95,000 at December 31, 1996. The increase in
working capital of approximately $202,000 during the first six months of 1997
was primarily due to the profitable operations of the Company.
Cash flow provided by operating activities of approximately $503,000
resulted primarily from the profitable operations of the Company during the
first six months of 1997. The Company made capital expenditures of approximately
$509,000 in the first six months of 1997, primarily to improve its computer
systems, data base operations and back office operations. The Company borrowed
approximately $144,000 on a line of credit to purchase computer equipment and
other fixed assets to support its back office operations, and decreased its
factored accounts receivable borrowings by $40,000.
The Company has entered into factoring arrangements involving advances on
its outstanding accounts receivable for fees ranging from 2% to 7% of factored
receivables, based on the number of days the receivable is outstanding. The
proceeds from factored accounts receivable were used to fund the operations of
the Company's business during the first six months of 1997, and during 1996,
1995 and 1994. In addition, in 1996 a subsidiary of the Company entered into an
accounts receivable based revolving line of credit agreement with a finance
company, which replaced one of the Company's factoring arrangements. The term of
the credit agreement is for one year but may be renewed if the subsidiary and
lender so agree. Fees and interest are based on the monthly average outstanding
balance under the line of credit. The amount available under the line of credit
is based upon eligible accounts receivable up to a maximum aggregate amount not
to exceed the lesser of 85% of the aggregate amount of eligible receivables or
$1.0 million. The subsidiary had approximately $1.1 million in accounts
receivable at June 30, 1997. All eligible receivables are pledged as collateral.
Interest is payable monthly at prime plus 2.5% (11.0% at June 30, 1997) plus an
administrative fee of 0.6% on the average daily outstanding balance during the
preceding month. The loan requires that the monthly interest and administrative
fees be at least $7,500. At June 30, 1997, borrowings under the line of credit
amounted to approximately $226,000. The loan agreement requires such subsidiary
to maintain positive cash flow (as defined) and net income of no less than
$50,000 per quarter and restricts dividend payments and certain transactions of
such subsidiary with its affiliates.
20
<PAGE>
In August 1996, the Company entered into a $300,000 line of credit agreement
for the purchase of fixed assets. Interest is payable monthly at prime plus 2.5%
(11.0% at June 30, 1997) and the fixed assets financed are pledged as
collateral. The line of credit will convert into long-term debt upon $300,000
being advanced, depending on the Company's continued relationship with the
lender. The long-term debt will have a five year term and bear interest monthly
at prime plus 2.5%. In addition, the Company has pledged as collateral on this
line of credit $450,000 of one of its subsidiary company's accounts receivable.
The outstanding balance of approximately $242,000 under this line of credit is
reflected in other short-term debt in the Consolidated Balance Sheet at June 30,
1997.
The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
Management of the Company anticipates that the net proceeds from the Offering,
combined with cash flow from operations, will provide adequate liquidity to fund
its business growth plans and its operations for at least the next 12 months. It
is anticipated that certain of the proceeds of the Offering will be used to
retire certain factoring and/or credit facilities. Management of the Company
anticipates that the cash flow from operations as well as its existing funding
sources, in the absence of the completion of the Offering, will provide adequate
liquidity to fund its existing operations for at least the next 12 months. See
"Use of Proceeds."
Inflation has not had a significant effect on the Company's operating
results.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which is effective for periods ending after December 15, 1997. Statement
128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS"). Some of the changes made to current EPS standards
include: (i) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that common stock equivalents are
not considered in computing basic EPS; (ii) eliminating the modified treasury
stock method and the three percent materiality provision; and (iii) revising the
contingent share provision and the supplemental EPS data requirements. Statement
128 also requires dual presentation of basic and diluted EPS on the face of the
income statement, as well as a reconciliation of the numerator and denominator
used in the two computations of EPS. Basic EPS is defined by Statement 128 as
net income from continuing operations divided by the average number of common
shares outstanding without the consideration of common stock equivalents which
may be dilutive to EPS. The Company's current methodology for computing its
fully diluted EPS will not change in future periods as a result of its adoption
of Statement 128.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosure About Segments
of an Enterprise and Related Information." Preliminary analysis of these new
standards by the Company indicates that the standards will not have a material
impact on the Company. The standards are effective for financial statements for
fiscal years beginning after December 15, 1997.
21
<PAGE>
BUSINESS
OVERVIEW
Diversified Corporate Resources, Inc. is an employment services firm that
provides professional and technical personnel on a permanent, temporary and
contract placement basis to high-end niche employment markets with a primary
emphasis on the information technology ("IT") market. While the majority of the
Company's revenues are derived from providing IT staffing solutions, the Company
also fills other high value-added employment positions in the
engineering/technical, accounting/finance and professional/ technical sales
disciplines. The Company offers permanent placement, temporary and contract
staffing services in this broad variety of disciplines in order to position
itself as a single source provider of solutions that meets all the high-end
staffing needs of its clients. In addition to maintaining this competitively
balanced business model, the Company focuses on recruiting qualified applicants
for placement and enhancing its training capabilities. The Company manages its
operations as a group of profit centers, each of which is incentivized to share
leads and draw from each other's information resources, as well as to achieve
strong independent performance. The Company serves its clients, including
several Fortune 500 companies, through its network of offices located in Dallas,
Houston and Austin, Texas, Atlanta, Georgia, Chicago, Illinois, Kansas City,
Missouri and Raleigh, North Carolina.
INDUSTRY OVERVIEW
The employment services industry has experienced significant growth.
According to a May 16, 1997 Staffing Industry Report, 1995 and 1996 revenues for
the U.S. staffing industry and its segments were estimated at $63.7 billion and
$74.4 billion, respectively, a 17% increase, and 1997 revenues are projected to
be $86.6 billion, a 16% increase. Such growth reflects fundamental changes in
the employer-employee relationship which have caused employers to impose
heightened hiring criteria for permanent employees and have increased the demand
for project-oriented contract hiring. These employers require the ability to
outsource their staffing needs and the use of permanent, temporary or contract
personnel to help them keep personnel costs variable, achieve maximum
flexibility and avoid the negative effects of layoffs. These trends have been
compounded by the ever increasing rate at which companies must respond to, and
take advantage of, advances in IT, particularly because these advances create a
significant corresponding need for access to professionals with up-to-date IT
skills.
The IT services industry has undergone and continues to undergo rapid
evolution and growth. "IT" is a term that now encompasses not only computer and
communications systems hardware but also the personnel who design, manage and
maintain those systems. According to a May 16, 1997 Staffing Industry Report,
1995 and 1996 revenues for the IT services sector were estimated at $8.9 billion
and $11.7 billion, respectively, a 31% increase, and 1997 revenues are projected
to be $14.9 billion, a 27% increase.
The growth of the IT services industry has been driven by: (i) businesses'
increasing reliance on information technology as a strategic tool; (ii) the
shift to distributed computing with the movement from mainframe to client/server
environments; (iii) the fact that these computer networks are comprised of
interdependent hardware and software products produced by a wide variety of
independent vendors; and (iv) the integration of telecommunications and
computers. As businesses struggle to integrate multiple processing platforms and
software applications which serve an increasing number of end-users, systems and
applications development has become increasingly challenging. Furthermore, as
businesses continue to focus on their core competencies, but at the same time
strive to operate more efficiently with fewer people, managing and planning
staffing requirements to meet IT needs becomes more difficult. To keep up with
these changes, companies are increasingly seeking employment services firms like
the Company to provide IT professionals who can manage the integration of
computers, operating systems, networks and voice and data systems, as well as
programming, hardware and software system design and development, LAN
management, Internet Web site development and management or project staffing.
22
<PAGE>
IT and engineering/technical projects tend to be significantly longer and
more rigorously defined and require longer-term, more highly-skilled personnel
services than traditional temporary staffing placements. At the same time, these
IT and engineering/technical services offer the opportunity for higher
profitability than clerical and light industrial staffing because of the high
value-added nature of IT and engineering/ technical personnel, the expanding
demand for such qualified personnel and the limited number of sufficiently
skilled personnel to fill these positions. The recruiting and retention of
qualified IT and engineering/technical professionals is, therefore, a challenge
common to all companies in the IT and engineering/technical employment services
industries. Competitive companies have increased advertising and recruiting
efforts and are implementing strategies that utilize recruiting teams, the
Internet, full employment benefits, referral bonuses and specialized training
programs.
As a result of the continued growth and acceptance of using contract
personnel, including IT and engineering/technical personnel, management believes
that clients will demand expanded services from their staffing providers.
Management believes that a key characteristic of outsourcing is providing
convenience, flexibility and efficiency to clients and, in that regard, clients
will increasingly prefer to have their permanent, temporary and contract
staffing needs all satisfied by the same provider.
BUSINESS STRATEGY
The Company's objective is to become a nationally recognized leader in
permanent placement and contract specific personnel solutions for high margin,
high-end niche employment markets. The key elements of Company's business
strategy are:
MAINTAIN HIGH MARGIN NICHE FOCUS. The Company serves its clients by
delivering services across disciplines, such as: IT, engineering/technical,
financial/accounting and professional/technical sales, which generally provide
higher margins. The Company plans to continue to build on its existing strengths
by focusing management time and resources on higher margin services in markets
where the demand for the Company's services are strong. For example, in March
1996, the Company opened a new office in Austin, Texas which focuses exclusively
on the IT and engineering/technical disciplines. Furthermore, to provide its
clients with personnel with the most up-to-date technical skills possible, the
Company plans to implement its Train International programs, which will provide
training to its applicants.
SINGLE SOURCE PROVIDER STRATEGY. The Company has endeavored to offer
services in many of the employment disciplines required by its clients. By
responding to its clients' needs, the Company maintains strong client
relationships and leverages its existing operating overhead to expand its
service offerings to existing clients. The Company plans to continue to build
and expand on its core disciplines of IT, engineering/technical,
financial/accounting and professional/technical sales services by providing
trained professionals in evolving areas within these disciplines. At the same
time, the Company believes that offering the full range of contract, permanent
and temporary professional personnel across all of its disciplines is as
important as offering a variety of disciplines. The Company believes that this
approach will position it as a single source provider of staffing services and
will give the Company the ability to respond to changes in its market and, to a
limited extent, fluctuations in the demand for staffing services.
FOCUS ON RECRUITING, MANAGEMENT AND RETENTION OF APPLICANTS. The
recruiting, management and retention of skilled professionals in the IT,
engineering/technical, financial/accounting and professional/ technical sales
disciplines is one of the main challenges for all companies in the employment
services industry. The Company plans on meeting this challenge with an approach
which includes: (i) aggressive direct marketing to targeted groups, such as
professional associations and industry trade groups; (ii) building its SearchNet
data base system to enhance the Company's ability to track applicants and to
internally share applicant information across the Company's profit centers;
(iii) the use of the Internet to attract applicants; (iv) offering competitive
wage and benefit packages; and (v) improving and expanding its training
programs.
23
<PAGE>
ENHANCEMENT OF TRAINING PROGRAMS. Clients are demanding better trained
applicants to fill their staffing needs as well as continued training for their
own employees in order to keep pace with technological change. The Company
currently offers training programs at its corporate offices and plans to further
fill these needs by offering training and certification courses at Company
operated training centers. Management believes that through the Company's Train
International programs the Company can: (i) increase its ability to provide more
qualified high margin applicants to meet its clients' needs; (ii) offer training
to its clients' existing employees on developments in their respective fields of
interest; and (iii) further enhance its recruiting and retention of
professionals by offering programs that allow them to update their marketable
skills. Training is anticipated to encompass a full range of skill enhancements
from basic orientations through formal certification processes.
BROADEN GEOGRAPHIC COVERAGE. Currently the Company serves its clients in
selected markets. While the Company continues to expand its service offerings in
these markets, management believes that further growth can be achieved through
expansion into certain additional markets. The Company plans to open an office
in Los Angeles, California by the end of 1997, and other additional offices in
1997 and 1998 to grow its core permanent placement and contract placement
business. This will complement the Company's recent opening of new offices in
Austin, Texas (March 1996) and Raleigh, North Carolina (October 1996), and allow
better servicing of those clients with geographically dispersed operations but
which desire single source consistency in fulfilling their staffing
requirements. As another part of this strategy, the Company will continue to
examine opportunities to acquire complementary employment services businesses in
certain geographic markets.
CURRENT BUSINESS ACTIVITIES
The Company operates along functional lines of permanent and contract
placement of professional personnel. Specialty services, consisting of temporary
placements, are offered to the Company's permanent placement clients as part of
the Company's single source provider strategy. The permanent placement of
professional personnel is generally characterized by specified search parameters
and goals. The contract placement of IT and engineering/technical personnel is
generally a more project specific business, with IT and engineering/technical
personnel of the Company undertaking well defined projects for time periods
generally ranging from four weeks to a year or more. The Company believes that
its focus on high margin, high-end niche employment markets, its single source
provider strategy, its emphasis on recruiting and retention of qualified
applicants and its plan to pursue improved and expanded training programs will
provide it with certain competitive advantages.
PERMANENT PLACEMENT SERVICES
The Company is currently engaged in providing permanent placement services
in Dallas, Houston and Austin, Texas, Atlanta, Georgia, Chicago, Illinois and
Raleigh, North Carolina. The Company offers these services in the following
selected core disciplines:
- Information Technologies--Services include systems design, programming and
network analysis, as well as consulting, conversions, software development
and information systems disaster control.
- Engineering/Technical--Services include process engineering, industrial
engineering and manufacturing services, as well as software design and
maintenance and related information technology services. Technical areas
serviced include environmental, construction, plastics, chemical,
telecommunications, computer hardware, food and metals.
- Financial/Accounting--Services include recruitment and placement of
financial managers.
- Professional/Technical Sales--Services range from placement of technical
sales/marketing personnel to recruitment and placement of management
personnel.
As part of the Company's strategy to be a single source provider of
employment services to its clients, the Company recently began providing
permanent clerical and administrative personnel to its existing
24
<PAGE>
clients, primarily to support professional staff and executive management of
those clients. The Company is also involved in the recruitment and placement of
medical personnel, including doctors, nurses and therapists.
The Company usually enters into written contracts with clients specifying
its fee arrangements prior to undertaking any permanent placement services on
behalf of such clients. Fees range from 15% to 35% of the newly placed
employee's first year's annual salary. Although these fees are usually paid by
the employer, in certain instances such fees are paid by the newly placed
employee. The Company often offers its clients a 30 day guarantee of permanent
professional placements during which the Company agrees to replace, without
additional charge to the client, any newly placed employee who leaves such job.
If the Company is unable to replace the employee, it will generally refund the
client's fee or a prorated portion thereof depending upon the circumstances.
SPECIALTY SERVICES
As part of its single source provider strategy, the Company also provides
specialty services to its clients consisting of the placement of temporary
personnel in all of the Company's disciplines. These services have grown out of
demand from the Company's permanent placement clients to fill temporary
employment needs without incurring the associated costs of hiring, training or
providing employee benefits or to fill permanent employment needs with
applicants only after having had that applicant work for the client prior to
committing to a permanent hire. Personnel needs that can be filled by temporary
or temporary-to-permanent employees are primarily caused by vacation, illness,
resignation, increases in work volume, the need to staff special projects and a
desire for pre-screening of permanent hires.
An order for the Company's specialty services is typically generated as a
result of a referral from the Company's existing permanent placement clients or
as a result of the Company's marketing efforts. The Company obtains from the
client a description of the order and uses this information to select an
appropriate individual from the Company's data base of available temporary
personnel. Clients request temporary personnel for periods generally ranging
from one day to several weeks. The Company generally receives notice of the
assignment from 30 minutes to three days in advance. The Company charges clients
an hourly rate for temporary personnel. Substantially all temporary personnel
assigned by the Company are Company employees and the Company pays all
employment costs, including hourly wages, unemployment taxes, social security
taxes and fringe benefits. The Company generally offers clients a guarantee
period during which the Company will refund the client's payment if the client
notifies the Company that it is dissatisfied with the employee's performance,
and the Company is unable to replace the employee.
CONTRACT PLACEMENT SERVICES
Substantially all of the Company's contract placement services relate to IT.
The Company provides these services primarily in the Dallas, Texas, Kansas City
and St. Louis, Missouri and Denver, Colorado markets. The Company's IT personnel
provide services in the following areas:
- project management
- systems analysis, development and design
- product implementation
- systems migration and conversions
- technical writing
- documentation support
- functional support
- company educational and project planning
- testing
- systems and network administration
- hardware, network and software evaluation services
25
<PAGE>
Contract engagements are generally project oriented and typically last from
four weeks to one year or more. The Company usually enters into written
contracts with clients after becoming an approved vendor. Services are then
provided on a time and materials or purchase order basis. The Company provides
individualized attention to each of its clients and develops and designs
tailored service programs based on its clients' unique needs. All contract
personnel assigned by the Company are Company employees. To assure that its
recruits provide clients with the highest degree of value-add possible, the
Company plans to provide training programs to its applicants.
CUSTOMERS
The Company has provided personnel and human resource solutions to several
Fortune 500 companies and many of the nation's largest companies, including: DSC
Communications, Hitachi America, American Airlines, Compaq Computer Corp., Mobil
Oil, Dr. Pepper/7-UP, Texas Instruments, MCI, Fidelity Investments, Blockbuster,
DST Systems, MBNA, Informix and TU Electric.
RECRUITING
The Company recruits qualified applicants primarily through referrals from
other applicants and through newspaper advertising, its applicant data base, job
fairs and various media advertisements. The Company maintains extensive records
on qualified applicants. In order to attract permanent, temporary and contract
assignment candidates, the Company places emphasis upon its ability to provide
attractive placement opportunities, competitive compensation, quality and varied
assignments and scheduling flexibility. The recruiting of skilled IT,
engineering/technical, financial/ accounting and professional/technical sales
professionals is a central challenge for participants in the industry and
management believes that it has positioned the Company to address this challenge
in the future with an approach which includes: (i) aggressive direct marketing
to targeted groups, such as professional associations and industry trade groups;
(ii) building its SearchNet data base system to enhance the Company's ability to
track applicants and to internally share applicant information across the
Company's profit centers; (iii) the use of the Internet to attract applicants;
(iv) offering competitive wage and benefit packages; and (v) improving and
expanding its training programs.
The Company's professional personnel qualifying procedures include
interviewing, testing and reference checking. These procedures also enable the
Company to categorize its professional personnel by preference for job location,
hours and work environment. In order to attract high quality professional
employees, the Company grants paid vacations, holidays and other benefits for
temporary professional employees who work a specified minimum number of hours
for the Company.
TRAINING
The Company has begun to expand and improve its training of its applicant
pool. Train International programs contemplated to be offered in the future
include but are not limited to:
- Training in Various Software Applications
- Self-Paced Training for Support Personnel
- Internet/Intranet Network Training Programs
- Manufacturing Processes and Systems Certification and Training
- E-mail and Groupware
- Database/SpreadSheet
- Graphics and Desk Top Publishing
- Word Processing
- Certified Network Engineers
- Certified Network Administrators
- Power Point Application
- Microsoft Programs
- Windows 95
- Lotus Notes
- C++
- Visual Basic
26
<PAGE>
The Company plans on offering these services to its clients' employees and
the Company's applicant pool on a fee basis. Train International's first
classroom facility was completed during the second quarter of 1997. Its
classroom facilities feature state-of-the-art computer equipment. Eventually,
the Company plans to have Train International training facilities in several
locations.
MARKETING
The Company's marketing efforts are largely implemented at the local office
level and are focused on high margin, high-end niche employment markets.
Historically, the Company's permanent placement, temporary and contract services
marketing efforts have relied primarily on telephone solicitation, referrals
from other Company offices (each of which is incentivized to share leads and
draw from each other's information resources) and, to a lesser extent, on direct
mail, yellow pages and newspaper advertising. Increasingly, however, client
visits have begun to play a more important role in the Company's permanent
placement, temporary and contract services marketing efforts. The Company's
contract placement marketing efforts have largely involved the Company's efforts
to become an approved vendor to prospective clients. This process generally
involves a rigorous review of the Company's fitness to meet the staffing demands
of prospective clients and, management believes, creates a marketing advantage
for the Company.
OTHER OPERATIONS AND SERVICES
The Company formed Preferred Funding Corporation ("PFC") as a wholly-owned
subsidiary in 1994, for the purpose of providing financing to its other
subsidiary companies. To date, PFC has facilitated borrowings by the Company,
and recently arranged an accounts receivable based revolving line of credit for
another subsidiary of the Company with an unaffiliated finance company at lower
rates than those available to the Company from traditional factoring sources.
Management of the Company believes it can reduce the Company's overall cost of
funds (which are relatively high because of the Company's reliance on factoring)
thereby improving the Company's consolidated operating performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION
The Company believes that the availability of qualified candidates, the
quality of service, the scope of geographic service and the price of service are
the principal elements of competition. The Company believes that availability of
qualified applicants is an especially important facet of competition. Because
many candidates pursue other employment opportunities on a regular basis, it is
important that the Company respond to market conditions affecting applicants.
Although the Company believes it competes favorably with respect to these
factors, it expects competition to increase, and there can be no assurance that
the Company will remain competitive.
The employment services industry is very competitive and fragmented. There
are limited barriers to entry and new competitors frequently enter the market. A
number of the Company's competitors possess substantially greater resources than
the Company. The Company faces substantial competition for potential clients and
for technical and professional personnel from providers of outsourcing services,
systems integrators, computer systems consultants, other providers of staffing
services, temporary personnel agencies and search firms, ranging from large
national companies to local employment staffing entities. Large national
companies that offer employment staffing services include Robert Half
International, Computer Horizons, Inc. and Alternative Resources Corporation.
Other firms that the Company competes with include RCM Technologies,
Professional Staff, Personnel Management, Joulet, ROMAC International, Inc.,
Source Services Corp., Data Processing Corp. and General Employment Enterprises.
Local employment staffing entities are typically operator-owned, and each market
generally has one or more significant competitors. In addition, the Company
competes with national clerical and light industrial
27
<PAGE>
staffing firms that also offer temporary staffing services. These companies
include Interim Services, Inc., Norrell Corporation, AccuStaff Incorporated and
Olsten Corp. In addition, national and regional accounting firms also offer
certain employment staffing services. Finally, the Company also faces the risk
that certain of its current and prospective clients will decide to provide
similar services internally. There can be no assurance that the Company will be
able to continue to compete effectively with existing or potential competitors.
REGULATION
Most states require permanent placement firms to be licensed in order to
conduct business. Such licenses may be revoked upon material noncompliance with
state regulations. Any such revocations would have a material adverse effect on
the business of the Company. The Company believes that it is in substantial
compliance with all such regulations and possesses all licenses necessary to
engage in the placement of permanent personnel in the jurisdictions in which it
does business. Various government agencies have advocated proposals from time to
time to license or regulate the placement of temporary personnel. The Company
does not believe that such proposals, if enacted, would have a material adverse
effect on its business. See "Risk Factors--Government Regulation."
EMPLOYEES
In addition to the temporary and contract personnel from time to time
employed by the Company for placement with clients, the Company had
approximately 300 full-time employees as of June 30, 1997. Of these employees,
approximately 265 were personnel consultants and office managers paid on a
commission basis and approximately 35 were administrative and executive salaried
employees. The Company also from time to time retains consultants on a contract
basis. The Company considers its relations with its employees to be good.
The Company emphasizes initial and ongoing training of its counselors and
managers. The primary focus of such training is on marketing the Company's
placement services as well as recruiting, qualifying and hiring applicants.
INSURANCE
The Company maintains a number of insurance policies. Its general liability
policy has aggregate coverage of $2.0 million, with a $1.0 million limit per
occurrence. The Company maintains an automobile liability policy with a combined
single coverage limit of $1.0 million. The Company also carries an excess
liability policy, which covers liabilities that exceed the policy limits of the
above policies, with an aggregate and a per occurrence limit of $2.0 million.
The Company also maintains professional liability and errors and omissions
policies, each with aggregate coverage of $500,000, covering certain liabilities
that may arise from the actions or omissions of its contract and temporary
personnel. There can be no assurance that any of the above coverages will be
adequate for the Company's needs. The Company currently maintains key man life
insurance on each of Mr. Moore and Mr. Dillard in the amount of $1.0 million.
See "Risk Factors--Employment Liability Risk."
PROPERTIES
As of December 31, 1996, the Company leased approximately 41,600 square feet
in one building in Dallas, Texas; the terms of such leases and its amendments
range from four years to seven years. The Company also leases approximately
17,000 square feet in Houston, Texas, 5,200 square feet in Austin, Texas, 2,000
square feet in Kansas City, Missouri, 10,000 square feet in Atlanta, Georgia,
3,000 square feet in Chicago, Illinois and 2,000 square feet in Raleigh, North
Carolina. Such leases generally range from three to five years. The current cost
of all of the Company's office leases is approximately $1,185,000 per annum.
28
<PAGE>
The Company believes that all of its present facilities are adequate for its
current needs and that additional space is available for future expansion upon
acceptable terms.
LEGAL PROCEEDINGS
In September 1996 a lawsuit (the "Suit") was filed by Ditto Properties
Company ("Ditto Properties"), whose manager is a business associate of J.
Michael Moore, against the Controlling Shareholder, J. Michael Moore
individually and USFG/DHRG L.P. No. 1 (collectively, the "Defendants").
The Suit alleges, among other things, that the Defendants fraudulently
induced Ditto Properties to sell 899,200 shares (the "Shares") of Common Stock
to the Controlling Shareholder and failed to perform under the related Stock
Purchase Agreement dated March 26, 1993 (the "Stock Purchase Agreement"). The
Suit asks for injunctive relief and damages but also had sought to rescind the
Stock Purchase Agreement. However, summary judgment on the issue of rescission
was granted in favor of the Controlling Shareholder and Ditto Properties'
rescission claim was dismissed on June 2, 1997.
Because the Company believes that the Suit has interfered with certain of
the Company's business activities, the Company filed a separate lawsuit against
Ditto Properties on October 7, 1996. This lawsuit seeks in excess of
$100,000,000 in damages and the reimbursement of certain expenses.
The Company has incurred legal expenses on its own behalf and on behalf of
the Defendants in an effort to prevent potential adverse impact of the Suit on
the Company. The Controlling Shareholder and Mr. Moore have entered into an
agreement with the Company pursuant to which Mr. Moore has agreed to reimburse
any legal fees and expenses deemed personal in nature by the Board of Directors.
The Board of Directors determined that approximately 50% of such legal fees paid
through October 24, 1996 should be reimbursed by the Controlling Shareholder and
that all of such fees after that date should be reimbursed to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Certain Relationships and Related Transactions" and Notes to the
Company's Consolidated Financial Statements.
Pursuant to the terms of an agreed order entered by the court in the Suit,
the Controlling Shareholder has deposited $1.5 million with the special master
appointed by the court. The funds for such deposit were obtained pursuant to the
Imperial Loan. The Controlling Shareholder has agreed to pay the Representative
certain fees for arranging the Imperial Loan. See "Underwriting."
In September 1996, a lawsuit was filed in Texas State Court, in Dallas
County, by Billie Jean Tapp ("Ms. Tapp"), since joined by her then husband Gary
K. Steeds ("Mr. Steeds"), against the Company, two of the Company's
subsidiaries, Management Alliance Corporation ("MAC") and Information Systems
Consulting Corp. ("ISCC") and three of the Company's officers and directors (J.
Michael Moore, M. Ted Dillard and Donald A. Bailey).
In their lawsuit, Ms. Tapp and Mr. Steeds (former employees of the Company)
each allege that the Company breached an agreement purporting to convey up to
20% of the issued and outstanding shares of the MAC and ISCC subsidiaries to
each of Ms. Tapp and Mr. Steeds, pursuant to a vesting schedule set forth in
such agreement, and certain other alleged agreements. They allege damages for
the fair market value of such shares in which they were vested and other damages
for breach of contract, conspiracy and tortious conduct, as well as
mismanagement, misappropriation of corporate assets and self-dealing by Company
officers and directors. The Company has asserted that a final contract never
existed and that an agreement was never reached, believes that Ms. Tapp's and
Mr. Steeds' claims are without merit, has filed an answer and counterclaim
against Ms. Tapp and a third party petition against Mr. Steeds and is vigorously
defending the lawsuit. In addition, the Company believes that even if such
alleged agreements had been reached, based upon the vesting schedule, any
potential damages of Ms. Tapp and Mr. Steeds would not have a material adverse
effect on the Company. The Company has currently moved to dismiss certain of Ms.
Tapp's and Mr. Steeds' claims on summary judgment.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the current
directors and executive officers of the Company, and its wholly-owned subsidiary
Management Alliance Corporation, as of June 30, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
J. Michael Moore.................... 50 Chairman of the Board and Chief Executive Officer
M. Ted Dillard...................... 44 President, Secretary, Treasurer and Director
Douglas G. Furra.................... 36 Chief Financial Officer
Anthony J. Bruno.................... 61 President, Management Alliance Corporation
James L. Woo........................ 46 Executive Vice President, Management Alliance Corporation
Donald A. Bailey.................... 55 Director
Samuel E. Hunter.................... 62 Director
</TABLE>
- ------------------------
MR. J. MICHAEL MOORE has served as the Chairman of the Board of Directors of
the Company since May 1991. Mr. Moore has served as Chief Executive Officer of
the Company since May 1993. He has been President and Chief Executive Officer of
United States Funding Group, Inc., a Texas corporation ("USFG"), since 1986.
USFG has been involved in acquiring, from the Resolution Trust Corporation and
the Federal Deposit Insurance Corporation, real estate and notes secured
primarily by real estate, located within the United States. Mr. Moore is the
sole shareholder of USFG-DHRG L.P. No. 2, Inc., a Texas corporation.
MR. M. TED DILLARD has served on the Board of Directors of the Company since
August 1991. Mr. Dillard has served as President of the Company since October
1996. Mr. Dillard served as the Chief Financial Officer of the Company from
January 1994 to June 1997. He has been Secretary and Treasurer of the Company
since January 1994, and was Controller of the Company from June 1990 to January
1994. Prior to his employment with the Company, Mr. Dillard held various SEC
reporting, tax and accounting positions with publicly held companies, such as
Pratt Hotel Corporation (an owner and operator of casinos and hotels) and Dixico
Incorporated (formerly a packaging manufacturer), as well as senior financial
management roles at various private companies. Mr. Dillard is a Certified Public
Accountant and worked for a national accounting firm for approximately two
years, and is also a Certified Management Accountant and Certified Financial
Planner.
MR. DOUGLAS G. FURRA has been the Chief Financial Officer of the Company
since June 1997. From January 1992 to April 1997, Mr. Furra was the audit
manager on the Company's audits by Weaver and Tidwell, L.L.P., the Company's
previous independent auditors. Mr. Furra was employed by Weaver and Tidwell,
L.L.P. from 1985 until June 1997. Mr. Furra is a Certified Public Accountant.
MR. ANTHONY J. BRUNO has been the President of Management Alliance
Corporation since August 1996. Prior to that he was a regional Manager of
Management Alliance Corporation from June 1995 to August 1996. He has over
thirty years of industry experience and is the author of several training
manuals, planners and motivational tapes and has held seminars and in-house
training sessions all over the world. Mr. Bruno is a Certified Personnel
Consultant, Certified Temporary Staffing Specialist, and Certified International
Personnel Consultant. He is a recipient of the Hall of Fame Award from the
National Association of Personnel Consultants.
MR. JAMES L. WOO has been the Executive Vice President of Management
Alliance Corporation, since August 1996. Prior to that time he has been employed
by the Company since 1980 in various management positions.
30
<PAGE>
MR. DONALD A. BAILEY has served on the Board of Directors of the Company
since May 1991. Since 1989 Mr. Bailey has been the President of Bailey Capital
Group, Ltd., an investment banking concern, and Diamond Bay Securities Corp., a
registered NASD broker dealer. From January 1993 until January 1994, Mr. Bailey
was acting President of the Company. Since September 1993, Mr. Bailey has been
President of Human Resources Corporation, an employee leasing concern.
MR. SAMUEL E. HUNTER was elected to the Board of Directors of the Company on
February 28, 1997. Since 1993, Mr. Hunter has served as managing director for
equities trading for Ormes Capital Markets, Inc. From 1989 to 1993 he served as
managing director of Invemed Associates in New York City. From 1986 to 1989 he
served as a senior vice president of Drexel Burnham Lambert, Inc.
Directors of the Company hold office until the next annual meeting of
shareholders and until their respective successors are elected and have
qualified, or until their earlier resignation or removal. Subject to any
applicable employment agreement provisions, all officers are appointed by, and
serve at the discretion of, the Board of Directors of the Company.
OTHER SIGNIFICANT EMPLOYEES
MR. SCOTT M. HIGBY joined the Company in October 1978 and has been primarily
involved in the management of operations that specialize in the placement of
hardware/software engineers, manufacturing and design engineers and is the
President of EMSR, Inc., a subsidiary of the Company.
MR. JAMES A. MERCHANT joined the Company in 1990 and has been the General
Manager of the Dallas office of Information Systems Consulting Corporation, a
wholly-owned subsidiary of the Company, since 1993. Prior to joining the
Company, Mr. Merchant served as Sales Manager at Uccel Corporation (a mainframe
software provider) from 1980 to 1986 and, prior to that, as Supervisor of MIS
Operations at Atlantic Richfield Corporation, from 1965 to 1980.
MS. SUZANNE C. PORTER has been Vice-President and Houston Division Manager
since 1986. Ms. Porter joined the Company in 1977.
MR. JOHN E. WILSON has been the head of the Company's Train International
division since October 1996. Prior to that time, Mr. Wilson worked for Tandy
Corporation from 1979 through 1996. From 1993 through 1996 Mr. Wilson was
director of Software Training for Tandy, where he supervised over 100 training
classrooms. From 1991 to 1993 Mr. Wilson was Regional Manager for Tandy's
Computer City division and served in various other capacities prior to that
time.
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's Articles of Incorporation and Bylaws,
the Board of Directors has the power to set the number of directors by
resolution. The Company intends to maintain at all times at least two
independent directors on its Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Working committees of the Board of Directors include the Audit Committee and
the Compensation Committee. The Board of Directors does not have a standing
Nominating Committee.
AUDIT COMMITTEE. The Company established an Audit Committee on April 10,
1997, consisting of Messrs. Bailey and Hunter. The Audit Committee will make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
31
<PAGE>
COMPENSATION COMMITTEE. The Company established a Compensation Committee on
April 10, 1997, consisting of Messrs. Bailey and Hunter. The Compensation
Committee will determine the compensation of the Company's executive officers.
The Compensation Committee administers the Company's 1996 Stock Option Plan and
makes all determinations as to grants of stock options under the 1996 Stock
Option Plan.
OTHER COMMITTEES. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time, including, but not limited
to, an Executive Committee of the Board of Directors.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Moore and
Dillard which provide that: (i) compensation payable to Mr. Moore and Mr.
Dillard be not less than $150,000 per annum and $125,000 per annum,
respectively; (ii) the term of employment for each shall be for three years
commencing January 1, 1997; (iii) Mr. Moore shall be the Chief Executive Officer
of the Company and shall report to the Board of Directors of the Company; (iv)
Mr. Dillard shall be the President of the Company and shall report to Mr. Moore;
(v) both individuals shall have the right to participate in all of the benefit,
bonus and incentive compensation plans of the Company; and (vi) in the event
either Mr. Moore or Mr. Dillard is terminated for other than cause (as defined
in their respective agreements), then he shall be entitled to the continuation
of his compensation for the remainder of the term of his agreement plus an
additional 12 months.
The Company contemplates entering into an employment agreement with Mr.
Furra which will provide that: (i) compensation payable to Mr. Furra will be
$96,000 per annum; (ii) the term of employment shall be for one year commencing
June 1, 1997, and renewing for successive one year terms unless either the
Company or Mr. Furra determine not to renew; (iii) Mr. Furra shall be the Chief
Financial Officer of the Company; (iv) Mr. Furra shall receive options pursuant
to the Company's 1996 Stock Option Plan for the purchase of 30,000 shares of
Common Stock to be exercisable on the following dates, in the following amounts,
and for the following exercise prices: (A) on May 31, 1998, 10,000 shares of
Common Stock at $4.00 per share and (B) on May 31, 1999 and 2000, 10,000 shares
of Common Stock at the lesser of $8.00 per share or the price per share at which
the Company first effectuates a public sale of its Common Stock in 1997 or 1998
using an investment banking firm chosen by the Board of Directors (the Offering
will be such a public sale); and (v) Mr. Furra shall have the right to
participate in all of the benefit, bonus and incentive compensation plans of the
Company and its subsidiaries at the discretion of the Compensation Committee of
the Board of Directors.
Management has entered into a preliminary agreement with Scott M. Higby, the
President of EMSR, Inc., for an equity arrangement pursuant to which Mr. Higby
will be granted stock options that will vest over a four year period. The option
calls for a nominal exercise price whereby Mr. Higby may exercise options
granting him up to 25% of the stock of EMSR, Inc. on a prorata basis over a four
year period. No agreement has been executed with Mr. Higby with respect to the
final terms of this arrangement.
The Company has entered into preliminary discussions with John E. Wilson
concerning an equity arrangement whereby it is contemplated that Mr. Wilson may
earn stock options or another equity interest to acquire up to 25% of the stock
of a subsidiary to be formed to conduct the Company's Train International
business, which is now being conducted as an operation within an existing wholly
owned subsidiary of the Company. It is contemplated that these stock options
would vest over a period to be determined, would have a nominal exercise price
and would be subject to certain conditions including operating performance of
the subsidiary. No agreement has been executed with Mr. Wilson with respect to
the final terms of this arrangement.
32
<PAGE>
COMPENSATION OF DIRECTORS
Nonemployee members of the Board of Directors currently receive $1,000 for
each Directors' meeting attended. Members of the Board of Directors who are also
employees of the Company currently receive $500 for each Directors' meeting
attended. As of the year ended December 31, 1996, $5,500 of Directors' fees owed
to Messrs. Moore ($1,000), Bailey ($2,500) and Dillard ($2,000), respectively,
had been accrued but not paid for 1996 and 1995. Nonemployee directors are also
eligible for stock option grants under the 1996 Stock Option Plan. See "--Stock
Option Plans."
EXECUTIVE COMPENSATION
The following table summarizes certain information regarding compensation
paid or accrued during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and each of the Company's three other most
highly compensated executive officers (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION
LONG-TERM AWARDS
ANNUAL COMPENSATION -------------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) COMPENSATION ($)(1) OPTIONS/SARS (#)(2) COMPENSATION($)
- ------------------------------- --------- --------- ----------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Moore............... 1996 $ 117,000 $ 37,585 $ 1,500 155,000 $ --
Chairman and Chief 1995 87,000 7,996 1,000 50,000 --
Executive Officer 1994 61,500 -- 1,500 -- --
M. Ted Dillard................. 1996 $ 111,314 $ 27,216 $ 1,500 105,000 $ --
President, Secretary 1995 78,000 2,962 1,000 50,000 --
and Treasurer 1994 61,500 -- 1,500 -- --
Anthony J. Bruno(3)............ 1996 $ 56,625 $ 15,000 $ 50,500 -- $ --
President, Management 1995 -- -- 49,305 -- --
Alliance Corporation 1994 -- -- -- -- --
James L. Woo(4)................ 1996 $ 96,000 $ 13,188 $ -- -- $ --
Executive Vice-President, 1995 81,000 -- -- -- --
Management Alliance 1994 59,340 10,961 -- -- --
Corporation
</TABLE>
- ------------------------
(1) Includes perquisites and other personal benefits if value is greater than
the lesser of $50,000 or 10% of reported salary and bonus. Includes
directors fees for each of Mr. Moore and Mr. Dillard of $1,500, $1,000 and
$1,500 in 1996, 1995 and 1994, respectively.
(2) All options granted in 1996 were granted pursuant to the Company's 1996
Stock Option Plan.
(3) Mr. Bruno became a full-time consultant of the Company in June 1995. Mr.
Bruno was named President of Management Alliance Corporation, a wholly-owned
subsidiary of the Company, in August 1996. Amounts shown under Other Annual
Compensation reflect amounts paid to Mr. Bruno in his capacity as a
full-time consultant, including a housing allowance of $3,000 in 1996.
(4) Mr. Woo became the Executive Vice-President of Management Alliance
Corporation, a wholly-owned subsidiary of the Company, in August 1996.
33
<PAGE>
STOCK OPTION GRANTS DURING 1996
The following table provides information with respect to the Named Executive
Officers concerning the grant of options to acquire Common Stock in 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
INDIVIDUAL GRANTS ANNUAL
----------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS/SARS OPTION
UNDERLYING GRANTED TO EXERCISE TERM(2)
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION ---------------------
NAME GRANTED (#)(1) IN FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- --------------------------------- -------------- ------------------- --------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Moore................. 155,000 59.6% (3) 12-31-01 $ 53,475 $ 119,970
M. Ted Dillard................... 105,000 40.4% (4) 12-31-01 $ 36,225 $ 81,270
Anthony J. Bruno................. -- -- -- -- -- --
James L. Woo..................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) All of the options granted to Named Executive Officers in 1996 were granted
under the Company's 1996 Stock Option Plan.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of the
Company's Common Stock appreciates in value from the date of grant at the 5%
and 10% annual rates prescribed by the Securities and Exchange Commission
("SEC") and therefore are not intended to forecast possible future
appreciation, if any, of the price of the Company's Common Stock. The Board
of Directors determined that the market price for the Common Stock on the
date of grant was equal to $2.50 per share, based on the limited liquidity
of the Common Stock.
(3) The options are immediately exercisable for 77,500 shares of Common Stock at
an exercise price of $2.50 per share. Subject to Mr. Moore being an officer
or director of the Company on the relevant dates, the remaining options will
become exercisable on the following dates, in the following amounts, and for
the following exercise prices: (a) December 31, 1997, 46,500 shares of
Common Stock, $4.00 per share; and (b) December 31, 1998, 31,000 shares of
Common Stock, the lesser of $8.00 per share or the price per share at which
the Company first effectuates a public sale of its Common Stock in 1997 or
1998 using an investment banking firm chosen by the Board of Directors (the
Offering is such a public sale).
(4) The options are immediately exercisable for 52,500 shares of Common Stock at
an exercise price of $2.50 per share. Subject to Mr. Dillard being an
officer or director of the Company on the relevant dates, the remaining
options will become exercisable on the following dates, in the following
amounts, and for the following exercise prices: (a) December 31, 1997,
31,500 shares of Common Stock, $4.00 per share; and (b) December 31, 1998,
21,000 shares of Common Stock, the lesser of $8.00 per share or the price
per share at which the Company first effectuates a public sale of its Common
Stock in 1997 or 1998 using an investment banking firm chosen by the Board
of Directors (the Offering is such a public sale).
34
<PAGE>
AGGREGATED STOCK OPTION/SAR EXERCISES DURING 1996 AND STOCK OPTION/SAR VALUES
AS OF DECEMBER 31, 1996
The following table sets forth information with respect to the Chief
Executive Officer and the Named Executive Officers concerning the exercise of
options during 1996 and unexercised options held as of December 31, 1996:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
FISCAL AT FISCAL YEAR END
YEAR END (#)(1) ($)(1)(2)
SHARES --------------------- -------------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------------- --------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
J. Michael Moore...................... -- -- 127,500/77,500 $ 100,000/$0
M. Ted Dillard........................ -- -- 102,500/52,500 $ 100,000/$0
Anthony J. Bruno...................... -- -- -- --
James L. Woo.......................... -- -- -- --
</TABLE>
- ------------------------
(1) The amounts under the headings entitled "Exercisable" reflect vested options
as of December 31, 1996 and the amounts under the headings entitled
"Unexercisable" reflect options that have not vested as of December 31,
1996.
(2) Values stated are pre-tax and net of cost. The Board of Directors determined
that the market price for the Common Stock on December 31, 1996 was equal to
$2.50 per share, based on the limited liquidity of the Common Stock.
STOCK OPTION PLANS
1995 STOCK OPTIONS. In October 1995, options to purchase 50,000 shares of
Common Stock were granted to each of the following: J. Michael Moore, the
Chairman of the Board and Chief Executive Officer of the Company, M. Ted
Dillard, President, Secretary, Treasurer, and director of the Company, and
Donald A. Bailey, a director of the Company. These options were exercised in
April of 1997 and were not granted pursuant to the 1996 Stock Option Plan.
AMENDED AND RESTATED 1996 NONQUALIFIED STOCK OPTION PLAN. The Diversified
Corporate Resources, Inc. Amended and Restated 1996 Nonqualified Stock Option
Plan (the "1996 Stock Option Plan") was adopted by the Board of Directors on
December 27, 1996 and ratified on April 10, 1997. The 1996 Stock Option Plan
terminates on December 27, 2006. The purpose of the 1996 Stock Option Plan is to
enable the Company to obtain and retain the services of the types of employees
and officers who will contribute to the Company's long range success and to
provide incentives which are linked directly to increases in share value which
will inure to the benefit of all shareholders of the Company. Options granted
under the 1996 Stock Option Plan will be stock options not intended to qualify
for incentive stock option treatment ("Non-Qualified Stock Options" or
"Options"). The 1996 Stock Option Plan is not required to be qualified under
Section 401(a) of the Internal Revenue Code, nor is it subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended. Under the
1996 Stock Option Plan, Non-Qualified Stock Options may be granted to employees
(including officers and Directors) of the Company or a parent or subsidiary of
the Company (approximately 500 persons at June 30, 1997).
The 1996 Stock Option Plan authorizes the granting of Non-Qualified Stock
Options to optionees to purchase Common Stock. A total of 450,000 shares of
Common Stock (subject to certain adjustments) have been reserved for sale upon
the exercise of Non-Qualified Stock Options to be granted under the
35
<PAGE>
1996 Stock Option Plan. As of June 30, 1997, Non-Qualified Stock Options for
315,000 shares had been granted under the 1996 Stock Option Plan. If a
Non-Qualified Stock Option expires fully or partially unexercised, the shares
then subject to such Option are available for later grant. In the event of a
change in the number of shares outstanding as a result of a declaration of a
stock dividend or any recapitalization resulting in a stock split-up,
combination or exchange of shares, there shall be a proportionate adjustment in
the shares available for grant and the shares subject to outstanding Options.
The 1996 Stock Option Plan is administered by the Compensation Committee or
in the absence of a Compensation Committee by a committee composed of officers
of the Company selected by the Board of Directors. Subject to the provisions of
the 1996 Stock Option Plan, the Compensation Committee has authority to
determine all terms and provisions under which Options are granted pursuant to
the 1996 Stock Option Plan, including, without limitation, (i) the number of
shares subject to each Option; (ii) when the Option becomes exercisable; (iii)
the vesting schedule for each grant; (iv) the exercise price; and (v) the
duration of the Option, which cannot exceed ten years. An Option granted under
the 1996 Stock Option Plan is not transferable by the optionee except by will or
by the laws of descent and distribution and is exercisable during the lifetime
of the optionee only while the optionee is in the employ of the Company or
within specified periods of time after termination of employment. The 1996 Stock
Option Plan does not impose any specific vesting requirements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, no executive officer of the Company served as a director, or
member of the Compensation Committee of another entity whose executive officers
served as a director, or on the Compensation Committee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 and 1995, the Company paid various expenses on behalf of Mr.
Moore or various entities that he controls in the amount of approximately
$160,000 and $25,000, respectively. As these amounts are to be repaid by Mr.
Moore, they have been recorded as receivables. Of the $160,000 in 1996,
approximately $105,000 (which represents approximately 50% of the total legal
expense) relates to litigation defense associated with the Ditto Properties
Suit. See "Business--Legal Proceedings." With respect to the $105,000, Mr. Moore
has executed a non-interest bearing promissory note to the Company which has a
maturity of the earlier of a public offering of the Company's Common Stock or
December 31, 1997. The balance of the $160,000 consists of approximately $24,000
of advances and approximately $31,000 of interest bearing notes. These notes
bear interest at 10% and require monthly principal and interest payments over 36
months. None of these receivables are collateralized. The $105,000 note and the
$24,000 of advances are reported as receivables from related party in the
Stockholders' Equity section of the Consolidated Balance Sheet. Since December
31, 1996, the Company has continued to pay various litigation and other expenses
of Mr. Moore and the Controlling Shareholder which as of June 30, 1997
aggregated an additional $112,000, and at June 30, 1997 totalled $241,000. The
$31,000 of notes are included in notes receivable--related party, and at June
30, 1997 totalled $26,500.
In January 1996, the Company loaned $25,000 to United States Funding Group
Oil and Gas, Inc., an entity wholly owned by Mr. Moore. Such loan was evidenced
by a promissory note bearing interest at the rate of 1% per month on the unpaid
balance due in monthly installments. In addition, a 10% loan origination and
administration fee was charged. As of March 31, 1997, this note has been paid in
full.
During January 1995, the Company entered into a joint venture agreement with
CFS, Inc., for the purpose of providing personnel services to certain businesses
requiring minority suppliers and others. CFS, Inc. is a minority operated
corporation, which because of its status, supplies services to clients requiring
a certain portion of its business to be allocated to minority owned and operated
vendors. The Company provides CFS, Inc. with personnel and contract labor on a
subcontractor basis. Laurie Moore, the wife of
36
<PAGE>
J. Michael Moore, the Chief Executive Officer and Chairman of the Board of the
Company, owned 49% of CFS, Inc. The majority shareholder of CFS, Inc. purchased
the 49% ownership interest of Ms. Moore, pursuant to a transaction which was
made effective retroactive to January 1, 1995. Ms. Moore received no monetary
gain on her investment in CFS, Inc. or on this transaction. The Company has a
49% ownership interest in the joint venture and is allocated 65% of the net
income or loss resulting from the joint venture operations. The joint venture
had assets of approximately $150,000 and liabilities of approximately $361,000
at December 31, 1996. The joint venture recorded net losses for the years ended
December 31, 1996 and 1995, respectively of approximately $139,000 and $74,000.
Accordingly, the Company recognized approximately $90,000 and $48,000,
respectively, in losses from joint venture operations in the Consolidated
Statement of Operations for the year ended December 31, 1996 and 1995.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 31, 1997 by (i) each person known by
the Company to own beneficially five percent or more of the outstanding Common
Stock; (ii) each of the Company's directors; (iii) each of the executive
officers named in the Summary Compensation Table; (iv) all directors and
executive officers of the Company as a group; and (v) all Selling Shareholders.
The address of each person listed below is 12801 N. Central Expressway, Suite
350, Dallas, Texas 75243, unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES (2)
------------------------------
<S> <C> <C> <C> <C>
NUMBER OF
SHARES SHARES
BENEFICIALLY BEING PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERED OFFERING OFFERING
- ---------------------------------------------------------- ----------- --------- --------------- -------------
J. Michael Moore.......................................... 1,026,700(3) 250,000 55.0% 26.8%
USFG-DHRG L.P. No. 2, Inc................................. 899,200(4) 250,000 50.2 22.6
Donald R. Ditto, Sr....................................... 125,000(5) -- 7.0 4.9
M. Ted Dillard............................................ 102,500(6) -- 5.6 4.0
Gary K. Steeds............................................ 93,500(7) -- 5.2 3.7
Donald A. Bailey.......................................... 89,600(8) -- 5.0 3.5
Samuel E. Hunter.......................................... 7,500(9) -- * *
Imperial Bank............................................. 75,000(10) 75,000 4.2 0.0
All directors and executive officers as a group
(6 persons)(1), (2), (4), (6), (8), (9)................. 1,226,300 325,000 63.5 33.6
</TABLE>
- ------------------------
* Represents less than 1% of outstanding Common Stock.
(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The persons and entities named in the table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them, except as noted below and subject to applicable
community property laws.
(2) Except for the percentages of certain parties that are based on presently
exercisable options which are indicated in the following footnotes to the
table, the percentages indicated are based on 1,790,312 shares of Common
Stock issued and outstanding on July 31, 1997 and 2,540,312 shares issued
and outstanding subsequent to the completion of the Offering and assume no
exercise of the Underwriters' over-allotment option or the Representative's
Warrant. In the case of parties holding presently exercisable options, the
percentage ownership is calculated on the assumption that the shares
purchasable within the next 60 days underlying such options are outstanding.
(3) Includes the shares beneficially owned by the Controlling Shareholder (as J.
Michael Moore owns all of the capital stock of the Controlling Shareholder)
as described below in note 4, and 77,500 shares of Common Stock issuable
upon exercise of options within 60 days. In addition, Mr. Moore has
transferred 25,000 shares of Common Stock to various other parties but has
advised the Company that he has retained voting power with respect to such
shares. The Percentage of Outstanding Shares shown as owned by Mr. Moore
After the Offering assumes the exercise of the Imperial Option in
conjunction with the Offering (as set forth in footnote 4 below) but not the
exercise of the Hunter
38
<PAGE>
Option (as set forth in footnote 4 below). The Number of Shares Beneficially
Owned by Mr. Moore and the resulting Percentage of Outstanding Shares Prior
to the Offering have not been adjusted to reflect the exercise of either the
Imperial Option or the Hunter Option.
(4) The 899,200 shares (the "Shares") were acquired by the Controlling
Shareholder from Ditto Properties pursuant to the Stock Purchase Agreement
which is the subject of the Suit. Ditto Properties has also filed a Schedule
13D claiming that it is the beneficial owner of the Shares based on an
assumed successful outcome of Ditto Properties' rescission claim in the
Suit. The trial court, however, has granted the Controlling Shareholder's
motion for summary judgment seeking dismissal of Ditto Properties'
rescission claim. See "Business--Legal Proceedings."
The Controlling Shareholder has granted a security interest in 818,500 of the
Shares as security for the Imperial Loan. The Controlling Shareholder,
however, holds sole voting and investment power with respect to these
shares, subject to the rights retained by Imperial Bank in connection with
the Imperial Loan. In addition to a security interest granted in such
shares, the loan documents prohibit the Controlling Shareholder from
selling, transferring or encumbering such shares without the consent of
Imperial Bank, other than a portion of such shares to be sold pursuant to
this Offering to satisfy the Imperial Loan and other obligations of the
Controlling Shareholder. In connection with the Imperial Loan, the
Controlling Shareholder has granted to Imperial Bank options (collectively,
the "Imperial Option") to purchase 75,000 shares of Common Stock owned by
the Controlling Shareholder for $.01 per share. The Imperial Option expires
on July 23, 2002. The Controlling Shareholder has granted an option (the
"Hunter Option") to Samuel E. Hunter, a director of the Company, to purchase
an aggregate of 20,000 shares of Common Stock for $5.00 per share, which
option expires on July 31, 2000. The Hunter Option vests at certain
intervals over a three year period and is subject to the approval of the
disinterested members of the Board of Directors. The Percentage of
Outstanding Shares shown as owned by the Controlling Shareholder After the
Offering assumes the exercise of the Imperial Option but not the Hunter
Option. The Number of Shares Beneficially Owned by the Controlling
Shareholder and the resulting Percentage of Outstanding Shares Prior to the
Offering have not been adjusted to reflect the exercise of either the
Imperial Option or the Hunter Option.
The address of the Controlling Shareholder is 12801 N. Central Expressway,
Ste. 260, Dallas, TX 75243.
(5) Does not include Ditto Properties' alleged beneficial ownership of the
Shares discussed above in note 4. Ditto Properties has asserted in the Suit
and in the Schedule 13D discussed above in note 4 that Donald R. Ditto, Sr.
is the beneficial owner of the Shares (as manager of Ditto Properties) by
virtue of its claim for rescission which has been dismissed. The Company is
also currently contesting Mr. Ditto's ownership of 100,000 of the shares
listed in the above table. The address of Mr. Ditto is Route 2, Box 21633,
Winnsboro, Texas 75494.
(6) Includes 52,500 shares of Common Stock issuable upon the exercise of options
within 60 days. Pursuant to an agreement between Mr. Moore, Mr. Dillard and
the Controlling Shareholder, Mr. Dillard has the right to acquire a 10%
ownership interest in the Controlling Shareholder, pursuant to a vesting
schedule, over a four year period.
(7) The address of Mr. Steeds is 5528 Inverrary, Dallas, Texas 75287. The
Company is currently contesting Mr. Steeds ownership of these shares.
(8) Includes 7,500 shares of Common Stock issuable upon the exercise of options
within 60 days, and 18,000 shares owned by Mrs. Bailey of which Mr. Bailey
disclaims beneficial ownership. The address of Mr. Bailey is 2351 W.
Northwest Highway, Suite 3120, Dallas, Texas 75220.
(9) Includes 2,500 shares of Common Stock issuable upon the exercise of options
granted by the Company within 60 days but excludes 20,000 shares of Common
Stock issuable upon exercise of the Hunter Option. The address of Mr. Hunter
is 55 Broadway, 10th Floor, New York, NY 10006.
39
<PAGE>
(10) Includes 75,000 shares of Common Stock which may be obtained pursuant to
the Imperial Option. See footnote 4 above. The address of Imperial Bank is
9920 S. La Cienega Blvd., Suite 636, Inglewood, California 90301.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 2,540,312
shares of Common Stock. All of the shares of Common Stock sold in the Offering
may be sold without restriction, unless they are purchased by affiliates of the
Company. 836,300 shares of Common Stock outstanding prior to completion of the
Offering (the "Restricted Shares") may be sold only if they are registered under
the Securities Act or pursuant to an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 thereunder. The Company,
and certain of its executive officers, directors and current shareholders have
agreed that they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to sell, or otherwise dispose of shares of Common Stock
or other securities which are substantially similar to the Common Stock or
securities convertible into or exercisable or exchangeable for any rights to
purchase or acquire Common Stock or securities which are substantially similar
to the Common Stock without the prior written consent of the Representative for
a period of 365 days after the date of this Prospectus. See "Underwriting."
In general, under Rule 144 as currently in effect, affiliates of the Company
or a person (persons whose shares are aggregated) who has beneficially owned
"restricted securities" as defined under the Securities Act for at least one
year but less than two years is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Common Stock or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned "restricted securities" for at least two years, would
be entitled to sell such shares under Rule 144 without regard to the volume or
manner of sale limitations referred to above.
There are also (i) 315,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan under options previously granted to
the directors of the Company and to certain members of management of the
Company, and (ii) 75,000 shares of Common Stock subject to the Representative's
Warrants. The Company has filed a registration statement on Form S-8 covering
sales of shares issued upon exercise of any securities issued under the 1996
Stock Option Plan and under options previously granted to certain members of
management of the Company. See "Management--Stock Option Plans" and
"Underwriting."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of Common Stock. The sale of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 1,000,000 shares of
preferred stock, par value $1.00 per share ("Preferred Stock"), and 10,000,000
shares of Common Stock, par value $0.10 per share.
COMMON STOCK
As of July 31, 1997, there were 1,790,312 shares of Common Stock outstanding
which were held of record by approximately 180 shareholders. Holders of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor. See "Dividend Policy." Each
share of Common Stock entitles the holder thereof to one vote. Cumulative voting
for the election of directors is not permitted, which means that the holders of
the majority of shares voting for the election of directors can elect all
members of the Board of Directors. Except as otherwise required by law, a
majority vote is sufficient for any act of the shareholders. The holders of
Common Stock are entitled to receive the Company's assets remaining after
payment of liabilities and liquidation preferences of any series of Preferred
Stock proportionate to their pro rata ownership of the outstanding shares of
Common Stock. All shares of Common Stock now outstanding are, and the shares of
Common Stock to be outstanding upon the completion of the offering will be,
fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action of the
shareholders of the Company, to issue from time to time shares of Preferred
Stock in one or more series and with such relative rights, powers, preferences,
limitations as the Board of Directors may determine at the time of issuance.
Such shares may be convertible into Common Stock and may be superior to the
Common Stock in the payment of dividends, liquidation, voting and other rights,
preferences and privileges. The issuance of shares of Preferred Stock could
adversely affect the holders of Common Stock. By way of example, the issuance of
Preferred Stock could be used in certain circumstances to render more difficult
or discourage a merger, tender offer, proxy contest or removal of incumbent
management. Preferred Stock may be issued with voting and conversion rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Upon completion of the offering, the Company will not have any
shares of Preferred Stock outstanding, and currently, the Company has no
intention to issue shares of Preferred Stock after the Offering.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY FOR MONETARY
DAMAGES
The Articles of Incorporation of the Registrant, together with its Bylaws,
provide that the Company shall indemnify officers and directors, and may
indemnify its other employees and agents, to the fullest extent permitted by
law. The laws of the State of Texas permit, and in some cases require,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, fines, settlements and reasonable expenses under certain
circumstances.
The Company has also adopted provisions in its Articles of Incorporation
that limit the liability of its directors and officers to the fullest extent
permitted by the laws of the State of Texas. Under the Company's Articles of
Incorporation, and as permitted by the laws of the State of Texas, a director or
officer is not liable to the Company or its shareholders for damages for breach
of fiduciary duty. Such limitation of liability does not affect liability for
(i) breach of the director's duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) any transaction
from which the director derived an improper personal benefit; or (iv) the
payment of any unlawful distribution.
41
<PAGE>
ANTI-TAKEOVER PROVISIONS OF TEXAS LAW
A recently enacted Texas law, which becomes effective September 1, 1997,
generally prohibits certain mergers, sales of assets, reclassifications and
other transactions between a publicly-held Texas corporation and any of its
shareholders who beneficially own 20% or more of the outstanding stock of such
corporation ("affiliated shareholders") for a period of three years following
the date on which such shareholder acquired shares representing 20% or more of
the corporation's voting power unless two-thirds of the unaffiliated
shareholders approve the transaction at a meeting held no earlier than six
months after such date.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
42
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as the representative (the "Representative"), have agreed severally,
subject to the terms and conditions contained in an Underwriting Agreement
("Underwriting Agreement"), to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite their
respective names at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions, and that the Underwriters are committed to purchase all of
such shares (other than those covered by the over-allotment option described
below), if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Cruttenden Roth Incorporated...............................................
-----------------
Total...................................................................... 1,075,000
-----------------
-----------------
</TABLE>
The Underwriters initially propose to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this Prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $. per share, and the Underwriters may allow, and such dealers
may re-allow, to members of the NASD, a concession not in excess of $. per
share. After the public offering, the price to public, the concession and the
re-allowance may be changed by the Representative.
The Company has granted an option to the Underwriters, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional 112,500
shares of Common Stock at the initial price to public, less the underwriting
discount, set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only for the purpose of covering over-allotments. To the
extent that the Underwriters exercise such option, each Underwriter will be
committed, subject to certain conditions, to purchase from the Company that
number of additional shares of Common Stock which is proportionate to such
Underwriter's initial commitment.
The Company has also agreed to sell to the Representative warrants to
purchase up to 75,000 shares of Common Stock (the "Representative's Warrants").
The Representative's Warrants will be exercisable for a period of four years,
commencing one year after the date of this Prospectus, at an initial per share
exercise price equal to 120% of the price to public set forth on the cover page
of this Prospectus. Neither the Representative's Warrants nor the shares of
Common Stock issuable upon exercise thereof may be transferred, assigned or
hypothecated until one year from the date of this Prospectus, except that they
may be assigned, in whole or in part, (i) to individuals who are either officers
or partners of the Representative, or (ii) by will or the laws of descent and
distribution or (iii) to certain successors of the Representative. Any profit
realized by the Representative on the sale of securities issuable upon exercise
of the Representative's Warrants may be deemed to be additional compensation.
The holder of the Representative's Warrants will have no voting, dividend or
other rights as a shareholder of the Company unless and until the exercise of
the Representative's Warrants. The number of
43
<PAGE>
securities deliverable upon any exercise of the Representative's Warrants or its
underlying securities and the exercise price of the Representative's Warrants
are subject to adjustment to protect against any dilution upon the occurrence of
certain events, including issuance of stock dividends, stock splits, subdivision
or combination of outstanding stock and reclassification of stock.
The Company has agreed with the Representative to register the
Representative's Warrants and/or the underlying shares for resale, on one such
occasion at any time during the four-year period commencing one year following
the date of this Prospectus upon written demand by the Representative. The
Company has agreed with the Representative that if, during the four-year period
commencing one year following the date of this Prospectus, the Company registers
any of its Common Stock for sale pursuant to a registration statement (with the
exception of Form S-4, Form S-8 or other inappropriate form), it will use its
best efforts, upon request of any of holder of the Representative's Warrants
and/or the underlying shares, to include such securities as a part of the
registration statement. The Company will bear all the costs, except underwriting
discounts and the Representative's legal fees, for any registration.
The Representative will also receive at the closing of the Offering a
non-accountable expense allowance equal to 2% of the aggregate public offering
price of the shares of Common Stock sold in the Offering including proceeds from
the over-allotment option, if exercised. The Representative's expenses in excess
of the non-accountable expenses allowance, including its legal expenses, will be
borne by the Representative. To the extent that the expenses of the
Representative are less than the non-accountable expense allowance, the excess
shall be deemed to be compensation to the Representative.
The Company, and certain of its executive officers, directors and current
shareholders have agreed that for a period of 365 days after the date of this
Prospectus they will not, directly or indirectly, offer, sell, contract to sell,
grant any option to sell, or otherwise dispose of shares of Common Stock or
other securities which are substantially similar to the Common Stock or
securities convertible into or exercisable or exchangeable for or any rights to
purchase or acquire Common Stock or securities which are substantially similar
to the Common Stock without the prior written consent of the Representative.
Prior to this Offering, there has been a limited market for the Common Stock
and there can be no assurance that a regular trading market will develop upon
the completion of this Offering. The public offering price was determined by
arms-length negotiations between the Company, the Selling Shareholders and the
Representative and does not necessarily bear any relationship to assets, book
value, earnings history or other investment criteria. The primary factors
considered in determining such offering price include the trading price for the
Company's Common Stock, the history of and prospects for the industry in which
the Company competes, market valuation of comparable companies, market
conditions for public offerings, the history of and prospects for the Company's
business, the Company's past and present operations and earnings and the trend
of such earnings, the prospects for future earnings of the Company, the
Company's current financial position, an assessment of the Company's management,
the general condition of the securities markets, the demand for similar
securities of comparable companies and other relevant factors. There can be no
assurance, however, that the prices at which the Common Stock will trade in the
public market following the Offering will not be lower than the initial public
offering price.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the Underwriters may be
required to make in respect thereof.
The Representative has advised the Company that it does not expect any sales
by the Underwriters to accounts over which they exercise discretionary
authority.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
44
<PAGE>
Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid, or the effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member in connection
with the Offering are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-counter
market, or otherwise. Such stabilizing, if commenced, may be discontinued at any
time.
The Controlling Shareholder has agreed to pay the Representative a fee of
$175,000 in consideration for arranging the Imperial Loan. The fee is
represented by a promissory note (the "Controlling Shareholder Note") that will
become due on the earlier of the closing of the Offering or July 8, 1998. If the
Controlling Shareholder Note has not been paid by July 8, 1998, the due date may
be extended by the Controlling Shareholder for an additional year. The
Controlling Shareholder Note bears interest at the rate of 6.14% per annum.
LEGAL MATTERS
The validity of the Common Stock to be offered hereby will be passed upon
for the Company by Jenkens & Gilchrist, a Professional Corporation, Dallas,
Texas. Certain legal matters in connection with the Offering will be passed upon
for the Underwriters by Graham & James LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of the Company for the one year period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company for each of the two
years in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement, have been audited by Weaver and Tidwell, L.L.P.,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Weaver and Tidwell, L.L.P. served as the independent auditors of the Company
for the fiscal years ended December 31, 1995 and 1996 and until April 18, 1997.
During the past two fiscal years and through and including April 18, 1997, there
have been no disagreements between the Company and Weaver and Tidwell, L.L.P.,
on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of Weaver and Tidwell, L.L.P., would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports. Further, the audit reports of Weaver and Tidwell, L.L.P. on the
financial statements as of and for the years ended December 31, 1995 and 1996,
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
In April 1997, Coopers & Lybrand L.L.P. was engaged as principal accountants
for the Company, among other things, to audit the financial statements of the
Company for fiscal 1996. The selection of Coopers & Lybrand L.L.P., and the
replacement of Weaver and Tidwell, L.L.P., was made by the Board of
45
<PAGE>
Directors. Prior to its engagement, the Company did not consult with Coopers &
Lybrand L.L.P. on either the application of accounting principles to a completed
or proposed specific transaction, or the type of audit opinion that might be
rendered on the Company's financial statements.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits and schedules for further information with
respect to the Company and the Common Stock offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each such instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. The Registration Statement and
the exhibits and schedules forming a part thereof can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, NW, Washington, D.C. 20549, or on the Internet at HTTP://
WWW.SEC.GOV, and should also be available for inspection and copying at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
NW, Washington, D.C. 20549, at prescribed rates.
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission, such reports and other information (including proxy and information
statements) filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW, Room
1024, Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained from the public
reference section of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549, at prescribed rates.
46
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
Report of Independent Accountants
Coopers & Lybrand L.L.P........................................................................... F-2
Weaver and Tidwell, L.L.P......................................................................... F-3
Consolidated Balance Sheets - December 31, 1996, and 1995............................................... F-4
Consolidated Statements of Operations - Years Ended December 31, 1996, 1995, and 1994................... F-5
Consolidated Statements of Stockholders' Equity (Capital Deficiency) - Years Ended December 31, 1996,
1995, and 1994........................................................................................ F-6
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994................... F-7
Notes to Consolidated Financial Statements.............................................................. F-8
Report of Independent Accountants
Coopers & Lybrand L.L.P........................................................................... F-23
Weaver and Tidwell, L.L.P......................................................................... F-24
Schedule II--Valuation and Qualifying Accounts - Years Ended December 31, 1996, 1995, and 1994.......... F-25
Consolidated Balance Sheets - June 30, 1997, and December 31, 1996...................................... F-26
Consolidated Statements of Operations - Six Months Ended June 30, 1997 and 1996......................... F-27
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996......................... F-28
Notes to Condensed Consolidated Financial Statements.................................................... F-29
</TABLE>
All other schedules have been omitted because they are either not applicable
or the information required by the schedule is included in the financial
statements or the notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Diversified Corporate Resources, Inc.:
We have audited the accompanying consolidated balance sheet of Diversified
Corporate Resources, Inc. and Subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity (capital
deficiency) and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Diversified Corporate Resources, Inc. and Subsidiaries as of December 31, 1996
and the consolidated results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 30, 1997
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Diversified Corporate Resources, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheet of Diversified
Corporate Resources, Inc. and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity (capital
deficiency), and cash flows for each of the two years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Diversified Corporate Resources, Inc. and subsidiaries as of December 31, 1995,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
April 9, 1996
F-3
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1996 1995
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 612,512 $ 6,239
Trade accounts receivable, less allowances
of approximately $494,000 and $412,000, respectively............................ 3,387,138 2,140,623
Notes receivable-related party.................................................. 9,326 13,052
Prepaid expenses and other current assets....................................... 34,443 96,805
-------------- --------------
TOTAL CURRENT ASSETS.......................................................... 4,043,419 2,256,719
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET............................................................... 807,997 467,043
OTHER ASSETS:
Investment in and advances to joint venture..................................... 152,905 103,838
Notes receivable-related party.................................................. 21,690 --
Other........................................................................... 177,879 179,153
-------------- --------------
$ 5,203,890 $ 3,006,753
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses..................................... $ 3,329,616 $ 2,517,889
Book overdraft.................................................................. 98,158 129,235
Borrowings under factoring and loan agreements.................................. 400,682 647,650
Other short-term debt........................................................... 97,652 --
Current maturities of long-term debt............................................ 21,834 21,603
-------------- --------------
TOTAL CURRENT LIABILITIES..................................................... 3,947,942 3,316,377
DEFERRED LEASE RENTS.............................................................. -- 52,531
LONG-TERM DEBT.................................................................... 68,157 90,048
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued......................................................... -- --
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,881,161 shares issued............................................. 188,116 188,116
Additional paid-in capital...................................................... 3,615,151 3,615,151
Accumulated deficit............................................................. (2,301,108) (4,086,045)
Common stock held in treasury (245,849 and
122,950 shares, respectively), at cost.......................................... (185,175) (169,425)
Receivables from related party.................................................. (129,193) --
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)............................... 1,187,791 (452,203)
-------------- --------------
$ 5,203,890 $ 3,006,753
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET SERVICE REVENUES:
Permanent placement............................................... $ 12,573,995 $ 9,124,545 $ 7,471,318
Specialty services................................................ 7,451,563 4,209,685 2,879,143
Contract placement................................................ 7,404,730 6,023,655 4,882,253
------------- ------------- -------------
27,430,288 19,357,885 15,232,714
COST OF SERVICES.................................................... 19,675,352 14,332,011 11,131,682
------------- ------------- -------------
GROSS MARGIN........................................................ 7,754,936 5,025,874 4,101,032
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................ (5,702,992) (4,497,097) (4,146,979)
OTHER INCOME (EXPENSES):
Gain on foreclosure of division assets............................ -- 22,815 133,000
Loss from joint venture operations................................ (90,313) (47,826) --
Interest expense, net............................................. (235,327) (237,111) (140,916)
Other, net........................................................ 37,282 79,271 70,127
------------- ------------- -------------
(288,358) (182,851) 62,211
------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM................... 1,763,586 345,926 16,264
INCOME TAXES-current expense........................................ (224,774) (60,054) --
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM.................................... 1,538,812 285,872 16,264
EXTRAORDINARY ITEM--gain on debt restructuring, net of income tax... 246,125 174,811 208,212
------------- ------------- -------------
NET INCOME.......................................................... $ 1,784,937 $ 460,683 $ 224,476
------------- ------------- -------------
------------- ------------- -------------
PRIMARY EARNINGS PER SHARE:
Income before extraordinary item.................................. $ .84 $ .16 $ .01
Extraordinary item................................................ .14 .10 .12
------------- ------------- -------------
Total........................................................... $ .98 $ .26 $ .13
------------- ------------- -------------
------------- ------------- -------------
Weighted average common and common equivalent shares outstanding.... 1,814,016 1,758,211 1,758,211
------------- ------------- -------------
------------- ------------- -------------
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary item.................................. $ .83 $ .16 $ .01
Extraordinary item................................................ .13 .10 .12
------------- ------------- -------------
Total........................................................... $ .96 $ .26 $ .13
------------- ------------- -------------
------------- ------------- -------------
Weighted average common and common equivalent shares outstanding.... 1,860,284 1,758,211 1,758,211
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
RECEIVABLES
ADDITIONAL FROM
COMMON PAID-IN ACCUMULATED TREASURY RELATED
STOCK CAPITAL DEFICIT STOCK PARTY TOTAL
---------- ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1994......................... $ 188,116 $ 3,615,151 $ (4,771,204) $(169,425) $ -- $(1,137,362)
Net income..................... -- -- 224,476 -- -- 224,476
---------- ------------ ------------- ----------- ----------- -------------
BALANCE, December 31,
1994......................... $ 188,116 3,615,151 (4,546,728) (169,425) -- (912,886)
Net income..................... -- -- 460,683 -- -- 460,683
---------- ------------ ------------- ----------- ----------- -------------
BALANCE, December 31,
1995......................... $ 188,116 3,615,151 (4,086,045) (169,425) -- (452,203)
Net income..................... -- -- 1,784,937 -- -- 1,784,937
Treasury stock purchase........ -- -- -- (15,750) -- (15,750)
Advances to a related party.... -- -- -- -- (129,193) (129,193)
---------- ------------ ------------- ----------- ----------- -------------
BALANCE, December 31,
1996......................... $ 188,116 $ 3,615,151 $ (2,301,108) $(185,175) $ (129,193) $1,187,791
---------- ------------ ------------- ----------- ----------- -------------
---------- ------------ ------------- ----------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
----------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 1,784,937 $ 460,683 $ 224,476
Adjustments to reconcile net income to cash provided by operating activities:
Extraordinary item.................................................................... (246,125) (174,811) (208,212)
Depreciation and amortization......................................................... 188,760 132,183 86,026
Provision for allowances.............................................................. 81,434 207,363 41,266
Equity in loss of joint venture....................................................... 90,313 47,336
Fixed assets from foreclosure......................................................... -- -- (177,884)
Write-down of long-lived assets....................................................... 37,462 -- --
Deferred lease rents.................................................................. (52,531) (65,067) (80,273)
Changes in operating assets and liabilities:
Accounts receivable................................................................... (1,327,949) (473,232) (897,748)
Receivable from net assets foreclosed................................................. -- -- 236,973
Refundable federal income taxes....................................................... -- -- 30,779
Prepaid expenses and other current assets............................................. 62,363 60,573 (150,919)
Other assets.......................................................................... 9,379 17,697 (112,945)
Trade account payable and accrued expenses............................................ 1,057,852 463,735 731,677
----------- --------- ---------
Cash provided by (used in) operating activities..................................... 1,685,895 676,460 (276,784)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................. (529,714) (312,396) (157,014)
Deposits.............................................................................. (45,567) (35,606) (22,442)
Loans and advances to related parties................................................. (160,209) -- --
Repayment from related parties........................................................ 13,052 23,844 18,104
Obligations resulting from restructuring/settlement agreements........................ -- (20,634) (217,150)
Net advances to joint venture......................................................... (139,380) (151,175) --
----------- --------- ---------
Cash used in investing activities................................................... (861,818) (495,967) (378,502)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing under short-term debt....................................................... 97,652 -- 10,000
Issuance of notes payable............................................................. -- -- 50,000
Repayment of short-term debt.......................................................... -- (64,500) (110,000)
Increase (decrease) in borrowing under factoring and loan agreements.................. (246,968) 110,637 396,931
Purchase of treasury stock............................................................ (15,750) -- --
Principal payments under long-term debt obligations................................... (21,660) (18,277) (30,397)
Book overdraft........................................................................ (31,078) (246,329) 265,118
----------- --------- ---------
Cash provided by (used in) financing activities..................................... (217,804) (218,469) 581,652
----------- --------- ---------
Increase (decrease) in cash and cash equivalents.................................... 606,273 (37,976) (73,634)
Cash and cash equivalents at beginning of year........................................ 6,239 44,215 117,849
----------- --------- ---------
Cash and cash equivalents at end of period............................................ $ 612,512 $ 6,239 $ 44,215
----------- --------- ---------
----------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest................................................ $ 249,000 $ 264,000 $ 163,000
Cash paid during the year for income tax.............................................. $ 13,601 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"), all of which are
wholly owned. All intercompany accounts and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS AND CONCENTRATION OF CREDIT RISK
The Company is a Texas corporation and is engaged, through its subsidiaries,
in the permanent and specialty placement of personnel in various industries, and
in contract placement services. The Company operates offices in Dallas, Houston
and Austin, Texas; Atlanta, Georgia; Kansas City, Missouri; Chicago, Illinois;
and Raleigh, North Carolina. The offices are responsible for marketing to
clients, recruitment of personnel, operations, local advertising, credit and
collections. The Company's executive offices provide centralized training,
payroll, collections and certain accounting and administrative services for its
offices. The Company maintains cash on deposit in interest bearing accounts
which, at times, exceed federally insured limits. The Company has not
experienced any losses on such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
REVENUE RECOGNITION AND COST OF SERVICES
Fees for placement of permanent personnel are recognized as income at the
time the applicants accept employment. Provision is made for estimated losses in
realization (principally due to applicants not commencing employment or not
remaining in employment for the guaranteed period). Revenue from specialty
services and contract placements are recognized upon performance of services by
the Company. Cost of services consists of expenses for the operation of the
Company's offices, principally commissions, direct wages paid to non-permanent
personnel, and payroll taxes. Accounts receivable at December 31, 1996 and 1995,
includes approximately $185,000 and $36,000, respectively, of unbilled
receivables that were billed in 1997 and 1996, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased
with remaining maturities of three months or less to be cash equivalents for
purposes of the consolidated statements of cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996, the Company's financial instruments consist of notes
receivable from related party and long-term debt. The Company believes that the
recorded values approximate fair value.
DEPRECIATION AND AMORTIZATION
Equipment, furniture and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the individual assets (which range from three to
seven years) or the related lease terms, if applicable, whichever is shorter.
Upon retirement or sale, the cost and related accumulated depreciation and
amortization are removed from the accounts and any resultant gains or losses are
included in the Consolidated Statement of Operations. Maintenance and repair
costs are charged to expense as incurred.
F-8
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. For the years ended December 31,
1996, 1995 and 1994, advertising expenses amounted to approximately $341,000,
$410,000 and $384,000, respectively.
EARNINGS PER SHARE
Earnings per share was determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year (common stock equivalents are excluded if the
effects of inclusion are anti-dilutive).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, particularly deferred
tax assets, and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," was issued. The statement was adopted by the Company in the
first quarter of 1996. Under provisions of the statement, impairments, measured
using fair market value, are recognized whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable and the future undiscounted cash flows attributable to the asset are
less than its carrying value. Accordingly, the Company recognized a reduction in
market value of a certain long-lived asset. This write down resulted in a charge
to 1996 earnings of approximately $37,000.
STOCK BASED COMPENSATION
In October 1995, SFAS No. 123, "Stock Based Compensation," was issued. This
statement requires the Company to choose between two different methods of
accounting for employee stock options. The statement defines a fair-value-based
method of accounting for employee stock options but allows an entity to continue
to measure compensation cost for employee stock options using the accounting
prescribed by APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Use of the APB 25 accounting method results in no compensation cost
being recognized if options are granted at an exercise price equal to or greater
than the current market value of the stock. The Company will continue to use the
intrinsic value method under APB 25 but is required by SFAS 123 to make pro
forma disclosure of net income and earnings per share as if the fair value
method had been applied in its 1996 and 1995 financial statements. See Note 7 to
the consolidated financial statements for a more complete discussion of this
matter.
NEW ACCOUNTING PRONOUNCEMENT
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement
128"), which is effective for periods ending after
F-9
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
December 15, 1997. Statement 128 specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS"). Some of the changes made
to current EPS standards include: (i) eliminating the presentation of primary
EPS and replacing it with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS, (ii)
eliminating the modified treasury stock method and the three percent materiality
provision, and (iii) revising the contingent share provision and the
supplemental EPS data requirements. Statement 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement, as
well as a reconciliation of the numerator and denominator used in the two
computations of EPS. Basic EPS is defined by Statement 128 as net income from
continuing operations divided by the average number of common shares outstanding
without the consideration of common stock equivalents which may be dilutive to
EPS. The Company's current methodology for computing its fully diluted EPS will
not change in future periods as a result of its adoption of Statement 128.
RECLASSIFICATION
Certain amounts in the 1995 and 1994 Consolidated Financial Statements have
been reclassified to conform to the 1996 presentation.
2. SALE AND REPOSSESSION OF ASSETS:
In May, 1993, the Company repossessed from one of the purchasers of Company
assets most of the assets ("Power Placement Assets") previously sold by the
Company to such purchaser. Pursuant to an agreement dated December 16, 1993 and
after operating the Power Placement Assets since May, 1993, the Company sold the
capital stock of Recruiters Network Group, Inc. ("RNG"), a wholly-owned
subsidiary of the Company formed to operate these assets, to Donald A. Bailey
("Bailey"), then acting President of and a Director of the Company. As part of
the purchase agreement, Bailey provided funding to enable RNG to reimburse the
Company for RNG payroll costs; RNG issued a $40,000 promissory note payable to
the Company (collateralized by RNG stock, RNG assets and personally guaranteed
by Bailey); RNG issued a $15,000 promissory note payable to a former landlord of
the Company and guaranteed by Bailey; and one or more affiliates of Bailey
released the Company from certain obligations and liabilities totaling
approximately $57,000 payable by the Company to Bailey. These promissory notes
are reflected as notes receivable-related party in the balance sheet at December
31, 1995. Prior to the sale, the Company had considered closing RNG due to
recurring operating losses during 1993. As of December 31, 1996, all promissory
notes have been paid in full.
In December of 1992, another purchaser of Company assets caused both
Management Alliance Group Corp., formerly named Financial Recruiters, Inc.
("MAGC"), and Gary K. Steeds, Inc. ("GKS") to seek protection from their
respective creditors under the federal bankruptcy laws. In 1993, the Company was
able to obtain the necessary court approval to allow the Company to foreclose
upon the accounts receivable and certain other assets of MAGC and GKS. The
Company foreclosed upon MAGC and GKS assets on January 3, 1994. During December,
1993, the Company formed Management Alliance Corporation ("MAC") and Information
Systems Consulting Corp. ("ISC"), two wholly owned subsidiary corporations, to
operate the employment placement service businesses which MAGC and GKS operated
prior to the foreclosure action taken by the Company. The Company's Consolidated
Statements of Operations include the operations of these businesses from the
date of repossession.
F-10
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SALE AND REPOSSESSION OF ASSETS: (CONTINUED)
During the years ended December 31, 1995 and 1994, and due to the various
foreclosure transactions described above, the Company has recognized gains of
approximately $23,000 and $133,000, respectively, on the foreclosure of
divisional assets.
The following table sets forth the net book value, which approximates fair
value, of the MAGC and GKS assets foreclosed upon and repossessed by the Company
on January 3, 1994:
<TABLE>
<CAPTION>
INFORMATION
MANAGEMENT SYSTEMS
ALLIANCE CONSULTING CONSOLIDATED
CORPORATION CORP. CORPORATE TOTAL
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Accounts receivable......................................... $ 267,186 $ 228,510 $ 1,505 $ 497,201
Receivables from affiliates................................. 143,955 183,273 -- 327,228
Equipment, furniture and leasehold improvements, net........ 99,839 62,386 15,659 177,884
Other assets................................................ 26,282 -- 87,462 113,744
------------ ----------- ------------ ----------
Accounts payable, office reserves, accrued rents and
expenses, notes and capital lease obligations............. (387,780) (311,101) (128,250) (827,131)
------------ ----------- ------------ ----------
$ 149,482 $ 163,068 $ (23,624) $ 288,926
------------ ----------- ------------ ----------
------------ ----------- ------------ ----------
</TABLE>
3. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS:
Equipment, furniture and leasehold improvements consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Computer equipment.................................................... $ 673,699 $ 397,258
Office equipment and furniture........................................ 697,947 511,272
Leasehold improvements................................................ 102,785 36,187
Less accumulated depreciation and amortization........................ (666,434) (477,674)
---------- ----------
$ 807,997 $ 467,043
---------- ----------
---------- ----------
</TABLE>
F-11
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. TRADE ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Trade accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
Trade accounts payable............................................ $ 517,808 $ 739,366
Accrued expenses.................................................. 712,421 372,850
Accrued compensation.............................................. 1,761,246 1,031,434
Self-insured medical reserve...................................... 159,233 131,053
Accrued payroll expense........................................... 136,194 183,647
Other............................................................. 42,714 59,539
------------ ------------
$ 3,329,616 $ 2,517,889
------------ ------------
------------ ------------
</TABLE>
5. BORROWINGS UNDER FACTORING AND LOAN AGREEMENT AND OTHER SHORT-TERM DEBT:
During 1996 and 1995, wholly owned subsidiaries of the Company factored
certain trade accounts receivable pursuant to factoring agreements. Currently,
one of the Company's wholly owned subsidiaries factors its trade accounts
receivable with a factoring company that provides for advances up to $1.2
million. The subsidiary had approximately $3.1 million in accounts receivable at
December 31, 1996. Funds advanced on the receivables are reported as borrowings.
Interest charged on the outstanding balance of the borrowings is based on the
base lending rate as defined by the agreement plus 3%. The interest rate and
outstanding borrowings under the factoring agreement were 11.25% and
approximately $292,000 at December 31, 1996, and 21.16% and approximately
$648,000 at December 31, 1995. In addition, the factoring company charges a fee
of .6% on the amount of accounts receivable factored.
On August 26, 1996, one of the Company's wholly owned subsidiaries entered
into an accounts receivable based revolving line of credit agreement with a
finance company, which replaced one of the Company's factoring arrangements. The
term of the loan agreement is for one year but may be renewed if the subsidiary
and lender so agree. Fees and interest are based on the monthly average
outstanding balance under the line of credit. The amount available under the
line is based upon eligible accounts receivable up to a maximum aggregate amount
not to exceed the lesser of 85% of the aggregate amount of eligible receivables
or $1.0 million. The subsidiary had approximately $740,000 in accounts
receivable at December 31, 1996. All eligible receivables are pledged as
collateral. Interest is payable monthly at prime plus 2.5% (11% at December 31,
1996) plus an administrative fee of .6% on the average daily outstanding balance
during the preceding month. The loan requires that the monthly interest and
administrative fees be at least $7,500. At December 31, 1996, borrowings under
the line amounted to approximately $108,000. The loan agreement requires the
Company to maintain positive cash flow (as defined) and net income of no less
than $50,000 per quarter and restricts dividend payments and certain
transactions of such subsidiary with its affiliates.
On August 26, 1996, the Company entered into a $300,000 line of credit
agreement for the purchase of fixed assets. Interest is payable monthly at prime
plus 2.5% (11% at December 31, 1996) and the fixed assets financed are pledged
as collateral. The line of credit will convert into long-term debt upon $300,000
being advanced, depending on the Company's continued relationship with the
lender. The long-term debt will have a five year term and bear interest monthly
at prime plus 2.5%. In addition, the Company has
F-12
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BORROWINGS UNDER FACTORING AND LOAN AGREEMENT AND OTHER SHORT-TERM DEBT:
(CONTINUED)
pledged as collateral on this line of credit $450,000 of one of its subsidiary
company's accounts receivable. The outstanding balance of approximately $98,000
under this line is reflected in other short-term debt in the Consolidated
Balance Sheet at December 31, 1996.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Long-term debt consists of:
Noninterest bearing note due to the Federal Deposit Insurance
Corporation, quarterly installments of $5,000, due October 1997....... $ 20,000 $ 40,000
Adjustable rate (approximately 10%) at December 31, 1996, mortgage note
monthly installments of $729 plus interest, due 2013.................. 69,991 71,651
--------- ---------
89,991 111,651
Less current maturities of long-term debt............................... (21,834) (21,603)
--------- ---------
Total long-term debt.................................................... $ 68,157 $ 90,048
--------- ---------
--------- ---------
</TABLE>
During the year ended December 31, 1994, the Company settled a 9% adjustable
rate note payable to the FDIC and a 10% promissory note also due to the FDIC in
November, 1993, for $5,000 down and a non-interest bearing note for $60,000
payable in $5,000 quarterly installments.
Approximately $95,000 in obligations assumed by third party purchasers
during 1991 were recorded by the Company as part of the foreclosure upon and
repossession of assets previously owned by the Company. The obligations included
a $70,000 mortgage note payable that is collateralized by a first lien on
certain real estate included in other noncurrent assets.
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:
<TABLE>
<S> <C>
1997.................................................................. $ 21,834
1998.................................................................. 2,026
1999.................................................................. 2,238
2000.................................................................. 2,473
2001.................................................................. 2,732
2002 and thereafter................................................... 58,688
---------
$ 89,991
---------
---------
</TABLE>
F-13
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY:
Pursuant to the terms of two purchase agreements, the Company was to receive
27,499 and 278,352 shares, respectively, of the Company's common stock from two
former officers and directors of the Company in connection with these
agreements. A former officer and director had pledged a portion of these shares
to various lenders to collateralize certain debts. As a result of a breach of
certain pledge agreements operating in favor of the Federal Deposit Insurance
Corporation ("FDIC"), the FDIC foreclosed on a total of 100,000 shares. At
December 31, 1996, 112,349 shares of common stock of the former officers and
directors has been conveyed to the Company.
In October, 1995, options to purchase 50,000 shares of common stock (150,000
shares in the aggregate) were granted to each of the following: J. Michael
Moore, the Chairman of the Board and Chief Executive Officer of the Company, M.
Ted Dillard, President, Secretary, Treasurer, and director of the Company, and
Donald A. Bailey, a director of the Company. The terms and conditions of each of
these options are as follows:(a) each of the optionees (i) were immediately
vested as to 15,000 shares (45,000 shares in the aggregate); (ii) became vested
as to an additional 3,000 shares (9,000 shares in the aggregate) each quarter
commencing November, 1995 (the balance became fully vested at December 31, 1996
as described below); (b) vesting was contingent upon the optionee's continued
involvement as an officer or director of the Company; (c) at such time as an
optionee becomes vested with respect to shares of Common Stock, such optionee
may thereafter purchase the number of shares to which the optionee is vested,
subject to certain conditions; (d) the option price for options exercised is
$.50 per share; (e) subject to earlier termination as herein provided, vested
options (i) may be exercised at any time or times within five years from the
date of vesting, and (ii) must be exercised prior to the expiration of five
years from the date of vesting; and (f) if an optionee ceases to be an officer
or director of the Company, the options then vested as to such optionee must be
exercised within the earlier of (i) six calendar months from the date on which
optionee's continuous involvement with the Company is terminated for any reason
other than as provided in subsections (ii) and (iii) below; (ii) twelve calendar
months from the date on which optionee's continuous involvement with the Company
is terminated due to death, total disability or retirement at age 65; (iii)
three months from the date of termination of employment of optionee by the
Company for cause; or (iv) October 31, 2000 (five years from the date of
authorization of these options). Pursuant to a Board of Directors meeting on
December 27, 1996, the Board of Directors unanimously approved the immediate
vesting of all of the aforementioned options effective December 31, 1996.
Subsequent to December 31, 1996, J. Michael Moore, M. Ted Dillard and Donald A.
Bailey exercised their stock options.
Under provisions of the Company's 1996 Amended and Restated Nonqualified
Stock Option Plan (the "Plan"), options to purchase an aggregate of 450,000
shares of the Company's common stock may be granted to key personnel of the
Company. Options may be granted for a term of up to ten years to purchase common
stock at a price or prices established by the Compensation Committee of the
Board of Directors of the Company or its appointee.
In December 1996, options to purchase 30,000 shares of common stock were
granted under the Plan to Mr. Bailey. Subsequent to December 31, 1996, Samuel E.
Hunter, an individual recently named as a member of the Board of Directors of
the Company, was also granted options under the Plan to purchase 30,000 shares
of Common Stock. The terms and conditions of these options are as follows: (a)
each of the optionees will become vested as to their option shares on a prorata
quarterly basis commencing January 1, 1997 and ending on December 31, 1999; (b)
prior to such options becoming vested, vesting is contingent upon the optionee's
continued involvement as a director of the Company; (c) at such time as an
optionee becomes vested with respect to shares of Common Stock, such optionee
may thereafter purchase the
F-14
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY: (CONTINUED)
number of shares to which the optionee is vested, subject to certain conditions;
(d) the option price for options exercised is $3.00, $4.00 and $5.00 per share
for options vesting in 1997, 1998 and 1999, respectively; (e) subject to earlier
termination as herein provided, vested options (i) may be exercised at any time
prior to termination, and (ii) must be exercised prior to December 31, 2001; and
(f) if an optionee ceases to be a director of the Company, the options then
vested as to such optionee must be exercised within the earlier of (i) six
calendar months from the date on which optionee's continuous involvement with
the Company is terminated for any reason other than death or disability, (ii)
twelve calendar months from the date on which optionee's continuous involvement
with the Company is terminated due to death or disability, or (iii) December 31,
2001.
In December 1996, the Board of Directors of the Company approved the
issuance of stock options to Messrs. Moore and Dillard pursuant to the Plan
under which Messrs. Moore and Dillard have the right to purchase, respectively,
155,000 and 105,000 shares of common stock at varying prices subject to the
following conditions: (a) effective as of December 31, 1996, Mr. Moore became
vested as to 77,500 shares and Mr. Dillard became vested as to 52,500 shares;
(b) Mr. Moore will become vested as to an additional 46,500 shares and 31,000
shares, respectively, on December 31, 1997 and 1998; (c) Mr. Dillard will become
vested as to an additional 31,500 shares and 21,000 shares, respectively, on
December 31, 1997 and 1998; (d) prior to the options becoming vested, vesting is
contingent upon the optionee's continued involvement as an officer or director
of the Company; (e) the per share exercise price for options becoming vested in
1996, 1997 and 1998 are, respectively, $2.50, $4.00 and the lesser of $8.00 or
the price per share if the Company effectuates a public offering of its Common
Stock subsequent to the date hereof and prior to December 31, 1998; (f) subject
to earlier termination as herein provided, vested options (i) may be exercised
at any time or times prior to termination, and (ii) must be exercised prior to
December 31, 2001; and (g) if an optionee ceases to be an officer and director
of the Company, the options then vested as to such optionee must be exercised
within the earlier of (i) six calendar months from the date on which optionee's
continuous involvement with the Company is terminated for any reason other than
due to death or disability, (ii) twelve calendar months from the date on which
optionee's continuous involvement with the Company is terminated due to death or
disability, or (iii) December 31, 2001.
The following is a summary of the Company's stock options as of December 31,
1995.
<TABLE>
<CAPTION>
NUMBER OF RANGE
WEIGHTED SHARES OF OF
AVERAGE UNDERLYING EXERCISE
EXERCISE PRICE OPTIONS PRICES
--------------- ----------- -----------
<S> <C> <C> <C>
Outstanding at beginning of year............................................ $ -- -- $ --
Granted at a premium........................................................ .50 150,000 .50
-----------
Outstanding at end of year.................................................. .50 150,000 .50
-----------
-----------
Exercisable at December 31, 1995............................................ .50 45,000 .50
-----------
-----------
</TABLE>
F-15
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY: (CONTINUED)
The following is a summary of the Company's stock options as of December 31,
1996.
<TABLE>
<CAPTION>
NUMBER OF RANGE
WEIGHTED SHARES OF OF
AVERAGE UNDERLYING EXERCISE
EXERCISE PRICE OPTIONS PRICES
--------------- ----------- ----------------
<S> <C> <C> <C>
Outstanding at beginning of year.................................... $ .50 150,000 $ .50 to $ .50
Granted at a premium................................................ 4.04 290,000 2.50 to 8.00
-----------
Outstanding at end of year.......................................... 2.84 440,000 .50 to 8.00
-----------
-----------
Exercisable at December 31, 1996.................................... 1.43 280,000 .50 to 2.50
-----------
-----------
</TABLE>
No options were forfeited, expired or exercised in 1995 or 1996.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123") establishes a fair value basis of accounting
for stock based compensation plans. Had the compensation cost for the Company's
employee stock based compensation plans been determined consistent with SFAS
123, the Company's net income would approximate the amounts below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- ------------------------
<S> <C> <C> <C> <C>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------ ----------- -----------
SFAS 123 compensation cost.................................. $ -- $ 254,863 $ -- $ 11,730
APB 25 compensation cost.................................... $ -- $ -- $ -- $ --
Net income.................................................. $ 1,784,937 $ 1,530,074 $ 460,683 $ 448,953
Primary earnings per share:
Income before extraordinary item.......................... $ .84 $ .70 $ .16 $ .16
Extraordinary item........................................ .14 $ .14 $ .10 $ .10
------------ ------------ ----------- -----------
Primary earnings per share.................................. $ .98 $ .84 $ .26 $ .26
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Fully diluted earnings per share:
Income before extraordinary item.......................... $ .83 $ .69 $ .16 $ .16
Extraordinary item........................................ .13 .13 .10 .10
------------ ------------ ----------- -----------
Fully diluted earnings per share............................ $ .96 $ .82 $ .26 $ .26
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
The effects of applying SFAS 123 as disclosed above are not indicative of
future amounts. SFAS 123 does not apply to awards prior to 1995, and the Company
anticipates making awards in the future under its stock based employee
compensation plan.
The fair value of each stock option granted and the resultant compensation
cost is estimated on the date of grant using the minimum value method of option
pricing with the following weighted-average assumptions for grants in 1996;
dividend yield of 0.0%; expected volatility of 184.11%; risk-free interest rates
are different for each grant and range from 5.71% to 6.09%; and the expected
lives of 2.5 to 4 years based on the vesting schedules of the options for the
1996 options.
The weighted-average grant date fair value of options granted during the
year ended December 31, 1996 was $2.82 and $.20 during the year ended December
31, 1995.
F-16
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVE. WEIGHTED
REMAINING AVE.
RANGE OF EXERCISE NUMBER CONTR. LIFE EXERCISE NUMBER WEIGHTED AVE.
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE EXERCISE PRICE
- ------------------------------------------------- ----------- ------------- ----------- ----------- ---------------
$ .50 - $2.50 280,000 4.37 $ 1.43 280,000 $ 1.43
$2.51 - $5.00 108,000 5.00 4.00 -- --
$5.01 - $8.00 52,000 5.00 8.00 -- --
--- -----------
$ .50 - $8.00 440,000 4.60 $ 2.84 280,000 $ 1.43
--- -----------
--- -----------
</TABLE>
In 1996, the Company entered into an agreement with a consultant (who is not
otherwise affiliated with the Company) which provides for payment to the
consultant of (a) a placement fee of 0.1% of the amount of all long-term debt
(other than collateralized, bank indebtedness) or equity capital raised by the
Company during the period of the agreement and (b) an acquisition fee of 0.5% of
the purchase price of any business acquired by the Company during the period of
the agreement, provided that the consultant supplies the lead or provides due
diligence relating to such acquisition. This agreement includes provisions
related to the grant of stock options to the consultant, but no options have
been granted because the Board of Directors of the Company did not approve the
grant of such options. This agreement may be canceled by either party upon 30
days notice.
8. FEDERAL INCOME TAXES:
The income tax provision and the amount computed by applying the federal
statutory income tax rate to income before income taxes differs as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ---------
Tax provision at statutory rate................................................ $ 684,619 $ 156,632 $ 76,322
Utilization of net operating loss carryforward................................. (589,200) (156,632) (76,322)
Change in valuation allowance exclusive of utilization of net operating loss
carryforward................................................................. (19,400) -- --
Other.......................................................................... (7,834) -- --
Alternative minimum tax........................................................ 28,105 -- --
State income taxes of $200,544, net of federal income tax benefit of $68,185... 132,359 60,054 --
---------- ---------- ---------
Total...................................................................... $ 228,649 $ 60,054 $ --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-17
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. FEDERAL INCOME TAXES: (CONTINUED)
<TABLE>
<CAPTION>
The allocation of income taxes is:
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operations........................................................ $ 224,774 $ 60,054 $ --
Extraordinary item................................................ 3,875 -- --
--------- --------- ---------
Total......................................................... $ 228,649 $ 60,054 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Net operating loss carryforward................................. $ 849,300 $ 1,438,500
Allowance for doubtful accounts................................. 167,900 142,000
Self insured medical reserve.................................... 54,100 44,600
Other........................................................... (15,600) 39,200
------------- -------------
Gross deferred tax asset........................................ 1,055,700 1,664,300
Valuation allowance............................................. $ (1,055,700) $ (1,664,300)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
The Company's valuation allowance decreased approximately $609,000, $112,000
and $75,000 during the years ended December 31, 1996, 1995 and 1994,
respectively. The Company has a net operating loss carryforward of approximately
$2,498,000 as of December 31, 1996, which, if unused, expires in 2006 through
2008. However, due to a more than 50% change in ownership beginning with an
April 1991 transaction, the Company's net operating loss carryforward is subject
to certain limitations pursuant to provisions of the Internal Revenue Code. The
amount of the Company's net operating loss available for use as of December 31,
1996, was approximately $336,000. An additional $467,000 will become available
annually through 2001.
9. DEBT RESTRUCTURING:
During the years ended December 31, 1996, 1995 and 1994, the Company settled
certain delinquent trade accounts payable on a discounted basis as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Gain on debt restructuring, net of income taxes.............................. $ 246,125 $ 174,811 $ 208,212
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
10. RELATED PARTY TRANSACTIONS:
The Company leased approximately 2,000 square feet for approximately $2,000
per month from United States Funding Group, Inc. ("USFG") through January 1996,
which was used as its principal offices. USFG is wholly owned by J. Michael
Moore, Chairman of the Board and Chief Executive Officer of the Company. Rent
expense was approximately $1,300 and $19,900 in 1996 and 1995, respectively, on
this lease.
F-18
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS: (CONTINUED)
During 1991, USFG-DHRG #1, Ltd. ("USFG Ltd."), then the controlling
stockholder of the Company, loaned the Company $175,000 on a one-year, 10% note,
due November 3, 1992, to be used in the operations of the business. USFG was the
managing partner in USFG Ltd. The Company made principal payments of $75,500
during 1992, and borrowed from USFG Ltd. an additional $50,000 during the year.
During 1993, the Company borrowed from USFG Ltd. an additional $100,000, and
repaid $135,000. During 1994 and 1995, the Company repaid $100,000 and $14,500,
respectively, of such loan. As of December 31, 1995, these loans were repaid in
full.
See Note 2 regarding the sale of RNG capital stock and Note 7 regarding
purchase agreements with two former officers and directors of the Company.
In January of 1996, the Company loaned $25,000 to United States Funding
Group Oil and Gas, Inc., an entity wholly owned by Mr. Moore, Chairman of the
Board and Chief Executive Officer of the Company. Such loan was evidenced by a
promissory note bearing interest at the rate of 1% per month on the unpaid
balance due in monthly installments. In addition, a 10% loan origination and
administration fee was charged. As of March 31, 1997, this note has been paid in
full.
During 1995, the Company advanced a total of $37,000 to former officers of
its wholly owned subsidiary companies. During 1996, an additional advance of
$4,000 was made. These advances are reflected in prepaid expenses and other
current assets in the balance sheet at December 31, 1995. The balance of $41,000
was written off when the former officer left the Company during 1996.
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc. for the purpose of providing personnel services to certain
businesses requiring minority suppliers and to others. Laurie Moore, the wife of
J. Michael Moore, the Chief Executive Officer and Chairman of the Board of the
Company, was a minority shareholder of CFS, Inc. until her interest was
purchased by the majority shareholder of CFS, Inc. in 1996, which was made
effective retroactive to January 1, 1995. (See Note 13 Joint Venture Operations,
for more information.)
The Company had approximately $41,000 payable to related parties, including
certain former directors and officers, included in trade accounts payable and
accrued expenses at December 31, 1996.
During 1996 and 1995, the Company paid various expenses on behalf of Mr.
Moore or various entities that he controls in the amount of approximately
$160,000 and $25,000, respectively. As these amounts are to be repaid by Mr.
Moore, they have been recorded as receivables. Of the $160,000 in 1996,
approximately $105,000 (which represents approximately 50% of the total legal
expense) relates to litigation defense associated with a lawsuit with Ditto
Properties, Inc., in connection with the Company being named therein as
garnishee. (See "Business--Legal Proceedings.") With respect to the $105,000,
Mr. Moore has executed a non-interest bearing promissory note to the Company
which has a six month maturity and is expected to be repaid during 1997. The
balance of the $160,000 consists of approximately $24,000 of advances and
approximately $31,000 of interest bearing notes. These notes bear interest at
10% and require monthly principal and interest payments over 36 months. None of
these receivables are collaterized. The $105,000 note and the $24,000 of
advances are reported as receivables from related party in the Stockholders'
Equity section of the Consolidated Balance Sheet. The $31,000 of notes are
included in notes receivable-related party.
F-19
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS: (CONTINUED)
Interest income from related parties amounted to approximately $5,500 in
1996, approximately $1,300 in 1995 and approximately $2,600 in 1994. Interest
expense incurred on related parties borrowings amounted to approximately $10,700
in 1995 and approximately $7,200 in 1994.
11. EMPLOYEE BENEFIT PLANS:
During the year ended December 31, 1991, the Company adopted the Diversified
Human Resources Group, Inc. Employees' Stock Ownership Plan ("ESOP"). Due to the
financial difficulties incurred by the Company during the year ended December
31, 1991, an initial contribution was not made to the ESOP, and to date, no
contributions have been made. Management is currently evaluating the possibility
of initiating the ESOP or some other form of stock ownership plan for certain of
its employees.
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company rents office space under various operating leases. Certain of
the leases have escalating rent payments. The Company is liable for the future
minimum lease payments for the periods subsequent to December 31, 1996, as
follows:
<TABLE>
<S> <C>
1997............................................................ $1,185,027
1998............................................................ 1,170,877
1999............................................................ 1,017,465
2000............................................................ 872,759
2001............................................................ 825,537
2002 and thereafter............................................. 907,660
---------
Future minimum lease payments................................... $5,979,325
---------
---------
</TABLE>
The aggregate amount of past due rental payments owed by the Company to one
of its landlords was approximately $31,000 as of December 31, 1996, which is
included in accrued expenses. The Company has previously negotiated with this
landlord and plans to settle this obligation during renegotiation of the lease
when it expires. Such amount is reflected in the 1997 future minimum lease
payments set forth in the table above. Rent expense was approximately
$1,027,000, $894,000 and $897,000 for the years ended December 31, 1996, 1995,
and 1994, respectively.
EMPLOYMENT AGREEMENTS
As of December 31, 1996, the Company had entered into employment contracts
with certain key employees.
The Board of Directors of the Company approved employment agreements with
both J. Michael Moore, Chairman of the Board and Chief Executive Officer of the
Company, and M. Ted Dillard, President, Secretary and Treasurer of the Company,
the terms of which are as follows: (a) annual compensation of $150,000 for Mr.
Moore and $125,000 for Mr. Dillard; (b) a term of three years with the
possibility of renewal unless terminated; (c) the right to participate in any
and all retirement plans and fringe benefit programs which the Company now has
in effect or may hereafter adopt.
F-20
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Subsequent to December 31, 1996, the Company formed EMSR, Inc. (formerly a
branch of the Company) as a wholly-owned subsidiary of the Company. Management
has entered into a preliminary agreement with Scott Higby, the President of
EMSR, Inc., for an equity arrangement pursuant to which Mr. Higby will be
granted stock options that will vest over a four year period. The option calls
for a nominal exercise price whereby Mr. Higby may exercise options granting him
up to 25% of the stock of EMSR, Inc. on a prorata basis over a four year period.
CONTINGENCIES
The Company is named as a garnishee in a lawsuit against the majority
shareholder, which the Company believes is without merit. As the result of an
Agreed Temporary Order dated October 24,1996, the Company was non-suited in this
matter. The Company has filed a separate lawsuit against the plaintiff seeking
damages and reimbursement of expense, alleging that plaintiffs interfered with
Company business transactions and proposed financings resulting in delays of
certain transactions, lost opportunities, lost profits and other significant
losses. Additionally, the Company has been named in a lawsuit filed by two
former employees claiming damages for the fair market value of certain shares of
common stock of certain subsidiaries of the Company as well as other damages for
breach of contract and various other allegations. The Company has filed a third
party petition against one of these plaintiffs and a counterclaim against the
other plaintiff. The Company is also involved in certain other litigation and
disputes not previously noted. With respect to all the aforementioned matters,
management believes they are without merit and has concluded that the ultimate
resolution of such will not have a material effect on the Company's consolidated
financial statements.
13. JOINT VENTURE OPERATIONS:
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc., for the purpose of primarily providing personnel services to
certain businesses requiring minority suppliers. CFS, Inc. is a minority
operated corporation, which because of its status, supplies services to clients
requiring a certain portion of its business to be allocated to minority owned
and operated vendors. The Company provides CFS, Inc. with substantially all of
its personnel and contract labor on a subcontractor basis at cost. Laurie Moore,
the wife of J. Michael Moore, the Chief Executive Officer and Chairman of the
Board of the Company, owned 49% of CFS, Inc. On August 15,1996, the majority
shareholder of CFS, Inc. purchased the 49% ownership interest of Ms. Moore,
pursuant to a transaction which was made effective retroactive to January 1,
1995. Ms. Moore received no monetary gain on her investment in CFS, Inc. or on
this transaction. The Company has a 49% ownership interest in the joint venture
and is allocated 65% of the net income or loss resulting from the joint venture
operations.
F-21
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. JOINT VENTURE OPERATIONS: (CONTINUED)
The following is summarized audited financial information on the joint
venture:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1995
----------- ----------
Current assets....................................................... $ 112,539 $ 77,596
Non-current assets................................................... 36,965 1,000
Current liabilities.................................................. 36,822 --
Non-current liabilities.............................................. 324,203 151,174
Net sales............................................................ 288,087 317,367
Gross margin (loss).................................................. (23,617) 10,858
Net loss............................................................. (138,943) (73,577)
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Diversified Corporate Resources, Inc.:
Our report on the consolidated financial statements of Diversified Corporate
Resources, Inc. and Subsidiaries as of and for the year ended December 31, 1996
is included on page F-2 of this Amendment No. 1 to Form S-1. In connection with
our audit of such financial statements, we have also audited the related
financial statement schedule for the year ended December 31, 1996 listed in the
index on page F-1 of this Form S-1.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 30, 1997
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Diversified Corporate Resources, Inc.:
Dallas, Texas
Our report on the consolidated financial statements of Diversified Corporate
Resources, Inc. and subsidiaries as of December 31, 1995 and for each of the two
years in the period ended December 31, 1995, is included on page F-3 of this
Amendment No. 1 to Form S-1. In connection with our audit of such financial
statements, we have also audited the related financial statement schedule for
the years ended December 31, 1995 and 1994 listed in the index on page F-1 of
this Form S-1.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
WEAVER AND TIDWELL, L.L.P
Dallas, Texas
April 9, 1996
F-24
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BAD DEBT
PROVISIONS
BALANCE AT CHARGED TO PROVISIONS BALANCE AT
BEGINNING OF COSTS & CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES REVENUES DEDUCTIONS PERIOD
- ------------------------------------------- ------------ ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1994:
Trade accounts receivable allowances..... $ 164,000 $ 116,000 $ 803,000(1) $ 878,000 $ 205,000
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
Valuation allowance for deferred tax
assets................................. $ 1,851,494 $ -- $ -- $ 75,354 $ 1,776,140
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
For the year Ended December 31, 1995:
Trade accounts receivable allowances..... $ 205,000 $ 116,000 $ 1,028,000(1) $ 937,000 $ 412,000
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
Valuation allowance for deferred tax
assets................................. $ 1,776,140 $ -- $ -- $ 111,840 $ 1,664,300
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
For the Year Ended December 31, 1996:
Trade accounts receivable allowances..... $ 412,000 $ 165,000 $ 1,256,000(1) $ 1,339,000 $ 494,000
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
Valuation allowance for deferred tax
assets................................. $ 1,664,300 $ -- $ -- $ 608,600 $ 1,055,700
------------ ---------- -------------- ------------ ------------
------------ ---------- -------------- ------------ ------------
</TABLE>
- ------------------------
(1) Estimated reduction in revenues for applicants who accepted employment, but
did not start work or did not remain in employment for the guaranteed
period.
F-25
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 271,753 $ 612,512
Trade accounts receivable, less allowances of approximately
$452,000 and $494,000, respectively.............................................. 4,362,695 3,387,138
Notes receivable-related party..................................................... 9,886 9,326
Prepaid expenses and other current assets.......................................... 95,281 34,443
------------ ------------
TOTAL CURRENT ASSETS........................................................... 4,739,615 4,043,419
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET.................................................................. 1,173,216 807,997
OTHER ASSETS:
Investment in and advances to joint venture........................................ 216,774 152,905
Notes receivable-related party..................................................... 16,666 21,690
Other.............................................................................. 416,656 177,879
------------ ------------
$ 6,562,927 $5,203,890
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses........................................ $ 3,804,608 $3,329,616
Book overdraft..................................................................... 28,801 98,158
Borrowing under factoring and loan agreements...................................... 360,841 400,682
Other short-term debt.............................................................. 241,901 97,652
Current maturities of long-term debt............................................... 6,928 21,834
------------ ------------
TOTAL CURRENT LIABILITIES...................................................... 4,443,079 3,947,942
DEFERRED LEASE RENTS................................................................. 24,946 --
LONG-TERM DEBT....................................................................... 67,172 68,157
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued.......................................................... -- --
Common stock, $.10 par value; 10,000,000 shares authorized, 2,031,161 and
1,881,161 shares issued, respectively............................................ 203,116 188,116
Additional paid-in capital......................................................... 3,675,151 3,615,151
Accumulated deficit................................................................ (1,424,229) (2,301,108)
Common stock held in treasury (245,849 shares at cost)............................. (185,175) (185,175)
Receivables from related party..................................................... (241,133) (129,193)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY..................................................... 2,027,730 1,187,791
------------ ------------
$ 6,562,927 $5,203,890
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
NET SERVICE REVENUES:
Permanent placement.............................................................. $ 7,981,243 $ 5,961,464
Specialty services............................................................... 3,870,698 3,364,500
Contract placement............................................................... 3,800,593 3,701,485
------------- -------------
15,652,534 13,027,449
COST OF SERVICES................................................................... 10,968,514 9,250,167
------------- -------------
GROSS MARGIN....................................................................... 4,684,020 3,777,282
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................................... (3,717,190) (2,706,675)
OTHER INCOME (EXPENSES):
Loss from joint venture operations............................................... (19,488) (60,085)
Interest expense, net............................................................ (74,131) (131,689)
Other, net....................................................................... 53,943 22,375
------------- -------------
(39,676) (169,399)
------------- -------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.................................. 927,154 901,208
INCOME TAXES--current provision.................................................... 93,358 111,882
------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM................................................... 833,796 789,326
EXTRAORDINARY ITEM--gain on debt restructuring, net................................ 43,083 --
------------- -------------
NET INCOME......................................................................... $ 876,879 $ 789,326
------------- -------------
------------- -------------
PRIMARY EARNINGS PER SHARE:
Income before extraordinary item................................................. $ .46 $ .43
Extraordinary item............................................................... .02 --
------------- -------------
Total........................................................................ $ .48 $ .43
------------- -------------
------------- -------------
Weighted average common and common equivalent shares outstanding................... 1,828,141 1,853,064
------------- -------------
------------- -------------
FULLY DILUTED EARNINGS PER SHARE:
Income before extraordinary item................................................. $ .45 $ .43
Extraordinary item............................................................... .02 --
------------- -------------
Total........................................................................ $ .47 $ .43
------------- -------------
------------- -------------
Weighted average common and common equivalent shares outstanding................... 1,879,336 1,853,064
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
----------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 876,879 $ 789,326
Adjustments to reconcile net income to cash provided by operating activities:
Extraordinary item................................................................ (43,083) --
Depreciation and amortization..................................................... 136,960 93,838
Other............................................................................. 6,882 --
Provision for allowances.......................................................... (41,834) (18,814)
Equity in loss of joint venture................................................... 19,488 60,085
Write-down of long-lived assets................................................... -- 37,462
Deferred lease rents.............................................................. 24,946 (31,519)
Changes in operating assets and liabilities:
Accounts receivable............................................................... (933,723) (1,135,913)
Prepaid expenses and other current assets......................................... (60,838) (75,012)
Other assets...................................................................... (696) 3,330
Trade accounts payable and accrued expenses....................................... 518,075 761,414
----------- -------------
Cash provided by operating activities........................................... 503,056 484,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................ (509,061) (210,633)
Deposits............................................................................ 500 (2,540)
Loans and advances to related parties............................................... (111,940) (25,000)
Repayment from related parties...................................................... 4,464 9,029
Net advances to joint venture....................................................... (83,357) (18,435)
----------- -------------
Cash used in investing activities............................................... (699,394) (247,579)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock under option agreements........................................... 75,000 --
(Decrease) increase in borrowings under factoring and loan arrangements............. (39,841) 102,808
Proceeds from other short-term debt................................................. 144,249 --
Principal payments under long-term debt obligations................................. (15,891) (15,810)
Book overdraft...................................................................... (69,357) (129,235)
Deferred offering costs............................................................. (238,581) --
----------- -------------
Cash used in financing activities............................................... (144,421) (42,237)
----------- -------------
Decrease in cash and cash equivalents......................................... (340,759) 194,381
Cash and cash equivalents at beginning of year................................ 612,512 6,239
----------- -------------
Cash and cash equivalents at end of period.................................... $ 271,753 $ 200,620
----------- -------------
----------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............................................ $ 87,094 $ 136,365
----------- -------------
----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"), all of which are
wholly owned. The financial information for the six months ended June 30, 1997
and 1996, is unaudited but includes all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of the results for the periods. The financial information should be
read in conjunction with the consolidated financial statements for the year
ended December 31, 1996, included in the Company's annual report on Form 10-K.
Operating results for the six months ended June 30, 1997, are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1997.
RECLASSIFICATIONS
Certain amounts in the June 30, 1996, consolidated financial statements have
been reclassified to conform to the 1997 presentation.
2. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and leasehold improvements consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Computer equipment............................................... $ 1,040,909 $ 673,699
Office equipment and furniture................................... 580,476 697,947
Leasehold improvements........................................... 126,133 102,785
------------ ------------
1,747,518 1,474,431
Less accumulated depreciation and amortization................... (574,302) (666,434)
------------ ------------
$ 1,173,216 $ 807,997
------------ ------------
------------ ------------
</TABLE>
3. ACCOUNTS RECEIVABLE FROM RELATED PARTY
During the first six months of 1997, the Company paid various expenses on
behalf of J. Michael Moore or various entities which he controls amounting to
approximately $112,000. Mr. Moore is the Chairman of the Board and Chief
Executive Officer of the Company. The $112,000 is included in receivables from
related party shown in the Stockholders' Equity section of the Consolidated
Balance Sheet. Of this amount, approximately $100,000 is related to the
litigation defense associated with a lawsuit with Ditto Properties, Inc., in
connection with the Company being named therein as garnishee. (See Part 1, Item
3, Legal Proceedings, in the Company's Form 10-K for the year ended December 31,
1996.)
F-29
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. INCOME TAXES
The income tax provision and the amount computed by applying the federal
statutory income tax rate to income before income taxes differs as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Tax provision (at statutory rate)................................... ($ 324,504) ($ 306,411)
Utilization of net operating loss carryforwards..................... 324,504 306,411
Alternative minimum tax............................................. (10,850) (18,655)
State income tax expense............................................ (82,508) (93,227)
----------- -----------
Total........................................................... $ (93,358) ($ 111,882)
----------- -----------
----------- -----------
</TABLE>
5. OTHER SHORT-TERM DEBT
On August 26, 1996, the Company entered into a $300,000 line of credit
agreement for the purchase of fixed assets. Interest is payable monthly at prime
plus 2.5% and the fixed assets financed and certain subsidiary accounts
receivable are pledged as collateral. The line of credit of approximately
$242,000 at June 30, 1997, will convert into long-term debt upon $300,000 being
advanced, depending on the Company's continued relationship with the lender. The
long-term debt will have a five year term and bear interest monthly at prime
plus 2.5%.
6. CONTINGENCIES
The Company is named as a garnishee in a lawsuit against the majority
shareholder, which the Company believes is without merit. As the result of an
Agreed Temporary Order dated October 24, 1996, the Company was non-suited in
this matter. The Company has filed a separate lawsuit against the plaintiff
seeking damages and reimbursement of expenses, alleging that plaintiffs
interfered with Company business transactions and proposed financings resulting
in delays of certain transactions, lost opportunities, lost profits and other
significant losses. Additionally, the Company has been named in a lawsuit filed
by two former employees claiming damages for the fair market value of certain
shares of common stock of certain subsidiaries of the Company as well as other
damages for breach of contract and various other allegations. The Company has
filed a third party petition against one of these plaintiffs and a counterclaim
against the other plaintiff. The Company is also involved in certain other
litigation and disputes not previously noted. With respect to all the
aforementioned matters, management believes they are without merit and has
concluded that the ultimate resolution of such will not have a material effect
on the Company's consolidated financial statements.
7. NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which is effective for periods ending after December 15, 1997. Statement
128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS"). Some of the changes made to current EPS standards
include: (i) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that common stock equivalents are
not considered in computing basic EPS,
F-30
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
(ii) eliminating the modified treasury stock method and the three percent
materiality provision, and (iii) revising the contingent share provision and the
supplemental EPS data requirements. Statement 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement, as
well as a reconciliation of the numerator and denominator used in the two
computations of EPS. Basic EPS is defined by Statement 128 as net income from
continuing operations divided by the average number of common shares outstanding
without the consideration of common stock equivalents which may be dilutive to
EPS. The Company's current methodology for computing its fully diluted EPS will
not change in future periods as a result of its adoption of Statement 128.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosure About Segments
of an Enterprise and Related Information." Preliminary analysis of these new
standards by the Company indicates that the standards will not have a material
impact on the Company. The standards are effective for financial statements for
fiscal years beginning after December 15, 1997.
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
The Company.................................... 12
Use of Proceeds................................ 12
Capitalization................................. 13
Price Range of Common Stock.................... 14
Dividend Policy................................ 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 16
Business....................................... 22
Management..................................... 30
Certain Relationships and Related
Transactions................................. 36
Principal and Selling Shareholders............. 38
Shares Eligible for Future Sale................ 40
Description of Capital Stock................... 41
Underwriting................................... 43
Legal Matters.................................. 45
Experts........................................ 45
Additional Information......................... 46
Index to Financial Statements.................. F-1
</TABLE>
------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OF
SOLICITATION IS NOT QUALIFIED TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
1,075,000 SHARES
[LOGO]
DIVERSIFIED CORPORATE
RESOURCES, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
[LOGO]
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 4,498
NASD filing fee................................................... $ 1,700
Nasdaq National Market listing fee................................ $ 20,000
Printing and engraving costs...................................... $ 75,000*
Legal fees and expenses........................................... $ 150,000*
Accounting fees and expenses...................................... $ 75,000*
Blue Sky fees and expenses........................................ $ 17,000*
Registrar and Transfer Agent's fees............................... $ 7,300
Underwriter's expense allowance................................... $ 250,000
Miscellaneous..................................................... $ 19,502
---------
Total......................................................... $ 620,000
---------
---------
</TABLE>
- ------------------------
* Estimated
The Company will pay all of such expenses to be incurred in connection with
the issuance and distribution of the securities registered hereby.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY FOR
MONETARY DAMAGES
(a) The Articles of Incorporation of the Registrant, together with its
Bylaws, provide that the Registrant shall indemnify officers and directors, and
may indemnify its other employees and agents, to the fullest extent permitted by
law. The laws of the State of Texas permit, and in some cases require,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, fines, settlements and reasonable expenses under certain
circumstances.
(b) The Registrant has also adopted provisions in its Articles of
Incorporation that limit the liability of its directors and officers to the
fullest extent permitted by the laws of the State of Texas. Under the
Registrant's Articles of Incorporation, and as permitted by the laws of the
State of Texas, a director or officer is not liable to the Registrant or its
shareholders for damages for breach of fiduciary duty. Such limitation of
liability does not affect liability for (i) breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of the
law, (iii) any transaction from which the director derived an improper personal
benefit, or (iv) the payment of any unlawful distribution.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information as July 31, 1997 regarding all sales of
unregistered securities of the Registrant during the past three years. In
connection with each of these transactions, the shares were sold to a limited
number of persons, such persons were provided access to all relevant information
regarding the Registrant and/or represented to the Registrant that they were
"sophisticated" investors, and such persons represented to the Registrant that
the shares were purchased for investment purposes only
II-1
<PAGE>
and not with a view toward distribution. Each such issuance was made in reliance
on Section 4(2) of the Securities Act of 1933, as amended.
(1) Issuance of Stock Options to J. Michael Moore, M. Ted Dillard, and
Donald A. Bailey, for the purchase by each of 50,000 shares of Common Stock,
pursuant to Stock Option Agreements dated December 1, 1995.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
1.2 Form of Common Stock Warrant*
2 Agreement and Plan of Merger (incorporated by reference from Exhibit 2(a) to the
Registrant's Registration Statement on Form S-18 (Reg. No. 33-760 FW))
3.1 Articles of Incorporation of the Registrant as amended (incorporated by reference
from Exhibit 3(a) to the Registrant's Registration Statement on Form S-18 (Reg. No.
33-760 FW))
3.2 Amended and Restated By-laws of the Registrant (incorporated by reference from
Exhibit 3(b) to the Registrant's Registration Statement on Form S-18 (Reg. No.
33-760 FW))
4.1 Form of certificate for the Common Stock of the Registrant (incorporated by
reference from Exhibit 4(a) to the Registrant's Registration Statement on Form S-18
(Reg. No. 33-760 FW))
5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation*
10.1 Employment Contract Agreement entered into June 9, 1995, between Management Alliance
Corporation, a wholly-owned subsidiary of the Registrant, and Anthony J. Bruno,
Chicago, Illinois, an employee (incorporated by reference from Exhibit 10(z)(iii) to
the Registrant's Form 10-K for the year ended December 31, 1994)
10.2 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and J.
Michael Moore, executed December 1, 1995 (incorporated by reference from Exhibit
10(z)(iv)to the Registrant's Form 10-K for the year ended December 31, 1995)
10.3 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and M.
Ted Dillard, executed December 1, 1995 (incorporated by reference from Exhibit
10(z)(v) to the Registrant's Form 10-K for the year ended December 31, 1995)
10.4 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and
Donald A. Bailey, executed December 1, 1995 (incorporated by reference from Exhibit
10(z)(vi) to the Registrant's Form 10-K for the year ended December 31, 1995)
10.5 Loan Agreement by and between Information Systems Consulting Corp. (a wholly-owned
subsidiary of the Company) and Concord Growth Corp. executed August 26, 1996
(incorporated by reference from Exhibit 10(z)(vii) to the Registrant's Form 10-K for
the year ended December 31, 1996)
10.6 Amendment to Loan Agreement by and between Information Systems Consulting Corp. and
Concord Growth Corp (incorporated by reference from Exhibit 10(z)(viii) to the
Registrant's Form 10-K for the year ended December 31, 1996)
10.7 General Continuing Guaranty of Preferred Funding Corporation in favor of Concord
Growth Corporation (incorporated by reference from Exhibit 10(z)(ix) to the
Registrant's Form 10-K for the year ended December 31, 1996)
10.8 General Continuing Guaranty of the Company in favor of Concord Growth Corporation
(incorporated by reference from Exhibit 10(z)(x) to the Registrant's Form 10-K for
the year ended December 31, 1996)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 General Continuing Guaranty of Management Alliance Corporation in favor of Concord
Growth Corporation (incorporated by reference from Exhibit 10(z)(xi) to the
Registrant's Form 10-K for the year ended December 31, 1996)
10.10 The Registrant's Amended and Restated 1996 Nonqualified Stock Option Plan, effective
as of December 27, 1996 (incorporated by reference from Exhibit 10(z)(xii) to the
Registrant's Form 10-K for the year ended December 31, 1996)
10.11 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and J.
Michael Moore, executed May 15, 1997 (incorporated by reference from Exhibit 4.10 to
the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)
10.12 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and M.
Ted Dillard, executed May 15, 1997 (incorporated by reference from Exhibit 4.8 to
the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)
10.13 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and
Donald A. Bailey, executed May 15, 1997 (incorporated by reference from Exhibit 4.7
to the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)
10.14 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and
Samuel E. Hunter, executed May 15, 1997 (incorporated by reference from Exhibit 4.9
to the Registrant's Form S-8 (Reg. No. 333-27867) filed on May 27, 1997)
10.15 Employment Contract by and between Diversified Corporate Resources, Inc. and J.
Michael Moore, executed April 10, 1997 (incorporated by reference from Exhibit
10(z)(xviii) to the Registrant's Form 10-K for the year ended December 31, 1996)
10.16 Employment Contract by and between Diversified Corporate Resources, Inc. and M. Ted
Dillard, executed April 10, 1997 (incorporated by reference from Exhibit
10(z)(xviii) to the Registrant's Form 10-K for the year ended December 31, 1996)
10.17 Standard Form Office Lease between Zell/Merrill Lynch Real Estate Opportunity
Partners Limited and Lafarge Corporation, dated February 26, 1993*
10.18 First Amendment to the Office Lease between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited and Lafarge Corporation, dated February 20, 1995*
10.19 Second Amendment to the Office Lease between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited and Lafarge Corporation, dated February 22, 1995*
10.20 Third Amendment to the Office Lease between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited and Lafarge Corporation, dated November 3, 1995*
10.21 Fourth Amendment to the Office Lease between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited and Lafarge Corporation, dated October 24, 1996*
10.22 Fifth Amendment to the Office Lease between Zell/Merrill Lynch Real Estate
Opportunity Partners Limited and Lafarge Corporation, dated January 7, 1997*
11.1 Statement re computation of per share earnings*
21 List of Subsidiaries (incorporated by reference from Exhibit 21 to the Registrant's
Form 10-K for the year ended December 31, 1996)
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Weaver & Tidwell, L.L.P.*
23.3 Consent of Jenkens & Gilchrist, a Professional Corporation (included in Exhibit
5.1)*
24 Power of Attorney (included on signature page of this Registration Statement)
27 Financial Data Schedule*
</TABLE>
- ------------------------
* Filed herewith.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on the 2nd day of September, 1997.
DIVERSIFIED CORPORATE RESOURCES, INC.
BY: /S/ J. MICHAEL MOORE
-----------------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ J. MICHAEL MOORE Chairman and Chief
- ------------------------------ Executive Officer September 2, 1997
J. Michael Moore
/s/ M. TED DILLARD President, Secretary,
- ------------------------------ Treasurer and Director September 2, 1997
M. Ted Dillard
/s/ DOUGLAS G. FURRA Chief Financial Officer and
- ------------------------------ Principal Financial Officer September 2, 1997
Douglas G. Furra
/s/ DONALD A. BAILEY* Director
- ------------------------------
Donald A. Bailey
/s/ SAMUEL E. HUNTER* Director
- ------------------------------
Samuel E. Hunter
*By: /s/ J. MICHAEL MOORE
-------------------------
J. Michael Moore
/s/ M. TED DILLARD
-------------------------
M. Ted Dillard
AGENTS AND
ATTORNEYS-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
1.2 Form of Common Stock Warrant*
2 Agreement and Plan of Merger (incorporated by reference from Exhibit 2(a) to the Registrant's
Registration Statement on Form S-18 (Reg. No. 33-760 FW))
3.1 Articles of Incorporation of the Registrant as amended (incorporated by reference from Exhibit 3(a) to
the Registrant's Registration Statement on Form S-18 (Reg. No. 33-760 FW))
3.2 Amended and Restated By-laws of the Registrant (incorporated by reference from Exhibit 3(b) to the
Registrant's Registration Statement on Form S-18 (Reg. No. 33-760 FW))
4.1 Form of certificate for the Common Stock of the Registrant (incorporated by reference from Exhibit 4(a)
to the Registrant's Registration Statement on Form S-18 (Reg. No. 33-760 FW))
5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation*
10.1 Employment Contract Agreement entered into June 9, 1995, between Management Alliance Corporation, a
wholly-owned subsidiary of the Registrant, and Anthony J. Bruno, Chicago, Illinois, an employee
(incorporated by reference from Exhibit 10(z)(iii) to the Registrant's Form 10-K for the year ended
December 31, 1994)
10.2 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and J. Michael Moore,
executed December 1, 1995 (incorporated by reference from Exhibit 10(z)(iv)to the Registrant's Form
10-K for the year ended December 31, 1995)
10.3 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and M. Ted Dillard,
executed December 1, 1995 (incorporated by reference from Exhibit 10(z)(v) to the Registrant's Form
10-K for the year ended December 31, 1995)
10.4 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and Donald A. Bailey,
executed December 1, 1995 (incorporated by reference from Exhibit 10(z)(vi) to the Registrant's Form
10-K for the year ended December 31, 1995)
10.5 Loan Agreement by and between Information Systems Consulting Corp. (a wholly-owned subsidiary of the
Company) and Concord Growth Corp. executed August 26, 1996 (incorporated by reference from Exhibit
10(z)(vii) to the Registrant's Form 10-K for the year ended December 31, 1996)
10.6 Amendment to Loan Agreement by and between Information Systems Consulting Corp. and Concord Growth Corp
(incorporated by reference from Exhibit 10(z)(viii) to the Registrant's Form 10-K for the year ended
December 31, 1996)
10.7 General Continuing Guaranty of Preferred Funding Corporation in favor of Concord Growth Corporation
(incorporated by reference from Exhibit 10(z)(ix) to the Registrant's Form 10-K for the year ended
December 31, 1996)
10.8 General Continuing Guaranty of the Company in favor of Concord Growth Corporation (incorporated by
reference from Exhibit 10(z)(x) to the Registrant's Form 10-K for the year ended December 31, 1996)
10.9 General Continuing Guaranty of Management Alliance Corporation in favor of Concord Growth Corporation
(incorporated by reference from Exhibit 10(z)(xi) to the Registrant's Form 10-K for the year ended
December 31, 1996)
10.10 The Registrant's Amended and Restated 1996 Nonqualified Stock Option Plan, effective as of December 27,
1996 (incorporated by reference from Exhibit 10(z)(xii) to the Registrant's Form 10-K for the year
ended December 31, 1996)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and J. Michael Moore,
executed May 15, 1997 (incorporated by reference from Exhibit 4.10 to the Registrant's Form S-8 (Reg.
No. 333-27867) filed on May 27, 1997)
10.12 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and M. Ted Dillard,
executed May 15, 1997 (incorporated by reference from Exhibit 4.8 to the Registrant's Form S-8 (Reg.
No. 333-27867) filed on May 27, 1997)
10.13 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and Donald A. Bailey,
executed May 15, 1997 (incorporated by reference from Exhibit 4.7 to the Registrant's Form S-8 (Reg.
No. 333-27867) filed on May 27, 1997)
10.14 Stock Option Agreement by and between Diversified Corporate Resources, Inc. and Samuel E. Hunter,
executed May 15, 1997 (incorporated by reference from Exhibit 4.9 to the Registrant's Form S-8 (Reg.
No. 333-27867) filed on May 27, 1997)
10.15 Employment Contract by and between Diversified Corporate Resources, Inc. and J. Michael Moore, executed
April 10, 1997 (incorporated by reference from Exhibit 10(z)(xviii) to the Registrant's Form 10-K for
the year ended December 31, 1996)
10.16 Employment Contract by and between Diversified Corporate Resources, Inc. and M. Ted Dillard, executed
April 10, 1997 (incorporated by reference from Exhibit 10(z)(xviii) to the Registrant's Form 10-K for
the year ended December 31, 1996)
10.17 Standard Form Office Lease between Zell/Merrill Lynch Real Estate Opportunity Partners Limited and
Lafarge Corporation, dated February 26, 1993*
10.18 First Amendment to the Office Lease between Zell/Merrill Lynch Real Estate Opportunity Partners Limited
and Lafarge Corporation, dated February 20, 1995*
10.19 Second Amendment to the Office Lease between Zell/Merrill Lynch Real Estate Opportunity Partners
Limited and Lafarge Corporation, dated February 22, 1995*
10.20 Third Amendment to the Office Lease between Zell/Merrill Lynch Real Estate Opportunity Partners Limited
and Lafarge Corporation, dated November 3, 1995*
10.21 Fourth Amendment to the Office Lease between Zell/Merrill Lynch Real Estate Opportunity Partners
Limited and Lafarge Corporation, dated October 24, 1996*
10.22 Fifth Amendment to the Office Lease between Zell/Merrill Lynch Real Estate Opportunity Partners Limited
and Lafarge Corporation, dated January 7, 1997*
11.1 Statement re computation of per share earnings*
21 List of Subsidiaries (incorporated by reference from Exhibit 21 to the Registrant's Form 10-K for the
year ended December 31, 1996)
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Weaver & Tidwell, L.L.P.*
23.3 Consent of Jenkens & Gilchrist, a Professional Corporation (included in Exhibit 5.1)*
24 Power of Attorney (included on signature page of this Registration Statement)
27 Financial Data Schedule*
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
1,075,000 SHARES
DIVERSIFIED CORPORATE RESOURCES, INC.
Common Stock
UNDERWRITING AGREEMENT
September ___, 1997
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
c/o Cruttenden Roth Incorporated
18301 Van Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
DIVERSIFIED CORPORATE RESOURCES, INC., a Texas corporation (the
"Company"), Imperial Bank (the "Bank") and USFG-DHRG L.P. No 2, Inc. ("Moore")
(the Bank and Moore are herein collectively called the "Selling Shareholders")
address you as the Representative of each of the persons, firms and corporations
listed in Schedule B hereto (herein collectively called the "Underwriters") and
hereby confirm its agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
750,000 shares of its authorized and unissued Common Stock, par value $0.10
per share, and the Selling Shareholders proposes to sell an aggregate of
325,000 shares of the Company's Common Stock (such 1,075,000 shares being
referred to herein as the "Firm Shares") to the several Underwriters. The
Company also proposes to grant to the Underwriters an option to purchase up
to 112,500 additional shares of the Company's Common Stock, par value $0.10
per share (the "Option Shares"), as provided in Section 7 hereof. As used in
this Agreement, the term "Shares" shall include the Firm Shares and the
Option Shares. All shares of Common Stock, par value $0.10 per share, of the
Company to be outstanding after giving effect to the sales contemplated
hereby, including the Shares, are hereinafter referred to as "Common Stock."
1
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND MOORE.
(a) Each of the Company and Moore hereby represents and warrants
to and agrees severally with each Underwriter that:
(i) A registration statement on Form S-1 (File No. 333-31825)
with respect to the Shares, including a prospectus, has been prepared by the
Company in conformity in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses and such abbreviated registration statements pursuant to Rule
462(b) of the Rules and Regulations as may have been required prior to the
date hereof have been similarly prepared and filed with the Commission; and
the Company will file such additional amendments to such registration
statement, such amended prospectuses and such abbreviated registration
statements as may hereafter be required. Copies of such registration
statement and amendments together with each exhibit filed therewith, of each
related prospectus (the "Preliminary Prospectuses") and of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare
and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if Cruttenden Roth
Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or
(c), as applicable, of the Rules and Regulations pursuant to subparagraph
(1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if Cruttenden Roth Incorporated, on
behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the information required to be included in
any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the
Rules and Regulations. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits (including exhibits incorporated by
reference), in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the
registration statement pursuant to Rule 430A(a) or files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the information deemed to
be a part of the registration statement at the time it became effective
pursuant to
2
<PAGE>
Rule 430A(b) or Rule 434(d) of the Rules and Regulations) and, in the event
of any amendment thereto or the filing of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations relating
thereto after the effective date of such registration statement, shall also
mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to
the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the
Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations,
the information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 430A(b) of the Rules and Regulations);
PROVIDED, HOWEVER, that if in reliance on Rule 434 of the Rules and
Regulations and with the consent of Cruttenden Roth Incorporated, on behalf
of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of
Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus
subject to completion" (as defined in Rule 434(g) of the Rules and
Regulations) last provided to the Underwriters by the Company and circulated
by the Underwriters to all prospective purchasers of the Shares (including
the information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of
the Shares that differs from the prospectus referred to in the immediately
preceding sentence (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such
use. If in reliance on Rule 434 of the Rules and Regulations and with the
consent of Cruttenden Roth Incorporated, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term
sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act,
the Prospectus and the term sheet, together, will not be materially different
from the prospectus in the Registration Statement.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up
to and on the Closing Date (hereinafter defined) and on any later date on
which Option Shares are to be purchased, (i) the Registration Statement and
the Prospectus, and any amendments or supplements thereto, contained and will
contain all material information
3
<PAGE>
required to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act and the
Rules and Regulations, (ii) the Registration Statement, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (iii) the
Prospectus, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that none of the representations and warranties contained in this
subparagraph (b) shall apply to information contained in or omitted from the
Registration Statement or Prospectus, or any amendment or supplement thereto,
in reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter specifically for use
in the preparation thereof.
(iii) Each of the Company and its subsidiaries is duly
incorporated and validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct
its business as described in the Prospectus; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries, taken as a whole; no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and
its subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from
state, federal and other regulatory authorities that are material to the
conduct of its business, all of which are valid and in full force and effect;
none of the Company or its subsidiaries is in violation of its charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which its properties may be bound; and none of
the Company or its subsidiaries is in material violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company, its subsidiaries or over each of their
respective properties. Notwithstanding the generality of the foregoing, the
following subsidiaries are not in good standing and the failure to be in good
standing does not and will not have a material adverse effect on the
condition (financial and otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as whole:
4
<PAGE>
DHRG Northeast, Inc., a Texas corporation;
DHRG of California, Inc., a Texas corporation;
EMSR, Inc., a Texas corporation;
Healthcare Resources, Inc., a Texas corporation;
Power Industry Personnel, Inc., a Connecticut corporation;
Power & Electronics Personnel, Inc., a Delaware corporation;
Power Services, Inc., a South Carolina corporation;
Pacific Power Services, Inc., a Washington corporation;
Western Power Services, a Washington corporation;
Northeast Power & Electronics, a New York corporation;
Mid-Atlantic Power Services, a Virginia corporation;
Technical Careers of Pennsylvania, a Pennsylvania corporation;
Western Technical Careers, Inc., an Arizona corporation;
TNI, Inc., a Texas corporation;
The Company owns all of the outstanding capital stock of each of its
subsidiaries free and clear of all claims, liens, charges and encumbrances,
except for an option to purchase shares of EMSR, Inc., a subsidiary of the
Company (the "EMSR Option") and the possible grant of an option to purchase
shares of a subsidiary formed to conduct the Company's Train International
program (the "Train International Option"). The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the following, each of which is a wholly owned subsidiary of the
Company:
DHRG Northeast, Inc., a Texas corporation;
DHRG of California, Inc., a Texas corporation;
EMSR, Inc., a Texas corporation;
Healthcare Resources, Inc., a Texas corporation;
Power Industry Personnel, Inc., a Connecticut corporation;
Power & Electronics Personnel, Inc., a Delaware corporation;
Power Services, Inc., a South Carolina corporation;
Pacific Power Services, Inc., a Washington corporation;
Western Power Services, a Washington corporation;
Northeast Power & Electronics, a New York corporation;
Mid-Atlantic Power Services, a Virginia corporation;
Technical Careers of Pennsylvania, a Pennsylvania corporation;
Western Technical Careers, Inc., an Arizona corporation;
TNI, Inc., a Texas corporation;
Management Alliance Corporation, a Texas corporation;
Information Systems Consulting Corp., a Texas corporation;
Preferred Funding Corporation, a Texas corporation; and
Management Alliance Group of Independent Companies, Inc.,
a Texas corporation.
(iv) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the making
and performance of this Agreement by the Company and the consummation of the
transactions herein contemplated will not conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute either by
itself or upon notice or the passage of time or both, a default under, (i)
any bond, debenture, note or other
5
<PAGE>
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which any of
its respective properties may be bound, (ii) the articles of incorporation or
bylaws of the Company or any of its subsidiaries or (iii) any law, order,
rule, regulation, writ, injunction, judgment or decree of any court,
administrative agency, regulatory body, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or any of their respective properties
is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except
such as may be required under the Act, by the National Association of
Securities Dealers, Inc. (the "NASD"), the rules of the Nasdaq National
Market, or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(v) There is not any pending or, to the Company's knowledge,
threatened, action (legal or governmental), suit, claim or proceeding against
the Company or any of its subsidiaries, any of each of the Company's or its
subsidiaries' officers, any of the respective properties (owned or leased),
assets or rights of the Company or its subsidiaries before any court,
administrative agency, regulatory body, government or governmental agency or
body, domestic or foreign, having jurisdiction over the Company, its
subsidiaries, each of the Company's or its subsidiaries' officers or
properties (owned or leased) or otherwise which (i) except as accurately
described in all material respects in the Registration Statement and the
Prospectus (A) might, individually or in the aggregate, result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and any of its
subsidiaries, taken as a whole, or might materially and adversely affect the
properties, assets or rights of the Company and any of its subsidiaries,
taken as a whole, or (B) might prevent consummation of the transactions
contemplated hereby or (ii) is required to be disclosed in the Registration
Statement or Prospectus and is not so disclosed; and there are no agreements,
contracts, leases or documents of the Company or any of its subsidiaries of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement by the Act or the Rules and Regulations which have not been
accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement. None of the
Company or its subsidiaries is a party or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency, government or governmental agency or body domestic or
foreign, that could be expected to result in a material adverse change in the
condition (financial or other), earnings, operations, business or business
prospects of the Company and its subsidiaries, taken as a whole.
6
<PAGE>
(vi) All outstanding shares of capital stock of the Company
and all issued and outstanding shares of capital stock of the subsidiaries of
the Company have been duly authorized and validly issued and are fully paid
and nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in
the Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the Shares have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement, and, when issued and delivered by
the Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and nonassessable,
and will be sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
shareholder exists with respect to any of the Shares or the issuance and sale
thereof. No shareholder of the Company or any of its subsidiaries has any
right to require the Company to register the sale of any shares owned by such
shareholder under the Act in the public offering contemplated by this
Agreement. No further approval or authorization of any shareholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act or
under state or other securities or Blue Sky laws. Except as disclosed in the
Registration Statement, Prospectus and the financial statements of the
Company, and the related notes thereto included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. Except as disclosed in the Registration Statement and the
Prospectus, the Company has not granted any option or other right to
purchase, or issued any security or obligation convertible into, or entered
into any contract or commitment to sell, shares of any of the Company's
subsidiaries. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus fairly and accurately
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(vii) Coopers & Lybrand L.L.P., independent auditors, which
have audited the consolidated financial statements of the Company, together
with the related schedules and notes, as of December 31, 1996 and for the
year ended December 31, 1996 and Weaver and Tidwell L.L.P., independent
auditors, which have audited the consolidated financial statements of the
Company, together with the related
7
<PAGE>
schedules and notes, as of December 31, 1994 and 1995 and for each of the
years in the two (2) years then ended, all filed with the Commission as a
part of the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited financial
information, forming part of the Registration Statement and Prospectus,
fairly present the financial position and the results of operations of the
Company and its subsidiaries at the respective dates and for the respective
periods to which they apply; and all consolidated audited financial
statements of the Company and its subsidiaries, together with the related
schedules and notes, and the unaudited financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein.
The selected and summary financial and statistical data included in the
Registration Statement, which are included in the Prospectus, present fairly
the information shown therein and have been compiled on a basis consistent
with the audited consolidated financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement pursuant to the Rules and Regulations, except for the
selected financial data for the years ended December 31, 1992 and 1993, the
absence of which for the reasons stated in the Registration Statement and the
Prospectus are not material to the disclosures contained therein.
(viii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, except as
set forth in the Registration Statement and Prospectus, there has not been
(i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company or any of
its subsidiaries, taken as a whole, (ii) any transaction that is material to
the Company or any of its subsidiaries, (iii) any obligation, direct or
contingent, that is material to the Company or any of its subsidiaries,
incurred by the Company or any of its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, (vi) any default in the payment of principal of
or interest on any outstanding material debt obligations of the Company or
any of its subsidiaries, or (vii) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company or any of its subsidiaries, taken as a
whole.
(ix) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and
marketable title to all properties and assets described in the Registration
Statement and Prospectus as owned by them, free and clear of any pledge,
lien, security interest, encumbrance,
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claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or any of its
subsidiaries, taken as a whole, (ii) the agreements to which the Company and
any of its subsidiaries is a party described in, or filed as exhibits to, the
Registration Statement and Prospectus are valid agreements, enforceable by
the Company or its subsidiaries, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements, and (iii) the Company and its subsidiaries have valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by any of them, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the
Registration Statement and Prospectus, the Company and its subsidiaries own
or lease all such properties as are necessary to their operations as now
conducted or as proposed to be conducted.
(x) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown thereon as due (except in any case in which the
failure to do so would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries, taken as a whole, and there is
no tax deficiency that has been or might be asserted against the Company (or
any of its subsidiaries) that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as a whole; and
all tax liabilities are adequately provided for on the books of the Company.
(xi) Each of the Company and its subsidiaries maintains
insurance with insurers of recognized financial responsibility of the types
and in the amounts generally deemed prudent for its business and consistent
with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering the Company
against general liability and errors and omission for contract and temporary
placements, and real and personal property owned or leased by the Company and
its subsidiaries against theft, damage, destruction, acts of vandalism,
products liability, errors and omissions, workers' compensation claims and
all other risks customarily insured against, all of which insurance is in
full force and effect; none of the Company or its subsidiaries has been
refused any insurance coverage sought or applied for; and none of the Company
or its subsidiaries has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as a whole.
9
<PAGE>
(xii) No labor disturbance by the employees of the Company or
any of its subsidiaries exists or is imminent that might be expected to result
in a material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and any of
its subsidiaries, taken as a whole. No collective bargaining agreement exists
with any of the employees of the Company or any of its subsidiaries and, to
the knowledge of the Company and its subsidiaries, no such agreement is
imminent.
(xiii) Each of the Company and its subsidiaries owns or
possesses exclusive rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names, copyrights
and other intellectual property which are necessary in all material respects
to conduct its business as now conducted and as described in the Registration
Statement and Prospectus; except as set forth in the Registration Statement
and the Prospectus, the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names, copyrights or other
intellectual property would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries, taken as a whole; none of the
Company or its subsidiaries has received any notice of, and has knowledge of,
any infringement of or conflict with asserted rights of the Company or its
subsidiaries by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names, copyrights or
other similar intellectual property rights; and none of the Company or its
subsidiaries has received any notice of, or has any knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names, copyrights or other similar rights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and any of its subsidiaries, taken as a whole.
(xiv) The Common Stock is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and is approved for quotation on the Nasdaq National Market, and the Company
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting the
Common Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating termination of
such registration or listing.
(xv) There are no arrangements, contracts, agreements or
other documents (verbal or written) required to be described in the
Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The arrangements, contracts, agreements and
documents so described in the Prospectus are in full force and effect on the
date hereof; and neither the Company nor any of the subsidiaries nor any
other party is in breach of or default
10
<PAGE>
under any of such arrangements, contracts, agreements and documents, except
as to breaches or defaults which individually or in the aggregate would not
have a material adverse effect on the Company, or to the best of their
knowledge is aware of any imminent termination thereof.
(xvi) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it is not
and will not become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(xvii) Each of the Company and its subsidiaries has not
distributed and will not distribute prior to the later of (i) the Closing
Date, or any date on which Option Shares are to be purchased, as the case may
be, and (ii) completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the Shares other than any
Preliminary Prospectuses, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Act.
(xviii) The Company (nor any of its subsidiaries) has not at
any time during the last five (5) years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof.
(xix) The Company (nor any of its subsidiaries) has not taken
and will not take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(xx) Except for Donald R. Ditto, Sr. and Gary K. Steeds,
each officer and director of the Company, and each shareholder that holds five
percent (5%) or more of the Company's Common Stock has executed a Lock-Up
Letter (the "Lock-Up Agreement") in a form approved by Cruttenden Roth
Incorporated pursuant to which such persons have agreed not to, except as
described therein, for a period of 365 days from the date of the final
Prospectus (the "Lock-Up Period"), sell, offer to sell, solicit an offer to
buy, contract to sell, loan, pledge, grant any option to purchase, or
otherwise transfer or dispose of (collectively, a "Disposition"), any shares
of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock (collectively, "Securities"), now owned or
hereafter acquired by such person or with respect to which such person has or
hereafter acquires the power of disposition. The Company has provided to
counsel for the Underwriters a complete and accurate list of all
securityholders of the Company as of August __, 1997 and the number and type
of securities held by each securityholder. The Company hereby agrees not to
take any action which would release any of its officers, directors or other
shareholders from
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<PAGE>
any Lock-Up Agreements currently existing or hereafter effected without the
prior written consent of Cruttenden Roth Incorporated.
(xxi) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xxii) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company or any of its subsidiaries to or for
the benefit of any of the officers or directors of the Company or its
subsidiaries, or any of the members of the families of any of them, except as
disclosed in the Registration Statement and the Prospectus.
(xxiii) Other than Cruttenden Roth Incorporated, on behalf of
the several Underwriters, and except as disclosed in writing to Cruttenden
Roth Incorporated, no person is or will be owed any finders fee or commission
or similar payment in connection with the transactions contemplated by this
Agreement.
(xxiv) Except for employee benefit plans disclosed in the
Prospectus, the Company does not maintain any employee benefit plan subject to
Title IV of the Employee Retirement Income Security Act of 1974, as amended.
(b) Each of the Selling Shareholders, severally and not jointly,
represents and warrants, with respect to himself, herself, or itself to the
several Underwriters and the Company as follows:
(i) Such Selling Shareholder now has, and/or on the Closing
Date will have, good and marketable title to all of the Shares to be sold by
him, her or it hereunder, free and clear of all liens, encumbrances, equities,
security interests and claims whatsoever, with full right and authority to
deliver the same hereunder, subject to the rights of _____________________, as
custodian (herein called the "Custodian"), and that upon the delivery of
payment for such Shares hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the Shares to be
sold by such Selling Shareholder have been placed in custody under a Custody
Agreement (herein called the "Custody Agreement") for delivery under this
Agreement by the Custodian; such Selling Shareholder specifically agrees that
the Shares represented by
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<PAGE>
the certificates so held in custody for such Selling Shareholder are subject
to the interest of the several Underwriters, the Company and the other Selling
Shareholders hereunder, that the arrangements made by such Selling Shareholder
for such custody, including the power of attorney (herein called the "Power of
Attorney") provided for in such Custody Agreement, are to that extent
irrevocable, and that the obligations of the Selling Shareholder shall not be
terminated by any act of such Selling Shareholder or by operation of law,
whether by the death, incapacity or dissolution of such Selling Shareholder or
the occurrence of any other event; if any such death, incapacity, dissolution
or other such event should occur before the delivery of the Shares hereunder,
certificates for the Shares shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity,
dissolution or other event had not occurred regardless of whether the
Custodian shall have received notice of such death, incapacity, dissolution or
other event.
(iii) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Shareholder of this
Agreement, the Power of Attorney and the Custody Agreement, and for the sale
and delivery of the Shares to be sold by such Selling Shareholder hereunder,
have been obtained; and (assuming all filings required under Rule 430A are
made) such Selling Shareholder has full right, power and authority to enter
into this Agreement, the Power of Attorney and the Custody Agreement and to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder; this Agreement, the Power of Attorney and the Custody
Agreement constitute valid and binding obligations and agreements of such
Selling Shareholder in accordance with their respective terms.
(iv) The execution and delivery by such Selling Shareholder
of, and the performance by such Selling Shareholder of this Agreement, the
Power of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any material statute, indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder is bound, or any order, rule or regulation
of any court or (assuming due qualification of the Shares for public offering
under state and foreign securities laws and assuming all filings required
under Rule 430A are made) governmental agency or body having jurisdiction over
such Selling Shareholder or the property of the Selling Shareholder.
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action which has constituted, or which is designed
to or might reasonably be expected to cause or result in, stabilization or
manipulation of the price of sale or resale of the Shares.
(vii) The information pertaining to such Selling Shareholder
under the caption "Principal and Selling Shareholders" in the Registration
Statement and the Prospectus is complete and accurate, and neither the
Registration Statement nor
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<PAGE>
of any amendment thereto, nor of the Prospectus nor of any supplement thereto,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell 750,000
Shares of the Firm Shares to the Underwriters, the Selling Shareholders agree
to sell to each of the Underwriters the number of Firm Shares set forth in
SCHEDULE A, and each Underwriter agrees, severally and not jointly, to
purchase from the Company and the Selling Shareholders, at a purchase price
of $_____ per share, the respective number of Firm Shares which is set forth
opposite the name of such Underwriter in SCHEDULE A hereto (subject to
adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 from the Company and
the Selling Shareholders shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company and to
the order of Custodian, for the account of the Selling Shareholders (and the
Company and the Selling Shareholders agree not to deposit any such checks in
the bank on which it is drawn, and not to take any other action with the
purpose or effect of receiving immediately available funds, until the
business day following the date of delivery to the Company and the Custodian
and, in the event of any breach of the foregoing, the Company and the Selling
Shareholders shall reimburse the Underwriters for the interest lost and any
other expenses borne by the Underwriters by reason of such breach), at the
offices of Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100, Irvine,
California (or at such other place as may be agreed upon between Cruttenden
Roth Incorporated, the Selling Shareholders and the Company, at 7:00 A.M.
Pacific daylight savings time, (a) on the third (3rd) full business day
following the first day that Firm Shares are traded, (b) if this Agreement is
executed and delivered after 1:30 P.M. Pacific daylight savings time, the
fourth (4th) full business day following the day that this Agreement is
executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Firm Shares are
traded as Cruttenden Roth Incorporated, the Selling Shareholders and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date
of payment and delivery being herein called the "Closing Date"; PROVIDED,
HOWEVER, that if the Company has not made available to the Representative
copies of the Prospectus within the time provided in Section 4(d) hereof,
Cruttenden Roth Incorporated may, in its sole discretion, postpone the
Closing Date until no later than two (2) full business days following
delivery of copies of the Prospectus to Cruttenden Roth Incorporated. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in
New York City, as you may reasonably request for checking at least one (1)
full business day prior to the Closing Date and will be in such names and
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<PAGE>
denominations as you may request, such request to be made at least two (2)
full business days prior to the Closing Date. If Cruttenden Roth Incorporated
so elects, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by
Cruttenden Roth Incorporated.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth on the front cover page (insofar as such
information relates to the Underwriters) concerning stabilization,
over-allotment and passive market making by the Underwriters, and under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Shareholders that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
Each of the Company and the Selling Shareholders, as the case may be and as
specifically indicated below, agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly
as possible; the Company will notify you, promptly after it shall receive
notice thereof, of the time when the Registration Statement, any subsequent
amendment to the Registration Statement or any abbreviated registration
15
<PAGE>
statement has become effective or any supplement to the Prospectus has been
filed; if the Company or any Selling Shareholder omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company and/or
such Selling Shareholder will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective
which is declared effective by the Commission; if the Company files a term
sheet pursuant to Rule 434 of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus and term sheet
meeting the requirements of Rule 434(b) or (c), as applicable, of the Rules
and Regulations have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information
and has been filed with the Commission within the time period prescribed; it
will notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, it will prepare and file
with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel for the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if,
at any time when a prospectus relating to the Shares is required to be
delivered under the Act, any event shall have occurred as a result of which
the Prospectus or any other prospectus relating to the Shares as then in
effect would include any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine (9) months or more after
the effective date of the Registration Statement in connection with the sale
of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement
and such prospectus or prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act; and it will file no
amendment or supplement to the Registration Statement or Prospectus which
shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat
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of any proceeding for that purpose; and it will promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts (including by providing
full cooperation with your counsel, whose services in this matter are required
and which you and the Company will seek to expedite) to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction in which it is not otherwise required
to be so qualified or to so execute a general consent to service of process.
In each jurisdiction in which the Shares shall have been qualified as above
provided, the Company will make and file such statements and reports in each
year as are or may be required by the laws of such jurisdiction for such
purpose.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first full business day following the
first day that Shares are traded, copies of the Registration Statement (two of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such
documents, including any prospectus prepared to permit compliance with Section
10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Cruttenden Roth
Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall
provide to you copies of a Preliminary Prospectus updated in all respects
through the date specified by you in such quantities as you may from time to
time reasonably request.
(e) The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end
of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and, upon request by a
shareholder, unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will furnish to you and the other
several Underwriters hereunder, upon request (i) concurrently with furnishing
such reports to its shareholders, statements of
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operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders, (iv) as soon as they are available, copies of
all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the NASD, (v) every material press
release and every material news item or article in respect of the Company or
its affairs which was generally released to shareholders or prepared by the
Company, and (vi) any additional information of a public nature concerning the
Company, or its business which you may reasonably request. During such five
(5) year period, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(a) or
11(b), then the provisions of Section 11 of that certain letter agreement
dated December 20, 1996 between you and the Company (the "Letter Agreement")
shall govern payment and reimbursement obligations of the parties
notwithstanding that the Letter Agreement shall have ceased to be of full
force or effect for any other purpose.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company or its subsidiaries shall occur as a
result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
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statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(k) During the Lock-Up Period, the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, effect the Disposition
of, directly or indirectly, any Securities other than the sale of the Firm
Shares and the Option Shares hereunder, the Company's issuance of options or
Common Stock or capital stock of its subsidiaries under the Company's
presently authorized stock option and stock purchase plans described in the
Registration Statement and the Prospectus, the EMSR Option, the Train
International Option, the shares of Common Stock pursuant to the exercise of
the warrant described in Paragraph 6(i) below, and the sale of Securities in
connection with acquisitions undertaken by the Company.
(l) The terms of paragraph 9 of the Letter Agreement are hereby
incorporated by reference and made obligations of the Company and Cruttenden
Roth Incorporated as part of this Agreement notwithstanding that the Letter
Agreement shall have ceased to be of full force or effect for any other purpose.
(m) The Company shall reimburse and pay to Cruttenden Roth
Incorporated a nonaccountable expense allowance equal to two percent (2.0%) of
the total Price to Public shown on the front cover of the Prospectus, including,
if exercised, with respect to the over-allotment option. Cruttenden Roth
Incorporated acknowledges that $30,000 of the amount payable pursuant to this
paragraph has already been paid.
5. EXPENSES.
(a) The Company and the Selling Shareholders, as the case may be
and as specifically indicated below, agrees severally with each Underwriter
that:
(i) The Company will pay and bear all costs and expenses
incident to the performance of the obligations of the Company and the Selling
Shareholders in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Custody Agreement, the Power
of Attorney, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if
any, the cost of all certificates representing the Shares and transfer agents'
and registrars' fees; the fees and disbursements of counsel for the Company;
all fees and other charges of the Company's independent certified public
accountants and legal counsel; the cost, including the cost of printing, of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any
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of the foregoing; the Company's road show costs and expenses; the cost of
preparing bound volumes of the documents for the public offering pursuant to
the Registration Statement; NASD filing fees and all other related fees and
the fees, expenses, and the cost, not to exceed $30,000, of qualifying the
Shares under the laws of such jurisdictions as you may designate (including
filing fees and fees and disbursements of Underwriters' Counsel in connection
with such NASD filings and Blue Sky qualifications, which shall not exceed
$30,000); and all other expenses directly incurred by the Company in
connection with the performance of its obligations hereunder. The provisions
of this Section 5(a)(i) are intended to relieve the Underwriters from the
payment of the expenses and costs which the Company hereby agrees to pay.
(ii) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in THE WALL STREET JOURNAL which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(a) In addition to their other obligations under Section 8(b)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company for such expenses and
the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments
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which are not made to the Company within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(b) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii) and
5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of
the Board of Governors of the New York Stock Exchange, Inc. or pursuant to
the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice
of intention to arbitrate, therein electing the arbitration tribunal. In the
event the party demanding arbitration does not make such designation of an
arbitration tribunal in such demand or notice, then the party responding to
said demand or notice is authorized to do so. Any such arbitration will be
limited to the operation of the interim reimbursement provisions contained in
Sections 5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is
created by the provisions of Sections 8(a) and 8(b) hereof or the obligation
to contribute to expenses which is created by the provisions of Section 8(d)
hereof.
(c) Each Selling Shareholder will pay any transfer taxes incident
to the transfer to the Underwriters of the Shares being sold by such Selling
Shareholder.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case
may be, of the representations and warranties of the Company and the Selling
Shareholders herein, to the performance by the Company and the Selling
Shareholders of their obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., Pacific daylight savings time, on the date following the date
of this Agreement, or such later date and time as shall be consented to in
writing by you; if the filing of the Prospectus, or any supplement thereto,
is required pursuant to Rule 424(b) of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by 424(b) of the Rules and Regulations; and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the Registration Statement or
the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
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(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus,
and the registration, authorization, issue, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company or any of its subsidiaries from that set
forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
opinion of Jenkens & Gilchrist, a Professional Corporation, counsel for the
Company and the Selling Shareholders dated the Closing Date or such later
date on which Option Shares are to be purchased addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, substantially in the following form:
(i) Each of the Company and its subsidiaries has
been duly incorporated and is validly existing as corporations in good
standing under the laws of the jurisdiction of their incorporation.
(ii) The Company and its subsidiaries have the
corporate power and authority to own, lease and operate their properties and
to conduct their business as described in the Prospectus.
(iii) Each of the Company and its subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the Company has certified to such counsel
that it owns, leases or licenses properties or conducts its business, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries, taken as a whole.
To counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or entity other than the following:
DHRG Northeast, Inc., a Texas corporation;
DHRG of California, Inc., a Texas corporation;
Healthcare Resources, Inc., a Texas corporation;
Power Industry Personnel, Inc., a Connecticut corporation;
Power & Electronics Personnel, Inc., a California corporation;
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Power Services, Inc., a South Carolina corporation;
Pacific Power Services, Inc., a Washington corporation;
Western Power Services, a Washington corporation;
Northeast Power & Electronics, a New York corporation;
Mid-Atlantic Power Services, a Virginia corporation;
Technical Careers of Pennsylvania, a Pennsylvania corporation;
Western Technical Careers, Inc., an Arizona corporation;
TNI, Inc., a Texas corporation;
Management Alliance Corporation, a Texas corporation;
Information Systems Consulting Corp., a Texas corporation;
Preferred Funding Corporation, a Texas corporation; and
Management Alliance Group of Independent Consultants, Inc.,
a Texas corporation.
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein; to such counsel's
knowledge all necessary and proper corporate proceedings have been taken into
order to validly authorize the issuance of all issued and outstanding shares
of Common Stock; all issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and, to counsel's
knowledge, are fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right.
(v) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof, will be duly and
validly issued and fully paid and nonassessable and will not have been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right contained
in the Company's articles of incorporation or bylaws or in any other
agreement or contract to which the Company or any of its subsidiaries is a
party; and the forms of certificates evidencing the Common Stock comply with
Texas law, and when duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the
agreed consideration therefor in accordance with the provisions of this
Agreement, the Shares represented thereby will be duly authorized and validly
issued, fully paid and nonassessable, will not have been issued in violation
of or subject to any preemptive right or other rights to subscribe for or
purchase securities and will conform in all respects to the description
thereof contained in the Prospectus.
(vi) The Company has the requisite corporate power
and authority to enter into this Agreement and to issue, sell and deliver to
the Underwriters the Shares to be issued and sold by it hereunder.
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(vii) All of the issued and outstanding shares of
each of the subsidiaries of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and are owned of record by the
Company free and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts or other defects of title whatsoever, except as set
forth in the Registration Statement and Prospectus.
(viii) Except as disclosed in or specifically
contemplated by the Prospectus, there are no outstanding options, warrants or
other rights calling for the issuance of, and no commitments, or agreements
to issue, any shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the Company.
(ix) The Company and each of the Selling Shareholders
has full right, power and authority to enter into this Agreement and to sell
and deliver the Shares to be sold by it to the several Underwriters; this
Agreement has been duly authorized by all necessary corporate action on the
part of the Company and the Selling Shareholders, if applicable, and has been
duly executed and delivered by the Company and each of the Selling
Shareholders and, assuming due authorization, execution and delivery by you,
is a valid and binding agreement of the Company and each of the Selling
Shareholders, enforceable in accordance with its terms, except insofar as
indemnification provisions may be limited by applicable law or public policy
and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(x) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act; any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule
424(b).
(xi) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the financial statements
(including supporting schedules), financial data derived therefrom and other
financial and statistical information included therein as to which such
counsel need express no opinion), complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations.
(xii) The information in the Prospectus under the
captions "Management," "Shares Eligible For Future Sale," "Description of
Capital Stock," and Items 14 and 15 of Part II of the Registration Statement
to the extent that it constitutes matters of law or legal conclusions, has
been reviewed by such counsel and is a fair summary of such matters and
conclusions.
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(xiii) The description in the Registration Statement
and the Prospectus of the articles of incorporation and bylaws of the Company
and of Texas statutes are accurate and fairly present the information
required to be presented by the Act and the applicable Rules and Regulations.
(xiv) There are no agreements, contracts, leases or
documents to which the Company or any of its subsidiaries is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as required.
(xv) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated will not (a)
result in any violation of the articles of incorporation or bylaws of the
Company or any of its subsidiaries or (b) result in a material breach or
violation of any of the terms and provisions of, or constitute, either by
itself or upon notice or the passage of time or both, a default under, any
material bond, debenture, note or other evidence of indebtedness, or any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which their properties are bound, or any
applicable statute, rule or regulation or any order, writ or decree of any
court, government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or operations;
PROVIDED, HOWEVER, that such counsel need not express any opinion or belief
with respect to state securities or Blue Sky laws.
(xvi) No consent, approval, registration, filing,
license, permit, authorization or order of or qualification with any court,
government or governmental agency or body having jurisdiction over the
Selling Shareholders, the Company or any of its subsidiaries or any of their
properties or operations is necessary in connection with the consummation by
the Company and the Selling Shareholders of the transactions herein
contemplated, except such as have been obtained under the Act or such as may
be required by NASD or under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion).
(xvii) There are no legal or governmental proceedings
pending or threatened against the Company or any of its subsidiaries of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those
described therein.
(xviii) Neither the Company nor any of its
subsidiaries is in violation of its respective charter or bylaws.
(xix) Except as set forth in the Registration
Statement and Prospectus, no holders of Common Stock or other securities of
the Company have
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registration rights with respect to securities of the Company and, except as
set forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights to registration of such shares of
Common Stock or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement.
(xx) Except as set forth in the Registration
Statement and the Prospectus, there are no actual or, to such counsel's
knowledge, threatened action, suit, claim or proceeding relating to patents,
patent rights or licenses, trademarks or trademark rights, copyrights,
collaborative research, licenses or royalty arrangements or agreements or
trade secrets, know-how or proprietary techniques or technology, including,
processes and substances, owned by or affecting the business operations of
the Company or any of its subsidiaries which are pending or threatened
against the Company or any of its subsidiaries and which action, suit, claim
or proceeding would, with respect to any of the foregoing, have a material
adverse effect on the condition (financial or other), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as
a whole.
(xxi) This Agreement and the several Custody
Agreements between the several Selling Shareholders and _____________ as
Custodian, and the Power of Attorney referred to in such Custody Agreements
have each been duly executed and delivered by or on behalf of each of the
Selling Shareholders and are valid and binding agreements of the Selling
Shareholders, enforceable in accordance with the terms thereof except as the
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally or by general equitable principals and except insofar as
indemnification relating to or affecting provisions may be limited by
applicable law or public policy, and except that provisions as to the
irrevocability of the Custody Agreement may be limited by applicable law upon
the death or incapacity of a Selling Shareholder.
(xxii) The performance of this Agreement, the Power
of Attorney and the Custody Agreements and the consummation of the
transactions therein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under any material bond, indenture, mortgage, deed or trust, or other
agreement or instrument certified to such counsel, by such Selling
Shareholder or an officer or representative thereof, to which any Selling
Shareholder is a party or by which any Selling Shareholder is bound, or any
applicable law or regulation or, so far as is known to such counsel, any
order, writ, injunction, or decree of any jurisdiction, court or governmental
instrumentality.
(xxiii) Each Selling Shareholder is the record owner
of the Shares to be sold by such Selling Shareholder under the Agreement and
possesses full
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right, power and authority to sell, assign, transfer and deliver the Shares
to be sold by such Selling Shareholder hereunder. To such counsel's
knowledge, each Selling Shareholder has good and indefeasible title to the
Shares sold by such Selling Shareholder under this Agreement, free and clear
of all liens, encumbrances, restrictions, equities, security interests and
claims, and upon the delivery of and payment for the Shares to be sold by
such Selling Shareholder, each Selling Shareholder shall transfer all rights
of the Selling Shareholder in the Shares to the Underwriters who have
severally purchased such Shares under this Agreement, free and clear of all
liens, encumbrances, equities, security interests and claims.
(xxiv) The Company is not an "investment company" as
defined in the 1940 Act.
In addition, such counsel shall state that such
counsel has acted as outside corporate legal counsel to the Company and
participated in conferences with officials and other representatives of the
Company, Cruttenden Roth Incorporated, Underwriters' Counsel and the
independent certified public accountants of the Company, at which such
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed, and although such counsel is not passing upon
and does not assume any responsibility for and has not verified the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, and have not made any independent check or
verification thereof, on the basis of the foregoing (relying as to
materiality to a large extent upon the facts provided by officers and
representatives of the Company), no facts have come to the attention of such
counsel that lead such counsel to believe that either the Registration
Statement at the time it became effective (including the information deemed
to be part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A(b), if applicable), or any amendment thereof made prior
to the Closing Date as of the date of such amendment, does not comply as to
form in all material respects with the Act and the Rules and Regulations, or
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date (or
any amendment thereof or supplement thereto made prior to the Closing Date as
of the date of such amendment or supplement) and as of the Closing Dated
contained or contains an untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading (it being understood that such counsel need
express no belief or opinion with respect to the exhibits and the financial
statements and other financial and statistical data included therein).
In rendering such opinion, such counsel may rely (A)
as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, if at
all, upon an opinion or opinions (in form and
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substance reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of
the Company and its subsidiaries, provided that copies of any such statements
or certificates shall be delivered to Underwriters' Counsel. The opinion of
such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and, in their opinion, you
and they are justified in relying thereon.
(e) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may
be, an opinion of Graham & James LLP, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may
be, a letter from Coopers & Lybrand L.L.P. and Weaver and Tidwell L.L.P.,
Independent Auditors (the "Accountants"), addressed to the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be (in each case, the "Bring Down Letter"),
confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in a
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more
than five (5) business days prior to the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, (i) confirming,
to the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter that are necessary to reflect any changes in the facts
described in the Original Letter since its date, or to reflect the
availability of more recent financial statements, data or information. The
Bring Down Letter shall not disclose any change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company or any of its subsidiaries from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and
adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus. The
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Original Letter from the Accountants shall be addressed to or for the use of
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act
and the applicable published Rules and Regulations, (ii) set forth their
opinions with respect to their audits of the balance sheet of the Company as
of December 31, 1996, 1995 and 1994 and related statements of operations,
shareholders' equity and cash flows for the twelve (12) months ended December
31, 1996, 1995 and 1994 and state that they have completed the procedures
specified by the American Institute of Certified Public Accountants for a
review of interim financial information as described in SAS No. 71, INTERIM
FINANCIAL INFORMATION, on the unaudited consolidated balance sheet as of
March 31, 1997 and as of June 30, 1997 and the unaudited consolidated
statements of operations and cash flows for the three month and six month
periods ended March 31, 1997 and June 30, 1997, respectively, (iii) state
that nothing came to their attention that caused them to believe that the
financial statements included in the Registration Statement and Prospectus do
not comply as to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X and that any adjustments thereto
have not been properly applied to the historical amounts in the compilation
of such statements, and (iv) address other matters agreed upon the
Accountants and you. In addition, you shall have received from Coopers &
Lybrand L.L.P. a letter addressed to the Company and made available to you
for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary
in establishing the scope of their audit of the Company's financial
statements as of December 31, 1996, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may
be, a certificate of the Company, dated the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be purchased, as
the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued under the Act; no order preventing
or suspending the use of the Prospectus or any Preliminary Prospectus filed
as a part of the Registration Statement, or any amendment thereto, has been
issued; and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated under the Act;
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(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations, and in all material
respects conformed to the requirements of the Act and the Rules and Regulations,
the Registration Statement, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries, taken as a whole, (b) any transaction that is material to the
Company or any of its subsidiaries, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent, that is
material to the Company or any of its subsidiaries, incurred by the Company or
any of its subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness of the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or is out of the ordinary course of business of
the Company or any of its subsidiaries, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any of its
subsidiaries (f) any legal or governmental action, suit or proceeding pending or
threatened against the Company or any of its subsidiaries which is material to
the Company and its subsidiaries, taken as a whole, (g) any verbal or written
agreement or other transaction entered into by either the Company or any of its
subsidiaries which is not in the ordinary course of business of the Company or
any of its subsidiaries as the case may be or (h) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as a whole.
(h) The Company shall have obtained and delivered to you the
Lock-Up Agreements.
(i) The Company shall have furnished you a warrant for the
purchase of up to 75,000 shares of Common Stock at an exercise price per
share equal to one hundred and twenty percent (120%) of the offering price
per share of the Shares, in the form attached hereto as Exhibit A.
30
<PAGE>
(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
(k) The Shares shall have been duly accepted for quotation,
subject to notice of issuance, through the Nasdaq National Market.
All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with
such number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants to the several Underwriters, for the
purpose of covering over-allotments in connection with the distribution and
sale of the Firm Shares only, a nontransferable option to purchase up to
112,500 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such notice shall set forth the number of Option
Shares as to which the option is being exercised and the date and time as
reasonably determined by you when such Option Shares are to be delivered.
Such option may be exercised by Cruttenden Roth Incorporated, on behalf of
the several Underwriters, on one (1) or more occasions in whole or in part
during the period of forty-five (45) days after the date on which the Firm
Shares are initially offered to the public by giving written notice (the
"Option Notice") to the Company. The number of Option Shares to be purchased
by each Underwriter upon the exercise of such option shall be the same
proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by Cruttenden Roth
Incorporated in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares
to be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company (and the Company agrees not to deposit any such check in the bank on
which it is drawn, and not to take any other action with
31
<PAGE>
the purpose or effect of receiving immediately available funds, until the
business day following the date of its delivery to the payee). In the event
of any breach of the foregoing, the Company shall reimburse the Underwriters
for the interest lost and any other expenses borne by them by reason of such
breach. Such delivery and payment shall take place at the offices of
Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100, Irvine, California
or at such other place as may be agreed upon between Cruttenden Roth
Incorporated and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company after the date two (2) full business days prior to
the Closing Date.
The certificates for the Option Shares to be so delivered
will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably
request for checking at least one (1) full business day prior to the date of
payment and delivery and will be in such names and denominations as you may
request, such request to be made at least two (2) full business days prior to
such date of payment and delivery. If Cruttenden Roth Incorporated so
elects, delivery of the Option Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve
any such Underwriter or Underwriters of any of its or their obligations
hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment
and delivery for such Option Shares) to the accuracy of and compliance with
the representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and
to the condition that all proceedings taken at or prior to the payment date
in connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and
you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or
32
<PAGE>
agreements of the Company or the satisfaction of any of the conditions herein
contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach or facts that would constitute a
breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
Each Selling Shareholder severally and not jointly agrees
to indemnify and hold harmless each Underwriter and each person (including
each partner thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act, to the same extent as the foregoing
indemnity from the Company to
33
<PAGE>
each Underwriter, but only with respect to losses, claims, damages or
liabilities which arise out of or are based upon (i) any breach or facts that
would constitute a breach of any representation, warranty or covenant of such
Selling Shareholder contained in this Agreement or (ii) information relating
to such Selling Shareholder furnished in writing by or on behalf of such
Selling Shareholder expressly for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto; PROVIDED, HOWEVER, that the Company shall remain jointly and
severally obligated to indemnify each Underwriter pursuant to this Section
8(a). This indemnity agreement shall be in addition to any liabilities which
the Selling Shareholders may otherwise have. The liabilities of the Bank
hereunder shall be limited to an amount equal to the public offering price of
the Option Shares sold by the Bank to the Underwriters.
The indemnity agreement in this Section 8(a) shall extend
upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Shareholder against any
losses, claims, damages or liabilities, joint or several, to which the Company
and each Selling Shareholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and the Selling Shareholders for
any legal or other expenses reasonably incurred by the Company and the Selling
Shareholders in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend
upon the same terms and conditions to, and shall inure to the benefit of,
each officer of the Company who signed the Registration Statement and each
director of the Company,
34
<PAGE>
and each person, if any, who controls the Company or a Selling Shareholder
within the meaning of the Act or the Exchange Act. This indemnity agreement
shall be in addition to any liabilities which each Underwriter may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8 except to the extent that it has
been prejudiced by such omission. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel (together with
appropriate local counsel) approved by the indemnifying party representing
all the indemnified parties under Section 8(a) or 8(b) hereof who are parties
to such action), (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; PROVIDED that such consent shall not be
unreasonably withheld. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnification could have been sought
hereunder by such indemnified party, unless
35
<PAGE>
such settlement includes an unconditional release of such indemnified party
from all liability on all claims that are the subject matter of such
proceeding.
(d) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, all the parties hereto shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Underwriters severally and not jointly are responsible pro rata for
the portion represented by the percentage that the underwriting discount
bears to the public offering price, and the Company and the Selling
Shareholders are responsible for the remaining portion, PROVIDED, HOWEVER,
that (i) no Underwriter shall be required to contribute any amount in excess
of the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter has otherwise been required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section
8(d) shall extend upon the same terms and conditions to, and shall inure to
the benefit of, each person, if any, who controls any Underwriter or the
Company within the meaning of the Act or the Exchange Act and each officer of
the Company who signed the Registration Statement and each director of the
Company.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed
regarding said provisions. They further acknowledge that the provisions of
this Section 8 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act and the Exchange Act.
36
<PAGE>
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties, covenants and agreements
of the Company, the Selling Shareholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of
the Act or the Exchange Act, or any Selling Shareholder or by or on behalf of
the Company, or any of its officers, directors or controlling persons within
the meaning of the Act or the Exchange Act, and any Selling Shareholder shall
survive the delivery of the Shares to the several Underwriters hereunder or
termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares
agreed by such Underwriter or Underwriters to be purchased hereunder upon
tender of such Firm Shares in accordance with the terms hereof, and if the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters so agreed but failed to purchase does not exceed ten percent
(10%) of the Firm Shares, the remaining Underwriters shall be obligated,
severally in proportion to their respective commitments hereunder, to take up
and pay for the Firm Shares of such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds ten percent
(10%) of the Firm Shares, the remaining Underwriters shall have the right,
but shall not be obligated, to take up and pay for (in such proportions as
may be agreed upon among them) the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If such
remaining Underwriters do not, at the Closing Date, take up and pay for the
Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase, the Closing Date shall be postponed for twenty-four (24)
hours to allow the several Underwriters the privilege of substituting within
twenty-four (24) hours (including non-business hours) another underwriter or
underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date
may, at the option of the Company, be postponed for a further twenty-four
(24) hours, if necessary, to allow the Company the privilege of finding
another underwriter or underwriters, satisfactory to you, to purchase the
Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters
or substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i)
the Company shall have the right to postpone the time of delivery for a
period of not more than seven (7) full business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement
or the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement,
supplements to the
37
<PAGE>
Prospectus or other such documents which may thereby be made necessary, and
(ii) the respective number of Firm Shares to be purchased by the remaining
Underwriters and substituted underwriter or underwriters shall be taken as
the basis of their underwriting obligation. If the remaining Underwriters
shall not take up and pay for all such Firm Shares so agreed to be purchased
by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Firm
Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement
pursuant to the preceding paragraph of this Section 10, then the Company
shall not be liable to any Underwriter (except as provided in Sections 5 and
8 hereof) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from
such default) be liable to the Company or the Selling Shareholders (except to
the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include
any person substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., Pacific daylight savings time, on the first full business
day following the effective date of the Registration Statement, or (ii) the
time of the public offering of any of the Shares by the Underwriters after
the Registration Statement becomes effective. The time of the public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representative of the several Underwriters, or the
Company, may prevent this Agreement from becoming effective without liability
of any party to any other party, except as provided in Sections 4(i) and 8
hereof.
(b) You, as Representative of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the
case may be, (i) if the Company shall have failed in any material respect,
refused or been unable to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled is not fulfilled, including, without limitation, any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects
38
<PAGE>
of the Company or its Subsidiaries from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and
adverse, or (ii) if additional governmental restrictions, not in force and
effect on the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally established
on the New York Stock Exchange or on the American Stock Exchange or in the
over the counter market by the NASD, or trading in securities generally shall
have been suspended on either such exchange or in the over the counter market
by the NASD, or if a banking moratorium shall have been declared by federal,
New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as to interfere materially with the conduct of the
business and operations of the Company or its Subsidiaries regardless of
whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic
conditions or financial markets as in your judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares,
or (v) if there shall have been an outbreak or escalation of hostilities or
of any other insurrection or armed conflict or the declaration by the United
States of a national emergency which, in the opinion of Cruttenden Roth
Incorporated, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8
hereof. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability of any party to any other party except as
provided in Sections 4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11, you
shall promptly notify the Company by telephone, telecopy or telegram, in each
case confirmed by letter. If the Company shall elect to prevent this
Agreement from becoming effective, the Company shall promptly notify you by
telephone, telecopy or telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except
as herein otherwise specifically provided, shall be in writing and if sent to
you shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to you c/o Cruttenden Roth Incorporated,
18301 Von Karman, Suite 100, Irvine, California 92715, telecopier number
(714) 852-9603, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 12801 N. Central Expressway, Suite
350, Dallas, Texas, telecopier number (972) 458-2317, Attention: Mr. Ted
Dillard
13. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the several Underwriters, the Company and the Selling
Shareholders and their respective executors, administrators, successors and
assigns. Nothing expressed or
39
<PAGE>
mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling
persons within the meaning of the Act or the Exchange Act, officers and
directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign by reason merely of
such purchase.
In all dealings with the Company under this Agreement,
you shall act on behalf of each of the several Underwriters, and the Company
shall be entitled to act and rely upon any statement, request, notice or
agreement made or given by you.
14. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
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<PAGE>
If the foregoing correctly sets forth the understanding among
the Company, the Selling Shareholders and the several Underwriters, please
so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between the Company, the Selling
Shareholders and the several Underwriters.
Very truly yours,
DIVERSIFIED CORPORATE
RESOURCES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SELLING SHAREHOLDERS:
USFG-DHRG L.P. No. 2, Inc.
----------------------------------
By:
------------------------------
Name:
----------------------------
Attorney-In-Fact
Imperial Bank
----------------------------------
By:
------------------------------
Name:
----------------------------
Attorney-In-Fact
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By CRUTTENDEN ROTH INCORPORATED
By
-----------------------------
Authorized Signatory
41
<PAGE>
SCHEDULE A
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Firm
Number of Firm Shares To Be Number of
Shares To Be Purchased from Firm Shares To Be
Underwriters Purchased from the USFG-DHRG Purchased from
Company L.P. No. 2, Inc. Imperial Bank
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC.
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
This certifies that, for good and valuable consideration, receipt
of which is hereby acknowledged, Cruttenden Roth Incorporated ("Holder") is
entitled to purchase, subject to the terms and conditions of this Warrant,
Diversified Corporate Resources, Inc., a Texas corporation (the "Company"),
75,000 fully paid and nonassessable shares of the Common Stock ("Common
Stock") of the Company, in accordance with Section 2 during the period
commencing one year from the date hereof and ending on the earlier to occur
of (i) at 5:00 p.m. California time, August ____, 2002 (the "Expiration
Date"), at which time this Warrant will expire and become void unless earlier
terminated as provided herein. The shares of Common Stock of the Company for
which this Warrant is exercisable as adjusted from time to time pursuant to
the terms hereof, are hereinafter referred to as the "Shares."
1. EXERCISE PRICE. The initial purchase price for the Shares
shall be $________ per share. Such price shall be subject to adjustment
pursuant to the terms hereof (such price, as adjusted from time to time, is
hereinafter referred to as the "Exercise Price").
2. EXERCISE AND PAYMENT.
(a) CASH EXERCISE. At any time after August ____, 1998, this
Warrant may be exercised, in whole or in part, from time to time by the
Holder, during the term hereof, by surrender of this Warrant and the Notice
of Exercise annexed hereto duly completed and executed by the Holder to the
Company at the principal executive offices of the Company, together with
payment in the amount obtained by multiplying the Exercise Price then in
effect by the number of Shares thereby purchased, as designated in the Notice
of Exercise. Payment may be in cash or by check payable to the order of the
Company.
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(b) NET ISSUANCE. In lieu of payment of the Exercise Price
described in Section 2(a), the Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant
or such portion to the Company, with the net issue election notice annexed
hereto (the "Net Issuance Election Notice") duly executed, at the office of
the Company. Thereupon, the Company shall issue to the Holder such number of
fully paid and nonassessable shares of Common Stock as is computed using the
following formula:
where:X = Y (A-B)
-------
A
X = the number of shares to be issued to the Holder pursuant to this
Section 2.
Y = the number of shares covered by this Warrant in respect of which the
net issuance election is made pursuant to this Section 2.
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 2.
B = the Exercise Price in effect under this Warrant at the time the net
issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "fair market value" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange,
or is listed on the Nasdaq National Market (the "NNM") or other over-the-
counter quotation system, the fair market value shall be the last reported
sale price of the Common Stock on such exchange or on the NNM or other
over-the-counter quotation system on the last business day before the
effective date of exercise of the net issuance election or if no such sale
is made on such day, the mean of the closing bid and asked prices for such
day on such exchange, the NNM or over-the-counter quotation system; and
ii. If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not reported, the
fair market value shall be the price per share which the Company could
obtain from a willing buyer for shares sold by the Company from authorized
but unissued shares, as such price shall be determined by mutual agreement
of the Company and the Holder of this Warrant. If the Company and the
Holder cannot mutually agree on such price, the fair market value shall be
made by an appraiser of recognized standing selected by the Holder and the
Company, or, if
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they cannot agree on an appraiser, each of the Company and the Holder
shall select an appraiser of recognized standing and the two appraisers
shall designate a third appraiser of recognized standing, whose
appraisal shall be determinative of such value.
3. DELIVERY OF STOCK CERTIFICATES. Within a reasonable time
after exercise, in whole or in part, of this Warrant, the Company shall issue
in the name of and deliver to the Holder, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock which the
Holder shall have requested in the Notice of Exercise or Net Issuance
Election Notice. If this Warrant is exercised in part, the Company shall
deliver to the Holder a new Warrant for the unexercised portion of this
Warrant at the time of delivery of such stock certificate or certificates.
4. NO FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares will be issued upon exercise of this Warrant.
If upon any exercise of this Warrant a fraction of a share results, the
Company will pay the Holder the difference between the cash value of the
fractional share and the portion of the Exercise Price allocable to the
fractional share.
5. CHARGES, TAXES AND EXPENSES. The Holder shall pay all
transfer taxes or other incidental charges, if any, in connection with the
transfer of the Shares purchased pursuant to the exercise hereof from the
Company to the Holder.
6. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to the
Company, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding weekday which is not a legal holiday.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number
of and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration
of this Warrant subdivide its outstanding securities as to which purchase
rights under this Warrant exist, by split-up or otherwise, or combine its
outstanding securities as to
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which purchase rights under this Warrant exist, the number of Shares as to
which this Warrant is exercisable as of the date of such subdivision,
split-up or combination shall forthwith be proportionately increased in the
case of a subdivision, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the
total number of Shares purchasable under this Warrant as of such date shall
remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock
for which this Warrant may be exercised shall be increased as of the record
date (or the date of such dividend distribution if no record date is set) for
determining which holders of Common Stock shall be entitled to receive such
dividend, in proportion to the increase in the number of outstanding shares
(and shares of Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such dividend,
and the Exercise Price shall be adjusted so that the aggregate amount payable
for the purchase of all the Shares issuable hereunder immediately after the
record date (or on the date of such distribution, if applicable), for such
dividend shall equal the aggregate amount so payable immediately before such
record date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date
hereof the Company distributes to holders of its Common Stock, other than as
part of its dissolution or liquidation or the winding up of its affairs, any
shares of its capital stock, any evidence of indebtedness or any of its
assets (other than cash, Common Stock or securities convertible into Common
Stock), then the Company may, at its option, either (i) decrease the per
share Exercise Price of this Warrant by an appropriate amount based upon the
value distributed on each share of Common Stock as determined in good faith
by the Company's Board of Directors or (ii) provide by resolution of the
Company's Board of Directors that on exercise of this Warrant, the Holder
hereof shall thereafter be entitled to receive, in addition to the shares of
Common Stock otherwise receivable on exercise hereof, the number of shares or
other securities or property which would have been received had this Warrant
at the time been exercised.
(d) MERGER. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into another corporation
when the Company is not the surviving corporation then the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then
in effect, the number of shares or other
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securities or property of the successor corporation resulting from such
merger or consolidation, which would have been received by Holder for the
shares of stock subject to this Warrant had this Warrant at such time been
exercised.
(e) RECLASSIFICATION, ETC. If at any time after the date
hereof there shall be a change or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in
effect, the number of shares or other securities or property resulting from
such change or reclassification, which would have been received by Holder for
the shares of stock subject to this Warrant had this Warrant at such time
been exercised.
9. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price
or number of Shares purchasable hereunder shall be adjusted pursuant to
Section 8 hereof, the Company shall execute and deliver to the Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Exercise Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Holder.
10. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights as a shareholder of the Company
with respect to the Shares, including (without limitation) the right to vote
such Shares, receive dividends or other distributions thereon, or be notified
of shareholder meetings, and the Holder shall not be entitled to any notice
or other communication concerning the business or affairs of the Company.
However, in the event of any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each Holder of this
Warrant, at least 10 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
11. RESTRICTED SECURITIES. The Holder understands that this
Warrant and the Shares purchasable hereunder constitute "restricted
securities" under the federal securities laws inasmuch as they are, or will
be, acquired from the Company in transactions not involving a public offering
and accordingly may not, under such laws and applicable regulations, be
resold or transferred without registration under the Securities Act of 1933,
as amended (the "1933 Act") or an applicable exemption from such
registration. In this connection, the Holder acknowledges that Rule 144 of
the Securities and Exchange Commission (the "SEC") is not now, and may not in
the
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future be, available for resales of the Warrant and the Shares purchasable
hereunder. Unless the Shares are subsequently registered pursuant to Section
14, the Holder further acknowledges that the securities legend on Exhibit A
to the Notice of Exercise attached hereto shall be placed on any Shares
issued to the Holder upon exercise of this Warrant.
12. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current
registration statement under the 1933 Act shall be in effect with respect to
the securities to be issued upon exercise of this Warrant, the Holder
covenants and agrees that, at the time of exercise hereof, it will deliver to
the Company a written certification executed by the Holder that the
securities acquired by him upon exercise hereof are for the account of such
Holder and acquired for investment purposes only and that such securities are
not acquired with a view to, or for sale in connection with, any distribution
thereof.
13. DISPOSITION OF SHARES. Holder hereby agrees not to make any
disposition of any Shares purchased hereunder unless and until:
(a) Holder shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Holder shall have complied with all requirements of this
Warrant applicable to the disposition of the Shares; and
(c) Holder shall have provided the Company with written
assurances, in form and substance satisfactory to legal counsel of the
Company, that (i) the proposed disposition does not require registration of
the Shares under the 1933 Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or of any
exemption from registration available under the 1933 Act has been taken.
. The Company shall NOT be required (i) to transfer on its books
any Shares which have been sold or transferred in violation of the provisions
of this Section 13 or (ii) to treat as the owner of the Shares, or otherwise
to accord voting or dividend rights to, any transferee to whom the Shares
have been transferred in contravention of the terms of this Warrant.
14. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time during the
four-year period commencing August ____, 1997 and ending on August ____,
2002, the Company shall determine to register for its own account or the
account of others under the 1933 Act any of its equity securities, other than
on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any
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acquisition of any entity or business, or equity securities issuable in
connection with stock option or other employee benefit plans, the Company
shall send to each Holder of Warrants or Shares, who is entitled to
registration rights under this Section 14(a) written notice of such
determination and, if within twenty (20) days after receipt of such notice,
such Holder shall so request in writing (hereafter a "Selling Holder"), the
Company shall include in such Registration Statement all or any part of the
Shares issuable upon exercise of the Warrants (the "Registrable Securities")
such Selling Holder requests to be registered. The obligations of the
Company under this Section 14(a) may be waived by Holders holding a majority
in interest of the Registrable Securities. In the event that the managing
underwriter for said offering advises the Company in writing that the
inclusion of such Registrable Securities in the offering would be materially
detrimental to the offering, then the Company shall be required to include in
the offering only that number of Registrable Securities which the managing
underwriter determines in its sole discretion will not jeopardize the success
of the offering (the Registrable Securities so included to be apportioned pro
rata among all Selling Holders according to the total amount of Registrable
Securities entitled to be included therein owned by each selling holder or in
such other proportions as shall mutually be agreed to by such selling
holders); PROVIDED HOWEVER, that in no event shall any Holder of Registrable
Securities have the number of shares of such securities reduced in such offer
unless and until any holders of non-Registrable Securities intending to
participate in such offering (which selling holders' registration rights, if
any, were granted by the Company from and after the date hereof) first shall
have had the number of their shares of such securities reduced up to the
amount of securities the managing underwriter has determined in its sole
discretion shall be excluded from the offering; and PROVIDED FURTHER, that in
no event shall any Shares being sold by a Holder properly exercising a demand
registration granted in Section 14(b) be excluded from such offering.
(b) DEMAND REGISTRATION. In addition to any Registration
Statement pursuant to subparagraph (a) above, during the four-year period
beginning on August ____, 1998 and ending on August ____, 2002, the Company
will, as promptly as practicable (but in any event within 60 days), after
written request (the "REQUEST") by the Holder, or by a person or persons
holding (or having the right to acquire by virtue of holding the Warrants) at
least 50% of the Shares which have been (or may be) issued upon exercise of
the Warrants (such Holder or Holders to be included in the definition of
"Selling Holder" for the purposes of Section 14(c) hereof), prepare and file
at its own expense a Registration Statement with the SEC and appropriate
"blue sky" authorities sufficient to permit the public offering of the
Registrable Securities and will use its best efforts at its own expense
through its officers, directors, auditors and counsel, in all matters
necessary or advisable, to cause such Registration Statement to become
effective as promptly as practicable and to maintain such effectiveness so as
to permit resale of the Shares covered by the Request until the earlier of
the time that all such Shares have been sold or the expiration of 120 days
from the effective date of the Registration Statement; PROVIDED, HOWEVER,
that the
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Company shall only be obligated to file one such Registration Statement under
this Section 14(b).
(c) OBLIGATIONS OF THE HOLDERS. In connection with the
registration of the Registrable Securities pursuant to either Sections 14(a)
or (b), the Selling Holders shall have the following obligations:
i. It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Agreement with respect to
each Selling Holder that such Selling Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it and
the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of the Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least fifteen (15)
days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Selling Holder of the information
the Company requires from each such Selling Holder (the "Requested
Information") in the case of a Registration Statement being prepared pursuant
to Section 14(b) or if such Selling Holder elects to have any of such Selling
Holder's Registrable Securities included in the Registration Statement in the
case of a Registration Statement being prepared pursuant to Section 14(a).
ii. Each Selling Holder by such Selling Holder's
acceptance of the Registrable Securities agrees to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Selling Holder
has notified the Company in writing of such Selling Holder's election to
exclude all of such Selling Holder's Registrable Securities from the
Registration Statement; and
iii. No Selling Holder may participate in any
underwritten registration hereunder unless such Selling Holder (i) agrees to
sell such Selling Holder's Registrable Securities on the basis provided in
any underwriting arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses of investment bankers
and any manager or managers of such underwriting, except as provided in
Section 14(d) below.
(d) EXPENSES OF REGISTRATION. All expenses, other than
underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions, incurred in
connection with registrations, filings or qualifications pursuant to Section
14(a) or 14(b), including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees and
disbursements of counsel for the Company and the
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Selling Holders, shall be borne by the Company; PROVIDED, HOWEVER, that the
Company shall only be required to bear the fees and out-of-pocket expenses
(up to $25,000) of one legal counsel selected by the Selling Holders in
connection with each such registration.
(e) INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
i. To the extent permitted by law, the Company will
indemnify and hold harmless each Selling Holder who holds such Registrable
Securities, the directors, if any, of such Selling Holder, the officers, if
any, of such Selling Holder, each person, if any, who controls any Selling
Holder within the meaning of the 1933 Act, any underwriter (as defined in the
1933 Act) for the Selling Holders, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the 1933 Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, "Claims") to which any of them
may become subject under the 1933 Act or otherwise, insofar as such Claims
(or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
when it first became effective, or any related final prospectus, amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which the statements
therein were made, not misleading (a "Violation"). The Company shall
reimburse the Selling Holders and each such underwriter or controlling
person, promptly as such expenses are incurred and are due and payable, for
any legal fees or other reasonable expenses incurred by them in connection
with investigating or defending any such Claim. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in
this Section 14(e)(i) shall not apply in such case to the extent any such
Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, and shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
prior written consent of the Company, which consent shall not be unreasonably
withheld.
ii. In connection with any Registration Statement in
which a Selling Holder is participating, each such Selling Holder agrees to
indemnify and hold harmless, to the same extent and in the same manner set
forth in Section 14(e)(i), the Company, each of its directors, each of its
officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter and
any other shareholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person
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who controls such shareholder or underwriter within the meaning of the 1933
Act (collectively and together with an Indemnified Person, an "Indemnified
Party"), against any Claim to which any of them may become subject, under the
1933 Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Selling Holder expressly for use in
connection with such Registration Statement, and such Selling Holder will
reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 14(e)(ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Selling Holder, which
consent shall not be unreasonably withheld.
iii. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution to the same extent
as provided above, with respect to information furnished in writing by such
persons expressly for inclusion in the Registration Statement.
iv. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 14(e) of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(e), deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly
noticed, to assume control of the defense thereof with counsel mutually
satisfactory to the indemnifying parties; PROVIDED, HOWEVER, that an
Indemnified Person or Indemnified Party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party,
the representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or Indemnified
Party and any other party represented by such counsel in such proceeding.
The Indemnifying Party shall pay for only one separate legal counsel for the
Indemnified Parties; such legal counsel shall be selected by the Indemnified
Parties holding a majority in interest of the Registrable Securities. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 14(e), except to the extent that the indemnifying
party is prejudiced in its ability to defend such action. The
indemnification required by this Section 14(e) shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due
and payable.
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v. Notwithstanding any of the foregoing, if, in connection
with an underwritten public offering of Registrable Securities, the Company,
the Selling Holders and the underwriter(s) enter into an underwriting or
purchase agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 14(e) shall be deemed inoperative for
purposes of such offering.
(e) CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 14(e) to the fullest extent
permitted by law; PROVIDED, HOWEVER, that (i) no contribution shall be made
under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 14(e), (ii) no
seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
(f) REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933
Act or any other similar rule or regulation of the SEC that may at any time
permit the Holders to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
i. use its best efforts to make and keep public
information available, as those terms are understood and defined in Rule 144;
and
ii. use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act");
and
iii. furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company with respect to its compliance with the reporting requirements of Rule
144, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested to permit the Holders to sell
such securities without registration pursuant to Rule 144.
(g) ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Holders to transferees or assignees of all or any
portion of such securities only if: (i) the Holder agrees in writing with the
transferee or
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assignee to assign such rights, (ii) the Company is, within a reasonable time
after such transfer or assignment, furnished with written notice of the name
and address of such transferee or assignee (iii) such assignment is in
accordance with and permitted by law and all other agreements between the
transferor or assignor and the Company, including without limitation,
shareholder's agreements, warrants and subscription agreements, and the
transferor or assignor otherwise is not in material default of any obligation
to the Company under any such other agreement, and (iv) at or before the time
the Company received the written notice contemplated by clause (ii) of this
sentence the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein.
(h) TERMINATION OF REGISTRATION RIGHTS. No Holder of Warrants
or Shares shall be entitled to exercise any right provided for in this Section
14 at such time as such Holder would be able to dispose of all of its
Registrable Securities in any three (3) month period under SEC Rule 144 or any
successor rule thereto.
15. TRANSFERABILITY.
(a) GENERAL. This Warrant shall be transferable only on the
books of the Company maintained at its principal office in Dallas, Texas or
wherever its principal office may then be located, upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall execute and
deliver new Warrants to the person entitled thereto.
(b) LIMITATIONS ON TRANSFER. This Warrant shall not be sold,
transferred, assigned or hypothecated by the Holder except to (i) one or more
persons, each of whom on the date of transfer is an officer of the Holder; (ii)
a general partnership or general partnerships, the general partners of which
are the Holder and one or more persons, each of whom on the date of transfer is
an officer of the Holder; (iii) a successor to the Holder in any merger or
consolidation; (iv) a purchaser of all or substantially all of the Holder's
assets; or (v) any person receiving this Warrant from one or more of the
persons listed in this Section 15(b) at such person's or persons' death
pursuant to will, trust or the laws of intestate succession. This Warrant may
be divided or combined, upon request to the Company by the Holder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Shares.
16. MISCELLANEOUS.
(a) CONSTRUCTION. Unless the context indicates otherwise, the
term "Holder" shall include any transferee or transferees of this Warrant
pursuant to Section 15(b), and the term "Warrant" shall include any and all
warrants outstanding
12
<PAGE>
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or transfer
pursuant to Section 15(b).
(b) RESTRICTIONS. By receipt of this Warrant, the Holder makes
the same representations with respect to the acquisition of this Warrant as the
Holder is required to make upon the exercise of this Warrant and acquisition of
the Shares purchasable hereunder as set forth in the Form of Investment Letter
attached as Exhibit A to the Notice of Exercise attached hereto.
(c) NOTICES. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified (or
one (1) day following timely deposit with a reputable overnight courier with
next day delivery instructions), or upon confirmation of receipt by the sender
of any notice by facsimile transmission, at the address indicated below or at
such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
To Holder: Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92612
Attention: Charles O. Thompson, III
To the Company: Diversified Corporate Resources, Inc.
12801 North Central Expressway, Suite 350
Dallas, Texas 75243
Attention: President
(d) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the State of Texas as applied to agreements among
Texas residents entered into and to be performed entirely within Texas.
(e) ENTIRE AGREEMENT. This Warrant, the exhibits and schedules
hereto, and the documents referred to herein, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof.
(f) BINDING EFFECT. This Warrant and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the Company and its successors and assigns, and Holder and its successors and
assigns.
(g) WAIVER; CONSENT. This Warrant may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance),
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<PAGE>
in whole or in part, except by a writing executed by the parties hereto, and
no waiver of any of the provisions or conditions of this Warrant or any of
the rights of a party hereto shall be effective or binding unless such waiver
shall be in writing and signed by the party claimed to have given or
consented thereto.
(h) SEVERABILITY. If one or more provisions of this Warrant
are held to be unenforceable under applicable law, such provision shall be
excluded from this Warrant and the balance of the Warrant shall be interpreted
as if such provision were so excluded and the balance shall be enforceable in
accordance with its terms.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Common
Stock Warrant effective as of the date hereof.
DATED: ___________, 1997 THE COMPANY:
Diversified Corporate Resources, Inc.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HOLDER:
Cruttenden Roth Incorporated
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
15
<PAGE>
NOTICE OF EXERCISE
To: DIVERSIFIED CORPORATE RESOURCES, INC.
The undersigned hereby elects to purchase _____________ shares
of Common Stock ("STOCK") of Diversified Corporate Resources, Inc., a Texas
corporation (the "COMPANY") pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price pursuant to the terms of the
Warrant.
Attached as Exhibit A is an investment representation letter
addressed to the Company and executed by the undersigned as required by Section
12 of the Warrant.
Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on
Exhibit A attached hereto.
Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned.
Dated:
----------------------- -------------------------------------
Name:
--------------------------------
Title:
-------------------------------
16
<PAGE>
NET ISSUANCE ELECTION NOTICE
To: DIVERSIFIED CORPORATE RESOURCES, INC.
Date:
-------------
The undersigned hereby elects under Section 2 of the attached
Warrant to surrender the right to purchase ___________ shares of Common Stock
pursuant to the attached Warrant. The Certificate(s) for the shares issuable
upon such net issuance election shall be issued in the name of the undersigned
or as otherwise indicated below.
Attached as Exhibit A is an investment representation letter
addressed to the Company and executed by the undersigned as required by Section
12 of the Warrant.
Please issue certificates representing the shares of Stock
purchased hereunder in the names and in the denominations indicated on
Exhibit A attached hereto.
Please issue a new Warrant for the unexercised portion of the
attached Warrant, if any, in the name of the undersigned.
---------------------------------------
Signature
---------------------------------------
Name for Registration
---------------------------------------
Mailing Address
17
<PAGE>
EXHIBIT A
To: DIVERSIFIED CORPORATE RESOURCES, INC.
In connection with the purchase by the undersigned of ___________
shares of the Common Stock (the "STOCK") of Diversified Corporate Resources,
Inc., a Texas corporation (the "COMPANY"), upon exercise of that certain Common
Stock Warrant dated as of_______, the undersigned hereby represents and
warrants as follows:
The shares of Stock to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a
nominee or agent, and not with a view to resale or distribution of any part
thereof, and the undersigned has no present intention of selling, granting any
participation in, or otherwise distributing the same. The undersigned further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to the Stock. The undersigned
believes it has received all the information it considers necessary or
appropriate for deciding whether to purchase the Stock.
The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "ACT"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
Without in any way limiting the representations set forth above,
the undersigned agrees not to make any disposition of all or any portion of the
Stock unless and until:
There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and
(ii) if requested, the undersigned shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such
disposition will not require
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<PAGE>
registration of such shares under the Act. The Company will not require an
opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
The undersigned understands the instruments evidencing the Stock
may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated:
----------------------- -------------------------------------
Name:
--------------------------------
Title:
-------------------------------
19
<PAGE>
[JENKENS & GILCHRIST LETTERHEAD]
September 2, 1997
Diversified Corporate Resources, Inc.
North Central Plaza III
12801 North Central Expressway, Suite 350
Dallas, Texas 75243
Re: Offering of Common Stock of Diversified Corporate Resources, Inc.
on Form S-1 (the "Offering")
Gentlemen:
On July 22, 1997, Diversified Corporate Resources, Inc. a Texas
corporation (the "Company"), filed with the Securities and Exchange
Commission a Registration Statement (Registration No. 333-31825) on Form S-1
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Act"). Such Registration Statement, as amended by Amendment No. 1
thereto, relates to the offer and sale by the Company and certain selling
shareholders identified there in (the "Selling Shareholders") of an aggregate
of 1,075,000 shares of the Company's common stock, par value $.10 per share
(the "Common Stock"), plus an additional 112,500 shares of Common Stock
subject to the exercise of an over-allotment option to be granted by the
Company (collectively, the "Shares"). We have acted as counsel to the
Company in connection with the preparation and filing of the Registration
Statement, as amended.
In connection therewith, we have examined and relied upon the original
or copies, certified to our satisfaction, of (I) the Articles of
Incorporation and the bylaws of the Company, as amended, (ii) copies of
resolutions of the Board of Directors of the Company authorizing the offering
of the Shares, the preparation and filing of the Registration Statement and
related matters, (iii) the Registration Statement, and all amendments and
exhibits thereto, and (iv) such other documents and instruments as we have
deemed necessary for the expression of the opinions herein contained. In
making the foregoing examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents
submitted to us as certified or photostatic copies. As to various questions
of fact material to this opinion, we have relied, to the extent we deem
reasonably appropriate, upon representations or certificates of officers or
directors of the Company and upon documents, records and instruments
furnished to us by the Company, without independent check or verification of
their accuracy.
Based upon the foregoing examination, we are of the opinion that the
Shares to be sold by the Company and the Selling Shareholders in the
Offering, as described in the Registration
<PAGE>
Diversified Corporate Resources, Inc.
September 2, 1997
Page 2
Statement, as amended, have been duly and validly authorized for issuance and
the Shares, when sold and delivered by the Company and the Selling
Shareholders in the manner and for the consideration stated in the Prospectus
constituting a part of the Registration Statement, as amended, and in
accordance with the Underwriting Agreement described in the Registration
Statement, as amended, will be validly issued, fully paid and nonassessable.
We advise you that we are licensed to practice law only in the State of
Texas, and we are not experts with respect to the laws of any other
jurisdictions other than the laws of the State of Texas and the federal laws
of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of
persons whose consent is required by Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Respectfully submitted,
JENKENS & GILCHRIST,
a Professional Corporation
By: /s/ Mark D. Wigder
----------------------------------------
Mark D. Wigder
Authorized Signatory
<PAGE>
NORTH CENTRAL PLAZA THREE
STANDARD FORM OFFICE LEASE
BETWEEN
Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership II ("LANDLORD"), by its agent,
Equity Assets Management, Inc,
AND
Lafarge Corporation ("TENANT")
<PAGE>
TABLE OF CONTENTS
I. Basic Lease Information; Definitions 1
II. Lease Grant 3
III. Possession 3
IV. Use 3
V. Rent 3
VI. Security Deposit 4
VII. Services to be Furnished by Landlord 4
VIII. Leasehold Improvements 6
IX. Graphics 6
X. Repairs and Alterations 6
XI. Use of Electrical and HVAC Services by Tenant 7
XII. Entry by Landlord 7
XIII. Assignment and Subletting 7
XIV. Liens 9
XV. Indemnity and Waiver of Claims 9
XVI. Tenant's Insurance 10
XVII. Subrogation 11
XVIII. Landlord's Insurance 11
XIX. Casualty Damage 11
XX. Demolition 12
XXI. Condemnation 12
XXII. Events of Default 13
XXIII. Remedies 13
XXIV. LIMITATION OF LIABILITY 15
XXV. No Waiver 15
XXVI. Event of Bankruptcy 15
XXVII. Quiet Enjoyment 15
XXVIII. Relocation 16
XXIX. Holding Over 16
XXX. Subordination to Mortgages 17
XXXI. Attorney's Fees 17
XXXII. Notice 17
XXXIII. Landlord's Lien 18
i
<PAGE>
XXXIV. Excepted Rights 18
XXXV. Surrender of Premises 19
XXXVI. Miscellaneous 19
XXXVII. Entire Agreement 20
ii
<PAGE>
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease"), is made and entered into as
of the 26 day of February, 1993, by and between Zell/Merrill Lynch Real
Estate Opportunity Partners Limited ("Landlord") by its Agent, Equity Assets
Management, Inc. end Lafarge Corporation, a Maryland corporation ("Tenant").
I. BASIC LEASE INFORMATION; DEFINITIONS.
A. The following is some of the basic lease information and defined
terms used in this Lease.
1. "Broker" means The Swearingen Company.
2. "Building" shall mean the office building located at 12801
North Central Expressway, Dallas County, State of Texas commonly known as
North Central Plaza Three and located on the real property described on
Exhibit A-2.
3. The "Lease Term" shall mean a period of sixty (60) months
commencing on April 1, 1993 (the "Commencement Date") and, unless sooner
terminated as provided herein, ending on March 31, 1998 (the "Termination
Date"), provided, however, with respect to Suites 1250 and 1270 only the
"Lease Term" shall mean a period of nine (9) months commencing on April 1,
1993 and, unless sooner terminated as provided herein, ending on December 31,
1993.
4. INTENTIONALLY OMITTED
5. "Landlord Work" shall mean the work, if any, that Landlord is
obligated to perform in the Premises pursuant to the Work Letter Agreement
attached hereto as Exhibit "C".
6. "Notice Addresses" shall mean the following addresses for
Tenant and Landlord respectively:
Tenant:
Lafarge Corporation
12801 North Central Expressway
Suite 250
Dallas, Texas 75243
Attn: Bert Houle
With a copy to:
Thompson & Knight
3300 First City Center
1700 Pacific Avenue
Dallas, TX 75201
Attn: William R. Wright
Landlord:
First Office Management
12801 North Central Expressway
Suite 400
Dallas, Texas 75243
Attention: Building Manager
With a copy to:
Equity Assets Management, Inc.
c/o First Office Management
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: General Counsel
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Payments of Rent only shall be made payable to the order of
North Central Plaza Three at the following address:
First Office Management
12801 North Central Expressway
Suite 400
Dallas, Texas 75243
7. "Permitted Use" shall mean: Sales and administrative
operations. Landlord acknowledges the Premises shall be occupied by Lafarge
Construction Materials, a division of Tenant.
8. "Premises" shall mean the area located on the second (2nd)
and twelfth (12th) floors of the building and outlined on Exhibit A and A-1
attached hereto and incorporated herein and known as Suites #250, #1260 and
#1270.
9. "Prepaid Rental": INTENTIONALLY OMITTED
10. "Rentable Area of the Premises" shall mean the area contained
within the demising walls of the Premises and any other area designated for
the exclusive use of Tenant, without deduction for any columns or projections
necessary to the Building, plus a proportionate share of any Common Areas
located on the floor(s) on which the Premises is located and a proportionate
share of the Building's public areas, management office, engineer's office
and "Mechanical Spaces" i.e. spaces housing service areas, equipment and/or
access corridors for HVAC and communications facilities, plumbing, fire
protection and elevators. With respect to the period beginning on the
Commencement Date and ending on December 31, 1993, the Rentable Area of the
Premises is deemed for all purposes under this Lease to be 11,825. With
respect to the period beginning on January 1, 1994 and ending on the
Termination Date, the Rentable Area of the Premises is deemed for all
purposes under this Lease to be 7,041. The "Rentable Area of the Building"
is deemed for all purposes under this Lease to be 346,575 square feet. The
square footage amounts set forth for the Rentable Area of the Premises and
the Rentable Area of the Building constitute a material part of the economic
basis of this Lease and the execution thereof by Landlord and shall not be
adjusted without the written consent of Landlord.
11. "Security Deposit" shall mean the sum of $0.00
12. "Tenant's Pro Rata Share" shall mean 3,41 percent (3.41%),
which is the sum derived by dividing the Rentable Area of the Premises by The
Rentable Area of the Building and multiplying the result thereof by one
hundred (100), provided that effective as of January 1, 1994 "Tenant's Pro
Rata Share" shall mean 2.03 percent (2.03%).
B. The following are additional definitions of some of the defined
terms used in the Lease.
1. "Basic Costs" shall mean all direct and indirect costs and
expenses incurred.in connection with the Property as more fully defined in
Exhibit B-2.
2. "Building Standard" shall mean the type, grade, brand,
quality and/or quantity of materials Landlord designates from time to time to
be the minimum quality and/or quantity to be used in the Building.
3. "Business Day(s)" shall mean Mondays through Fridays
exclusive of the normal business holidays ("Holidays") of New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and other national holidays recognized by first-class office buildings in
Dallas.
4. "Common Areas" shall mean those areas provided for the common
use or benefit of all tenants generally and/or the public, such as corridors,
elevator foyers, common mail rooms, restrooms, vending areas and lobby areas
(whether at ground level or otherwise), and other similar facilities.
5. "Maximum Rate" shall mean the greatest per annum rate of
interest permitted from time to time under applicable federal and state law.
6. "Normal Business Hours" for the Building shall mean 7:00 a.m.
to 6:00 p.m. Mondays through Fridays, and 8:00 a.m. to 1:00 p.m, on
Saturdays, exclusive of Holidays, and such other hours as Landlord may
designate from time to time.
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7. "Prime Rate" shall mean the per annum interest rate publicly
announced by The First National Bank of Chicago from time to time (whether or
not charged in each instance) as its prime or base rate.
8. "Property" shall mean the Building, the Building Garage, if
any, all other improvements serving the Building and the tenants thereof and
the parcel(s) of land on which they are located.
II. LEASE GRANT. Subject to and upon the terms herein set forth,
Landlord leases to Tenant and Tenant leases from Landlord the Premises.
III. POSSESSION. By taking possession of the Premises, Tenant is deemed
to have;
1. accepted the Premises and agreed that the Premises is in
good order and satisfactory condition, with no representation or
warranty by Landlord as to the condition or suitability of the Premises
or of the Building for Tenant's use thereof; and
2. agreed that Landlord has no obligation to clean, decorate,
alter, remodel, improve or repair the Premises or the Building unless
said obligation is specifically set forth in this Lease.
IV. USE. The Premises shall be used for the Permitted Use and for no
other purpose. Tenant agrees not to use or permit the use of the Premises for
any purpose which is illegal, dangerous to life, limb or property or which,
in Landlord's opinion, creates a nuisance or which would increase the cost of
insurance coverage with respect to the Building. Tenant shall conduct its
business and control its agents, servants, contractors, employees, customers,
licensees, and invitees in such a manner as not to interfere with, annoy or
disturb other tenants, or in any way interfere with Landlord in the
management and operation of the Building. Tenant will maintain the Premises
in a clean and healthful condition, and comply with all laws, ordinances,
orders, rules and regulations of any governmental entity with reference to
the operation of Tenant's business and to the use, condition, configuration
or occupancy of the Premises, including without limitation, the Americans
with Disabilities Act. Tenant will comply with the rules and regulations of
the Building adopted and altered by Landlord from time to time and will cause
all of its agents, servants, contractors, employees, customers, licensees and
invitees to do so. All changes to such rules and regulations will be sent by
Landlord to Tenant in writing. A copy of the existing rules and regulations
is attached hereto as Exhibit D and made a part hereof. Tenant agrees not to
commit or allow any waste to be committed on any portion of the Premises, and
at the termination of this Lease to deliver up the Premises to Landlord in
accordance with Article XXXV hereof.
V. RENT.
A. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever, the full amount of all Base
Rental payments, and any adjustments thereof, due in accordance with the
rental schedule set forth in Exhibit B-1 hereof (the "Base Rental"), the full
amount of all payments of Additional Base Rental due in accordance with
Exhibit B-2 hereof and the full amount of all parking charges, if any, due in
accordance with this Lease (the "Additional Base Rental") and all such other
sums of money as shall become due under this Lease (including, without
limitation, any charges for replacement of non-building standard electric
lamps and ballasts and any other services, goods or materials furnished by
Landlord at Tenant's request), all of which hereinafter may be collectively
called "Rent." Except as otherwise provided herein, the Base Rental and
Additional Base Rental for each calendar year or portion thereof during the
Lease Term, shall be due and payable in advance in equal monthly installments
on the first day of each calendar month during the Lease Term and any
extensions or renewals hereof, and Tenant hereby agrees to pay such Base
Rental and Additional Base Rental to Landlord without demand, provided that
no Additional Base Rental shall be due during the 1993 calendar year. If the
Lease Term commences on a day other than the first day of a month or
terminates on a day other than the last day of a month, then the installments
of Base Rental and Additional Base Rental for such month or months shall be
prorated, based on the number of days in such month. All such payments shall
be by a good and sufficient check. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the correct amount of Rent due
under this Lease shall be deemed to be other than a payment on account of the
earliest Rent due hereunder, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance or pursue any other available
remedy. The acceptance by Landlord of any Rent on a date after the due date
of such payment shall not be construed
3
<PAGE>
to be a waiver of Landlord's right to declare a default for any other late
payment. Tenant's covenant to pay Rent shall be independent of every other
covenant set forth in this Lease.
B. All Rent not paid within five (5) days after due and payable shall
bear interest from the date due until paid at the lesser of: 1. eighteen
percent (18%) per annum; or 2. the Maximum Rate. In addition, if Tenant fails
to pay any installment of Base Rental, Additional Base Rental or any other
item of Rent when due and payable hereunder and such failure continues for
ten (10) days after notice from Landlord, a service fee equal to three
percent (3%) of such unpaid amount will be due and payable immediately by
Tenant to Landlord, provided that Tenant shall not be required to pay a
service fee with respect to the first two late payments in any calendar year.
VI. SECURITY DEPOSIT. INTENTIONALLY OMITTED
VII. SERVICES TO BE FURNISHED BY LANDLORD.
A. Subject to the provisions of Article XI below, Landlord, as
part of Basic Costs, agrees to furnish Tenant the following services:
1. Cold water at those points of supply provided for
general use of tenants in the Building, central heat and air
conditioning in season in accordance with the specifications attached
hereto as Exhibit G, or as required by governmental authority; provided,
however, heating and air conditioning service at times other than Normal
Business Hours for the Building shall be available to Tenant, on a per
floor basis, by means of a Electronic Security Card Key system, based on
a two hour minimum at the initial rate of $30.00 per hour. Such $30.00
per hour rate shall be subject to rate adjustments from time to time in
direct proportion to T.U. Electric (or such other utility company
supplying electricity to the Building) rate adjustments to the Building.
Tenant shall pay Landlord, upon demand as additional rent, the entire
cost of additional service as such costs are determined by Landlord from
time to time.
2. Routine maintenance and electric lighting service for
all Common Areas of the Building in the manner and to the extent deemed
by Landlord to be standard for buildings of similar class, size, age and
location.
3. Janitor service on Business Days in accordance with
the specifications attached hereto as Exhibit H, or such other
comparable specifications as Landlord may specify; provided, however, if
Tenant's use, floor covering or other improvements require special
services, Tenant shall, at Landlord's option, either (i) retain its own
contractors (which contractor shall be subject to Landlord's reasonable
approval) to do such work or, (ii) pay the additional cost reasonably
attributable thereto as additional Rent upon presentation of statements
therefor by Landlord. Landlord shall clean and maintain the entrance
lobby and all public areas of the Building and Parking Garage in a
manner suitable for first class office buildings in Dallas, Texas.
4. Elevator service in common with other tenants of the
Building for ingress and egress to and from the floor of the Premises
during Normal Business Hours.
5. Clean the exterior windows of the Premises at least
twice a year.
B. Except as otherwise expressly provided herein, the failure by
Landlord to any extent to furnish, or the interruption or termination of
these services in whole or in part, resulting from adherence to laws,
regulations and administrative orders, wear, use, repairs, improvements,
alterations, Force Majeure (as hereinafter defined) or any causes beyond the
reasonable control of Landlord shall not render Landlord liable in any
respect nor be construed as an eviction of Tenant, nor give rise to an
abatement of Rent, nor relieve Tenant from the obligation to fulfill any
covenant or agreement hereof. Should any of the equipment or machinery used
in the provision of such services for any cause cease to function properly,
Landlord shall use reasonable diligence to repair such equipment or
machinery, but except as otherwise expressly provided herein, Tenant shall
have no claim for offset or abatement of Rent or damages on account of an
interruption in service or resulting therefrom. Landlord's entire obligation
with respect to the repair and maintenance of the Premises are set forth
above. Notwithstanding anything to the contrary contained in this Section
VII.B. If (i) Landlord ceases to furnish any service in the Building, and
Tenant notifies Landlord of such cessation in writing (the "Interruption
Notice"), (ii) such cessation does not arise as a result of an act or
omission of Tenant, (iii) such cessation is not caused by a fire or other
casualty (in which case Article XIX shall control), (iv) the repair or
restoration of such service is reasonably within the control of Landlord, and
(v) as a result of such cessation, the Premises or a material portion
thereof, is
4
<PAGE>
rendered untenantable (meaning that Tenant is unable to use the Premises in
the normal course of its business) and Tenant in fact ceases to use the
Premises, or material portion thereof, then, Tenant's sole remedy for such
cessation shall be as follows: on the first (1st) business day following the
later to occur of the date the Premises (or material portion thereof) becomes
untenantable, the date Tenant ceases to use such space and the date Tenant
provides Landlord with an Interruption Notice, the Base Rental and Additional
Base Rental payable hereunder shall be abated on a per diem basis based upon
the percentage of the Premises so rendered untenantable and not used by
Tenant, and such abatement shall continue until the date the Premises become
tenantable again.
C. The Building will include a security system restricting access after
normal business hours to the Building to only those tenants of the Building
using magnetic coded cards and restricting access via the elevators to
Tenant's exclusive floors within the Building to only those persons using
magnetic coded cards issued to persons authorized by Tenant. Magnetic coded
entry cards shall be issued to Tenant's employees without charge to Tenant or
its employees; however, Landlord may charge to Tenant the reasonable cost of
reissuing replacements for lost or damaged cards. Landlord shall furnish to
Tenant monthly (unless sooner requested in the event of a breach of
security), at Landlord's actual cost, if any, a computer printout of the log
showing by card numbers the date and time of entry by persons to the Leased
Premises during those hours when access to the Premises is restricted.
Notwithstanding anything herein to the contrary, Tenant expressly
acknowledges that Landlord shall not be deemed to have warranted the
efficiency of any such security personnel, service, procedures or equipment
and Landlord shall not be liable in any manner for the failure of any such
security personnel, services, procedures or equipment to prevent or control,
or apprehend any one suspected of personal injury or property damage in, on
or around the Property. Upon receipt of notice from Tenant, with respect to a
malfunction of the security system, Landlord, as part of Basic Costs, shall
promptly take whatever action is reasonably necessary to correct such
malfunction in the security system.
VIII. LEASEHOLD IMPROVEMENTS.
A. Except as otherwise specifically provided elsewhere in this Lease or
in the Work Letter Agreement, if any, attached hereto as Exhibit C and
incorporated herein, all installations and improvements now or hereafter
placed on or in the Premises shall be for Tenant's account and at Tenant's
cost, which cost shall be payable by Tenant to Landlord upon demand as
additional Rent.
B. Any and all alterations, additions and improvements to the Premises,
all attached furniture, equipment and non-trade fixtures (collectively,
"Leasehold Improvements") shall be owned and insured by Landlord and shall
remain upon the Premises, all without compensation, allowance or credit to
Tenant. Any unattached and movable equipment or furniture, trade fixtures or
other personalty of Tenant ("Tenant's Property") shall be owned and insured
by Tenant. Tenant shall be entitled to remove any Tenant's Property during
normal business hours or after normal business hours, at Tenant's discretion,
provided that Tenant complies with all of Landlord's reasonable rules and
regulations with respect to the moving of Tenant's Property and, provided
further, that Tenant's moving shall not disrupt the normal business activity
of the Building. Notwithstanding anything herein to the contrary, Landlord
may require Tenant to remove the computer room floor and any other property
and equipment directly relating to the installation of a computer room in the
Premises, including, without limitation, any supplemental air conditioning
units, computer cabling throughout the Premises and any copper piping
installed to provide condenser water to Tenant's supplemental air
conditioning unit (the "Required Removables") at Tenant's sole cost. In the
event that Landlord so elects, Tenant shall remove such Required Removables
on or before the expiration or earlier termination of this Lease and repair
any damage caused by Such removal. If Tenant fails to remove the Required
Removables after Landlord's request therefor, Landlord may remove, store or
dispose of the Required Removables at Tenant's cost, and repair any damage
caused by such removal and Tenant shall pay Landlord as additional Rent
hereunder, on demand, all such costs. Except as set forth above, Tenant shall
not be required to remove any of the Landlord Work from the Premises. With
respect to any additions, alterations and improvements installed in the
Premises by Tenant subsequent to the performance of Landlord Work, Tenant may
request in writing at the time it submits its plans and specifications for an
alteration, addition or improvement, that Landlord advise Tenant whether
Landlord will require Tenant to remove, at the termination of this Lease or
Tenant's right to possession hereunder, such alteration, addition or
improvement or any particular portion thereof and Landlord shall advise
Tenant within twenty (20) days after receipt of Tenant's request as to
whether Landlord will require removal; provided, however, Landlord shall have
the right to require Tenant to remove any vault, stairway or computer room
alterations installed in the Premises, regardless of whether Landlord timely
notified Tenant that it would require such removal. Landlord shall not
require Tenant to remove any usual office
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improvements such as gypsum board, partitions, ceiling grids and tiles,
fluorescent lighting panels, building standard doors and carpeting.
IX. GRAPHICS. Tenant's original building standard signage for the
Premises and the two (2) directories located in the lobby of the Building
will be included as part of Landlord's Work pursuant to Exhibit C to this
Lease. Thereafter, Landlord shall provide and install, at Tenant's cost, all
letters or numerals on the exterior of the Premises; all such letters and
numerals shall be in the standard graphics for the Building and no others
shall be used or permitted on the Premises without Landlord's prior written
consent.
X. REPAIRS AND ALTERATIONS.
A. Tenant shall, at Tenant's own cost and expense, keep the
Premises in good condition and repair, except to the extent such obligations
are imposed upon Landlord pursuant to Section X.C. below and except for
casualty damage and reasonable wear and tear. Such repairs shall restore the
Premises to as good a condition as it was in prior to such damage and shall
be effected in compliance with the reasonable directions of Landlord. If
Tenant fails to make such repairs to the Premises promptly, Landlord may, at
its option, make such repairs, and Tenant shall pay the cost thereof to the
Landlord on demand as additional Rent.
B. Except with respect to the initial Landlord Work to be
performed pursuant to Exhibit C (the approval of which is hereby granted by
Landlord), Tenant shall not make or allow to be made any alterations,
additions or improvements to the Premises, nor install any vending machines
(other than the employee's lunch room), safes or other heavy property or
equipment within the Premises, nor place signs or window coverings on the
Premises which are visible from outside the Premises, without first obtaining
the written consent of Landlord in each such instance. Prior to commencing
any such work, Tenant must furnish Landlord with plans and specifications;
names and addresses of contractors; copies of contracts; necessary permits;
evidence of contractor's and subcontractor's insurance in accordance with
section XVI.B, hereof; and indemnification in form and amount satisfactory to
Landlord. All such improvements, alterations or additions shall be
installed in a good workmanlike manner using new materials. Upon completion,
Tenant shall furnish "as-built" plans, contractor's affidavits and full and
final waivers of lien and receipted bills covering all labor and materials.
All improvements, alterations and additions shall comply with all insurance
requirements, codes, ordinances, laws and regulations, including without
limitation, the Americans with Disabilities Act. Except with respect to the
initial Landlord Work, Tenant shall reimburse Landlord upon demand as
additional Rent for all reasonable and necessary sums expended by Landlord
for examination of the architectural, mechanical, electric and plumbing plans
for any alterations, additions or improvements and for the costs of repairing
any damage done to the Building caused by Tenant or Tenant's agents,
servants, employees, customers, licensees, or invitees. If Landlord so
requests, Tenant shall permit Landlord to supervise construction operations,
but no such supervision shall impose any liability upon Landlord. In the
event Landlord supervises such construction, Landlord shall be entitled to a
supervisory fee in the amount of five percent (5%) of the cost of such
construction, provided that Landlord shall not be entitled to receive a
supervision fee with respect to the initial Landlord Work and, provided
further, that Landlord shall only be entitled to receive a supervision fee if
the work being performed by Tenant involves the systems or structure of the
Building or otherwise reasonably requires supervision by Landlord. Landlord's
approval of Tenant's plans and specifications or supervision of any work
performed for or on behalf of Tenant shall not be deemed to be a
representation by Landlord that such plans and specifications comply with
applicable insurance requirements, building codes, ordinances, laws or
regulations.
C. Landlord, as part of Basic Costs, shall keep and maintain in
good repair and working order and make all repairs to and perform necessary
maintenance upon: 1) all structural elements of the Building within the
Premises, unless the need to make a structural alteration or repair results
from Tenant's particular manner of use of the Premises, Tenant's particular
design of the Premises, or any alterations, additions or improvements
performed by or on behalf of Tenant in the Premises; and 2) all mechanical
systems within the Premises, but only to the extent such have not been
installed by Tenant or its contractors; and 3) all elements of the Building
and the Premises necessary to provide the services described in Article VII,
but only to the extent such have not been installed by Tenant or its
contractors; and 4) the Building facilities common to all tenants including,
but not limited to, the ceilings, lighting, HVAC, plumbing, walls and floors
in the common areas. All repairs by Landlord shall be accomplished in a good
and workmanlike manner using new materials and in compliance with all
applicable laws of all controlling governmental authorities. Landlord will
use reasonable efforts to perform all repair and maintenance to the Premises
in such a manner as to limit, to the extent reasonably possible, any
interference to the operation of Tenant's business in the Premises, unless
emergency conditions exist that require immediate action. Notwithstanding
anything herein to the contrary, Tenant shall be responsible for the cost of
any alterations, repairs,
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changes and additions necessitated by the acts or omissions of Tenant,
Tenant's agents, employees and contractors.
XI. USE OF ELECTRICAL AND HVAC SERVICES BY TENANT.
A. All building standard electricity used by Tenant in the
Premises shall be paid for by Tenant through inclusion in Base Rental or Basic
Costs. If Landlord selects option (2) or (3), Tenant's calculation of Basic
Costs shall not include electricity used by other tenants of the Building.
Tenant's use of electrical and heating, ventilating and air conditioning
("HVAC") services furnished by Landlord shall not exceed, either in voltage,
rated capacity, use or overall load, that which Landlord deems to be standard
for the Building. In the event Tenant shall request that it be allowed to
consume electrical or HVAC services in excess of that deemed by Landlord to
be standard for the Building, Landlord may refuse to consent to such usage or
may consent upon such conditions as Landlord elects (including the
installation of utility service upgrades, submeters, air handlers or cooling
units), and all such additional usage (to the extent permitted by law),
installation and maintenance thereof shall be paid for by Tenant as
additional Rent. Landlord shall have the right to separately meter electrical
usage for the Premises at any time during the Lease Term or to use any other
method of measuring electrical usage that Landlord, in its reasonable
judgment, deems to be appropriate.
B. If Landlord generates or Distributes electric current for the
Building, Tenant shall obtain all current from Landlord and pay as additional
Rent Landlord's charges therefor, provided, however, that if the cost of
providing electricity is not included in Base Rental or Basic Costs, the
charges to Tenant shall not exceed the rate that would be charged Tenant if
billed directly by the local utility for the same services. Landlord may
cease to furnish electricity upon 30 days prior written notice, provided
within the 30 days Landlord connects with another source of electric supply.
XII. ENTRY BY LANDLORD. After reasonable notice to Tenant (except in
the event of an emergency), Landlord and its agents or representatives shall
have the right to enter the Premises to inspect the same, or to show the
Premises to prospective purchasers, mortgagees, tenants or insurers, or to
clean or make repairs, alterations or additions thereto, including any work
that Landlord deems necessary for the safety, protection or preservation of
the Building or any occupants thereof, or to facilitate repairs, alterations
or additions to the Building or any other tenants premises. If reasonably
necessary for the protection and safety of Tenant and its employees, Landlord
shall have the right to temporarily close the Premises to perform repairs,
alterations or additions in the Premises, provided that Landlord shall use
reasonable efforts to perform all such work on weekends and after Normal
Business Hours. Entry by Landlord hereunder shall not constitute a
constructive eviction or entitle Tenant to any abatement or reduction of Rent
by reason thereof.
XIII. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not assign, sublease, transfer or encumber this
Lease or any interest therein or grant any license, concession or other right
of occupancy of the Premises or any portion thereof or otherwise permit the
use of the Premises or any portion thereof by any party other than Tenant
(any of which events is hereinafter called a "Transfer") without the prior
written consent of Landlord, which consent shall not be unreasonably withheld
with respect to any proposed assignment or subletting. Landlord's consent
shall not be considered unreasonably withheld if: 1. the proposed
transferee's financial responsibility does not meet the same criteria
Landlord uses to select Building tenants; 2. the proposed transferee's
business is not suitable for the Building considering the business of the
other tenants and the Building's prestige or would result in a violation of
an exclusive right granted to another tenant in the Building; 3. the proposed
use is different than the Permitted Use; 4. the proposed transferee is a
government agency or occupant of the Building; or 5. Tenant is in default.
Tenant acknowledges that the foregoing is not intended to be an exclusive
list of the reasons for which Landlord may reasonably withhold its consent to
a proposed Transfer. Any attempted Transfer in violation of the terms of this
Article shall, at Landlord's option, be void. Consent by Landlord to one or
more Transfers shall not operate as a waiver of Landlord's rights as to any
subsequent Transfers. In addition, Tenant shall not, without Landlord's
consent, such consent not to be unreasonably withheld, publicly offer or
advertise the Lease for Transfer in any media. In the event Tenant or anyone
acting on behalf of Tenant or with Tenant's knowledge violates the provisions
of the foregoing sentence, Landlord, in addition to its other remedies, shall
be entitled to seek injunctive relief preventing
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such action, and Tenant shall be responsible for all costs incurred by
Landlord in connection therewith.
Notwithstanding anything to the contrary contained herein or in Section
XIII.D., Tenant may assign its entire Interest under this Lease or sublet the
Premises to a wholly owned corporation or controlled subsidiary or parent of
Tenant or to any successor to Tenant by purchase, merger, consolidation or
reorganization (hereinafter collectively referred to as "Corporate Transfer")
without the consent of Landlord, provided: (i) Tenant is not in default under
this Lease; (ii) if such proposed transferee is a successor to Tenant by
purchase, said proposed transferee shall acquire all or substantially all of
the stock or assets of Tenant's business or, if such proposed transferee is a
successor to Tenant by merger, consolidation or reorganization, the
continuing or surviving corporation shall own all or substantially all of the
assets of Tenant; (iii) with respect to a merger, consolidation or sale of
substantially all of the assets of Tenant, such proposed transferee shall
have a net worth which is at least equal to the greater of Tenant's net worth
at the date of this Lease or Tenant's net worth at the date of the Transfer;
(iv) such proposed transferee operates the business in the Premises for the
Permitted Use and no other purpose; and (v) in no event shall any Transfer
release or relieve Tenant from any of its obligations under this Lease.
Tenant shall give Landlord written notice at least thirty (30) days prior to
the effective date of such Corporate Transfer. As used herein, the terms
"controlled" or "subsidiary" shall mean a corporate entity wholly owned by
Tenant or at least fifty-one percent (51%) of whose voting stock is owned by
Tenant.
B. If Tenant requests Landlord's consent to a Transfer, Tenant shall
notify Landlord in writing at least 45 days prior to the effective date of
the proposed Transfer of the name of the proposed transferee and the nature
of the business of the proposed transferee, the term, use, rental rate and
all other material terms and conditions of the proposed Transfer, including;
without limitation, evidence satisfactory to Landlord that the proposed
transferee is financially responsible. Notwithstanding the provisions of
Section XIII.A. above, Landlord may, during said 45-day period, 1. consent to
or refuse to consent to such Transfer in writing; or 2. negotiate directly
with the proposed transferee and (in the event Landlord is able to reach
agreement with such proposed transferee) upon execution of a lease with such
transferee, terminate this Lease (in part or in whole, as appropriate) upon
thirty (30) days' notice; or 3. cancel and terminate this Lease, in whole or
in part as appropriate, upon 30 days notice. In the event Landlord consents
to any such Transfer, the Transfer shall be in a form approved by Landlord,
and Tenant shall bear all reasonable costs and expenses incurred by Landlord
in connection with the review and approval of such documentation.
C. Fifty percent (50%) of all cash or other proceeds (the "Transfer
Consideration") of any Transfer of Tenant's interest in this Lease and/or the
Premises, whether consented to by Landlord or not, shall be paid to Landlord
and Tenant hereby assigns fifty percent (50%) of all rights it might have or
ever acquire in any such proceeds to Landlord. In addition to the Rent
hereunder, Tenant hereby covenants and agrees to pay to Landlord fifty
percent (50%) of all rent and other consideration which it receives which is
in excess of the Rent payable hereunder within ten (10) days following
receipt thereof by Tenant. In addition to any other rights Landlord may
have, Landlord shall have the right to contact any transferee and require
that all payments made pursuant to the Transfer shall be made directly to
Landlord.
D. If Tenant is a corporation and if at any time during the Lease
Term the person or persons who own the voting shares at the time of the
execution of this Lease cease for any reason, including but not limited to
merger, consolidation or other reorganization involving another corporation,
to own a majority of such shares, or if Tenant is a partnership and if at any
time during the Lease Term the general partner or partners who own the
general partnership interests in the partnership at the time of the execution
of this Lease, cease for any reason to own a majority of such interests
(except as the result of transfers by gift, bequest or inheritance to or for
the benefit of members of the immediate family of such original
shareholder(s) or partner(s)), such an event shall be deemed to be a
Transfer. The preceding sentence shall not apply whenever Tenant is a
corporation the outstanding stock of which is listed on a recognized security
exchange, or if at least eighty per cent (80%) of its voting stock is owned
by another corporation, the voting stock of which is so listed.
E. Any Transfer consented to by Landlord in accordance with this
Article XIII shall be only for the Permitted Use and for no other purpose,
and in no event shall any Transfer release or relieve Tenant or any
Guarantors from any obligations under this Lease.
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XIV. LIENS. Tenant will not permit any mechanic's liens or other liens
to be placed upon the Promises or Tenant's leasehold interest therein, the
Building, of the real estate associated therewith. Landlord's title to the
Building and Property is and always shall be paramount to the interest of
Tenant, and nothing herein contained shall empower Tenant to do any act that
can, shall or may encumber Landlord's title. In the event any such lien does
attach, Tenant shall, within 5 days of notice of the filing of said lien,
either discharge or bond over such lien to the satisfaction of Landlord and
Landlord's Mortgagee (as hereinafter defined), and in such a manner as to
stay the enforcement or foreclosure of such lien. If Tenant shall fail to so
discharge or bond over such lien, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge
the same. Any amount paid by Landlord for any of the aforesaid purposes,
including reasonable attorneys fees (if and to the extent permitted by law)
shall, be paid by Tenant to Landlord on demand as additional Rent.
Notwithstanding the foregoing, if any such lien affects only Tenant's
leasehold interest and does not affect Landlord's interest in the Premises,
the Building or the real estate associated herewith, Tenant shall have the
right, after written notice to Landlord, to contest in good faith and with
all due diligence any such mechanic's lien. In such event, Tenant shall not
be required to pay any claim secured by such mechanic's lien prior to the
rendering of a judgment against Tenant with respect to such lion, provided
that Tenant shall comply with the provisions of all applicable laws with
respect to the contesting of such lien, including, without limitation, the
posting of any required bonds. The foregoing shall not imply any right on
the part of Tenant to affect Landlord's interest in the Leased Premises or
the Building.
XV. INDEMNITY AND WAIVER OF CLAIMS.
A. Except for losses, liabilities, obligations, damages,
penalties, claims, costs, charges and expenses resulting from the negligence
of Landlord and any Landlord Related Parties (hereinafter defined) and
subject to the provisions of Article XVII hereof, Tenant shall indemnify,
defend and hold Landlord, its principals, beneficiaries, partners, officers,
directors, agents, employees and any Mortgagee(s) (collectively the "Landlord
Related Parties") harmless against and from all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses, including, without
limitation, reasonable architects' and attorneys' fees (if and to the extent
permitted by law), which may be imposed upon, incurred by, or asserted
against Landlord or any of the Landlord Related Parties and arising, directly
or indirectly, out of or in connection with the use, occupancy or maintenance
of the Premises by, through or under Tenant and (without limiting the
generality of the foregoing) any of the following: 1. any work or thing done
in, on or about the Premises or any part thereof by Tenant or any of its
transferees, agents, servants, contractors, employees, customers, licensees
or invitees; 2. any use, non-use, possession, occupation, condition,
operation or maintenance of the Premises or any part thereof; 3. any act or
omission of Tenant or any of its transferees, agents, servants, contractors,
employees, customers, licensees or invitees, regardless of whether such act
or omission occurred within the Premises; 4. any injury or damage to any
person or property occurring in, on or about the Premises or any part
thereof; or 5. any failure on the part of Tenant to perform or comply with
any of the covenants, agreements, terms or conditions contained in this Lease
with which Tenant must comply or perform. In case any action or proceeding
is brought against Landlord or any of the Landlord Related Parties by reason
of any of the foregoing, Tenant shall, at Tenant's sole cost and expense,
resist and defend such action or proceeding with counsel approved by Landlord
or, at Landlord's option, reimburse Landlord for the reasonable and necessary
cost of any counsel retained directly by Landlord to defend and resist such
action or proceeding.
B. Unless caused by the negligence or willful misconduct of
Landlord or any Landlord Related Parties, Landlord and the Landlord Related
Parties shall not be liable for, and Tenant waives, all claims for loss or
damage to Tenant's business or damage to person or property. sustained by
Tenant or any person claiming by, through or under Tenant (including Tenant's
employees) resulting from any accident or occurrence in, on or about the
Premises, the Building or the Property, including, without limitation, claims
for loss, theft or damage resulting from: 1. the Premises, Building, or
Property, or any equipment or appurtenances becoming out of repair; 2. wind
or weather: 3. any defect in or failure to operate, for whatever reason, any
sprinkler, heating or air-conditioning equipment, electric wiring, gas, water
or steam pipes; 4. broken glass; 5. the backing up of any sewer pipe or
downspout; 6. the bursting, leaking or running of any tank, water closet,
drain or other pipe; 7, the escape of steam or water; 8. water, snow or ice
being upon or coming through the roof, skylight, stairs, doorways, windows,
walks or any other place upon or near the Building; e. the falling of any
fixture, plaster, tile or other material; 10. any act, omission or negligence
of other tenants, licensees or any other persons or occupants of the Building
or of adjoining or contiguous buildings, of owners of adjacent or contiguous
property or the public, or by construction of any private, public or
quasi-public work; or 11. any other cause of any nature except where such
loss or damage is due to Landlord's willful failure to make repairs required
to be made pursuant to other provisions of this Lease,
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after the expiration of a reasonable time after written notice to Landlord of
the need for such repairs. To the maximum extent permitted by law, Tenant
agrees to use and occupy the Premises, and to use such other portions of the
Building as Tenant is herein given the right to use, at Tenant's own risk.
C. Except for losses, liabilities, obligations, damages, penalties;
claims, costs, charges and expenses resulting from the negligence of Tenant
and/or its agents, employees or contractors, and subject to the provisions of
Article XVII hereof, Landlord shall indemnify, defend and hold Tenant, its
principals, agents and employees (collectively the "Tenant Related Parties")
harmless from and against all liabilities, obligations, damages (other than
consequential damages), penalties, claims, costs, charges and expenses,
including, without limitation, reasonable attorneys' fees, which may be
imposed upon, incurred by, or asserted against Tenant or any of the Tenant
Related Parties and arising, directly or indirectly, out of or in connection
with any of the following:(i) any work or thing done in, on or about the
Building or any part thereof by Landlord or any of its agents, contractors or
employees; (ii) any use, non-use, possession, occupation, condition,
operation, maintenance or management of the Building or any part thereof by
Landlord or any of its agents, contractors or employees (iii) any act or
omission of Landlord or any of its agents, contractors or employees; and (iv)
any injury. or damage to any person or property occurring in, on or about the
Building or any part thereof; provided, however, that in each case such
liability, obligation, damage, penalty, claim, cost, charge or expense
results from the negligence of Landlord and/or its agents, employees or
contractors.
XVI. TENANT'S INSURANCE.
A. At all times commencing on and after the earlier of the
Commencement Date and the date Tenant or its agents, employees or contractors
enters the Premises for any purpose, Tenant shall carry and maintain, at its
sole coat and expense:
1. Commercial General Liability insurance with a Broad Form
General Liability Endorsement applicable to the Premises and its
appurtenances providing, on an occurrence basis, a minimum combined
single Limit of Two Million Dollars ($2,000,000).
2. All Risks of Physical Loss insurance written at
replacement cost value and with a replacement cost endorsement covering
all of Tenant's Property in the Premises.
3. Workers Compensation insurance as required by the state
in which the Premises is located and in amounts as may be required by
applicable statute, and Employers Liability Coverage of One Million
Dollars ($1,000.000) per occurrence.
B. Except for items for which Landlord is responsible under the
Work Letter Agreement, before any repairs, alterations, additions,
improvements, or construction are undertaken by or on behalf of Tenant,
Tenant shall carry and maintain, at its expense, or Tenant shall require any
contractor performing work on the Premises to carry and maintain, at no
expense to Landlord in addition to worker's compensation insurance as
required by the jurisdiction in which the Building is located, All Risk
Builder's Risk insurance in the amount of the replacement cost of any
alterations, additions or improvements (or such other amount reasonably
required by Landlord) and Commercial General Liability Insurance (including,
without limitation, Contractor's Liability coverage, Contractual Liability
coverage, Completed. Operations coverage, a Broad Form Property Damage
coverage and Contractor's Protective liability) written on an occurrence
basis with a minimum combined Single limit of Two Million Dollars
($2,000,000); such limit may be accomplished by means of an umbrella policy.
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of this Lease (all
such insurance as well as any other insurance pertaining to the Premises or
the operation of Tenant's business therein being referred to as "Tenant's
Insurance"), as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval, and each such insurance company
shall have an A.M. Best rating of "A7" or better and shall be licensed and
qualified to do business in the state in which the Premises are located. All
policies evidencing Tenant's Insurance (except for Workers Compensation)
shall specify Tenant and the "owner(s) of the Building and its (or their)
respective principals, beneficiaries, partners, officers, Directors,
employees, agents and mortgagee(s)" (and any other designees of Landlord as
the interest of such designees shall appear) as additional insureds.
Provided that the coverage afforded Landlord and any designees of Landlord
shall not be reduced or otherwise adversely affected, all of Tenant's
insurance may be carried under a blanket policy covering the Premises and any
other of Tenant's locations. All policies of Tenant's Insurance shall
contain endorsements that the. Insurer(s) will give to Landlord and its
designees at least thirty (30) days' advance written notice
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of any change, cancellation, termination or lapse of said insurance. Tenant
shall be solely responsible for payment of premiums for all of Tenant's
Insurance. Tenant shall deliver to Landlord at least fifteen (15) days prior
to the time Tenant's Insurance is first required to' be carried by Tenant,
and upon renewals at least fifteen (15) days prior to the expiration of any
such insurance coverage, a certificate of insurance of all policies procured
by Tenant in compliance with its obligations under this Lease. The limits of
Tenant's Insurance shall in no event limit Tenant's liability under this
Lease.
D. Tenant shall not do or fail to do anything in, upon or about the
Premises which will; 1. violate the terms of any of Landlord's Insurance
policies; 2. prevent Landlord from obtaining policies of insurance acceptable
to Landlord or any Mortgagees; or 3. result in an increase in the rate of any
insurance on the Premises, the Building, any other property of Landlord or of
others within the Building. In the event of the occurrence of any of the
events set forth in this Section, Tenant shall pay Landlord upon demand, as
additional Rent, the cost of the amount of any increase in any such insurance
premium. If Tenant jails to obtain the insurance coverage required by this
Lease, Landlord may, at its option, obtain such insurance for Tenant, and
Tenant shall pay, as additional Rent, the cost of all premiums thereon and
all of Landlord's' costs associated therewith. Notwithstanding the foregoing,
so long as Tenant complies with all of the terms and conditions of this
Lease, the use of the Premises for the Permitted Use will not violate any
insurance maintained by Landlord, prevent Landlord from obtaining insurance,
or result in an increase in the cost of insurance coverage for which Tenant
will be responsible (other than through inclusion in Basic Costs).
XVII. SUBROGATION. Notwithstanding anything set forth in this Lease to
the contrary, Landlord and Tenant do hereby waive any and all right of
recovery, claim, action or cause of action against the other, their
respective principals, beneficiaries, partners, officers, directors, agents,
and employees, and, with respect to Landlord, its Mortgagee[s], for any loss
or damage that may occur to Landlord or Tenant or any party claiming by,
through or under Landlord or Tenant, as the case may be, with respect to
their respective property, the Building, the Property or the Premises or any
addition or improvements thereto, or any contents therein, by reason of fire,
the elements or any other cause, regardless of cause or origin, including the
negligence of Landlord or Tenant, or their respective principals,
beneficiaries, partners, officers, directors, agents and employees and, with
respect to Landlord, its Mortgagee(s), which loss or damage is (or would have
been, had the insurance required by this Lease been carried) covered by
insurance. Since this mutual waiver will preclude the assignment of any such
claim by subrogation (or otherwise) to an insurance company (or any other
person), Landlord and Tenant each agree to give each insurance company which
has issued, or in the future may issue, its policies of fire, extended
coverage or material damage insurance, written notice of the terms of this
mutual waiver, and to have such insurance policies properly endorsed, if
necessary, to prevent the invalidation of any of the coverage provided by
such insurance policies by reason of such mutual waiver. For the purpose of
the foregoing waiver, the amount of any deductible applicable to any loss or
damage shall be deemed covered by, and recoverable by the insured under the
insurance policy to which such deductible relates. In the event that Tenant
is permitted to and self-insures any risk which would have been covered by
the insurance required to be carried by Tenant pursuant to Article XVI of the
Lease, or if Tenant fails to carry any insurance required to be carried by
Tenant pursuant to Article XVI of this Lease, then all loss or damage to
Tenant, its leasehold interest, its business, its property, the Premises of
any additions or improvements thereto or contents thereof shall be deemed
covered by and recoverable by Tenant under valid and collectible policies of
insurance.
XVIII. LANDLORD'S INSURANCE. Landlord shall maintain full replacement
cost, property insurance on the Building. The cost of such insurance shall be
included as a part of the Basic Costs, and payments for losses thereunder
shall be made solely to Landlord or the Mortgagees' of Landlord as their
interests shall appear. Landlord may, at its option, elect to self insure.
XIX. CASUALTY DAMAGE. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged that, based on
the reasonable estimate of Landlord's general contractor, it will take longer
than two hundred twenty-five (225 days to restore the Building to the
condition that existed prior to the fire or other casualty whether or not the
Premises shall have been damaged by such casualty) or in the event the
Premises have been damaged and there is less than two (2) years of the Lease
Term remaining on the date of such casualty or in the event any Mortgagee
should requite that the insurance proceeds payable as a result of a casualty
be applied to the payment of the mortgage debt or in the event of any
material uninsured loss to the Building, Landlord may, at its option,
terminate this Lease by notifying Tenant in writing of such termination with
in ninety (90) days after the date of such casualty. Such termination shall
be effective as of the date of fire or casualty, with respect to any portion
of the Premises that was rendered untenantable, and the date specified in
Landlord's notice,
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with respect to any portion of the Premises that remained tenantable. If
Landlord does not elect to terminate this Lease, Landlord shall commence and
proceed with reasonable diligence to restore the Building (provided that
Landlord shall not be required to restore any unleased premises in the
Building) and the Leasehold improvements (but excluding any improvements,
alterations or additions made by Tenant in violation of this Lease) located
within the Premises if any, which Landlord has insured to substantially the
same condition they were in immediately prior to the happening of the
casualty. Notwithstanding anything in this Article XIX to the contrary, if
all or any portion of the Premises shall be made untenantable by a fire or
other casualty, Landlord shall with reasonable promptness, cause an architect
or general contractor selected by Landlord to estimate the amount of time
required to substantially complete repair and restoration of the Premises and
make the Premises tenantable again, using standard working methods (the
"Completion Estimate"). If the Completion Estimate indicates that the
Premises cannot be made tenantable within two hundred twenty-five (225) days
from the "date" the repair and restoration is started, either party shall
have the right to terminate this Lease by giving written notice to the other
of such election within ten (10) days after its receipt of, the Completion
Estimate. If the Completion Estimate indicates that the Premises can be made
tenantable within two hundred twenty-five (225) days from the date the repair
and restoration is started and Landlord has not otherwise exercised its'
right to terminate the Lease pursuant to the terms hereof, or if the
Completion Estimate indicates that the Premises cannot be made tenantable
within two hundred twenty-five (225) days but neither party terminates this
Lease pursuant to this Article XIX, Landlord shall proceed with reasonable
promptness to repair and restore the Premises, Notwithstanding the foregoing,
if Landlord does not substantially complete the repair and restoration the
Premises within two (2) months after the expiration of the estimated period
of time set forth in the Completion Estimate, which period shall be extended
to the extent of any Reconstruction Delays, then Tenant may terminate this
Lease by written notice to Landlord within fifteen (15) days after the
expiration of such period, as the same may be extended. For purposes of this
Lease, the term "Reconstruction Delays" shall mean: (i) any delays caused by
Tenant, and (ii) any delays caused by events of Force Majeure.
Notwithstanding the foregoing, Landlord's obligation to restore the Building,
and the Leasehold improvements, if any, shall not require Landlord to expend
for such repair and restoration work more than the insurance proceeds
actually received by the Landlord as a result of the casualty. When repairs
to the Premises have been completed by Landlord, Tenant shall complete the
restoration or replacement of all Tenant's Property necessary to permit
Tenant's reoccupancy of the Premises, and Tenant shall present Landlord
with evidence satisfactory to Landlord of Tenant's ability to pay such costs
prior to Landlord's commencement of repair and restoration of the Premises.
Landlord shall not be liable, for any inconvenience or annoyance to Tenant or
injury to the business of Tenant resulting in any way from such damage or the
repair thereof, except that Landlord shall allow Tenant a fair diminution of
Rent on a per diem basis during the time and to the extent the Premises are
untenantable. Notwithstanding the, foregoing, if the Premises or any other
portion of the Building is damaged by fire or other casualty resulting from
the fault or negligence of Tenant or any of Tenant's agents, employees, or
contractors, Tenant shall only be entitled to a diminution of Rent to the
extent that such Rent is reimbursed to Landlord through rental interruption
insurance maintained by Landlord. Landlord and Tenant hereby waive the
provisions of any law from time to time in effect during the Lease Term
relating to the effect upon leases of partial or total destruction of leased
property. Landlord and Tenant agree that their respective rights in the event
of any damage to or destruction of the Premises shall be those specifically
set forth herein.
XX. DEMOLITION. INTENTIONALLY OMITTED
XXI. CONDEMNATION. If 1. the whole or any substantial part of the
Premises or 2. any portion of the Building or Property which would leave the
remainder of the Building unsuitable for use as an office building comparable
to its use on the Commencement Date, shall be taken or condemned for any
public or quasi-public use under governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof, then
Landlord may, at its option, terminate this Lease effective as of the date
the physical taking of said Premises or said portion of the Building or
Property shall occur. In the event this Lease is not terminated, the Rentable
Area of the Building, the Rentable Area of the Premises and Tenant's Pro
Rata Share shall be appropriately adjusted. In addition, Rent for any
portion of the Premises so taken or condemned shall be abated during the
unexpired term of this Lease effective when the physical taking of said
portion of the Premises shall occur. All compensation awarded for any such
taking or condemnation, or sale proceeds in lieu thereof, shall be the
property of Landlord, and Tenant shall have no claim thereto, the same being
hereby expressly waived by Tenant, except for any portions of such award or
proceeds which are specifically allocated by the condemning or purchasing
party to Tenant's relocation costs and\or for the taking of or damage to
trade fixtures of Tenant, which Tenant specifically reserves to itself.
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PAGE 13 OMITTED
(hereinafter defined) and any deficiency that may arise by reason of any
reletting or failure to relet.
2. Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying said Premises, or
any part thereof, by force, if necessary, without having any civil or
criminal liability therefor and without terminating this Lease. Landlord
may (but shall be under no obligation to) relet the Premises or any part
thereof for the account of Tenant, in the name of Tenant or Landlord or
otherwise, without notice to Tenant for such term or terms which may be
greater or less than the period which would otherwise have constituted
the balance of the Lease Term and on such conditions (which may include
concessions, free rent and alterations of the Premises) and for such
uses as Landlord In its absolute discretion may determine, and Landlord
may collect and receive any rents payable by reason of such reletting.
Tenant agrees to pay Landlord on demand all Costs of Reletting and any
deficiency that may arise by reason of such reigning or failure to
relet. Landlord shall not be responsible or liable for any failure to
relet the Premises or any part thereof or for any failure to collect any
Rent due upon any such reletting. No such re-entry or taking of
possession of the Premises by Landlord shall be construed as an election
on Landlord's part to terminate this Lease unless a written notice of
such termination is given to Tenant.
3. Enter upon the Premises by force if necessary without
having any civil or criminal liability therefor, and do whatever Tenant
is obligated to do under the terms of this Lease, and Tenant agrees to
reimburse Landlord on demand for any expense which Landlord may incur in
thus affecting compliance with Tenant's obligations under this Lease
together with interest at the lesser of a per annum rate equal to: a.
the Maximum Rate, or b. the Prime Rate plus five percent (5%), and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by the negligence
of Landlord or otherwise.
4. In order to regain possession of the Premises and to deny
Tenant access thereto in any instance in which Landlord has terminated
this Lease or Tenant's right to possession, or to limit access to the
Premises in accordance with local law in the event of a default by
Tenant, Landlord or its agent may, at the expense and liability of the
Tenant, alter or change any or all locks or other security devices
controlling access to the Premises. Tenant shall not be entitled to
recover possession of the Premises, terminate this Lease, or recover any
actual, incidental, consequential, punitive, statutory or other damages
or award of attorneys' fees, by reason of Landlord's alteration or
change of any lock or other security device and the resulting exclusion
from the Premises of the Tenant or Tenant's agents, servants, employees,
customers, licensees, invitees or any other persons from the Premises.
Landlord may, without notice, remove and either dispose of or store, at
Tenant's expense, any property belonging to Tenant that remains in the
Premises after Landlord has regained possession thereof.
5. Terminate this Lease, in which event, Tenant shall
immediately surrender the Premises to Landlord and pay to Landlord the
sum of: a. all Rent accrued hereunder through the date of termination,
and, upon Landlord's determination thereof, b. an amount equal to (i)
the total Rent that Tenant would have been required to pay for the
remainder of the Lease Term Discounted to present value at the prime
rate then in effect, minus (ii) the then present fair rental value of
the Premises for the remainder of the Lease Term, similarly discounted,
after deducting all anticipated Costs of Reletting, Landlord's
determination of such amount shall be conclusive and binding on Tenant,
and shall be deemed to have been made in good faith, subject only to
manifest error.
B. For purposes of this Lease, the term "Costs of Reletting" shall mean
all reasonable costs and expenses incurred by Landlord in connection with the
reletting of the Premises, including without limitation, Rent loss during the
period the Premises are vacant prior to reletting, the cost of cleaning,
renovation, repairs, decoration and alteration of the Premises for a now
tenant or tenants, advertisement, marketing brokerage and legal fees (if and
to the extent permitted by law), the cost of protecting or caring for the
Premises while vacant, the cost of removing and storing any property located
on the Premises, any increase in insurance premiums caused by the vacancy of
the Premises and any other reasonable out-of-pocket expenses incurred by
Landlord.
C. Except as otherwise herein provided, no repossession or re-entering
on the Premises or any part thereof pursuant to Article XXIII hereof or
otherwise shall relieve Tenant or any Guarantor of its liabilities and
obligations hereunder, all of which shall survive such repossession or
re-entering. Notwithstanding any such repossession or re-entering by reason
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of the occurrence of an event of default, Tenant will pay to Landlord the
Rent required to be paid by Tenant pursuant to this Lease.
D. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every
right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder or now or hereafter existing by agreement, applicable
law or in equity. In addition to other remedies provided in this Lease,
Landlord shall be entitled, to the extent permitted by applicable law, to
injunctive relief, or to a decree compelling performance of any of the
covenants, agreements, conditions or provisions of this Lease, or to any
other remedy allowed to Landlord at law or in equity. Forbearance by Landlord
to enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of such
default.
E. This Article XXIII shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the unenforceability of
any portion thereof shall not thereby render unenforceable any other portion.
XXIV. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR
LANDLORD HEREUNDER) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN
THE BUILDING, AND TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST IN THE
BUILDING FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST THE LANDLORD, IT
BEING INTENDED THAT LANDLORD SHALL NOT BE PERSONALLY LIABLE FOR ANY JUDGMENT
OR DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT
FOR AN ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL
MORTGAGEES WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST
LIENS ON THE PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO
CURE SUCH ALLEGED DEFAULT BY LANDLORD. IN ADDITION, TENANT ACKNOWLEDGES THAT
EQUITY ASSETS MANAGEMENT, INC, IS ACTING SOLELY IN ITS CAPACITY AS AGENT FOR
LANDLORD AND SHALL NOT BE LIABLE FOR ANY OBLIGATIONS, LIABILITIES, LOSSES OR
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, ALL OF WHICH ARE
EXPRESSLY WAIVED BY TENANT.
XXV. NO WAIVER. Failure of Landlord to declare any default immediately
upon its occurrence, or delay in taking any action in connection with an
event of default shall not constitute a waiver of such default, nor shall it
constitute an estoppel against Landlord, but Landlord shall have the right to
declare the default at any time and take such action as is lawful or
authorized under this Lease. Failure by Landlord to enforce its rights with
respect to any one default shall not constitute a waiver of its rights with
respect to any subsequent default. Receipt by Landlord of Tenant's keys to
the Premises shall not constitute an acceptance or surrender of the Premises.
XXVI. EVENT OF BANKRUPTCY. In addition to, and in no way limiting the
other remedies set forth herein, Landlord and Tenant agree that if Tenant
ever becomes the subject of a voluntary or involuntary bankruptcy,
reorganization, composition, or other similar type proceeding under the
federal bankruptcy laws, as now enacted or hereinafter amended, then;
A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and, 363 (or their successor
sections) of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (such
Bankruptcy Code as amended from time to time being herein referred to as the
"Bankruptcy Code"), prior to assumption and/or assignment of the Lease by
Tenant shall include, but not be limited to all (or any part) of the
following:
1. the continued payment by Tenant of the Base Rental and all
other Rent due and owing hereunder and the performance of all other
covenants and obligations hereunder by Tenant;
2. the hiring of security guards to protect the Premises if
Tenant abandons and/or ceases operations; such obligation of Tenant only
to be effective so long as Tenant remains in possession and control of
the Premises to the exclusion of Landlord;
B. "Adequate assurance of future performance" by Tenant and/or any
assignee, of Tenant pursuant to Bankruptcy Code Section 368 will include (but
not be Limited to) payment of an additional/new Security Deposit in the amount
of three (3) times the then-current monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed without further act or
deed to have assumed all of the
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obligations of Tenant arising under this Lease on and after the effective
date of such assignment. Any such assignee shall, upon demand by Landlord,
execute and deliver to Landlord an instrument confirming such assumption of
liability.
D. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord under this Lease,
whether or not expressly denominated as "Rent", shall constitute "rent" for
the purposes of Section 502(b) (6) of the Bankruptcy Code.
E. Notwithstanding Section XIII.C. of this Lease to the contrary,
if this Lease is assigned to any person or entity pursuant to the provisions
of the Bankruptcy Code, Landlord shall be entitled to one hundred percent
(100%) of all such Transfer Consideration.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on
terms acceptable to the Tenant, then notice, of such proposed
offer/assignment, setting forth 1. the name and address of such person or
entity, 2. all of the terms and conditions of such offer, and 3. the adequate
assurance to be provided Landlord to assure such person's or entity's future
performance under the Lease, shall be given to Landlord by Tenant no later
than twenty (20) days after receipt by Tenant, but in any event no later than
ten (10) days prior to the date that Tenant shall make application to a court
of competent jurisdiction for authority and approval to enter into such
assumption and assignment, and Landlord shall thereupon have the prior right
and option, to be exercised by notice to Tenant given at any time prior to
the effective date of such proposed assignment, to accept an assignment of
this Lease upon the same terms and conditions and for the same consideration,
if any, as the bona fide offer made by such persons or entity, less any
brokerage commission which may be payable out of the consideration to be paid
by such person for the assignment of this Lease.
XXVII. QUIET ENJOYMENT. Tenant shall, and may peacefully have, hold, and
enjoy the Premises, subject to the Other terms of this Lease (including,
without limitation, Article XXX hereof), provided that Tenant pays the Rent
herein recited to be paid by Tenant and performs all of Tenant's covenants
and agreements herein contained. This covenant and any and all other
covenants of Landlord shall be binding upon Landlord and its successors only
during, its or their respective periods of ownership of the Landlord's
interest hereunder.
XXVIII. RELOCATION. Landlord, at its expense, shall be entitled to
cause Tenant to relocate from the Premises one (1) time during the Lease Term
to comparable space, in a comparable location in the Building, with
comparable views as the Premises and containing approximately the same
Rentable Area as the premises (the "Relocation Space") within the Building at
any time upon sixty (60) days prior written notice to Tenant. Landlord agrees
to reimburse Tenant for all reasonable costs actually incurred in connection
with the Relocation, including the cost of reprinting existing stationary and
business cards, moving telephones, graphics and similar items of expense.
Such a relocation shall not affect this Lease except that from and after the
date of such relocating, "Premises" shall refer to the Relocation Space into
which Tenant has been moved, rather than the original Premises as herein
defined, and the Base Rental shall be adjusted so that immediately following
such relocation the Base Rental for the Relocation Space per annum on a per
square foot of Rentable Area basis shall be the same as the Base Rental per
annum immediately prior to such relocation for the original Premises on a per
square foot of Rentable Area basis.
XXIX. HOLDING OVER. In the event of holding over by Tenant after
expiration or other termination of this Lease or in the event Tenant
continues to occupy the Premises after the termination of Tenant's right of
possession pursuant to Articles XXII and XXIII hereof, occupancy of the
Premises subsequent to such termination or expiration shall be that of a
tenancy at sufferance and in no event for month-to-month or year-to-year, but
Tenant shall, throughout the entire holdover period, pay rent (on a per month
basis without reduction for any partial months during any such holdover)
equal to one hundred fifty percent (150%) of the Base Rental and one hundred
percent, (100%) of the Additional Base Rental due for the period immediately
preceding such holding over, provided if the holding over continues for more
than sixty (60) days, effective as of the thirty-first day, holdover rent
shall increase to 200% of the Base Rental and 100% of the Additional Base
Rental due for the period immediately preceding such holding over.
Notwithstanding the foregoing, in no event shall Base Rental and Additional
Base Rental during the holdover period be less than the fair market rental
for the Premises. No holding over by Tenant or payments of money by Tenant to
Landlord after the expiration of the term of this Lease shall be construed to
extend the Lease Term or prevent Landlord from recovery of immediate
possession of the Premises by summary proceedings or otherwise. Tenant shall
be liable to Landlord for all damage, including any consequential damage,
which Landlord may suffer by reason of any holding over by Tenant, and Tenant
shall indemnify Landlord against any and all claims made by any other tenant
or prospective tenant against Landlord for delay
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by Landlord in delivering possession of the Premises to such other tenant or
prospective tenant.
XXX. SUBORDINATION TO MORTGAGES. Tenant, conditioned upon Tenant's
right to receive a non-disturbance, subordination and attornment agreement as
provide below, accepts this Lease subject and subordinate to any mortgage,
deed of trust, ground lease or other lien hereafter arising upon the
Premises, or upon the Building and/or the Property and to any renewals,
modifications, refinancings and extensions thereof (any such mortgage, deed
of trust, lease or other lien being hereinafter referred to as a "Mortgage",
and the person or entity having the benefit of same being referred to
hereinafter as a "Mortgagee"), but Tenant agrees that any such Mortgagee
shall have the right at any time to subordinate such Mortgage to this Lease
on such terms and subject to such conditions as such Mortgagee may deem
appropriate in its discretion. Landlord hereby represents that, as of the
execution date of this Lease, there are no Mortgages encumbering the
Building. Tenant agrees upon demand to execute such instruments
subordinating this Lease or attorning to the holder of any such Mortgage as
Landlord may request, provided that Tenant's obligation to execute such
subordination and attornment instruments shall be conditioned upon the
applicable Mortgagee's agreement to enter into a non-disturbance,
subordination and attornment agreement with Tenant on a customary mortgagee
form of agreement, which form may include, without limitation, the
requirement of notice to the Mortgagee, additional Time by the Mortgagee to
cure defaults by the Landlord and a waiver and release of Mortgagee for
defaults of Landlord arising prior to the date the Mortgagee takes title to
the Building, Tenant shall be responsible for any fee or review costs (not to
exceed $500.00) charged by the Mortgagee in connection with such
non-disturbance, subordination and attornment agreement. If any person shall
succeed to all or part of Landlord's interests in the Premises whether by
purchase, foreclosure, deed in lieu of foreclosure, power of sale,
termination of lease or otherwise, and if and as so requested or required by
such successor-in-interest, Tenant shall, without charge, attorn to such
successor-in-interest, Tenant agrees that it will from Time to time upon
request by Landlord and, within five days of the date of such request.
execute and deliver to such persons as Landlord shall request an estoppel
certificate or other similar statement in recordable form certifying that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as so modified),
stating the dates to which Rent and other charges payable under this Lease
have been paid, stating that Landlord is not in default hereunder (or if
Tenant alleges a default stating the nature of such alleged default) and
further stating such other matters as Landlord shall reasonably require.
XXXI. ATTORNEY'S FEES. In the event that Landlord should retain counsel
and/or institute any suit against Tenant for violation of or to enforce any
of the covenants or conditions of this Lease, or should Tenant institute any
suit against Landlord for violation of any of the covenants or conditions of
this Lease, or should either party intervene in any suit in which the other
is a party to enforce or protect its interest or rights hereunder, the
prevailing party in any such suit shall be entitled to all of its costs,
expenses and reasonable fees of its attorney(s) (if and to the extent
permitted by law) in connection therewith.
XXXII. NOTICE. Whenever any demand, request, approval, consent or notice
("Notice") shall or may be given to either of the parties by the other, each
such Notice shall be in writing and shall be sent, by registered or certified
mail with return receipt requested, or sent by overnight courier service
(such as Federal Express) at the respective addresses of the parties for
notices as set forth in Section I.A.6. of this Lease, provided that if Tenant
has vacated the Premises or is in default of this Lease Landlord may serve
Notice by any manner permitted by Law. Any Notice under this Lease delivered
by registered or certified mail shall be deemed to have been Given and
effective on the earlier of (a) the third day following the day on which the
same shall have been mailed with sufficient postage prepaid or (b) the
delivery date indicated on the return receipt, Notice sent by overnight
courier service shall be deemed given and effective upon the day after such
notice is delivered to or picked up by the overnight courier service. Either
party may, at any time, change its Notice Address by giving the other party
Notice stating the change and setting forth the new address.
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XXXIII. LANDLORD'S LIEN. Landlord shall be entitled to any and all
lien rights granted under the laws of the state of Texas in connection with a
default by Tenant hereunder. Notwithstanding the foregoing, provided Tenant
is not in default hereunder, Landlord agrees to subordinate its security
interest as described in this Article XXXIII to Tenant's lenders, ("Lender")
if any, requiring a priority position under the following circumstances:
(a) Lender is financing Tenant's purchase of the equipment or inventory
in which Landlord is subordinating its security interest (the "Equipment");
(b) Tenant shall furnish Landlord with a complete schedule of the
Equipment financed pursuant to the terms hereof, which schedule shall be
updated in the event of any changes;
(c) Tenant shall be prohibited from financing, any non-moveable fixture
or permanent improvement to the leasehold;
(d) Tenant shall cause any and all Lenders to give Landlord notice of
any public or private sale by such Lender of Tenant's Equipment;
(e) no public or private sale by any Lender shall be held on the
Premises; and
(f) Landlord's subordination shall not be effective unless and until a
separate agreement is entered into between Lender and Landlord respecting the
conditions set forth herein.
(g) Lender can enter the Premises for purpose of removal of the
Equipment only if:
(1) permitted by the agreement between Lender and Tenant; and
(2) Lender agrees to restore or repair all damage to the Premises
caused by such removal; and
(3) Lender gives Landlord notice in the event that any of Tenant's
moveable trade fixtures or Equipment are removed from the Premises;
and
(4) Lender indemnifies Landlord for any claim, liability or
expense (including reasonable attorney's fees) arising out of or in
connection with Lender's removal of the Equipment and Lender's entry
and activities upon the Premises.
XXXIV. EXCEPTED RIGHTS. This Lease does not grant any rights to light or
air over or about the Building. Landlord specifically excepts and reserves to
itself the use of any roofs, the exterior portions of the Premises, all rights
to and the land and improvements below the improved floor level of the Premises,
the improvements and air rights above the Premises and the improvements and air
rights located outside the demising walls of the Premises, and such areas within
the Premises as are required for installation of utility lines and other
installations required to serve any occupants of the Building and the right to
maintain and repair the same, and no rights with respect thereto are conferred
upon Tenant unless otherwise specifically provided herein. Landlord further
reserves to itself the right from time to time: A. to change the Building's name
or street address after sixty (60) days prior written notice; B. to install, fix
and maintain signs on the exterior and interior of the Building; C, to designate
and approve window coverings; D. to make any decorations, alterations,
additions, improvements to the Building, or any part thereof (including the
Premises) which Landlord shall desire, or deem necessary for the safety,
protection, preservation or improvement of the Building, or as Landlord may be
required to do by law; E. after reasonable notice, to have access to the
Premises to perform its duties and obligations and to exercise its rights under
this Lease; F. to retain at all times and to use pass-keys to all locks, within
and into the Premises; G. to approve the weight, size, or location of heavy
equipment, articles in and about the Premises; H. to close or restrict access to
the Building at all times other than Normal Business Hours subject to Tenant's
right to admittance at all times under such regulations as Landlord may
prescribe from time to time, or to close (temporarily or permanently) any of the
entrances to the Building; I. to change the arrangement and/or location of
entrances of passageways, doors and doorways, corridors, elevators, stairs,
toilets and public parts of the Building; and J. to grant to anyone the
exclusive right to conduct any business or undertaking in the Building.
Landlord, in accordance with Article XII hereof, shall have the right to enter
the Premises in connection with the exercise of any of the rights set forth
herein and such entry into the Premises and the performance of any work therein
shall not constitute a constructive eviction or entitle Tenant to any abatement
or reduction of Rent by reason thereof.
18
<PAGE>
XXXV. SURRENDER OF PREMISES. At the expiration or earlier termination
of this Lease or Tenant's right of possession hereunder, Tenant shall quit
and surrender the Premises to Landlord, broom clean, and in good order,
condition and repair, ordinary wear and tear and casualty damage excepted. If
Tenant falls to remove any of Tenant's Property within five (5) business days
after the termination of this Lease or Tenant's right to possession
hereunder, such Tenant's Property, or any portion thereof designated by
Landlord, shall at Landlord's option, and without notice to Tenant, (a) be
conclusively presumed to have been abandoned by Tenant and title to such
items shall pass to Landlord, and/or (b) be removed and/or stored by Landlord
at the risk, cost and expense of Tenant and Landlord shall in no event be
responsible for the value, preservation or safekeeping thereof. Tenant shall
pay Landlord, upon demand, any and all expenses caused by such removal and
all storage charges against such property so long as the same shall be in the
possession of Landlord or under the control of Landlord.
XXXVI. MISCELLANEOUS.
A. If any term or provision of this Lease, or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term
or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term
and provision of this Lease shall be valid and enforced to the fullest extent
permitted by law.
B. Tenant agrees not to record this Lease or any memorandum
hereof without Landlord's prior written consent.
C. This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed, and enforced in accordance with the
laws of the state in which the Building is located.
D. Events of "Force Majeure" shall include strikes, riots, acts
of God, shortages of labor or materials, war, governmental law, regulations
or restrictions and any other cause whatsoever that is beyond the control of
Landlord. Whenever a period of time is herein prescribed for the taking of
any action by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of such period of time, any
delays due to events of Force Majeure.
E. Landlord shall have the right to transfer end assign, in
whole or in part, all of its rights and obligations hereunder and in the
Building and Property referred to herein, and in such event and upon such
transfer Landlord shall be released from any further obligations hereunder,
and Tenant agrees to look solely to such successor in interest of Landlord
for the performance of such obligations.
F. Tenant hereby represents to Landlord that Lafarge Construction
Materials, a division of Tenant, has dealt directly with and only with the
Broker as a broker in connection with this Lease. Tenant agrees to indemnify
and hold Landlord and the Landlord Related Parties harmless from all claims of
any brokers, who have represented Tenant in connection with this Lease.
G. If there is more than one Tenant, or if the Tenant is comprised
of more than one person or entity, the obligations hereunder imposed upon Tenant
shall be joint and several obligations of all such parties. All notices,
payments, and agreements given or made by, with or to any one of such persons or
entities shall be deemed to have been given or made by, with or to all of them.
H. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited), or other form of
organization other than an individual, then each individual executing or
attesting this Lease on behalf of Tenant hereby covenants, warrants and
represents: 1. that such individual is duly authorized to execute or attest
and deliver this Lease on behalf of Tenant in accordance with the
organizational documents of Tenant; 2. that this Lease is binding upon
Tenant; 3. that Tenant is duly organized and legally existing in the state of
its organization, and is qualified to do business in the state in which the
Premises is located; 4. that upon request, Tenant will provide Landlord with
true and correct copies of all organizational documents of Tenant, and any
amendments thereto; and 5. that the execution and delivery of this Lease by
Tenant will not result in any breach of, or constitute a default under any
mortgage, deed of trust, lease, loan, credit agreement, partnership agreement
or other contract or instrument to which Tenant is a party or by which
Tenant may be bound. If Tenant is a corporation, Tenant will, prior to the
Commencement Date, deliver to Landlord a copy of a resolution of Tenant's
19
<PAGE>
board of directors authorizing or ratifying the execution and delivery of
this Lease, which resolution will be duly certified to Landlord's
satisfaction by the secretary or assistant secretary of Tenant.
I. Tenant acknowledges that the financial capability of Tenant
to perform its obligations hereunder is material to Landlord and that
Landlord would not enter into this Lease but for its belief, based on its
review of Tenant's financial statements, that Tenant is capable of performing
such financial obligations. Tenant hereby represents, warrants and certifies
to Landlord that its financial statements previously furnished to Landlord
were at the time given true and correct in all material respects and that
there have been no material subsequent changes thereto as of the date of this
Lease. At any time during the Lease Term, Tenant shall provide Landlord, upon
ten (10) days prior written notice from Landlord, with a current financial
statement and financial statements of the two (2) years prior to the current
financial statement year. Such statement shall be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice
of Tenant, shall be audited by an independent certified public accountant.
J. Except as expressly otherwise herein provided, with respect
to all required acts of Tenant, time is of the essence of this Lease. This
Lease shall create the relationship of Landlord and Tenant between the
parties hereto, and no estate shall pass out of Landlord. Tenant has only a
usufruct, not subject to purchase or sale, which may not be assigned by
Tenant except as expressly provided in this Lease.
K. This Lease and the covenants and conditions herein contained
shall inure to the benefit of and be binding upon Landlord and Tenant and
their respective permitted successors and assigns.
L. Notwithstanding anything to the contrary contained in this
Lease, the expiration of the Lease Term, whether by lapse of time or
otherwise, shall not relieve Tenant from Tenant's obligations accruing prior
to the expiration of the Lease Term.
M. The headings and titles to the paragraphs of this Lease are
for convenience only and shall have no effect upon the construction or
interpretation of any part hereof, Landlord represents and covenants that it
has full right, power and authority to make this Lease and that Tenant, upon
the payment of the rentals and performing the covenant on Tenant's part to be
performed hereunder, shall and may peaceably and quietly have, hold and enjoy
the demised premises during the term hereof and any extensions thereof.
Landlord agrees to make reasonable efforts to protect Tenant from
interference or disturbance by other tenants or third persons; however,
Landlord shall not be liable for any such interference or disturbance.
Landlord represents and warrants that it is the sole owner of the
Building and the leased Premises, that it has the full right, power and
authority to make this Lease and that no other person needs to join in the
execution of this instrument in order for this lease to be binding on all
parties having an interest in the demised premises and that it will execute
or procure any further necessary assurances of title that may be reasonably
required for the protection of Tenant.
N. Landlord has delivered a copy of this Lease to Tenant for
Tenant's, review only, and the delivery hereof does not constitute an offer
to Tenant or option. This Lease shall not be effective until an original of
this Lease executed by both Landlord and Tenant and an original Guaranty, if
any, executed by each Guarantor is delivered to and accepted by Landlord, and
this Lease has been approved by Landlord's Mortgagees, if required.
XXXVII. ENTIRE AGREEMENT. This Lease Agreement, including the
following Exhibits:
EXHIBIT A - Outline and Location of Premises
EXHIBIT A-1 - Outline and Location of Premises
EXHIBIT A-2 - Legal Description of Real Property
EXHIBIT B-1 - Schedule of Base Rental
EXHIBIT B-2 - Payment of Basic Costs
EXHIBIT C - Work Letter Agreement (if required)
20
<PAGE>
EXHIBIT D - Rules and Regulations
EXHIBIT E - Parking Agreement
EXHIBIT F - Additional Terms
EXHIBIT F-1 - Offering Space
EXHIBIT F-2 - Advice
EXHIBIT G - HVAC Specifications
EXHIBIT H - Cleaning Specifications
constitutes the entire agreement between the parties hereto with respect to
the subject matter of this Lease. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES
THAT LANDLORD HAS NOT MADE AND IS NOT MAKING, AND TENANT, IN EXECUTING AND
DELIVERING THIS LEASE, IS NOT RELYING UPON, ANY WARRANTIES, REPRESENTATIONS,
PROMISES OR STATEMENTS, EXCEPT TO THE EXTENT THAT THE SAME ARE EXPRESSLY SET
FORTH IN THIS LEASE. ALL UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE
BETWEEN THE PARTIES ARE MERGED IN THIS LEASE WHICH ALONE FULLY AND COMPLETELY
EXPRESSES THE AGREEMENT OF THE PARTIES, NEITHER PARTY RELYING UPON ANY
STATEMENT OR REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS LEASE MAY BE
MODIFIED ONLY BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT. LANDLORD
AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES
OF MERCHANTABILITY, HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, ALL OF WHICH ARE
HEREBY WAIVED BY TENANT, AND THAT THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
THOSE EXPRESSLY SET FORTH IN THIS LEASE.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the day and year first above written.
ATTEST: LANDLORD: Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership II
/s/ DEBORAH ARNDT
- ----------------------------
Name (print): DEBORAH ARNDT BY: EQUITY, ASSETS MANAGEMENT,
-------------- INC.,as agent
- ---------------------------- By: /s/ RICHARD BERK
Name (print): -----------------------------------
--------------- Name: RICHARD BERK
--------------------------------
Title: VICE PRESIDENT
--------------------------------
ATTEST: TENANT: Lafarge Corporation, a Maryland
corporation
/s/ CAROLYN STIRES
- ----------------------------
Name (print): CAROLYN STIRES By: /s/ GORDON KENYON
-------------- --------------------------------------
/s/ SHARON L. ROGERS Name: GORDON KENYON
- ---------------------------- -----------------------------------
Name (print): SHARON ROGERS Title: PRESIDENT, LAFARGE CONSTRUCTION
-------------- MATERIALS SOUTHERN U.S. REGION
-----------------------------------
21
<PAGE>
EXHIBIT B-1
SCHEDULE OF BASE RENTAL
This Exhibit is attached to and made of part of the Lease dated February
26, 1993 by and between Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership II, ("Landlord") by its agent Equity Assets Management,
Inc. and Lafarge Corporation ("Tenant") for space in the Building located at
12801 N. Central Expressway, Dallas, Texas,
Tenant shall pay Landlord the sum of Four Hundred Twenty-Four Thousand
One Hundred Fifty-Three Dollars and 14/100 Cents ($424,153.14) as Base Rental
for the Lease Term in sixty (60) monthly installments as follows:
A. Nine (9) equal installments of $10,327.16 each payable on or before
the first day of each month during the period beginning April 1, 1993 and
ending December 31, 1993.
B. Three (3) equal installments of $6,149.14 each payable on or before
the first day of each month during the period beginning January 1, 1994 and
ending March 31, 1994.
C. Twelve (12) equal installments of $6,295.83 each payable on or
before the first day of each month during the period beginning April 1, 1994
and ending March 31, 1995.
D. Twelve (12) equal installments of $6,442.52 each payable on or
before the first day of each month during the period beginning April 1, 1995
and ending March 31, 1996.
E. Twelve (12) equal installments of $6,589.20 each payable on or
before the first day of each month during the period beginning April 1, 1996
and ending March 31, 1997.
F. Twelve (12) equal installments of $6,735.89 each payable on or
before the first day of each month during the period beginning April 1, 1997
and ending March 31, 1998.
All such Base Rental shall be payable by Tenant in accordance with the
terms of Article V of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as
of the date first written above.
LANDLORD: Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership II
ATTEST: BY: EQUITY ASSETS MANAGEMENT, INC., as agent
/s/ DEBORAH ARNOT By: /s/ RICHARD BERK
- ---------------------------- -------------------------------------
Name (print): DEBORAH ARNOT Name: RICHARD BERK
-------------- -----------------------------------
Title: VICE PRESIDENT
- ---------------------------- ----------------------------------
Name (print):
---------------
TENANT: LAFARGE CORPORATION
ATTEST:
/s/ CAROLYN STIRES By: /s/ GORDON KENYON
- ---------------------------- -----------------------------------------
Name (print): CAROLYN STIRES Name: GORDON KENYON
-------------- ---------------------------------------
/s/ SHARON L. ROGERS Title: PRESIDENT, LAFARGE CONSTRUCTION
- ---------------------------- MATERIALS, SOUTHERN U.S. REGION
Name (print): SHARON ROGERS --------------------------------------
---------------
22
<PAGE>
EXHIBIT A
Outline and Location of Premises
[MAP]
<PAGE>
EXHIBIT A-1
Outline and Location of Premises
[MAP]
<PAGE>
EXHIBIT A-2
Legal Description
Being a survey of a tract of land partly in the M. J. Sanchez Survey Abstract
No. 1272 and partly in the A. A. Thomas Survey Abstract No. 1486, Dallas
County, Texas; and being a part of Lot One (1), Block 1/7755 of the Replat of
the James H. Coker Addition, an Addition to the City of Dallas as per map
recorded in Volume 83197, Page 4902 of the Map Records of Dallas County,
Texas; and being more particularly described as follows, to-wit:
COMMENCING at a point in the East line of Coit Road (25.00 feet from
centerline) that is the Southwest corner of a certain 5.419 acre tract
described in deed to Frank H. Atel, dated May 28, 1953, Deed Records Dallas
County, Texas; Thence South 89 deg. 33 min. 52 sec. East, 381.77 feet to the
most Southerly Southeast corner of said Coker Addition and the Southeast
corner of a certain 211,865 square foot tract; Thence North, along an
Easterly line of said Addition and said tract, 319.11 feet to the POINT OF
BEGINNING of the tract described herein said Point being the Northwest corner
of the Regency Central Plaza Addition.
THENCE North, continuing along an Easterly line of said addition and of said
211,865 square foot tract. 190.89 feet to a point in a North line of said
Addition that is the most Easterly Northeast corner of said 211,865 S. F.
Tract;
THENCE South 89 deg. 33 min. 52 sec. East, 218.72 feet;
THENCE North 00 deg. 06 min. 19 sec. East, 270.28 feet;
THENCE South 89 deg. 33 min, 07 sec. East, 160.90 feet to a point in the
Westerly line of L. B. J. Freeway (I.H. 635):
THENCE southerly along the westerly line of said Freeway as follows: 1st
around a curve to the right that has a Central Angle of 16 deg. 50 min. 10
sec., a Radius of 557.96 feet (the Radial Bearing at this point being South
44 deg. 42 min. 16 sec. West), a Tangent of 82.57 feet, and for a distance of
163.95 feet; 2nd South 28 deg. 27 min, 34 sec. East, 99.66 feet to the
beginning of a curve to the right that has a Central Angle of 31 deg. 25 min.
59 sec., a Radius of 462.46 feet and a Tangent of 130.13 feet; 3rd. around
said curve to the right, 253.71 feet to the Northeast corner of said Regency
Central Plaza Addition;
THENCE North 89 deg. 33 min. 52 sec. West, along the North line of said
Regency Central Plaza Addition, 580.92 feet to the POINT OF BEGINNING and
containing 178,904 square feet of land.
<PAGE>
EXHIBIT B-2
PAYMENT OF BASIC COSTS
This Exhibit is attached to and made a part of the Lease dated February
26, 1993 by and between Zell\Merrill Lynch Real Estate Opportunity Partners
Limited Partnership II, ("Landlord") by its agent Equity Assets Management,
Inc, and Lafarge Corporation ("Tenant") for space in the Building located at
12801 N. Central Expressway, Dallas, Texas.
BASIC COST ADJUSTMENT. During each calendar year, or portion thereof,
falling within the Lease Term, Tenant shall pay to Landlord as Additional
Base Rental hereunder Tenant's Pro Rata Share of the amount, if any, by which
Basic Costs (as defined below) for the applicable calendar year exceed the
Basic Costs for the Base Year (the "Excess"). For purposes hereof, the "Base
Year" shall mean the calendar year 1993. Prior to the Commencement Date and
prior to January 1 of each calendar year during the Lease Term, or as soon
thereafter as practical, Landlord shall make a good faith estimate of the
Excess for the applicable calendar year. On or before the first day of each
month during such calendar year, Tenant shall pay Landlord, as Additional
Base Rental, a monthly installment equal to one-twelfth of Tenant's Pro Rata
Share of Landlord's estimate of the Excess. Landlord shall have the right
from time to time during any such calendar year to revise the estimate of the
Excess for such year and provide Tenant with a revised statement therefor,
and thereafter the amount Tenant shall pay each month shall be based upon
such revised estimate. If Landlord does not provide Tenant with an estimate
of the Excess by January 1 of any calendar year, Tenant shall continue to pay
a monthly installment based on the previous year's estimate until such time
as Landlord provides Tenant with an estimate of the Excess for the current
year. Upon receipt of such current year's estimate, an adjustment shall be
made for any month during the current year with respect to which Tenant paid
monthly installments of Additional Base Rental based on the previous years
estimate of the Excess. Tenant shall pay Landlord for any underpayment upon
demand. Any underpayment shall, at Landlord's option, be refunded to Tenant
or credited against the installment of Additional Base Rental due for the
month immediately following the furnishing of such estimate. Any amounts paid
by Tenant based on any estimate shall be subject to adjustment pursuant to
Paragraph A below, when actual Basic Costs are determined for such calendar
year. Upon request by Tenant, Landlord shall provide Tenant with any reports,
audits and other data supporting the estimated Basic Costs and estimated
Excess as were used by Landlord to determine such estimates.
A. BASIC COSTS RECONCILIATION. As soon as is practical following the
end of each calendar year during the Lease Term, Landlord shall furnish to
Tenant a statement of Landlord's actual Basic Costs and the actual Excess
for the previous calendar year. If for any calendar year the Additional
Base Rental collected for the prior year, as a result of Landlord's
estimate of Basic Costs, is in excess of Tenant's actual Pro Rata Share of
the Excess for such prior year, then Landlord shall refund to Tenant any
overpayment (or at Landlord's option, apply such amount against Additional
Base Rental due or to become due hereunder). Likewise, Tenant shall pay to
Landlord, on demand, any underpayment with respect to the prior year,
whether or not the Lease has terminated prior to receipt by Tenant of a
statement for such underpayment, it being understood that this clause shall
survive the expiration of the Lease.
B. BASIC COSTS DEFINED. Basic Costs shall mean all reasonable direct and
indirect costs and expenses paid or incurred in each calendar year in
connection with operating, maintaining, repairing, managing and owning the
Building and the Property (inclusive of the Exterior Common Areas),
including, without limitation, the following:
(i) All labor costs for all persons performing services required or
utilized in connection with the operation, repair and maintenance of
and control of access to the Building and the Property, including but
not limited to amounts incurred for wages, salaries and other
compensation for services, payroll, social security, unemployment and
other similar taxes, workmen's compensation insurance, uniforms,
disability benefits, pensions, hospitalization, retirement plans,
group insurance or any other similar or like expenses incurred under
the provisions of any collective bargaining agreement.
23
<PAGE>
(ii) All management fees, the cost of maintaining a management office
at the Building, and all fees for legal and accounting services
relating to the Building and the Property.
(iii) All rental and/or purchase costs of materials, supplies, hand
tools and equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the Property.
(iv) All amounts charged to Landlord by contractors and/or suppliers
for services, materials, equipment and supplies furnished in connection
with the operation, repair, maintenance, replacement of and control of
access to any part of the Building, or the Property generally,
including the heating, air conditioning, ventilating, plumbing,
electrical, elevator and other systems.
(v) All premiums and deductibles paid by Landlord for fire and
extended coverage insurance, earthquake and extended coverage
insurance, liability and extended coverage insurance, rental loss
insurance, elevator insurance, boiler insurance and other insurance
customarily carried from time to time by lessors of comparable office
buildings or required to be carried by Landlord's Mortgagee.
(vi) Charges for all utilities, including but not limited to water,
electricity, gas and sewer, but excluding those charges for which
tenants are individually responsible.
(vii) Taxes, including (i) all real estate taxes and assessments on
the Property, the Building or the Premises, and taxes and assessments
levied in substitution or supplementation in whole or in part of such
taxes, (ii) all personal property taxes, for the Building's personal
property, including license expenses, (iii) all franchise fees, (iv)
all taxes imposed on services of Landlord's agents and employees (but
excluding income and franchise taxes), (v) all sales, use or other tax,
excluding state and/or federal income tax, now or hereafter imposed by
any governmental authority upon Rent received by Landlord, (vi) all
other taxes, fees or assessments now or hereafter levied by any
governmental authority on the Property, the Building or its contents or
on the operation and use thereof (except as relate to specific
tenants), and (vii) all costs and fees incurred in connection with
seeking reductions in or refunds in Taxes including, without
limitation, any costs incurred by Landlord to challenge the tax
valuation of the Building, but excluding income taxes.
(viii) All landscape expenses and costs of repairing, resurfacing and
striping of the parking areas of the Property, if any.
(ix) Cost of all maintenance service agreements, including those for
equipment, alarm service, window cleaning, drapery or venetian blind
cleaning, janitorial services, pest control, uniform supply,
landscaping, and any parking equipment.
(x) Cost of all other repairs, replacements and general maintenance of
the Property and Building neither specified above nor directly billed
to tenants.
(xi) The amortized cost of capital improvements made to the Building
or the Property which are primarily for the purpose of reducing
operating expense costs or otherwise improving the operating efficiency
of the Property or Building or which are required to comply with any
laws, rules or regulations of any governmental authority, the cost of
such items to be amortized over a period of at least five (5) years.
Such amortization shall be in accordance with generally accepted
accounting principles and shall include interest at the rate of fifteen
percent (15%) per annum compounded monthly.
C. "Exterior Common Areas" shall mean those areas of the Property which
are not located within the Building and which are provided and maintained
for the use and benefit of Landlord and tenants of the Building generally
and the employees, invitees and licensees of Landlord and such tenants,
including, without limitation, any parking, garage, plaza, roads, sidewalks
and landscapes.
D. EXCLUSIONS FROM BASIC COSTS. Basic Costs shall not include the cost
of capital improvements (except as above set forth), depreciation, interest
(except as provided above with respect to the amortization of capital
improvements), commissions and leasing costs, and principal payments on
mortgage and other non-operating debts of Landlord.
24
<PAGE>
E. OCCUPANCY. Notwithstanding any language in the Lease seemingly to the
contrary, if the Building is not fully occupied during the 1993 Calendar
Year or any subsequent calendar year of the Lease Term, actual Basic Costs
for purposes of this Exhibit B-2 shall, at Landlord's option, be determined
as if the Building had been one hundred percent (100%) occupied during such
year. Notwithstanding the foregoing, in no event shall Landlord, in any
given calendar year during the Lease Term, collect more than its actual
Basic Costs with respect to such calendar year
F. AUDIT RIGHTS. Landlord agrees to keep necessary books and records
reflecting the Basic Costs for the Building. Tenant, at its sole cost and
expense, shall have the right, within one hundred twenty (120) days after
receiving Landlord's statement of actual Basic Costs and the actual Excess
for a particular calendar year, to review Landlord's books and records
relating to the Basic Costs for such year. If within such one hundred
twenty (120) day period Tenant does not give Landlord written notice
stating in reasonable detail any objection to the statement of actual Basic
Costs, Tenant shall be deemed to have approved such statement in all
respects. If Tenant's review discloses that the Basic Costs are different
than those reported, Landlord and Tenant shall work together in good faith
to resolve the discrepancy between Landlord's statement and Tenant's
review. If Landlord and Tenant determine that Basic Costs are less than
reported, Landlord shall forthwith pay to Tenant or credit Tenant the
difference as may be shown to be paid or payable for actual Basic Costs. In
addition if Landlord and Tenant determine that Basic Costs were overstated
by more than five percent (5%), then Landlord shall pay the reasonable cost
of such review by Tenant. Likewise, if Landlord and Tenant determine that
Basic Costs are greater than reported, Tenant shall forthwith pay the
difference to Landlord. Any information obtained by Tenant pursuant to the
provisions of the Section shall be treated as confidential.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as
of the date first written above.
LANDLORD: ZELL/MERRILL LYNCH REAL
ESTATE OPPORTUNITY
PARTNERS LIMITED
PARTNERSHIP II
ATTEST: BY: EQUITY ASSETS MANAGEMENT, INC.,
as agent
/s/ DEBORAH ARNOT By: /s/ RICHARD BERK
- ------------------------------ ----------------------------
Name (print): DEBORAH ARNOT Name: RICHARD BERK
----------------- --------------------------
Title: VICE PRESIDENT
- ------------------------------ -------------------------
Name (print):
-----------------
TENANT: LAFARGE CORPORATION
ATTEST:
/s/ CAROLYN STIRES By: /s/ GORDON KENYON
- ------------------------------ --------------------------------
Name (print): CAROLYN STIRES Name: GORDON KENYON
---------------- ------------------------------
/s/ SHARON L. ROGERS Title: PRESIDENT, LAFARGE
- ------------------------------ CONSTRUCTION MATERIALS
Name (print): SHARON L. ROGERS SOUTHERN U.S. REGION
----------------- -----------------------------
25
<PAGE>
EXHIBIT C
WORK LETTER
This Exhibit is attached to and made a part of the Lease dated February
26, 1993 by and between Zell\Merrill Lynch Real Estate Opportunity Partners
Limited Partnership II ("Landlord"), by its agent Equity Assets Management,
Inc. and Lafarge Corporation, a Maryland Corporation ("Tenant") for space in
the Building located at 12801 North Central Expressway, Dallas, Texas.
1. This Work Letter shall set forth the obligations of Landlord and
Tenant with respect to the improvements to be performed in the portion of the
Premises located on the second floor and known as Suite 250, it being agreed
that Landlord shall not be required to perform improvements in any portion of
the Premises other than Suite 250. All improvements described in this Work
Letter to be constructed in and upon the Suite 250 by Landlord are
hereinafter referred to as the "Landlord Work." It is agreed that
construction of the Landlord Work and all costs in connection therewith will
be at Tenant's sole cost and expense, subject to the Allowance described
herein. Landlord will commence the Landlord Work within five (5) business
days following the last to occur of a) full and final execution of the Lease,
b) the full and final execution of a contract for the Landlord Work between
Landlord and the General Contractor (hereinafter defined) and c) the payment
to Landlord by Tenant of any Excess Costs (hereinafter defined).
2. The Landlord Work shall be based on the space plans prepared by
Interprise Southwest ("Tenant's Architect"), dated February 17, 1993. Tenant
and Tenant's Architect shall devote such time in consultation with Landlord
and Dunn Consulting Engineers ("Dunn") as may be required to provide, by no
later than February 18, 1393, all information Dunn deems necessary to prepare
engineering (mechanical, electrical and plumbing) drawings for the Landlord
Work.
3. The Landlord Work will be competitively bid by the following general
contractors: a) Bullard Construction, Inc., b) Innerspace Construction, Inc.,
c) Pacific Builders, Inc., and d) Phoenix Commercial, Inc. The bids shall be
sealed, and Tenant shall be present when the bids are opened. Tenant shall
be entitled to participate in the preparation of the bid instructions, bid
form and the clarification and qualification of any bids received. All
things being equal, the lowest qualified bidder shall be accepted and awarded
the contract for Landlord Work. The general contractor selected to perform
the Landlord Work shall be referred to herein as the "General Contractor".
<PAGE>
Landlord shall enter into a direct Contract with the General Contractor for
the performance of the Landlord Work. Tenant shall have the right to identify
defects in the Landlord Work from time to time during the performance of the
Landlord Work. Notwithstanding anything herein to the contrary, Landlord and
Tenant agree that the Landlord Work shall be submitted for bid based on a
completion date of March 25, 1993. In the event that the Landlord Work in
Suite 250 is completed prior to the Commencement Date, Tenant shall have the
right to occupy Suite 250 for the purpose of conducting its business therein
subject to all of the terms and conditions of the Lease, provided that Tenant
shall not be required to pay Base Rental for Suite 250 with respect to the
period beginning on the date or occupancy and ending on the day prior to the
Commencement Date. Tenant's occupancy of any portion of the Premises other
than Suite 250 prior to the Commencement Date shall be subject to all of the
terms and conditions of this Lease, including, without limitation, the
obligation to pay Base Rental for such period. Notwithstanding the foregoing,
if (i) the Landlord Work in Suite 250 is not substantially complete by March 30,
1993 due to delays caused by Tenant and, as a result thereof or as a result of
any other reason within the control of Tenant, Tenant fails to vacate its space
on the sixteenth floor of the Building by March 30, 1993, and (ii) because of
Tenant's failure to vacate, the landlord work in Suite 1600 is not substantially
complete, by June 30, 1993 under the terms of the lease for such space with
Lafarge Corporation, Cement Division, then, Tenant shall be obligated to
reimburse Lafarge Corporation, Cement Division for any rental it is required to
pay for space on the fifteenth floor or, if Lafarge Corporation is not permitted
to occupy space on the fifteenth floor, for any rental it is required to pay for
the portion of space on the sixteenth floor for which the landlord work is not
substantially complete. The obligation to reimburse Lafarge Corporation, Cement
Division shall commence on July 1, 1993 and continue for the number of days that
Landlord was delayed in completing the landlord work on the sixteenth floor as a
result of Tenant's failure to vacate the sixteenth floor space by March 30,
1993. For the sole purpose of this reimbursement obligation, Lafarge
Corporation, Cement Division shall be considered a third party beneficiary of
this Lease.
4. In the event the aggregate cost of moving expenses, preparing and
revising the Plans and performing Landlord Work pursuant to the accepted bid,
shall exceed the Allowance (such amounts exceeding the allowance being herein
referred to as the "Excess Costs"), Tenant shall pay to Landlord such Excess
Costs upon demand prior to the commencement of the Landlord Work. The
amounts payable hereunder constitute Rent payable pursuant to the Lease, and
the failure to timely pay same constitutes an event of default under the
Lease.
<PAGE>
5. If Tenant shall request any change, addition or alteration in any of
the Plans submitted for bid pursuant to paragraph 3 above, Landlord shall
have such revisions to the Plans prepared, and Tenant shall reimburse
Landlord for the cost thereof to the extent that the Allowance is exceeded.
Promptly upon completion of the revisions, Landlord shall notify Tenant in
writing of the increased cost of Landlord Work, if any, which will be
chargeable by reason of such change, addition or deletion. Tenant shall,
within two (2) Business Days, notify Landlord in writing whether it desires
to proceed with such change, addition or deletion in Landlord Work. In the
absence of such written authorization, Landlord shall have the option to
continue work on the Premises disregarding the requested change, addition or
alteration. Tenant shall be responsible for any increased costs in
connection with such change, addition or deletion to the extent that the
Allowance is exceeded and shall pay Landlord for such costs within five (5)
days after demand from Landlord.
6. Landlord, provided Tenant is not in default, agrees to provide
Tenant with an allowance (the "Allowance") in an amount not to exceed
Ninety-Eight Thousand Five Hundred Seventy-Four and 00/100 Dollars
($98,574.00) to be applied toward the cost of any reasonable documented costs
of moving Tenants furniture, equipment and other personal property into the
Premises, the cost of preparing and revising the Plans and the cost of
performing the Landlord Work in the Suite 250. In the event the Allowance
shall not be sufficient to pay for all such costs, Tenant shall pay the
Excess Costs as prescribed in paragraph 4 and 5 above. In the event the
Allowance exceeds the cost of moving expenses, preparing and revising the
Plans and Landlord Work, Tenant shall be entitled to receive a credit against
Base Rental in an amount equal to the lesser of a) the unused balance of the
Allowance, and b) Fourteen Thousand Eighty-Two Dollars and 00\100 Cents
($14,082.00). Except as provided in the foregoing sentence, the entire
unused balance of the Allowance shall accrue to the sole benefit of Landlord
it being agreed that Tenant shall not be entitled to any credit, offset,
abatement or payment with respect thereto.
7. Landlord, as part of the Landlord Work, shall perform all
modifications to the existing sprinkler system in the Premises that are
necessitated by the Plans and Tenant's layout of the Premises, including the
relocation of existing sprinkler heads and the installation of necessary
additional sprinkler heads. The cost of all such work shall be paid for out
of the Allowance. Except to the extent arising out of or in connection with
Tenant's particular use of the Premises or any alterations, additions or
improvements to the Premises performed by or on behalf of Tenant subsequent
to the completion of the Landlord Work, Landlord, at its expense (except to
the extent included in Basic Costs) shall modify the fire sprinkler system at
such times
<PAGE>
as may be necessary to avoid non-compliance with any changes in the
applicable laws, statutes or ordinances governing fire sprinkler systems.
8. This Exhibit C shall not be deemed applicable to any additional
space added to the original Premises at any time or from time to time,
whether by any options under the Lease or otherwise, or to any portion of the
original Premises or any additions to the Premises in the event of a renewal
or extension of the original Term off this Lease, whether by any options
under the Lease or otherwise, unless expressly so provided in the Lease or
any amendment or supplement to the Lease.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Exhibit C
as of the date first above written.
LANDLORD: Zell/Merrill Lynch Real Estate
Opportunity Partners Limited
Partnership II
BY: Equity Assets Management,
Inc., an Illinois
Corporation, as agent
By: /s/ RICHARD BERK
----------------------
VICE PRESIDENT
TENANT: Lafarge Corporation, a
Maryland Corporation
BY: /s/ GORDON KENYON
---------------------------
<PAGE>
EXHIBIT D
BUILDING RULES AND REGULATIONS
This Exhibit is attached to and made a part of the Lease dated February
26, 1993 by and between Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership II, ("Landlord") by its agent Equity Assets Management,
Inc. and Lafarge Corporation ("Tenant") for space in the Building located at
12801 N. Central Expwy., Dallas, TX.
The following rules and regulations shall apply, where applicable, to
the Premises, the Building, the parking garage associated therewith (if any),
the Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by Tenant for any purpose
other than ingress and egress to and from the Premises. No rubbish, litter,
trash, or material of any nature shall be placed, emptied, or thrown in those
areas. At no time shall Tenant permit Tenant's employees to loiter in common
areas or elsewhere in or about the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any case be
responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on
or to any windows, doors or other parts of the Building, except those of such
color, size, style and in such places as shall be first approved in writing
by Landlord. No nails, hooks or screws shall be driven or inserted into any
part of the Premises or Building except by the Building maintenance
personnel, nor shall any part of the Building be defaced by Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of
the Building an alphabetical directory board listing all Tenants, and no
other directory shall be permitted unless previously consented to by Landlord
in writing.
5. Tenant shall not place any additional lock or locks on any door in
the Premises or Building without Landlord's prior written consent. A
reasonable number of keys to the locks on the doors in the Premises shall be
furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall not
have any duplicate keys made. All keys shall be returned to Landlord at the
expiration or earlier termination of this Lease.
6. Tenant will refer to Landlord for Landlord's supervision, approval,
and control all contractors, contractor's representatives, and installation
technicians rendering any service to Tenant, before performance of any
contractual service. Such supervisory action by Landlord shall not render
Landlord responsible for any work performed for Tenant. This provision shall
apply to all work performed in the Building, including but not limited to the
installation of telephones, computer wiring, cabling, equipment, electrical
devices, attachments and installations of any nature. Tenant shall be solely
responsible for complying with all applicable laws, codes and ordinances
pursuant to which said work shall be performed.
7. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by Tenant or any merchandise or materials which
require the use of elevators, stairways, lobby areas, or loading dock areas,
shall be restricted to hours designated by Landlord. Tenant must seek
Landlord's prior approval by providing in writing a detailed listing of any
such activity. If approved by Landlord, such activity shall be under the
supervision of Landlord and performed in the manner stated by Landlord.
Landlord may prohibit any article, equipment or any other item from being
brought into the Building. Tenant is to assume all risk for damage to
articles moved and injury to any persons resulting from such activity. If any
equipment, property, and/or personnel of Landlord or any of any, other tenant
is damaged or injured as a result of or in connection with such activity,
Tenant shall be solely liable for any and all damage or loss resulting
therefrom.
8. Landlord shall have the power to prescribe the weight and position
of safes and other heavy equipment or items, which in all cases shall not in
the opinion of Landlord exceed acceptable floor loading and weight
distribution requirements. All damage done to the Building by the
installation or removal of any property of Tenant or done by Tenant's
property while in the Building, shall be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (i) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in any way
with other tenants or persons having business with them; (ii) solicit
business or distribute, or cause to be distributed, in any portion of the
Building any handbills, promotional materials or other advertising; or (iii)
conduct or permit any other activities in the Building that might constitute
a nuisance.
-1-
<PAGE>
11. No animals, except seeing eye dogs, shall be brought into or kept
in, on or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be
used or kept by Tenant in the Premises or Building. Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove, release
or dispose of within or about the Premises or any other portion of the
Property, any asbestos-containing materials or any solid, liquid or gaseous
material now or hereafter considered toxic or hazardous under the provisions
of 42 U.S,C, Section 9601 et seq. or any other applicable environmental law
which may now or hereafter be in effect. If Landlord does give written
consent to Tenant pursuant to the foregoing sentence, Tenant shall comply
with all applicable laws, rules and regulations pertaining to and governing
such use by Tenant, and shall remain liable for all costs of cleanup or
removal in connection therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future
value of the Premises or the Building; without limiting the foregoing, Tenant
shall not use or permit the Premises or any portion thereof to be used for
lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's
labor contracts affecting the Building or which would cause any work
stoppage, picketing, labor disruption or dispute, or any interference with
the business of Landlord or any other tenant or occupant of the Building or
with the rights and privileges of any person lawfully in the Building. Tenant
shall take any actions necessary to resolve any such work stoppage,
picketing, labor disruption, dispute or interference and shall have pickets
removed and, at the request of Landlord, immediately terminate at anytime any
construction work being performed in the Premises giving rise to such labor
problems, until such time as Landlord shall have given its written consent
for the resumption of such work. Tenant shall have no claim for damages of
any nature against Landlord or any of the Landlord Related Parties in
connection therewith, nor shall the date of the commencement of the Term be
extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service
designated by Landlord to control termites and pests in the Promises. Tenant
shall bear the cost and expense of such extermination services, provided that
Tenant shall not be obligated to pay more for its participation in such
termite and pest extermination services than the prevailing competitive rates
charged by reputable independent termite and pest control exterminators for
the same service on a direct and individual basis.
16. Tenant shall not install, operate or maintain in the Premises or in
any other area of the Building, any electrical equipment which does not bear
the U/L (Underwriters Laboratories) seal of approval, or which would overload
the electrical system or any part thereof beyond its capacity for proper,
efficient and safe operation as determined by Landlord, taking into
consideration the overall electrical system and the present and future
requirements therefor in the Building. Tenant shall not furnish any cooling
or heating to the Premises, including, without limitation the use of any
electronic or gas heating devices, without Landlord's prior written consent.
17. Tenant shall not operate or permit to be operated on the Premises
any coin or token operated vending machine or similar device (including,
without limitation, telephones, lockers, toilets, scales, amusement devices
and machines for sale of beverages, foods, candy, cigarettes or other goods),
except for those vending machines or similar devices which are for the sole
and exclusive use of Tenant's employees, and then only if such operation does
not violate the lease of any other tenant of the Building.
18. Bicycles and other vehicles are not permitted inside or on the
walkways outside the Building, except in those areas specifically designated
by Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Building, its occupants, entry
and use, or its contents. Tenant, Tenant's agents, employees, contractors,
guests and invitees shall comply with Landlord's reasonable requirements
relative thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion may lend
to impair the reputation of the Building or its desirability for Landlord or
other tenants. Upon written notice from Landlord, Tenant will refrain from
and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed to in
advance by Landlord and in a manner which will not interfere with the rights
of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent the
same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by
Landlord.
-2-
<PAGE>
EXHIBIT E
PARKING AGREEMENT
Landlord shall make available to Tenant, at no cost for the initial
Lease Term (April 1, 1993 through March 31, 1998), provided Tenant is not in
default under this Lease, throughout the Term of this Lease thirty-eight (38)
parking permits (the "Permits") to allow access to the parking garage located
in the Development (the "Building Garage") which is used in connection with
the operation of the Building.(FNE.1.) In consideration therefor, Tenant
will pay to Landlord as Additional Rent and with each installment of Base
Rent due under the Lease, the Parking Charge hereinafter provided. The
Permits shall only be valid between the hours of 5:00 a.m. and 11:00 p.m
daily and between the hours of 5:00 a.m. and 11:00 p.m. on Saturdays,
Sundays, and Holidays. Except with respect to any limited reserved parking
that Landlord may establish and for which Landlord may increase the Parking
Charge, all tenant parking in the Building Garage will be on a non-reserved,
first-come, first-serve basis. Landlord may elect to establish parking zones
in the Building Garage and if Landlord so elects, the Permits may be issued
to specifically identified vehicles and the Parking Charge may relate to
specified zone(s) as determined by Landlord. If Landlord implements a system
whereby only specifically identified vehicles are granted Permits, other
vehicles shall not be permitted to use the Building Garage without Landlord's
prior written consent. Landlord reserves the right upon written notice
posted in the Garage, to change the parking system for the Building Garage to
provide special requirements for weekend, holiday or after hours usage and to
temporarily close the Building Garage, or portions thereof to make such
repairs or alterations as Landlord may deem appropriate.
In consideration for the Permits, Tenant covenants and agrees to pay to
Landlord during the initial Term of this Lease, as Additional Rental hereunder,
a parking charge (the "Parking Charge") equal to the sum of $0.00 per month
for each Permit issued to Tenant, and such Parking Charge shall be paid monthly
in advance as hereinabove provided. A pro rata portion of such Parking Charge
shall be payable for the (i) first partial calendar month of the Term of this
Lease in the event the Commencement Date occurs on a date other than the first
day of a calendar month, and (ii) for the last partial calendar month of the
Term of the Lease in the event the term hereof expires on a date other than the
last day of calendar month. The Parking Charge shall be subject to adjustment by
Landlord upon Tenant exercising the Renewal Option pursuant to Section 4. of
Exhibit F to the Lease with such adjustment to reflect Landlord's then current
market charge for parking permits in the applicable section of the Garage. Such
adjustment in the Parking Charge consistent with industry standards in
comparative building, in comparable areas, and shall become effective on the
first day of the first calendar month following the date of delivery of written
notice by Landlord to Tenant of such adjustment in the Parking Charge. Tenant's
obligation to pay the Parking Charge shall be considered an obligation to pay
Rent for all purposes hereunder and shall be secured in like manner as is
Tenant's obligation to pay Rent. Default in the payment of such Parking Charge
shall be deemed to be a default in the payment of Rent. As additional
consideration for the aforesaid Permits, Tenant hereby waives on behalf of
itself and its agents and employees all claims, whether based on negligence or
other grounds, against Landlord, its agents and employees arising out of any
loss or damage to automobiles or other property while located in the Building
Garage, or arising out of any personal injuries sustained in connection with the
use of said Building Garage, and Tenant hereby covenants and agrees to
specifically inform each of its employees and agents of the waiver of claims
herein set forth.
(E.2.)
- --------------------
FN E.1. and E.2. - see page E1(a)
<PAGE>
FN E.1. - continued from Exhibit E
Of the thirty-eight (38) Permits granted to Tenant, thirty-one (31) shall be
designated as non-reserved covered parking and seven (7) shall be designated
as covered reserved parking. Effective December 31, 1993, Landlord shall
rescind thirteen (13) of said Permits as follows: twelve (12) non-reserved
parking spaces and one (1) reserved parking space; provided, effective
January 1, 1994, and during the remaining Lease Term, Landlord shall grant to
Tenant twenty-five (25) Permits (nineteen (19) non-reserved and six (6)
reserved). Notwithstanding the foregoing, effective January 1, 1994,
Landlord shall have the right at anytime to rescind or assign to deck level
status two (2) non-reserved parking spaces and one (1) reserved parking space
of said twenty-eve (25) Permits if a) Landlord provides fifteen (15) days
written notice of its intent to rescind or assign to deck level and b) at the
time of said notice, Landlord has leased, including this Lease, ninety percent
(90%) of the Building.
FN E.2. - continued from Exhibit E
During the Lease Term, Landlord shall keep in effect a system for restricting
access to the Garage to those persons specifically authorized by Landlord to
use the Garage. The manner in which Landlord restricts access (e.g. card key
system, parking guard, etc.) shall be determined by Landlord in its
reasonable discretion. Tenant expressly acknowledges that Landlord shall not
be deemed to have warranted the efficiency of any such manner of restricting
access to the Garage and that Landlord shall not be liable in any manner for
any personal injury or property damage caused by unauthorized persons in the
Garage. Upon receipt of notice from Tenant with respect to a malfunction of
the system for restricting access to the Garage, Landlord, as part of Basic
Costs, shall take whatever action is reasonably necessary to correct such
malfunction in said system.
E1(a)
<PAGE>
The failure to comply to timely pay the Parking Charge specified above,
or to comply with the rules and regulations governing the use of the Building
Garage, including but not limited to the rules establishing time limits on
the use of said Permits, shall entitle Landlord, in addition to any other
remedies provided hereunder, to terminate the Permits and tow any vehicles
which are in violation of said rules and regulations from the Building Garage
at the sole cost and expense od Tenant and without liability for damages
resulting therefrom.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as
of the date first written above.
LANDLORD: Zell/Merrill Lynch Real Estate
Opportunity Partners Limited
Partnership II
ATTEST: BY: EQUITY ASSETS MANAGEMENT, INC., as
agent
/s/ DEBORAH ARNDT By: /s/ RICHARD BERK
- ---------------------------- -------------------------------
Name (print): DEBORAH ARNDT Name: RICHARD BERK
--------------- -----------------------------
Title: VICE PRESIDENT
- ---------------------------- ----------------------------
Name (print):
---------------
TENANT:
ATTEST: Lafarge Corporation
/s/ CAROLYN STIRES By: /s/ GORDON KENYON
- ----------------------------- ------------------------------------
Name (print): CAROLYN STIRES Name: GORDON KENYON
--------------- ----------------------------------
/s/ SHARON L. ROGERS Title: PRESIDENT, LAFARGE CONSTRUCTION
- ----------------------------- MATERIALS, SOUTHERN U.S. REGION
Name(print): SHARON L. ROGERS ---------------------------------
----------------
-2-
<PAGE>
EXHIBIT "F"
ADDITIONAL TERMS
This Exhibit is attached to and made a part of the Lease dated February
26, 1993 by and between Zell\Merrill Lynch Real Estate Opportunity Partners
Limited Partnership II, ("Landlord") by its agent Equity Assets Management,
Inc. and Lafarge Corporation ("Tenant") for space in the Building located at
12801 N. Central Expressway, Dallas, Texas.
1. RIGHT OF FIRST OFFER.
A. During the Offering Period (hereinafter defined), Tenant shall have the
right of first offer (the "ROFO") with respect to the 1,980 rentable square
feet on the second (2nd) floor of the Building shown cross-hatched on the
demising plan attached hereto as Exhibit F-1 ("Offering Space"), which ROFO
shall be exercised as follows: when Landlord has a prospect (the "Prospect")
interested in leasing the Offering Space, Landlord shall advise Tenant, in
substantially the same form as set forth on Exhibit F-2 (the "Advice"), of
the terms under which Landlord is prepared to lease the Offering Space to
Tenant for the remainder of the Lease Term, which terms shall reflect the
prevailing market rate (as defined below) for the Offering Space as
reasonably determined by Landlord. Tenant may lease such Offering Space in
its entirety only, under such terms, by executing and delivering to Landlord
the notice of exercise portion of the Advice ("Notice of Exercise") within
ten (10) days after the date of the Advice. For purposes hereof, the
"Offering Period" shall mean the period beginning on the date hereof and
ending on March 31, 1995. Notwithstanding the foregoing, Tenant shall have no
right to lease Offering Space hereunder and Landlord need not provide Tenant
with an Advice, if:
1. Tenant is in default under the Lease at the time Landlord would
otherwise deliver the Advice; or
2. the Premises, or any portion thereof, is sublet to a non-Affiliate
at the time Landlord would otherwise deliver the Advice; or
3. the Lease has been assigned to a non-Affiliate at the time Landlord
would otherwise deliver the Advice; or
4. Tenant or its Affiliates are not occupying the Premises under this
Lease at the time Landlord would otherwise deliver the Advice; or
5. Offering Space is not intended, at the time the Notice of Exercise
is given, for the exclusive use of Tenant or its Affiliates during the
Lease Term.
B. If Tenant is entitled to and appropriately exercises its ROFO, Landlord
shall prepare an amendment (the "Offering Amendment") adding the Offering
Space to the Premises on the terms set forth in the Advice and reflecting the
changes in the Base Rental, Rentable Area of the Premises, Tenant's Pro Rata
Share and other appropriate terms. Tenant shall execute and deliver the
Offering Amendment to Landlord within ten (10) days of the submission of such
Offering Amendment by Landlord to Tenant.
C. Offering Space (including improvements and personalty, if any) shall be
accepted by Tenant in its condition and as-built configuration existing on
the earlier of the date Tenant takes possession of Offering Space or as of
the date the term for Offering Space commences. The term for the Offering
Space shall commence upon the date set forth in the Advice and thereupon
Offering Space shall be considered a part of the Premises, provided that all
of the terms stated in the Advice shall govern Tenant's leasing of the
Offering Space and only to the extent that they do not conflict with the
Advice, the terms and conditions of this Lease shall apply to the Offering
Space.
1
<PAGE>
D. The rights of Tenant hereunder shall terminate on the earliest to occur
of 1) March 31, 1995, 2) the date on which Tenant executes the rejection
portion of the Advice and 3) ten (10) days after the date of the Advice. If
Landlord has a Prospect for Offering Space during the Offering Period and
Landlord is not obligated to send Tenant an Advice under paragraph A above,
Landlord may lease Offering Space to the Prospect or any other prospective
tenant on whatever terms Landlord deems appropriate and Tenant shall have no
further rights with respect to such Offering Space. Notwithstanding the
foregoing, if (i) Tenant was entitled to exercise its Right of First Offer,
but failed to provide Landlord with a Notice of Exercise within the ten (10)
day period provided in paragraph A above, and (ii) Landlord does not enter
into a lease for Offering Space with the Prospect or any other prospect
within a period of six (6) months following the date of the Advice, Tenant
shall once again have a Right of First Offer with respect to Offering Space.
E. For the purposes hereof, "prevailing market rate" means the rate charged
in leases and amendments entered into within six (6) months prior to the date
prevailing market rate is being determined in the Building and comparable
buildings taking into consideration not only the rental rate but length of
term, tenant improvements allowances, expense pass throughs, relocation costs
and other concessions allowed to tenant.
2. RENEWAL OPTION.
A. Tenant shall have the option to extend the Termination Date ("Renewal
Option") from March 31, 1998 to March 31, 2003 (the period beginning April 1,
1998 and ending March 31, 2003 is referred to herein as the "Renewal Term"),
if:
1. Landlord receives notice of exercise ("Renewal Notice") on or before
June 30, 1997;
2. Tenant is not in default under this Lease at the time Landlord
receives the Renewal Notice;
3. no part of the Premises is sublet to a non-affiliate at the time
Landlord receives the Renewal Notice;
4. this Lease has not been assigned to a non-affiliate at the time
Landlord receives the Renewal Notice;
5. Tenant executes and returns the "Renewal Amendment" (subsection C)
within fifteen (15) days of its submission to Tenant.
B. The annual Base Rental rate for the Premises during the Renewal Term
shall equal the prevailing market rate for the first class office space of
equivalent quality, size, utility and location in Dallas, Texas. Landlord and
Tenant shall negotiate in an effort to mutually agree as to the Base Rental
for the Renewal Term. If Landlord and Tenant have not agreed upon Base
Rental for the Renewal Term within one hundred eighty (180) days prior to the
commencement of such Renewal Term, either party, by written notice to the
other given within fifteen (15) days after the expiration of the one hundred
eighty (180) day period, shall have the right to require Base Rental to be
determined in accordance with the arbitration process provided below. If
neither party makes such election within fifteen (15) days, Tenant's Option to
Renew shall be deemed to be null and void and of no further force and effect.
The arbitration process for the determination of Base Rental is as follows:
(1) Landlord and Tenant shall each appoint a real estate appraiser
who is familiar with rental values for properties in the vicinity of the
Building. Each party will make the appointment no later than ten (10) days
after receipt of notice from the other party that the appraisal process
described in this paragraph 2.B had been invoked. The agreement of the two
(2) appraisers as to the Base Rental for the Renewal Term will be binding
upon Landlord and Tenant. If the two (2) appraisers cannot agree upon the
Base Rental within ten (10) days following their appointment, they shall
within another ten (10) days agree upon a third real estate appraiser.
Immediately thereafter, each of
2
<PAGE>
the first two (2) appraisers will submit his best estimate of the
appropriate Base Rental for the Renewal Term (together with a written
report supporting such estimate) to the third appraiser and the third
appraiser will choose between the two estimates. The estimate of Base
Rental chosen by the third appraiser as the closest to the prevailing
market rental rates will be bind upon Landlord and Tenant. Notification
in writing of this estimate shall be made to Landlord and Tenant within
fifteen (15) days following the selection of the third appraiser.
(2) If appraisers must be selected under the procedure set out
above and either Tenant or Landlord fails to appoint an appraiser or
fails to notify the other party of such appointment within three (3)
days after receipt of notice that the prescribed time for appointing
the appraiser has passed, then the other party's appraiser will determine
the Base Rental for the Renewal Term. All appraisers selected for the
appraisal process set out in this paragraph 2.B will be disinterested,
reputable, qualified real estate appraisers with the designation of MAI
or equivalent and with at least five (5) years experience in appraising
properties comparable to the Building.
(3) If a third appraiser must be chosen under the procedure set out
above he will be chosen on the basis of objectivity and competence, not on
the basis of his relationship with the other appraisers or the parties of
this Lease, and the first two (2) appraisers will be so advised. Although
the first two (2) appraisers will be instructed to attempt in good faith
to agree upon the third appraiser, if attempt in good faith to agree upon
the third appraiser, if for any reason they cannot agree within the
prescribed time, either Landlord or Tenant may require the first two (2)
appraisers to immediately submit its top choice for the third appraiser
to the then highest ranking officer of the Dallas Bar Association who will
agree to help and who has no attorney/client or other significant
relationship to either Landlord or Tenant. Such officer will have complete
discretion to select the most objective and competent third appraiser from
between the choice of each of the first two (2) appraisers, and will do so
within twenty (20) days after such choice are submitted to him.
(4) Either Landlord or Tenant may notify the appraiser selected by
the other party to demand the submission of an estimate of Base Rental or
a choice of a third appraiser as required under the procedure described
above; and if the submission of such an estimate or choice is required and
the other party's appraiser fails to comply with the demand within five (5)
days after receipt of such notice, then the Base Rental or choice of the
third appraiser, as the case may be, selected by other appraiser (i.e.,
the notifying party's appraiser) will be binding upon Landlord and Tenant.
(5) Landlord and Tenant shall each bear the expense of the appraiser
appointed by it, and the expense of the third appraiser and of any officer
of the Dallas Bar Association who participates in the appraisal process
described above will be shared equally by Landlord and Tenant.
(6) For the purposes hereof, "prevailing market rate" means the rate
charged in leases and amendments entered into within six (6) months prior
to the date prevailing market rate is being determined in the Building and
comparable buildings taking into consideration not only the rental rate but
length of term, tenant improvements allowances, expense pass throughs,
relocation costs and other concessions allowed to tenant; and all
appraisers and other persons involved in the determination of the Base
Rental for a Renewal Term will be so advised.
Tenant shall pay Basic Costs during the Renewal Term based on increases in
excess of the Base Year. (The first year of the Renewal Term shall be the
Base Year for the Renewal Term.) The Parking Charges for the Permits granted
to Tenant in accordance with Exhibit E to the Lease shall equal the
prevailing market rate charged by Landlord for reserved and non-reserved
parking in the Building, as the case may be.
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C. If Tenant properly exercised this Renewal Option, Landlord shall prepare
the Renewal Amendment to reflect changes in Base Rental, monthly installments
of Base Rental, Base Year, Termination Date and other appropriate terms. A
copy of the Renewal Amendment shall be:
1. sent to Tenant within a reasonable time after receipt of the Renewal
Notice; and
2. executed by Tenant and returned to Landlord in accordance with
subsection 2.A.5 above.
3. AMERICANS WITH DISABILITY ACT. Landlord shall be responsible for
complying with Title III of the Americans with Disabilities Act (ADA) with
respect to the Common Areas of the Building. Notwithstanding the foregoing,
Landlord shall have the right to contest any alleged violation in good faith,
including, without limitation, the right to apply for and obtain a waiver or
deferment of compliance, the right to assert any and all defenses allowed by
law and the right to appeal any decisions, judgments or rulings to the
fullest extent permitted by law. Landlord, after the exhaustion of any and
all rights to appeal or contest, will make all repairs, additions,
alterations or improvements necessary to comply with the terms of any final
order or judgment, provided that if Landlord elects not to contest any
alleged violation, Landlord will promptly make all repairs, additions,
alterations or improvements necessary to comply with the notice of violation.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Exhibit F
as of the date first written above.
LANDLORD: Zell\Merrill Lynch Real Estate
Opportunity Partners Limited Partnership II
ATTEST: BY: EQUITY ASSETS MANAGEMENT,INC., as agent
/s/ DEBORAH ARNDT By: /s/ RICHARD BERK
- ---------------------------- -----------------------------------------
Name (print): DEBORAH ARNDT Name: RICHARD BERK
--------------- ---------------------------------------
Title: VICE PRESIDENT
- ---------------------------- --------------------------------------
Name (print):
---------------
TENANT: Lafarge Corporation, a Maryland
Corporation
ATTEST:
/s/ CAROLYN STIRES By: /s/ GORDON KENYON
- ---------------------------- -----------------------------------------
Name (print): CAROLYN STIRES Name: GORDON KENYON
-------------- ---------------------------------------
/s/ SHARON L. ROGERS Title: PRESIDENT, LAFARGE CONSTRUCTION
- ---------------------------- MATERIALS, SOUTHERN U.S. REGION
SHARON L. ROGERS -------------------------------------
-----------------------
4
<PAGE>
EXHIBIT F-1
OFFERING SPACE
[MAP]
<PAGE>
Exhibit F-2
TO: DATE:
ADVICE
RE: Lease (the "Lease" dated _________________ by and between Equity
Assets Management, Inc. as Agent, and __________________________,
for space in the Building located at ____________________________
Pursuant to the teams of the Lease, Tenant is hereby notified that the ______
_________ square feet on the ____ floor of the Building (as shown cross-
hatched on the demising plan attached hereto as Exhibit 1) is available for
lease to Tenant under the following conditions:
1. BASERENT: 4. EXPENSE ESCALATION:
a. total: 5. TAX ESCALATION:
b. monthly: 6. SECURITY DEPOSIT:
2. TERM: 7. RENT CREDITS:
a. commencement date: 8. CONSTRUCTION:
b. expiration date:
3. CPI OR OTHER FINANCIAL ESCALATION:
Accordingly, under the terms of the Lease, Tenant has the period stated in
Section 1.A. of Exhibit F of the Lease to exercise its right of first offer.
EQUITY ASSETS MANAGEMENT, INC., as
agent
BY:
-------------------------------
NOTICE OF EXERCISE
Tenant hereby accepts the above tender of the space (as shown on the demising
plan attached hereto as Exhibit 1) and exercises its right to lease such
space. This acceptance and exercise shall authorize Equity Assets Management,
Inc. to forthwith prepare an amendment in accordance with Exhibit F of the
Lease for execution by Tenant.
TENANT:
----------------------------------
DATED: BY:
-------------------- -------------------------------
Its:
------------------------------
JCSROFO.5
04/22/92 1
<PAGE>
REJECTION
Tenant hereby acknowledges the above tender of the space (as shown on the
demising plan attached hereto as Exhibit 1) and hereby declines to lease said
space.
TENANT:
----------------------------------
DATED: BY:
-------------------- -------------------------------
Its:
------------------------------
JCSROFO.5
04/22/92 2
<PAGE>
EXHIBIT G
HVAC Specifications
1. Heating, Ventilating and Air Cooling: Landlord shall, in accordance with
the Lease, furnish, install, maintain and operate the integrated heating
and cooling system consisting of variable air volume boxes, supply
diffusers, return air light fixtures, and pneumatic thermostats to
provide, in accordance with the working drawings of Tenant, cooling,
dehumidification, ventilation and heating with capacity to produce the
following results effective during normal operating hours established by
the Lease and within tolerances normal in comparable office buildings:
a. Heating capable of maintaining inside space conditions of not less
than 70 degrees Fahrenheit when the outside air temperature is not
less than 18 degrees Fahrenheit dry bulb;
b. Air cooling capable of maintaining inside space conditions of 75
degrees Fahrenheit dry bulb and 55% relative humidity when outside
conditions are 102 degrees Fahrenheit dry bulb and 78 degrees Fahrenheit
wet bulb.
The foregoing is based upon occupancy density of not more than one (1) person
for each one hundred fifty (150) square feet of floor area within the
Premises and a maximum electric lighting and office machine load of three and
one half (3.5) watts per square foot of floor area within the Premises. The
HVAC system on the 2nd floor shall be divided into a minimum of 16 zones per
floor which can be separately regulated.
LAFARGEX.G 1
<PAGE>
EXHIBIT H
JANITORIAL SERVICE
I. General Cleaning (Nightly)
A. Sweep all hard surface floors nightly and damp mop as needed but at
least once a week.
B. Vacuum all carpeted areas and rugs, moving light furniture other than
desks, file cabinets, etc.
C. Empty, clean and wipe as needed, all wastepaper baskets, ash trays,
receptacles, etc.
D. Clean all cigarette urns nightly, and replace sand or water.
E. Remove wastepaper and waste materials to a designated area.
F. Dust, wipe and clean all furniture, fixtures, telephones and window
sills.
G. Wipe clean all glass furniture tops.
H. Dust all baseboards as needed but at least once a month.
I. Dust all vinyl, plastic or leather covered chairs. Wipe and clean and
hand vacuum as needed but at least once every two weeks.
J. Wipe and clean glass partitions as required but no less than once a
month.
K. Buff all hard surface floors once a week.
L. Clean all elevator tracks as needed.
M. Wipe and clean all water fountains and apply stainless finish.
N. Keep service corridors on each floor, including lobby, in clean and
orderly condition.
O. Clean kitchen appliances, including but not limited to, microwave
oven, coffee makers, ice makers, beverage dispensers and refrigerator
(exterior only).
II. Lavatories (Nightly)
A. Sweep and damp mop all flooring.
B. Wipe clean all mirrors, counter tops, chrome fixtures, etc.
C. Wipe clean with disinfectant all toilets, toilet seats, piping, etc.
D. Wipe clean all toilet tissue, soap, towel and sanitary napkin
dispensers and disposal units.
E. Wash all basins, bowls and urinals, and disinfect.
<PAGE>
F. Wipe clean all partitions, tiles and vinyl walls, enamel surfaces and
dispensers and receptacles, using proper disinfectant.
G. Empty and clean paper towel and sanitary napkin disposal receptacles.
H. Fill toilet tissue holders, soap dispensers, and tower dispensers.
I. Remove waste paper and refuse to a designated area.
III. High Dusting - Office Area.
Do all high dusting at least once in a month, including the following
areas:
A. Dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning.
B. Dust all vertical surfaces such as walls, partitions, ventilating
louvers, fresh air grills and others not reached in nightly cleaning.
C. Dust exterior surfaces of all lighting fixtures.
D. Dust all window frames.
E. Vacuum exterior window drapes, or venetian blinds.
IV. Periodic Cleaning - Office Area.
A. Wipe and clean all interior metal as necessary.
B. Clean all interior glass as needed.
C. Dust all door louvers and other ventilating louvers within reach, as
necessary.
D. Remove all fingermarks, smudges and other marks from metal partitions
and other surfaces as necessary.
E. Clean all office doors as necessary, using clear water or approved
cleaner.
F. Strip and apply floor finish to resilient tile floors in demised
premises once every three months; buff after application of floor
finish.
V. Special Services (available upon Tenant's written request and at Tenant's
expense. Landlord reserves the right for Tenant to be billed directly by
the janitorial vendor).
A. Wash dishes, glasses, silverware and other eating or drinking
utensils. Load such utensils, where suitable, and activate the
dishwasher. If the utensils exceed the capacity of one load, load,
activate and remove the first load following cleaning; then, load
and activate the remainder of the utensils. This service shall be
provided at Tenant's expense at the prevailing quote by the janitorial
vendor, currently quoted at $100.00 per month.
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (Sublease") is made and entered into as of the 6th
day of December, 1994, between Lafarge Corporation, a Maryland corporation
(hereinafter called "Sublessor"), and The Management Alliance Corporation, a
Texas corporation (hereinafter called "Sublessee"):
ARTICLE I
PRIME LEASE
1.01 SUBLEASE SUBJECT TO PRIME LEASE. This Sublease is subject and
subordinate to that certain Office Lease Agreement (hereinafter called the
"Prime Lease") dated February 26, 1993 and executed by and between
Zell/Merrill Lynch Real Estate Opportunity Partners Limited (hereinafter
called the "Prime Lessor"), as lessor and Sublessor, as lessee, a copy of
which is attached hereto as EXHIBIT A and made a part hereof for all purposes
as if fully set forth herein.
1.02 COMPLIANCE WITH PRIME LEASE. With the exception of the obligation
to pay Base Rental pursuant to Section V.A. of the Prime Lease and to pay
Additional Base Rental pursuant to Section V.A. thereof, Sublessee hereby
covenants and agrees to comply with and perform, and does hereby assume, all
obligations of Sublessor under the Prime Lease including, without limitation,
all repair obligations, all insurance obligations, all obligations to pay
utility charges and taxes, and all indemnification obligations of Sublessor
thereunder, and any liability accruing from failure to pay same when due
thereunder. Sublessee agrees that whenever the consent of Prime Lessor is
required under the terms of the Prime Lease with respect to any action,
Sublessee shall obtain the consent of Sublessor and of Prime Lessor prior to
taking such action. Sublessee hereby covenants and agrees to promptly deliver
to Sublessor copies of any and all notices or other correspondence received by
Sublessee from Prime Lessor that might affect Sublessor in any manner and
further agrees, notwithstanding Section 9.04 to the contrary, to so deliver
same in the manner most appropriate to insure that Sublessor will be able to
respond to any of such notices or other correspondence from the Prime Lessor
within any time periods set forth in the Prime Lease.
1.03 SERVICES. Sublessee hereby acknowledges and agrees that the only
services, amenities and rights to which Sublessee is entitled under this
Sublease are those to which Sublessor is entitled under the Prime Lease
(subject to all the provisions, restrictions and conditions imposed in the
Prime Lease). Sublessor shall in no event be liable to Sublessee for Prime
Lessor's failure to provide any such services, amenities and rights nor shall
any such failure be construed as a breach hereof by Sublessor or an eviction
of Sublessee or entitle Sublessee to an abatement of any of the rentals under
this Sublease, except and only to the extent that Sublessor receives an
abatement under the Prime Lease with respect thereto.
<PAGE>
1.04 EXERCISE OF RIGHTS AND REMEDIES UNDER PRIME LEASE. Sublessee shall
not have the right to exercise any of Sublessor's options or elections
permitted or authorized under the Prime Lease, or to institute any action or
proceeding against Prime Lessor for the enforcement of the Prime Lease. If
Prime Lessor shall default in the performance of any of its obligations under
the Prime Lease, Sublessor shall, upon the written request of Sublessee and at
Sublessee's sole cost and expense, use its diligent good faith efforts to
enforce the Prime Lease and obtain Prime Lessor's compliance with its
obligations thereunder.
ARTICLE II
DEMISE AND DESCRIPTION
2.01 DEMISE OF LEASED PREMISES. Subject to and upon the terms and
conditions set forth herein, Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor for the term herein set forth, all of
Sublessor's right, title and interest in and to the use and occupancy of the
premises leased by Sublessor under the Prime Lease, same being approximately
7,041 square feet of rentable area located on the second floor in the building
known as North Central Plaza Three Building, as shown outlined on Exhibit A to
the Prime Lease (herein called the "Leased Premises").
2.02 CONDITION OF THE LEASE PREMISES. Tenant acknowledges and agrees that
it has inspected the Leased Premises and agrees to accept same in its present
condition, "AS IS" and "WITH ALL FAULTS".
2.03 DISBURSEMENT OF THE FINISH ALLOWANCE. Landlord hereby agrees to
provide Sublessee with a finish allowance of up to 3.50 per square foot of
rentable area in the Premises (the "Finish Allowance") to reimburse Sublessee
for all costs incurred by Sublessee in connection with the construction of
Sublessee's Improvements. The Finish Allowance shall (subject to the
remaining provisions of this Section) be disbursed by Sublessor, from time to
time, (but no more than once weekly) in an amount equal to the invoices and/or
statements submitted to Sublessor and for which Sublessee has not been
previously reimbursed or sought reimbursement. Sublessor shall make
disbursements from the Finish Allowance within three (3) days after receipt of
(i) a request for reimbursement from Sublessee setting forth the amount sought
to be reimbursed, (ii) acceptable invoices and statements supporting the
amount requested by Sublessee and (iii) fully executed and acknowledged
releases and waivers of liens and claims (to the extent of work theretofore
performed), in form acceptable to Sublessor, from each of Sublessee's
contractors and suppliers that is to receive any portion of the amount
requested. Notwithstanding the foregoing, Sublessor shall not be required to
pay any installment if any of Sublessee's Contractors or their respective
subcontractors, suppliers and materialmen file or have given notice of intent
to file a lien against the premises and/or the Building.
2
<PAGE>
2.04 DISCLAIMER OF WARRANTIES. SUBLESSEE ACKNOWLEDGES THAT NEITHER
SUBLESSOR NOR PRIME LESSOR HAS MADE OR WILL MAKE ANY WARRANTIES TO SUBLESSEE
WITH RESPECT TO THE QUALITY OF CONSTRUCTION OF ANY LEASEHOLD IMPROVEMENTS OR
TENANT FINISH WITHIN THE LEASED PREMISES OR AS TO THE CONDITION OF THE LEASED
PREMISES, EITHER EXPRESS OR IMPLIED, AND THAT SUBLESSOR AND PRIME LESSOR
EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE LEASED PREMISES ARE OR WILL
BE SUITABLE FOR SUBLESSEE'S INTENDED COMMERCIAL PURPOSES. EXCEPT AS EXPRESSLY
PROVIDED IN SECTION 1.04 HEREOF, SUBLESSEE'S OBLIGATION TO PAY RENTALS UNDER
THIS SUBLEASE IS NOT DEPENDENT UPON THE CONDITION OF THE LEASED PREMISES OR
THE BUILDING (NOW OR IN THE FUTURE) OR THE PERFORMANCE BY PRIME LESSOR OF ITS
OBLIGATIONS UNDER THE PRIME LEASE, AND SUBLESSEE SHALL CONTINUE TO PAY THE
RENTALS HEREUNDER WITHOUT ABATEMENT, SETOFF OR DEDUCTION NOTWITHSTANDING ANY
BREACH BY SUBLESSOR OF ITS DUTIES OR OBLIGATIONS HEREUNDER OR BY PRIME LESSOR
OF ITS DUTIES OR OBLIGATIONS UNDER THE PRIME LEASE, WHETHER EXPRESS OR IMPLIED.
ARTICLE III
TERM; SURRENDER OF POSSESSION
3.01 TERM. Unless the Prime Lease is terminated sooner pursuant to the
terms thereof, the term of this Sublease ("Term") shall be for the period
commencing on January 1, 1995, and ending on March 30, 1998. Sublessee shall
have access to the Premises for the purpose of constructing Sublessee's
improvements on December 9, 1994. The terms and provisions of this Sublease
Agreement shall be in full force and effect except that rent shall not be
accruing.
3.02 SURRENDER OF THE LEASED PREMISES. At the termination of this
Sublease, by lapse of time or otherwise, sublessee shall deliver up the Leased
Premises to Sublessor in as good condition as existed on the date of
possession by Sublessee, ordinary wear and tear only excepted. Upon such
termination of this Sublease, Sublessor shall have the right to re-enter and
resume possession of the Leased Premises.
3.03 HOLDING OVER. In the event of holding over by Sublessee after
expiration or termination of this Sublease without the prior written consent
of Sublessor, Sublessee shall pay as liquidated damages the greater of (i)
double the amount of all base rental and additional rental which was payable
by Sublessee immediately prior to such expiration or termination, and (ii) the
then current market rental for the Leased Premises, pro rated on a daily basis
for the entire holdover period.
ARTICLE IV
RENT
4.01 BASE RENTAL. Sublessee hereby agrees to pay an annual base rental of
Nine and 50/100 Dollars ($9.50) per square foot of net rentable area within the
Leased Premises (net rentable area shall be deemed to be 7,041 square feet).
Sublessee shall pay
3
<PAGE>
such base rental to Sublessor monthly without demand, for each and every month
during the Term, in installments of Five Thousand Five Hundred Seventy-Four
and 13/100 Dollars ($5,574.13) each. The rent for the first month shall be due
on the date hereof.
4.02 ADDITIONAL BASE RENTAL. Sublessee shall also pay to Sublessor
monthly as additional rental the amount of any Additional Base Rental charged
to Sublessor pursuant to Section V.A. of the Prime Lease for any month during
the Term, if such Additional Base Rental were calculated on a Base Year of
1995 from the reports of Basic Costs provided by Prime Lessor to Sublessor.
Upon request of Sublessee, Sublessor will provide Sublessee with copies of
statements received by Sublessor from Prime Lessor with respect to the payment
of Additional Base Rental under the Prime Lease. Within thirty (30) days
following Sublessor's receipt from Prime Lessor of the final reconciliation of
the annual Additional Base Rental pursuant to Section V.A. of the Prime Lease
for each year during the Term, Sublessor and Sublessee shall likewise
reconcile the additional rental payable by Sublessee pursuant to this Section
4.02 so that Sublessee shall pay the amount, and only the amount, of the
actual Additional Base Rental charged to Sublessor for such year and
calculated on a Base Year of 1995.
4.03 PAYMENT OF RENTALS. Each monthly installment of base rental and
additional rental due to Sublessor under this Sublease shall be payable by
Sublessee on the first day of each calendar month at Sublessor's address herein
set forth or at such other place as Sublessor shall designate in writing from
time to time. If less than all of any calendar month or year occurs during the
Term, rents for such partial month or year shall be prorated (at the per diem
rate of $185.80) based on the actual number of days during such month or year
occurring within the Term.
ARTICLE V
QUIET ENJOYMENT
5.01 COVENANT OF QUIET ENJOYMENT. Provided Sublessee has performed all
of the terms, covenants, agreements and conditions of this Sublease, including
the payment of rental and all other sums due hereunder, Sublessee shall
peaceably and quietly hold and enjoy the Leased Premises against Sublessor and
all persons claiming by, through or under Sublessor, for the term herein
described, subject to the provisions and conditions of this Sublease and of
the Prime Lease. Sublessor shall timely pay to Prime Lessor all payments of
Base Rental and Additional Base Rental paid to Sublessor by Sublessee; and,
Sublessor shall timely pay to Prime Lessor the difference between Base Rental
and Additional Base Rental under the Prime Lease and Base Rental and
Additional Base Rental under this Sublease.
5.02 LIMITATION. It is understood and agreed that the provision of
Section 5.01 and any and all other covenants of Sublessor contained in this
Sublease shall be binding upon Sublessor and its successors only with respect
to breaches
4
<PAGE>
occurring during its and their respective ownership of the Sublessor's interest
hereunder. This Sublease is subject to and subordinate to all matters of public
record in Dallas, Texas.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.01 RESTRICTION. Sublessee shall not, without the prior written
consent of Sublessor, assign, transfer, mortgage, pledge, hypothecate or
encumber this Sublease or any interest herein or sublet the Leased Premises or
any part thereof, or permit the use of the Leased Premises by any party other
than Sublessee. Any such assignment or subletting without such consent by
Sublessor shall be void. Any such consent by Sublessor to any such assignment
or subletting shall not release Sublessee from any of Sublessee's obligations
hereunder or be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person.
6.02 CONSENT DISCRETIONARY. Sublessor's consent to any proposed
assignment or subletting may be withheld at the sole and absolute discretion
of Sublessor, or may be given subject to the further consent of Prime Lessor.
ARTICLE VII
INDEMNIFICATION AND EXCULPATION
7.01 INDEMNITY. Sublessee shall indemnify Sublessor for and hold
Sublessor harmless from and against all costs, expenses (including reasonable
attorneys' fees), fines, suits, claims, demands, liabilities and actions
resulting from any breach, violation or nonperformance of any covenant or
condition hereof or from the use or occupancy of the Leased Premises by
Sublessee or Sublessee's employees, agents, contractors, licensees and
invitees.
7.02 EXCULPATION. Sublessor shall not be liable to Sublessee or
Sublessee's employees, agents, contractors, licensees or invitees for any
damage to person or property resulting from any act or omission of any visitor
to the Leased Premises except as Sublessor's own negligence may contribute
thereto.
ARTICLE VIII
DEFAULTS AND REMEDIES
8.01 DEFAULT BY SUBLESSEE: REMEDIES OF SUBLESSOR. In case of any breach
hereof by Sublessee, in addition to all other rights of Sublessor hereunder or
available to Sublessor at law or equity, Sublessor shall have all the rights
against Sublessee as would be available to the Prime Lessor against Sublessor
under the Prime Lease if such breach were by Sublessor thereunder. If Sublessee
defaults in the performance of any of the terms and provisions hereof and
Sublessor places the enforcement of this Sublease in the hands of an attorney,
Sublessee agrees to
5
<PAGE>
reimburse Sublessor for all reasonable expenses incurred by Sublessor as a
result thereof including, but not limited to, reasonable attorneys' fees.
8.02 LIEN FOR RENT. In consideration of the mutual benefits arising
under this Lease, Sublessee hereby grants to Sublessor a lien and security
interest on all property of Sublessee now or hereafter placed in or upon the
Leased Premises, and such property shall be and remain subject to such lien
and security interest of Sublessor herein. The provisions of this paragraph
relating to said lien and security interest shall constitute a security
agreement under the Uniform Commercial Code so that Sublessor shall have and
may enforce a security interest on all property of Sublessee now or hereafter
placed in or on the Leased Premises, including but not limited to all
fixtures, machinery, equipment, furnishings and other articles of personal
property now or hereafter placed in or upon the Leased Premises, and such
property shall be and remain subject to such lien and security interest of
Sublessor herein. The provisions of this paragraph relating to said lien and
security interest shall constitute a security agreement under the Uniform
Commercial Code so that Sublessor shall have and may enforce a security
interest on all property of Sublessee now or hereafter placed in or on the
Leased Premises, including but not limited to all fixtures, machinery,
equipment, furnishings and other articles of personal property now or
hereafter placed in or upon the Leased Premises by Sublessee. Sublessee
agrees to execute as debtor such financing statement or statements as
Sublessor may now or hereafter reasonably request in order that such security
interest on interests may be protected pursuant to said Code. Sublessor may
at its election at any time file a copy of this Lease as a financing
statement. Sublessor, as secured party, shall be entitled to all of the
rights and remedies afforded a secured party under said Code in addition to
and cumulative of the Sublessor's liens and rights provided by law or by the
other terms and provisions of this Lease.
8.03 SECURITY DEPOSIT. As additional security for the faithful
performance by Sublessee of all of the terms and conditions upon Sublessee's
part to be performed, Sublessee has deposited with Sublessor a security
deposit (the "Security Deposit") in the amount of $5,574.13. Such amount
shall be returned to Sublessee, without interest, on the day herein set forth
for the expiration of the Lease Term if Sublessee has fully and faithfully
carried out all of the terms, covenants and conditions on its part to be
performed. Sublessor shall not be required to keep the Security Deposit
separate from its general funds. Sublessor may, from time to time, without
prejudice to any other remedy, use the Security Deposit to the extent
necessary to make good any arrearages of Base Rental or Additional Base
Rental, or to satisfy any other covenant or obligation of Sublessee hereunder,
and Sublessee shall pay to Sublessor on demand a sum sufficient to restore the
Security Deposit to its original amount, and upon the failure of Sublessee to
do so, Sublessor may exercise any of the remedies available to
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<PAGE>
it. Sublessee further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither sublessor nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. In
the absence of evidence satisfactory to Sublessor of an assignment of the
right to receive the Security Deposit or the remaining balance thereof,
Sublessor may return the security Deposit to the original Sublessee,
regardless of one or more assignments of this Sublease by Sublessee.
ARTICLE IX
MISCELLANEOUS
9.01 AMENDMENT. No amendment, modification or alteration of the terms
hereof shall be binding unless the same shall be in writing, dated subsequent
to the date hereof and duly executed by the parties hereto.
9.02 HEADINGS; INTERPRETATION. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Sublease. Whenever the context of this Sublease requires,
words used in the singular shall be construed to include the plural and vice
versa and pronouns of whatsoever gender shall be deemed to include and
designate the masculine, feminine or neuter gender.
9.03 COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Sublease may be executed by one or more parties hereto and
each such executed counterpart shall be, and shall be deemed to be, an original
instrument.
9.04 NOTICES. Subject to Article 1.02 hereof, all notices, consents,
requests, instructions, approvals and other communications provided for herein
and all legal process in regard hereto shall be validly given, made or served,
if in writing and delivered personally or sent by United States certified or
registered mail, postage prepaid, return receipt requested, if to:
Sublessor:
Lafarge Corporation
11130 Sunrise Valley Drive, Suite 300
Reston, VA 22091-4300
Attention: David C. Jones,
Vice President-Legal Affairs
With a copy to:
William R. Wright
Thompson & Knight, P.C.
1700 Pacific Avenue, #3300
Dallas, TX 75201
7
<PAGE>
Sublessee:
Gary Steeds, President
The Management Alliance Corporation
5001 Spring Valley, Suite 290 West
Dallas, Texas 75244
with a copy to:
M. Ted Dillard
Diversified Human Resources Group, Inc.
15770 Dallas Parkway, Suite 400
Dallas, Texas 75248
or to such other addresses as any party hereto may, from time to time,
designate in writing delivered in a like manner.
9.05 SUCCESSORS AND ASSIGNS. This sublease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns in accordance with the terms of this Sublease.
9.06 TIME OF THE ESSENCE. Time is of the essence in the performance by
Sublessee of its obligations hereunder.
9.07 BROKERAGE COMMISSIONS. Sublessor has agreed to pay a brokerage
commission to Fults Associates ("Broker") pursuant to a separate agreement
between Sublessor and Broker. Fults Associates has agreed to pay a brokerage
commission to Mark Jordan ("Sublessee's Broker") pursuant to a separate
agreement between Broker and Sublessee's Broker. Sublessor and Sublessee
hereby represent and warrant each to the other that they have not employed any
agents, brokers or other such parties in connection with this Sublease other
than Broker and Sublessee's Broker, and each agrees that they shall hold the
other harmless from and against any and all claims of all other agents,
brokers or other such parties claiming by, through or under the respective
indemnifying party.
9.08 WAIVER OF LIEN BY SUBLESSEE. Sublessee shall have no right, and
Sublessee hereby waives and relinquishes all rights which Sublessee might
otherwise have, to claim any nature of lien against the Complex or to withhold,
deduct from or offset against any Rent or other sums to be paid to Sublessor by
Sublessee, except as expressly provided under this Sublease.
9.09 REMEDIES CUMULATIVE; APPLICABLE LAW. All rights and remedies of
Sublessor under this Sublease shall be cumulative and none shall exclude any
other rights or remedies allowed by law; and this Sublease is declared to be a
Texas contract, and all of the terms thereof shall be construed according to the
laws of the State of Texas.
8
<PAGE>
9.10 ENTIRE AGREEMENT. The terms and provisions of all Schedules and
Exhibits described herein and attached hereto are hereby made a part hereof
for all purposes. This Sublease constitutes the entire agreement of the
parties with respect to the subject matter hereof, and all prior
correspondence, memoranda, agreements or understandings (written or oral) with
respect hereto are merged into and superseded by this Sublease.
9.11 AUTHORITY. Sublessee warrants, represents and covenants that (a)
it is a duly organized and existing legal entity under the laws of the state
in which it is organized, and in good standing in the State of Texas, (b) it
has full right and authority to execute, deliver and perform this sublease,
(c) the person executing this sublease on behalf of Sublessee was authorized
to do so and (d) upon request of Sublessor, Sublessee will deliver to
sublessor satisfactory evidence of the due authorization, execution and
delivery of this Sublease by Sublessee.
9.12 SEVERABILITY. If any term or provision of this Sublease, or the
application thereof to any person or circumstance, shall to any extent by
invalid or unenforceable, the remainder of this Sublease, or the application
of such provision to persons or circumstances other than those as to which it
is invalid or unenforceable, shall not be affected thereby, and each provision
of this Sublease shall be valid and shall be enforceable to the extent
permitted by law.
9.13 NO RECORDING. This Sublease (including any Exhibits hereto) shall
not be recorded without the prior written consent of Sublessor.
9.14 PARKING. Sublessee shall be entitled to utilize the parking
privileges provided to Sublessor pursuant to Exhibit E of the Prime Lease, for
which Sublessee shall reimburse Sublessor monthly, together with the payment
of rentals pursuant to Section 4.03 above, the amount, if any, which Sublessor
is obligated therefor pursuant to the Prime Lease.
9.15 PRIME LESSOR'S CONSENT REQUIRED. Sublessee acknowledges that,
pursuant to the provisions of the Prime Lease, Sublessor is required to obtain
Prime Lessor's written consent to this Sublease, and accordingly, that the
obligations of Sublessor hereunder are expressly subject to Sublessor
obtaining such consent. If Prime Lessor's written consent to this Sublease is
not obtained by 5:00 p.m. Central time on December 8, 1994, this Sublease
agreement shall automatically terminate and be of no further force and effect.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned Sublessor and Sublessee have executed
this Sublease effective as of the date and year first written above.
"Sublessor"
Lafarge Corporation
By: James E. Fowler
------------------------------------
Name: James E. Fowler
Title: Authorized Representative
"Sublessee"
The Management Alliance Corporation
By: Gary Steeds
------------------------------------
Name: Gary Steeds
Title: President
CONSENTED AND AGREED
this day of December, 1994:
--------
"Prime Lessor"
Zell/Merrill Lynch Real Estate
Opportunity Partners Limited
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
10
<PAGE>
FIRST AMENDMENT
This First Amendment (the "Amendment") is made and entered into as of the
20th day of February, 1995, by and between ZML - North Central Plaza Three
Limited Partnership ("Landlord") by its agent, Equity Office Properties, Inc.,
and The Management Alliance Corporation, a Texas corporation ("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the
nineteenth (19th) day of December, 1994 currently containing approximately
4,276 rentable square feet of space described as Suite Nos. 220 and 1170 on
the second (2nd) and eleventh (11th) floors of the building commonly known as
North Central Plaza Three and the address of which is 12801 North Central
Expressway, Dallas, Texas (the "Building"); and
B. WHEREAS, Tenant has requested that additional space consisting of
approximately 13,735 rentable square feet on the fourth (4th) floor of the
Building shown on Exhibit A hereto (the "Expansion Space") be added to the
Premises and that the Lease be appropriately amended, and Landlord is willing
to do the same on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. EXPANSION AND EFFECTIVE DATE. Effective as of the Expansion
Effective Date (as herein after defined), the Premises is increased from
4,276 rentable square feet on the second (2nd) and eleventh (11th) floors to
18,011 rentable square feet on the second (2nd), fourth (4th) and eleventh
(11th) floors by the addition of the Expansion Space. The lease term for the
Expansion Space shall commence on the Expansion Effective Date and end on the
Termination Date. The Expansion Space is subject to all the terms and conditions
of the Lease except as expressly modified herein and except that Tenant shall
not be entitled to receive any allowances, abatement or other financial
concession granted with respect to the Premises unless such concessions are
expressly provided for herein with respect to the Expansion Space.
A. The Expansion Effective Date shall be May 1, 1995.
II. MONTHLY BASE RENTAL.
In addition to Tenant's obligation to pay Base Rental for the Premises,
Tenant shall pay Landlord the sum of five hundred fifty-four thousand two
hundred seven and 40/100 Dollars ($554,207.40) as Base Rental for the
Expansion Space in thirty-six (36) monthly installments as follows:
A. Thirty-six (36) equal installments of $15,394.65 each payable on or
before the first day of each month during the period beginning May 1, 1995 and
ending April 30, 1998.
All such Base Rental shall be payable by Tenant in accordance with the
terms of Article V of the Lease.
III. ADDITIONAL SECURITY DEPOSIT. Upon Tenant's execution hereof,
Tenant shall pay $15,394.65 to Landlord which is added to and becomes part of
the Security Deposit, if any, held by Landlord as provided under the Lease as
security for payment of Rent and the performance of other terms and conditions
of the Lease by Tenant. Accordingly, simultaneous with the execution hereof,
the Security Deposit is increased from $4,836.83 to $20,231.48.
IV. TENANT'S PRO RATA SHARE. For the period commencing with the
Expansion Effective Date and ending on the Termination Date, Tenant's Pro
Rata Share for the Expansion Space is four percent (4.0%).
V. BASE YEAR. For the period commencing with the Expansion Effective
Date and ending on the Termination Date, the Base Year for the computation
of Tenant's Pro Rata Share of Basic Costs applicable to the Expansion Space
is 1995. If the Building is not fully occupied during any calendar year
during the Lease Term, Basic Costs shall be determined as if the Building had
been fully occupied during such year.
VI. IMPROVEMENTS TO EXPANSION SPACE.
A. Tenant has inspected the Expansion Space and agrees to accept
the same "as is" without any agreements, representations,
understandings or obligations on the part of Landlord to perform any
alterations, repairs or improvements, except as may be expressly
provided otherwise in this Amendment.
B. COST OF IMPROVEMENTS TO EXPANSION SPACE. Provided Tenant is not
in default, Tenant shall be entitled to receive an improvement
allowance (the "Expansion Improvement Allowance") in an amount not
to exceed one hundred forty-four thousand two hundred seventeen and
50/100 Dollars ($144,217.50) to be applied toward the cost of
performing initial construction, alteration or improvement of the
Expansion Space, including but not limited to the cost of space
planning, design and related architectural and engineering services,
moving expenses (in an amount not to exceed $13,750.00) and
<PAGE>
Excess costs associated with the Landlord Work for the original
Premises (in an amount not to exceed $13,750.00). In the event the
total cost of the initial improvements to the Expansion Space exceeds
the Expansion Improvement Allowance, Tenant shall pay for such
excess within fifteen (15) days of Landlord's written demand. Any
unused balance of the Expansion Improvement Allowance shall accrue to
the benefit of Tenant as a credit to Base Rental in an amount not to
exceed $13,750.00; thereafter, any remaining unused balance of the
Expansion Improvement Allowance, if any, shall accrue to the sole
benefit of Landlord. Landlord shall pay such Expansion Improvement
Allowance directly to the contractors retained to perform the
construction, design or related improvement work to the Expansion
Space.
C. RESPONSIBILITY FOR IMPROVEMENTS TO EXPANSION SPACE.
(i) WORK PERFORMED BY OR ON BEHALF OF LANDLORD PURSUANT TO
COMPLETE, APPROVED PLANS.
Landlord shall enter into a direct contract with a general
contractor mutually selected by Landlord and Tenant for the
initial improvements to the Expansion Space which are to be
performed in accordance with the plans dated 3-2, 1995 prepared
by Interprise, Inc. (the "Plans"). If the cost of such
improvements exceed the Expansion Improvement Allowance, then
prior to commencing any construction of improvements to the
Expansion Space, Landlord shall submit to Tenant a written
estimate setting forth the anticipated cost, including but not
limited to the cost of space planning, design and related
architectural and engineering services, labor and materials,
contractor's fees, and permit fees. Within a reasonable time
thereafter, Tenant shall either notify Landlord in writing of
its approval of the cost estimate or specify its objections
thereto and any desired changes to the proposed improvements. In
the event Tenant notifies Landlord of such objections and desired
changes, Tenant shall work with Landlord to reach a mutually
acceptable alternative cost estimate.
VII. EARLY ACCESS TO EXPANSION SPACE. During any period that Tenant
shall be permitted to enter the Expansion Space prior to the Expansion
Effective Date (e.g., to perform alterations or improvements), Tenant shall
comply with all terms and provisions of the Lease, except those provisions
requiring payment of Base Rental or Additional Base Rental as to the
Expansion Space. If Tenant takes possession of the Expansion Space prior to
the Expansion Effective Date for any reason whatsoever (other than the
performance of work in the Expansion Space with Landlord's prior approval),
such possession shall be subject to all the terms and conditions of the Lease
and this Amendment.
VIII. OTHER PERTINENT PROVISIONS. Landlord and Tenant agree that the Lease
shall be amended in the following additional respects:
A. PARKING. Effective as of the Expansion Effective Date,
Landlord shall provide to Tenant, with respect to the Expansion
Space, forty-one (41) parking Permits in the Building Garage. Of
said forty-one (41) Permits, seven (7) shall be reserved and
thirty-four (34) shall be unreserved.
B. RIGHT OF FIRST OFFER.
1. During the period commencing April 1, 1995 and ending March
31, 1998 (the "ROFO Period") Tenant shall have the right
to first offer (the "ROFO") with respect to approximately
6,069 rentable square feet located on the first (1st) floor
of the Building shown cross-hatched on the demising plan
attached hereto as Attachment #1 (the "Offering Space"). If
at any time during the ROFO Period, Landlord has a
prospective tenant (the "Prospect") interested in leasing the
Offering Space (or applicable portion thereof) Landlord shall
advise Tenant in substantially the same form set forth as
Attachment #2 attached hereto (the "Landlord Notice") of the
terms of which Landlord is prepared to lease the Offering
Space to Tenant, which terms shall reflect the prevailing
market rate for the Offering Space, as reasonable determined
by Landlord, and a tenant finish allowance then begin quoted
by Landlord for comparable space and lease term in the
Building. In the event that Tenant desires to lease the
Offering Space upon the terms set forth in Landlord's Notice,
Tenant shall notify Landlord (the "Tenant Notice") within
five (5) days after the date of such Notice, except that
Tenant shall have no such ROFO, and Landlord need not give
the Landlord Notice, if:
a. Tenant is in default under the Lease at the time Landlord
would otherwise deliver the Landlord Notice; or
2
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b. the Premises is sublet at the time Landlord would otherwise
deliver the Landlord Notice; or
c. the Lease has been assigned at the time Landlord would
otherwise deliver the Landlord notice; or
d. Tenant is not an occupant of the building under this Lease
at the time Landlord would otherwise deliver the Landlord
Notice; or
e. the Prospect is a tenant in the applicable Offering Space
at the time Lessor would otherwise deliver the Lessor Notice.
2. The ROFO shall be deemed exercised upon Landlord's receipt to
the Tenant Notice within the time period stated in subsection
VIII.B.1. hereof. If Tenant exercises the ROFO, Tenant shall
execute and deliver the Offering Amendment (hereinafter defined)
to Landlord within fifteen (15) days of the submission of such
Offering Amendment by Landlord to Tenant.
3. The Offering Space (including improvements and personalty, if
any) shall be accepted by Tenant in broom clean condition and its
as-built configuration existing, subject to a tenant finish
allowance pursuant to the Landlord Notice, on the earlier of the
date Tenant takes possession of the Offering Space or as of the
date the term for such Offering Space commences.
4. a. If Tenant is able to and properly exercises its ROFO,
Landlord shall prepare an amendment (the "Offering
Amendment") adding the Offering Space to the Premises on
the terms set forth in the Landlord Notice and reflecting
the changes in the Base Rental, Installments of Base Rental,
Rentable Area of the Premises, Tenant's proportionate share
of the operating expenses and other appropriate terms.
b. A copy of the Offering Amendment shall be (i) sent to Tenant
within a reasonable time after receipt of the Tenant Notice,
and (ii) executed by Tenant and returned to Landlord in
accordance with subsection VIII.B.2. hereof.
5. If Landlord is not required to give Tenant a Landlord Notice due
to a violation by Tenant of one or more of the conditions set
forth in subsection VIII.B.1.a. through VIII.B.1.e. above,
Landlord may lease the Offering Space for which Landlord has
Prospect or any other prospective tenant on whatever terms
Landlord elects.
6. Landlord and Tenant agree that if Tenant notifies Landlord on or
before June 30, 1995 of its desire to lease the Offering Space,
Landlord shall lease said Offering Space to Tenant on the same
terms and conditions as the Expansion Space, except that the
construction allowance to which Tenant shall be entitled for the
improvements to the Offering Space shall be equal to $10.50 per
rentable square foot of the Offering Space multiplied by a
fraction, the numerator of which is the number of months
remaining in the Lease Term from and after the commencement date
for the Offering Space and the denominator of which is 36.
C. LIMITATION Of LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR
LANDLORD HEREUNDER) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD
IN THE BUILDING, AND TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST
IN THE BUILDING FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST THE
LANDLORD, IT BEING INTENDED THAT LANDLORD SHALL NOT BE PERSONALLY LIABLE
FOR ANY JUDGMENT OR DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO
THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT
SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS BEEN NOTIFIED HOLD
MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR PREMISES
NOTICE AND REASONABLE TIME TO CURES SUCH ALLEGED DEFAULT BY LANDLORD. IN
ADDITION, TENANT ACKNOWLEDGES THAT EQUITY OFFICE PROPERTIES, INC. IS ACTING
SOLELY IN ITS CAPACITY AS AGENT FOR LANDLORD AND SHALL NOT BE LIABLE FOR
ANY OBLIGATIONS, LIABILITIES, LOSSES OR DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THIS LEASE, ALL OF WHICH ARE EXPRESSLY WAIVED BY TENANT.
3
<PAGE>
IX. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the parties
with respect to the matters set forth herein. There have been no additional
oral or written representations or agreements.
B. Except as herein modified or amended, the provisions, conditions
and terms of the Lease shall remain unchanged and in full force and effect.
C. In the case of any inconsistency between the provisions of the Lease
and this Amendment, the provisions of this Amendment shall govern and
control.
D. Submission of this Amendment by Landlord is not an offer to enter into
this Amendment but rather is a solicitation for such an offer by Tenant.
Landlord shall not be bound by this Amendment until Landlord has executed
and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such capitalized
terms are defined therein and not redefined in this Amendment.
F. This Amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below shall
agree that their guarantee shall apply to the Lease as amended herein,
unless such requirement is waived by Landlord in writing.
G. Tenant hereby represents to Landlord that Tenant has dealt with no
broker other than Mark D. Jordan in connection with this Amendment.
Tenant agrees to indemnify and hold Landlord and the Landlord Related
Parties harmless from all claims of any brokers claiming to have
represented Tenant in connection with this Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Amendment as of the day and year first above written.
ATTESTATION: LANDLORD: ZML - North Central Plaza Three
Limited Partnership
BY: EQUITY OFFICE PROPERTIES, INC.,
as agent
By: /s/ RANDAL BESSOLO
--------------------------------------
/s/ Pat Washington Name: RANDAL BESSOLO
- --------------------- ------------------------------------
3/10/95 Title: VP-ASSET MANAGEMENT
- --------------------- -----------------------------------
TENANT: The Management Alliance Corporation
a Texas corporation
By: /s/ GARY K. STEEDS, PRESIDENT
--------------------------------------
- --------------------- Name: GARY K. STEEDS
------------------------------------
- --------------------- Title: PRESIDENT
-----------------------------------
GUARANTOR: Diversified Human Resources
Group, Inc. a Texas corporation
By: /s/ M. TED DILLARD C.F.O.
--------------------------------------
- --------------------- Name: M. Ted Dillard
------------------------------------
- --------------------- Title: C.F.O.
-----------------------------------
4
<PAGE>
EXHIBIT A
OUTLINE AND LOCATION OF PREMISES
[MAP]
NORTH CENTRAL PLAZA THREE
<PAGE>
Attachment #1
OUTLINE AND LOCATION OFFERING SPACE
[MAP]
<PAGE>
Attachment #2
RIGHT OF FIRST OFFER - NOTICE
TO: DATE:
COPY TO:
ADVICE
RE: Lease (the "Lease") dated December 19, 1994 by and between Equity
Office Properties, Inc. as agent, and The Management Alliance
Corporation for space in the Building located at 12801 North Central
Expressway, Dallas, Texas.
Pursuant to the terms of the Lease, Tenant is hereby notified that ___________
square feet on the first (1st) floor of the Building (as shown cross-hatched on
the demising plan attached hereto as Exhibit 1) will be available for lease
under the following conditions:
1. BASE RENT: 4. EXPENSE ESCALATION:
a. total: 5. TAX ESCALATION:
b. monthly: 6. SECURITY DEPOSIT:
2. TERM: 7. RENT CREDITS:
a. commencement date: 8. CONSTRUCTION:
b. expiration date:
3. CPI OR OTHER FINANCIAL ESCALATION:
Accordingly, under the terms of the Lease, Tenant has five (5) days after the
date of this Advice as stated in Section VIII.B, of the First Amendment to the
Lease to exercise its right of first offer on approximately ________ rentable
square feet, the Offering Space.
EQUITY OFFICE PROPERTIES, INC., as
agent
BY:
-------------------------------------
Dennis M. Barnes
Area Leasing Representative
NOTICE OF EXERCISE
Tenant hereby accepts the above tender of the space (as shown on the demising
plan attached hereto as Exhibit 1) and exercises its right to lease such
space. This acceptance and exercise shall authorize Equity Office Properties,
Inc., to forthwith prepare an amendment in accordance with Section VIII.B. of
the First Amendment to the Lease for execution by Tenant.
TENANT: The Management Alliance Corporation
DATED: ___________ BY:
-------------------------------------
ITS: -----------------------------------
REJECTION:
Tenant hereby acknowledges the above tender of the space (as shown on the
demising plan attached hereto as Exhibit 1) and hereby declines to lease said
space.
TENANT: The Management Alliance Corporation
DATED: ___________ BY:
-------------------------------------
1
<PAGE>
SECOND AMENDMENT
This Second Amendment (the "Amendment") is made and entered into as of
the 22nd day of February, 1995, by and between ZML - North Central Plaza
Three Limited Partnership ("Landlord") by its agent, Equity Office Properties,
Inc., and The Management Alliance Corporation, a Texas corporation ("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the
nineteenth (19th) day of December, 1994 which originally contained 4,276
rentable square feet of space described as Suite Nos. 220 and 1170 on the
second (2nd) and eleventh (11th) floors (the "Original Premises") of the
building commonly known as North Central Plaza Three and the address of which
is 12801 North Central Expressway, Dallas, Texas (the "Building"), which lease
has been previously amended by the First Amendment dated February 20, 1995
which expanded the Original Premises to 18,011 rentable square feet on the
second (2nd), fourth (4th) and eleventh (11th) floors in the Building (the
"Premises") (collectively the "Lease");
B. WHEREAS, the Lease by its terms shall expire on March 31, 1998 ("Prior
Termination Date"), and the parties desire to extend the Lease, all on the terms
and conditions herein after set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. EXTENSION. The Lease Term is hereby modified from three (3) years
three (3) months and zero (0) days expiring on March 31, 1998 ("Prior
Termination Date") to three (3) years four (4) months and zero (0) days
expiring on April 30, 1998 ("Extended Termination Date"), unless sooner
terminated in accordance with the terms of the Lease.
II. MONTHLY BASE RENTAL.
A. As of the date hereof, the schedule of monthly installments of Base
Rental with respect to the Original Premises contained in Exhibit
B-1 to the Lease is deleted and the following is substituted
therefor;
Tenant shall pay Landlord the sum of one hundred ninety-three
thousand four hundred seventy-three and 20/100 Dollars ($193,473.20)
as Base Rental for the Lease Term in forty (40) monthly installment
as follows:
(i). Forty (40) monthly installment of $4,836.83 payable on or
before the first day of each month during the period beginning
January 1, 1995 and ending April 30, 1998.
B. Tenant shall pay Base Rental, Additional Base Rental and other
charges under the Lease with respect to the Expansion Space (as
defined in the First Amendment) in accordance with the First
Amendment.
All such Base Rental shall be payable by Tenant in accordance with
the terms of Article V of the Lease.
III. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There have
been no additional oral or written representations or agreements.
B. Except as herein modified or amended, the provisions, conditions
and terms of the Lease shall remain unchanged and in full force and
effect.
C. In the case of any inconsistency between the provisions of the
Lease and this Amendment, the provisions of this Amendment shall
govern and control.
D. Submission of this Amendment by Landlord is not an offer to
enter into this Amendment but rather is a solicitation for such an
offer by Tenant. Landlord shall not be bound by this Amendment until
Landlord has executed and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such
capitalized terms are defined therein and not redefined in this
Amendment.
<PAGE>
F. This Amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below shall
agree that their guarantee shall apply to the Lease as amended
herein, unless such requirement is waived by Landlord in writing.
G. Tenant hereby represents to Landlord that Tenant has dealt with
no broker other than Mark D. Jordan in connection with this
Amendment. Tenant agrees to indemnify and hold Landlord and the
Landlord Related Parties harmless from all claims of any brokers
claiming to have represented Tenant in connection with this
Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
as of the day and year first above written.
ATTESTATION: LANDLORD: ZML - North Central Plaza Three
Limited Partnership
BY: EQUITY OFFICE PROPERTIES, INC.,
as Agent
/s/ Pat Washington By: /s/ Randal Bessolo
- --------------------- -----------------------------------------------
3/10/95 Name: RANDAL BESSOLO
- --------------------- ---------------------------------------------
Title: VP-ASSET MANAGEMENT
--------------------------------------------
TENANT: The Management Alliance Corporation
a Texas corporation
By: /s/ Gary K. Steeds, Pres.
- --------------------- -----------------------------------------------
Name: Gary K. Steeds
- --------------------- ---------------------------------------------
Title: Pres.
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GUARANTOR: Diversified Human Resources Group, Inc.
a Texas corporation
By: /s/ M. Ted Dillard, C.F.O.
- --------------------- -----------------------------------------------
Name: M. Ted Dillard
- --------------------- ---------------------------------------------
Title: C.F.O.
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<PAGE>
THIRD AMENDMENT
This Third Amendment (the "Amendment") is made and entered into as of
the 3rd day of November, 1995, by and between ZML - North Central Plaza Three
Limited Partnership ("Landlord") by its agent, Equity Office Holdings, L.L.C.,
and The Management Alliance Corporation, a Texas corporation ("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the
nineteenth (19th) day of December, 1994 currently containing approximately
18,011 rentable square feet of space described as Suite Nos. 220, 400 and
1170 on the second (2nd), fourth (4th) and eleventh (11th) floors ("Original
Premises and Expansion Space") of the building commonly known as North
Central Plaza Three and the address of which is 12801 North Central
Expressway, Dallas, Texas (the "Building"), which lease has been previously
amended or assigned by instruments dated February 20, 1995 and February 22,
1995 (collectively, the "Lease"); and
B. WHEREAS, Tenant has requested that additional space consisting of
approximately 13,373 rentable square feet on the third (3rd) floor of the
Building shown on Exhibit A (the "Second Expansion Space") and 10,216
rentable square feet on the second (2nd) floor of the Building shown on
Exhibit B (the "Third Expansion Space") be added to the Premises and that the
Lease be appropriately amended (the Original Premises and Expansion Space are
sometimes collectively referred to as the "Premises"), and Landlord is
willing to do the same on the terms and conditions set forth below;
C. WHEREAS, the Lease by its terms shall expire on April 30, 1998, the
Extended Termination Date, and the parties desire to extend the Lease, all on
the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. ORIGINAL PREMISES AND EXPANSION SPACE.
A. EXTENSION OF ORIGINAL PREMISES AND EXPANSION SPACE. The Lease
Term is hereby modified from three (3) years, four (4) months,
and zero (0) days expiring on April 30, 1998, the Extended
Termination Date, to eight (8) years, zero (0) months, and
zero (0) days expiring on December 31, 2002 ("Second Extended
Termination Date"), unless sooner terminated in accordance with
the terms of the Lease. That portion of the Lease Term commencing
the day immediately following the Extended Termination Date (the
"Second Extension Date") and ending on the Second Extended
Termination Date shall be referred to herein as the "Second
Extended Lease Term".
B. MONTHLY BASE RENTAL FOR ORIGINAL PREMISES AND EXPANSION SPACE.
1. ORIGINAL PREMISES AND EXPANSION SPACE THROUGH EXTENDED
TERMINATION DATE. The Base Rental, Additional Base Rental
and all other charges under the Lease shall be payable as
provided therein with respect to the Original Premises and
Expansion Space through and including the Extended
Termination Date.
2. ORIGINAL PREMISES AND EXPANSION SPACE FROM AND AFTER SECOND
EXTENSION DATE. As of the Second Extension Date, the schedule
of monthly installments of Base Rental payable with respect
to the Original Premises and the Expansion Space for the
Second Extended Lease Term is the following:
Tenant shall pay Landlord the sum of one million two hundred
ninety-two thousand two hundred eighty-nine and 32/100
Dollars ($1,292,289.32) as Base Rental for the Original
Premises and Expansion Space for the Second Extended Lease
Term in fifty-six (56) monthly installments as follows:
Twenty (20) equal installments of $21,388.06 each payable on
or before the first day of each month during the period
beginning May 1, 1998 and ending December 31, 1999.
Thirty-six (36) equal installments of $24,014.67 each payable
on or before the first day of each month during the period
beginning January 1, 2000 and ending December 31, 2002.
<PAGE>
All such Base Rental shall be payable by Tenant in accordance
with the terms of Article V. of the Lease.
II. SECOND EXPANSION SPACE.
A. Effective as of the Second Expansion Effective Date (as
hereinafter defined), the Premises is increased from 18,011
rentable square feet on the second (2nd), fourth (4th) and
eleventh (11th) floors to 31,384 rentable square feet on the
second (2nd), third (3rd), fourth (4th) and eleventh (11th)
floor by the addition of the Second Expansion Space. The lease
term for the Second Expansion Space shall commence on the
Second Expansion Effective Date (as hereinafter defined) and
end on the Second Extended Termination Date. The Second
Expansion Space is subject to all the terms and conditions of
the Lease except as expressly modified herein and except that
Tenant shall not be entitled to receive any allowances,
abatements or other financial concessions granted with respect
to the Premises unless such concessions are expressly provided
for herein with respect to the Second Expansion Space.
Notwithstanding the foregoing, if Tenant, with Landlord's
prior approval, takes possession of all or any portion of the
Second Expansion Space prior to the Second Expansion Effective
Date for the purposes of conducting business therein in the
normal course, such possession shall be subject to all of the
terms and conditions of the Lease, except that Tenant shall
not be required to pay Base Rental or Additional Base Rental
with respect to the period of time prior to the Second
Expansion Effective Date.
B. The Second Expansion Effective Date shall be JANUARY 1, 1996.
C. MONTHLY BASE RENTAL FOR SECOND EXPANSION SPACE.
1. SECOND EXPANSION SPACE FROM SECOND EXPANSION EFFECTIVE DATE
THROUGH SECOND EXTENDED TERMINATION DATE. As of the Second
Expansion Effective Date, the schedule of monthly
installments of Base Rental payable with respect to the
Second Expansion Space for the balance of the Lease Term and
the Second Extended Lease Term is the following:
Tenant shall pay Landlord the sum of one million three
hundred eighty-five thousand nine hundred seventy-seven
and 80/100 Dollars ($1,385,977.80) as Base Rental for the
Second Extended Term in eighty-four (84) monthly
installments as follows:
Twenty-four (24) equal installments of $15,122.63 each
payable on or before the first day of each month during
the period beginning January 1, 1996 and ending December
31, 1997.
Twenty-four (24) equal installments of $15,880.44 each
payable on or before the first day of each month during
the period beginning January 1, 1998 and ending December
31, 1999.
Thirty-six (36) equal installments of $17,830.67 each
payable on or before the first day of each month during
the period beginning January 1, 2000 and ending December
31, 2002.
All such Base Rental shall be payable by Tenant in
accordance with the terms of Article V. of the Lease.
D. ADDITIONAL SECURITY DEPOSIT. Upon Tenant's execution hereof,
Tenant shall pay $15,122.63 to Landlord and shall be added to and
become part of the Security Deposit held by Landlord as
provided under the Lease as security for payment of Rent and
the performance of other terms and conditions of the Lease by
Tenant. Accordingly, simultaneous with the execution hereof,
the Security Deposit is increased from $20,231.48 to
$35,354.11.
E. TENANT'S PRO RATA SHARE. For the period commencing with the
Second Expansion Effective Date and ending on the Second
Extended Termination Date, Tenant's Pro Rata Share with
respect to the Second Expansion Space is three and nine tenths
percent (3.9%).
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<PAGE>
F. BASE YEAR. For the period commencing with the Second Expansion
Effective Date and ending on the Second Extended Termination
Date, the Base Year for the computation of Tenant's Pro Rata
Share of Basic Costs applicable to the Second Expansion Space
shall be in accordance with Exhibit B-2 of the Lease.
G. IMPROVEMENTS TO SECOND EXPANSION SPACE.
1. Tenant has inspected the Second Expansion Space and agrees to
accept the same "as is" without any agreements, representations,
understandings or obligations on the part of Landlord to perform
any alterations, repairs or improvements, except as may be
expressly provided otherwise in this Amendment.
H. COST OF IMPROVEMENTS TO SECOND EXPANSION SPACE. Provided Tenant
is not in default, Tenant shall be entitled to receive an
improvement allowance (the "Second Expansion Improvement
Allowance") in an amount not to exceed one hundred six
thousand and no/100 Dollars ($106,000.00) to be applied toward
the cost of performing initial construction, alteration or
improvement of the Second Expansion Space, including but not
limited to the cost of space planning, design and related
architectural and engineering services. In the event the total
cost of the initial improvements to the Second Expansion Space
exceeds the Second Expansion Improvement Allowance, Tenant
shall pay for such excess upon demand. The entire unused
balance of the Second Expansion Improvement Allowance, if any,
shall accrue to the sole benefit of Landlord. Landlord shall
pay such Second Expansion Improvement Allowance directly to
the contractors retained to perform the construction, design
or related improvement work to the Second Expansion Space.
I. RESPONSIBILITY FOR IMPROVEMENTS TO SECOND EXPANSION SPACE.
(i) Work Performed By or On Behalf of Landlord Pursuant to Plans
Yet to be Prepared.
Landlord shall enter into a direct contract for the initial
improvements to the Second Expansion Space with a general
contractor selected by Tenant, subject to Landlord's
reasonable approval. Tenant shall devote such time in
consultation with Landlord or Landlord's architect as may be
required to provide all information Landlord deems necessary
in order to enable Landlord to complete, and obtain Tenant's
written approval of, the plans for the initial improvements to
the Second Expansion Space in a timely manner. All plans for
the initial improvements to the Second Expansion Space shall
be subject to Landlord's consent, which consent shall not be
unreasonably withheld. If the cost of such improvements
exceeds the Second Expansion Improvement Allowance, then prior
to commencing any construction of improvements to the Second
Expansion Space, Landlord shall submit to Tenant a written
estimate setting forth the anticipated cost, including but not
limited to the cost of space planning, design and related
architectural and engineering services, labor and materials,
contractor's fees, and permit fees. Within a reasonable time
thereafter, Tenant shall either notify Landlord in writing of
its approval of the cost estimate or specify its objections
thereto and any desired changes to the proposed improvements.
In the event Tenant notifies Landlord of such objections and
desired changes, Tenant shall work with Landlord to reach a
mutually acceptable alternative cost estimate. Landlord
agrees to use reasonable efforts to commence construction of
the initial improvements to the Second Expansion Space as soon
as reasonably practicable, which Landlord reasonably
anticipates to be approximately October 1, 1995 as to 4,874
rentable square feet of the Second Expansion Space and
approximately December 4, 1995 as to 8,499 rentable square
feet of the Second Expansion Space.
J. PARKING. Effective as of the Second Expansion Effective Date,
Landlord shall provide to Tenant, with respect to the Second
Expansion Space, forty (40) parking Permits in the Building
Garage. Of said forty (40) Permits, seven (7) shall be
reserved and thirty-three (33) shall be unreserved. Landlord,
subject to availability. shall lease to Tenant on a
month-to-month basis, additional unreserved Permits at $25.00
per space, per month (plus applicable tax).
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<PAGE>
III. THIRD EXPANSION SPACE.
A. Effective as of the Third Expansion Effective Date (as
hereinafter defined), the Premises is increased from 31,384
rentable square feet on the second (2nd), third (3rd), fourth
(4th) and eleventh (11th) floors to 41,600 rentable square feet
on the second (2nd), third (3rd), fourth (4th) and eleventh (11th)
floors by the addition of the Third Expansion Space. The lease
term for the Third Expansion Space shall commence on the Third
Expansion Effective Date and end on the Second Extended
Termination Date. The Third Expansion Space is subject to all the
terms and conditions of the Lease except as expressly modified
herein and except that Tenant shall not be entitled to receive
any allowances, abatements or other financial concessions granted
with respect to the Premises unless such concessions are
expressly provided for herein with respect to the Third Expansion
Space.
B. The Third Expansion Effective Date shall be APRIL 1, 1998.
C. MONTHLY BASE RENTAL FOR THIRD EXPANSION SPACE.
1. THIRD EXPANSION SPACE AS OF, FROM AND AFTER THE THIRD
EXPANSION EFFECTIVE DATE THROUGH SECOND EXTENDED
TERMINATION DATE. As of the Third Expansion Effective
Date, the schedule of monthly installments of Base Rental
payable with respect to the Third Expansion Space for the
balance of the Lease Term and the Second Extended Lease
Term is the following:
Tenant shall pay Landlord the sum of seven hundred
forty-five thousand one hundred twenty-nine and 38/100
Dollars ($745,129.38) as Base Rental for the Third
Extended Term in fifty-seven (57) monthly installments as
follows:
Twenty-one (21) equal installments of $12,131.50, each
payable on or before the first day of each month during
the period beginning April 1, 1998 and ending December 31,
1999.
Thirty-six (36) equal installments of $13,621.33 each
payable on or before the first day of each month during
the period beginning January 1, 2000 and ending December
31, 2002.
All such Base Rental shall be payable by Tenant in
accordance with the terms of Article V. of the Lease.
D. ADDITIONAL SECURITY DEPOSIT. Intentionally omitted.
E. TENANT'S PRO RATA SHARE. For the period commencing with the Third
Expansion Effective Date and ending on the Second Extended
Termination Date, Tenant's Pro Rata Share with respect to the
Third Expansion Space is two and nine tenths percent (2.9%).
F. BASE YEAR. For the period commencing with the Third Expansion
Effective Date and ending on the Second Extended Termination
Date, the Base Year for the computation of Tenant's Pro Rata
Share of Basic Costs applicable to the Third Expansion Space
shall be in accordance with Exhibit B-2 of the Lease.
G. PARKING. Effective as of the Third Expansion Effective Date,
Landlord shall provide to Tenant, with respect to the Third
Expansion Space, thirty-one (31) parking Permits in the
Building Garage. Of said thirty-one (31) Permits, five(5)
shall be reserved and twenty-six (26) shall be unreserved.
Landlord, subject to availability, shall lease to Tenant on a
month-to-month basis, additional unreserved Permits at $25.00
per space, per month (plus applicable tax).
IV. SIGNAGE.
A. If and only if Tenant notifies Landlord of Tenant's request
therefor on or before December 31, 1997 ("Request Notice"),
Landlord, at Tenant's expense, may, in Landlord's sole and
absolute discretion, elect to erect one (1) sign identifying
Tenant (the "Sign") on the east or west side of the penthouse
level of the roof of the Building, the exact
4
<PAGE>
location of which Sign shall be determined in Landlord's
reasonable judgment. Simultaneous with serving the Request
Notice, Tenant shall submit to Landlord copies of Tenant's
current financial statements for Landlord's review. Tenant shall
only be entitled to serve the Request Notice on Landlord if each
and every one of the following conditions his been satisfied and
continues to be true as of December 31, 1997:
(a) Tenant is the tenant of the Building who leases and
occupies more space than any other single tenant of the
Building; and
(b) Tenant is not in default of the Lease beyond any
applicable cure period; and
(c) Tenant has neither assigned the Lease nor subleased all or
any portion of the Premises other than a Corporate
Transfer; and
(d) in addition to the Original Premises, Expansion Space,
Second Expansion and Third Expansion Space leased by
Tenant pursuant to the Lease as amended by, among other
documents, this Third Amendment, Tenant shall lease and
be in occupancy of an additional 13,140 rentable square
feet in the Building; and Tenant specifically acknowledges
and agrees that Landlord has made and is making no
representations to Tenant of the availability of such
amount of space for lease on or before December 31, 1997;
(e) Tenant, in the Request Notice, elects one of the following
two (2) alternatives:
(i) to reimburse Landlord within ten (10) days of demand
the actual costs incurred by Landlord in obtaining
the relinquishment and removal of the Snelling and
Snelling Building rooftop signage right
("Relinquishment Costs"); or
(ii) to increase Tenant's Monthly Base Rental by an amount
equal to the amount necessary to reimburse Landlord
the Relinquishment Costs amortized at thirteen
percent (13%) over the Term remaining prior to the
Second Extended Termination Date.
B. If and only if each and every one of the foregoing conditions has
been satisfied and continues to be true and Landlord has decided
in its sole and absolute discretion to install the Sign, then
Landlord and Tenant shall work together in good faith towards
installation of the Sign on or about July 1, 1998. Within a
reasonable time after the determination by Landlord of Tenant's
entitlement to and Landlord's willingness to erect the Sign,
Tenant shall submit detailed drawings of its proposed Sign to
Landlord for its review and approval. Such drawings shall include,
without limitation, detailed information concerning the size,
material, shape, color, lettering, type and manner of
illumination, if any, and method of installation of the proposed
Sign. Landlord and Tenant and their respective architects shall
work together in good faith to agree upon a final design for the
Sign, provided that Landlord's architect shall have the right to
make the final determination if the parties cannot agree upon
final design specifications. Notwithstanding any thing herein to
the contrary, Tenant hereby acknowledges that Landlord's
obligation to install the Sign shall be subject to Tenant's
ability to obtain all necessary permits and approvals from the
City of Dallas.
Landlord, upon the expiration date or sooner termination of this
Lease, shall have the right to remove the Sign at Tenant's sole
cost and expense. In addition, Landlord, at Tenant's sole cost and
expense, shall have the right to remove the sign if, at any time
during the Lease Term (1) Tenant assigns this Lease except for an
amount up to ten percent (10%) of the outstanding square feet, (2)
Tenant sublets all or any portion of the Premises except for an amount
up to ten percent (10%) of the outstanding square feet, (3) Tenant
ceases to occupy 100% of the Premises except for an amount up to ten
percent (10%) of the outstanding square feet, or (4) Tenant defaults
under any term or condition of the Lease and fails to cure such
default within any applicable grace period.
C. If an only if each of five (5) foregoing conditions has been
satisfied and continues to be true, Tenant has timely served the
Request Notice, and Landlord in its sole and absolute discretion
has decided not to install the Sign, Tenant shall the right to
accelerate the Second Extended Termination Date ("Signage
Acceleration Option") of the Lease from December 31, 2002 to
December 31, 1999 (the "Signage Accelerated Expiration Date"), if:
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<PAGE>
(i) Landlord receives notice of acceleration ("Signage
Acceleration Notice") not less than thirty (30) days
following receipt by Tenant of Landlord's decision not to
install the sign; and
(ii) Tenant, on or before September 15, 1999, pays Landlord the
unamortized portion calculated at thirteen percent (13%) of
$106,000.00 leasehold improvement allowance, $50,000.00
relocation allowance, (the "Signage Acceleration Fee") as a
fee in connection with the acceleration of the Termination
Date and not as a penalty, provided that the Signage
Acceleration Fee shall be increased by an amount equal to the
unamortized portion of any concessions, commissions,
allowances or other expenses incurred by Landlord in
connection with any additional space leased by Tenant that is
subject to Acceleration hereunder.
If Tenant exercises its Signage Acceleration Option, Tenant shall
remain liable for all Base Rental, Additional Base Rental and other sums
due under the Lease up to and including the Signage Accelerated
Expiration Date even though billings for such may occur subsequent to the
Signage Accelerated Expiration Date.
V. RIGHT OF FIRST OFFER.
1. Tenant shall have the right of first offer (the "ROFO") with respect
to approximately 1,682 square feet (Suite 270) and 2,327 square feet
(Suite 280) on the second (2nd) floor of the Building and 3,062
square feet (Suite 510) on the fifth (5th) floor of the Building as
shown cross-hatched on the demising plans attached hereto as
Attachments #1 and #2 (the "Offering Space"). If at any time during
the ROFO Period, Landlord has a prospective tenant (the "Prospect")
interested in leasing the Offering Space (or applicable portion
thereof) Landlord shall advise Tenant in substantially the same form
set forth as Attachment #3 attached hereto (the "Landlord Notice")
of the terms of which Landlord is prepared to lease the Offering
Space to Tenant, which terms shall reflect the prevailing market
rate for the Offering Space, as reasonably determined by Landlord,
and a tenant finish allowance then being quoted by Landlord for
comparable space and lease term in the Building. In the event that
Tenant desires to lease the Offering Space upon the terms set forth
in Landlord's Notice, Tenant shall notify Landlord (the "Tenant
Notice") WITHIN FIVE (5) days after the date as such Notice, except
that Tenant shall have no such ROFO, and Landlord need not give the
Landlord Notice, if:
(a) Tenant is in default under the Lease at the time Landlord
would otherwise deliver the Landlord Notice; or
(b) the Premises is sublet at the time Landlord would otherwise
deliver the Landlord Notice, other than a Corporate Transfer; or
(c) the Lease has been assigned at the time Landlord would
otherwise deliver the Landlord Notice, other than a Corporate
Transfer; or
(d) Tenant is not an occupant of the Building under this Lease at
the time Landlord would otherwise deliver the Landlord Notice;
or
2. The ROFO shall be deemed exercised upon Landlord's receipt to the
Tenant Notice within the time period stated is subsection V.B.1.
hereof. If Tenant exercised the ROFO, Tenant shall execute and
deliver the Offering Amendment (hereinafter defined) to Landlord
within fifteen (15) days of the submission of such Offering
Amendment by Landlord to Tenant.
3. The Offering Space (including improvements and personalty, if any)
shall be accepted by Tenant in broom clean condition and its
as-built configuration existing, subject to a tenant finish
allowance pursuant to the Landlord Notice, on the earlier of the
date Tenant takes possession of the Offering Space or as of the date
the term for such Offering Space commences.
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<PAGE>
4. a. If Tenant is able to and properly exercises its ROFO, Landlord
shall prepare an amendment (the "Offering Amendment") adding
the Offering Space to the Premises on the terms set forth in
the Landlord Notice and reflecting the changes in the Base
Rental, installments of Base Rental, Rentable Area of the
Premise, Tenant's proportionate share for the operating
expenses and other appropriate terms.
b. A copy of the Offering Amendment shall be (i) sent to Tenant
within a reasonable time after receipt of the Tenant Notice,
and (ii) executed by Tenant and returned to Landlord in
accordance with subsection V.B.2. hereof.
5. If Landlord is not required to give Tenant a Landlord Notice due to
a violation by Tenant of one, or more of the conditions set forth in
subjection V.B.1.a. through V.B.1.b. above, Landlord may lease the
offering Space for which Landlord has Prospect or any other
prospective tenant on whatever terms Landlord elects.
VI. RELOCATION ALLOWANCE. Provided Tenant is not in default, Tenant shall be
entitled to receive an allowance (the "Relocation Allowance") in an
amount of FIFTY THOUSAND AND NO/100 Dollars ($50,000.90) to be applied
toward Tenant's relocation costs and lease termination costs at
Providence Towers, Dallas, Texas. Landlord shall pay Tenant the
Relocation Allowance within thirty (30) days of THE EXECUTION AND
DELIVERY BY THE PARTIES OF THIS AMENDMENT.
VII. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the parties
with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements. Under no
circumstances shall Tenant be entitled to any Rent abatement, improvement
allowance, leasehold improvements, or other work to the Premises, or any
similar economic incentives that may have been provided Tenant in
connection with entering into the Lease, unless specifically set forth in
this Amendment.
B. Except as herein modified or amended, the provisions, conditions and
terms of the Lease shall remain unchanged and in full force and effect.
C. In the case of any inconsistency between the provisions of the Lease
and this Amendment, the provisions of this Amendment shall govern and
control. Under no circumstances shall this Amendment be deemed to grant
Tenant any further right to expand the Premises or extend the Lease,
provided, however, any such additional rights specifically provided
Tenant in the Lease are not hereby relinquished or waived.
D. Submission of this Amendment by Landlord is not an offer to enter
into this Amendment but rather is a solicitation for such an offer by
Tenant. Landlord shall not be bound by this Amendment until Landlord has
executed and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such capitalized
terms are defined therein and not redefined in this Amendment.
F. This Amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below shall agree
that their guarantee shall apply to the Lease as amended herein, unless
such requirement is waived by Landlord in writing.
G. Tenant hereby represents to Landlord that Tenant has dealt with no
broker OTHER THAN MARK D. JORDAN in connection with this Amendment.
Tenant agrees to indemnify and hold Landlord and the Landlord Related
Parties harmless from all claims of any brokers claiming to have
represented Tenant in connection with this Amendment.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
as of the day and year first above written.
WITNESSES LANDLORD: ZML - North Central Plaza Three
Limited Partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C.,
By: /s/ Randal Bessole
- ----------------------- -----------------------------------------
Name: Randal Bessole
- ----------------------- ---------------------------------------
Title: Vice President
---------------------------------------
TENANT: The Management Alliance Corporation,
a Texas corporation
/s/ Terri Weiss By: /s/ J. Michael Moore
- ----------------------- -----------------------------------------
Its: Sec. & Tres.
- ----------------------- ----------------------------------------
GUARANTOR: Diversified Human Resources
Group, Inc., a Texas corporation
/s/ Terri Weiss By: /s/ ???????????
- ----------------------- -----------------------------------------
Its: C.F.O.
- ----------------------- ----------------------------------------
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EXHIBIT A
[MAP]
<PAGE>
EXHIBIT B
[MAP]
<PAGE>
Attachment #1
OUTLINE AND LOCATION OF OFFERING SPACE
[MAP]
<PAGE>
Attachment #2
OUTLINE AND LOCATION OF OFFERING SPACE
[MAP]
<PAGE>
ATTACHMENT #3
RIGHT OF FIRST OFFER - NOTICE
TO: The Management Alliance Corporation DATE:
12801 North Central Expressway
Suite 260
Dallas, Texas 75243
NOTICE
RE: Lease (the "Lease") dated ______________ , _____ by and between Equity
Office Holdings, L.L.C. as agent, and The Management Alliance
Corporation for space in the Building located at 12801 North Central
Expressway, Dallas, Texas.
Pursuant to the tends of the Lease, Tenant is hereby notified that ____________
square feet on the _________ floor of the Building (as shown cross-hatched on
the demising plan attached hereto as Exhibit 1) will be available for lease
under the following conditions:
1. BASE RENT: 4. EXPENSE ESCALATION:
a. total: 5. TAX ESCALATION:
b. monthly: 6. SECURITY DEPOSIT:
2. TERM: 7. RENT CREDITS:
a. commencement date: 8. CONSTRUCTION:
b. expiration date:
3. CPI OR OTHER FINANCIAL ESCALATION:
Accordingly, under the terms of the Lease, Tenant has ______ days after the date
of this Notice as stated in Section ____ of Exhibit ____ of the Lease to
exercise its right of first offer on approximately __________ rentable square
feet, the Offering Space.
EQUITY OFFICE HOLDINGS, L.L.C., as agent
BY:
---------------------------------------
Dennis M. Barnes
Area Leasing Representative
NOTICE OF EXERCISE
Tenant hereby accepts the above tender of the space (as shown on the demising
plan attached hereto as Exhibit 1) and exercises its right to lease such space.
This acceptance and exercise shall authorize Equity Office Holdings, L.L.C. to
forthwith prepare an amendment in accordance with Exhibit ____ of the Lease for
execution by Tenant.
TENANT: The Management Alliance Corporation
DATED: BY:
----------------- ---------------------------------------
ITS:
--------------------------------------
REJECTION:
Tenant hereby acknowledges the above tender of the space (as shown on the
demising plan attached hereto as Exhibit 1) and hereby declines to lease said
space.
TENANT: The Management Alliance Corporation
DATED: BY:
----------------- ---------------------------------------
ITS:
--------------------------------------
<PAGE>
FOURTH AMENDMENT
This Fourth Amendment (the "Amendment") is made and entered into as of
the 24th day of October, 1996, by and between ZML - North Central Plaza Three
Limited Partnership, a Delaware limited partnership ("Landlord") by its
agent, Equity Office Holdings, L.L.C., a Delaware limited liability company
and Management Alliance Corporation, a Texas corporation Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the
19th day of December, 1994 currently containing approximately 41,600 rentable
square feet of space described as Suite Nos. 220, 350, 400, and 1170 on the
second (2nd), third (3rd), fourth (4th) and eleventh (11th) floors ("Original
Premises") of the building commonly known as North Central Plaza Three the
address of which is 12801 North Central Expressway, Dallas, Texas (the
"Building"), which lease has been previously amended by instruments dated
February 20, 1995, February 22, 1995, and November 3, 1995 collectively, the
"Lease"); and
B. WHEREAS, Tenant has requested that additional space consisting of
approximately 6,069 rentable square feet on the first (1st) floor of the
Building shown on Exhibit A attached hereto (the "Fourth Expansion Space") be
added to the Premises and that the Lease be appropriately amended, and
Landlord is willing to do the same on the terms and conditions hereinafter
set forth; and
C. WHEREAS, the Lease by its terms shall expire on January 31, 2003 ("Prior
Termination Date") and, the parties desire to extend the Lease, all on the
terms and conditions hereinafter set forth; and
D. WHEREAS, Space consisting of 4,043 rentable square feet on the first
(1st) floor of the Building shown on Exhibit B attached hereto (the "Must
Take Space") shall be added to the Premises and space consisting of
approximately 2,350 rentable square feet in the Building (the "Optional Must
Take Space") may be added to the Premises and that the Lease be appropriately
amended, and Landlord is willing to do the same on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. FOURTH EXPANSION SPACE.
A. Effective as of the Fourth Expansion Effective Date (as hereinafter
defined), the Premises is increased from 41,600 rentable square
feet on the second (2nd), third (3rd), fourth (4th) and eleventh
(11th) floors to 47,669 rentable square feet on the first (1st),
second (2nd), third (3rd), fourth (4th) and eleventh (11th) floors
by the addition of the Fourth Expansion Space. The Lease Term for
the Fourth Expansion Space shall commence on the Fourth Expansion
Effective Date and end on the Extended Termination Date
(hereinafter defined). The Fourth Expansion Space is subject to
all the terms and conditions of the Lease except as expressly
modified herein and except that Tenant shall not be entitled to
receive any allowances, abatement or other financial concession
granted with respect to the Premises unless such concessions are
expressly provided for herein with respect to the Fourth Expansion
Space.
During any period that Tenant shall be permitted to enter the
Fourth Expansion Space prior to the Fourth Expansion Effective Date
to perform alterations or improvements, Tenant shall comply with
all terms and provisions of the Lease, except those provisions
requiring payment of Base Rental or Additional Base Rental as to
the Fourth Expansion Space. If Tenant takes possession of the
Fourth Expansion Space prior to the Fourth Expansion Effective Date
for any reason whatsoever (other than the performance of work in
the Fourth Expansion Space with Landlord's prior approval), such
possession shall be subject to all the terms and conditions of the
Lease and this Amendment, and Tenant shall pay Base Rental and
Additional Base Rental as applicable to the Fourth Expansion Space
to Landlord on a per diem basis for each day of occupancy prior to
the Fourth Expansion Effective Date.
B. The Fourth Expansion Effective Date shall be DECEMBER 1, 1996.
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C. In addition to Tenant's obligation to pay Base Rental for the
Premises Tenant shall pay Landlord the sum of Five Hundred Fifty-
Five Thousand Nine Hundred Thirty-Five and 85/100 Dollars
($555,935.85) as Base Rental for the Fourth Expansion Space in
seventy-five (75) monthly installments as follows:
(i) Fifteen (15) equal installments of $6,863.03 (i.e. $13.57
per rentable square foot) each payable on or before the
first day of each month during the period beginning
December 1, 1996 and ending February 28, 1998.
(ii) Twenty-four (24) equal installments of $7,206.94 (i.e.
$14.25 per rentable square foot) each payable on or before
the first day of each month during the period beginning
March 1, 1998 and ending February 29, 2000.
(iii) Thirty-six (36) equal installments of $7,778.44 (i.e. $15.38
per rentable square foot) each payable on or before the
first day of each month during the period beginning March 1,
2000 and ending February 28, 2003.
All such Base Rental shall be payable by Tenant in accordance with
the terms of Article V. of the Lease.
D. Tenant shall, on or before FEBRUARY 1, 1997, pay $6,863.03 (the
"Additional Security Deposit") to Landlord which shall be added to
and become part of the Security Deposit held by Landlord as
provided under the Lease as security for payment of Rent and the
performance of other terms and conditions of the Lease by Tenant.
Notwithstanding the foregoing, Tenant OR THE Guarantor may provide
Landlord on or before January 31, 1997 its then current UNAUDITED
financial statement prepared in accordance with generally accepted
accounting principles for Landlord's review. If such financial
statement shows that Tenant's net worth as of December 31, 1996 is
at least $800,000.00, Tenant's obligation to provide the Additional
Security Deposit shall be waived. If audited statements during
calendar year 1997 reflect that the net worth requirement has been
met at December 31, 1996, then the Landlord will give back to
Tenant the Security Deposit of $6,863.03.
E. For the period commencing with the Fourth Expansion Effective Date
and ending on the Second Extended Termination Date, Tenant's Pro
Rata Share for the Fourth Expansion Space is one and seventy-five
hundredths percent (1.75%) and the Base Year for the computation of
Tenant's Pro Rata Share of Basic Costs applicable to the Fourth
Expansion Space shall be in accordance with Exhibit B-2 of the
Lease.
F. IMPROVEMENTS TO FOURTH EXPANSION SPACE. Tenant has inspected the
Fourth Expansion Space and agrees to accept the same "as is"
without any agreements, representations, understandings or
obligations on the part of Landlord to perform any alterations,
repairs or improvements, except as may be expressly provided
otherwise in this Amendment.
G. COST OF IMPROVEMENTS TO FOURTH EXPANSION SPACE. Provided Tenant is
not in default, Tenant shall be entitled to receive an improvement
allowance (the "Fourth Expansion Improvement Allowance") in an
amount not to exceed Seventy-Eight Thousand Eight Hundred Ninety-
Seven and No/100 Dollars ($78,897.00) to be applied toward the cost
of performing initial construction, alteration or improvement of
the Fourth Expansion Space, including but not limited to the cost
of space planning, design and related architectural and engineering
services (the "Fourth Expansion Space Improvements"). In the event
the total cost of the initial improvements to the Fourth Expansion
Space exceeds the Fourth Expansion Improvement Allowance, Tenant
shall pay for such excess upon demand. The entire unused balance of
the Fourth Expansion Improvement Allowance, if any, shall accrue to
the sole benefit of Landlord. Landlord shall pay such Fourth
Expansion Improvement Allowance directly to the contractors
retained to perform the construction, design or related improvement
work to the Fourth Expansion Space.
H. RESPONSIBILITY FOR IMPROVEMENTS TO FOURTH EXPANSION SPACE.
Landlord shall enter into a direct contract for the initial
improvements to the Fourth Expansion Space with a general
contractor selected by Tenant, subject to Landlord's reasonable
approval. Tenant shall devote such time in consultation with
Landlord or Landlord's architect as may be require provide all
information Landlord deems necessary in order to enable
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Landlord to complete, and obtain Tenant's written approval of, the
plans for the initial improvements to the Fourth Expansion Space in
a timely manner. All plans for the initial improvements to the
Fourth Expansion Space shall be subject to Landlord's consent,
which consent shall not be unreasonably withheld. If the cost of
such improvements exceeds the Fourth Expansion Improvement
Allowance, then prior to commencing any construction of
improvements to the Fourth Expansion Space, Landlord shall submit
to Tenant a written estimate setting forth the anticipated cost,
including but not limited to the cost of space planning, design and
related architectural and engineering services, labor and
materials, contractor's fees, and permit fees. Within a reasonable
time thereafter, Tenant shall either notify Landlord in writing of
its approval of the cost estimate or specify its objections thereto
and any desired changes to the proposed improvements. In the event
Tenant notifies Landlord of such objections and desired changes,
Tenant shall work with Landlord to reach a mutually acceptable
alternative cost estimate.
I. PARKING. Effective as of the Fourth Expansion Effective Date,
Landlord shall provide Tenant, with respect to the Fourth Expansion
Space, twenty-two (22) parking Permits in the Building Garage. Of
said twenty-two (22) Permits, three (3) Permits shall be reserved
and nineteen (19) Permits shall be unreserved. Landlord, subject to
availability, shall lease to Tenant on a month-to-month basis,
additional unreserved Permits at $25.00 per space, per month (plus
applicable tax).
II. EXTENSION. The Lease Term is hereby modified from expiring on the
Prior Termination Date to expiring on February 28, 2003 ("Extended
Termination Date"), unless sooner terminated in accordance with the
terms of the Lease. That portion of the Lease Term commencing the day
immediately following the Prior Termination Date ("Extension Date")
and ending on the Extended Termination Date shall be referred to herein
as the "Extended Term."
III. MONTHLY BASE RENTAL.
A. ORIGINAL PREMISES THROUGH PRIOR TERMINATION DATE. The Base
Rental, Additional Base Rental and all other charges under the
Lease shall be payable as provided therein with respect to the
Original Premises through and including the Prior Termination Date.
B. ORIGINAL PREMISES FROM AND AFTER EXTENSION DATE. As of the
Extension Date, the monthly installment of Base Rental payable with
respect to the Original Premises for the Extended Lease Term is one
(1) installment of $55,466.67 payable on or before February 1,
2003.
IV. BASE YEAR. For the period commencing with the Extension Date and
ending on the Extended Termination Date, Tenant shall pay for its Pro
Rata Share of Basic Costs applicable to the Original Premises in
accordance with the terms of Exhibit B-2 of the Lease.
V. MUST TAKE SPACE.
A. Tenant hereby leases from Landlord and Landlord hereby leases to
Tenant the 4,043 square feet of Rentable Area on the first (1st)
floor of the Building comprised of suites 150 and 180 and shown
on Exhibit B attached hereto (collectively referred to as the
"Must Take Space"). The Lease Term with respect to the Must Take
Space shall commence on the earlier to occur of (i) August 1, 1998,
and (ii) the date Landlord regains the legal right to possession of
suite 150 (the "Must Take Commencement Date"). In no event will the
Must Take Commencement Date be earlier than July 1, 1997.
B. The Must Take Space is leased by Tenant pursuant to all of the
terms and conditions of the Lease, except that the financial terms
and conditions (i.e. Base Rental, Additional Base Rental and any
improvement allowance) for the Must Take Space shall be as follows:
3
<PAGE>
1. Tenant shall pay Landlord the sum of Three Hundred Thirty-Eight
Thousand Three Hundred Forty-Five and 20/100 Dollars ($338,345.20)
as Base Rental for the Must Take Space in sixty-eight (68)
installments as follows:
a. Eight (8) installments of $4,571.96 payable on or before
July 1, 1997, calculated on the basis of $13.57 per square foot
of Rentable Area per annum for the period from July 1,1997 to
February 28, 1998; and
b. Twenty-four (24) installments of $4,801.06 payable on or
before February 1,1998, calculated on the basis of $14.25 per
square foot of Rentable Area per annum for the period from
March 1, 1998 to February 28, 2000; and
c. Thirty-Six (36) installment of $5,181.78 payable on or
before February 1, 2000, calculated on the basis of $15.38 per
square foot of Rentable Area per annum for the period from
March 1, 2000 to February 28, 2003.
The foregoing schedule is based on the assumption that the Lease
Term with respect to the Must Take Space commences on July 1, 1997
(the "Must Take Target Commencement Date"). If the Lease Term for
the Must Take Space does not commence on the Must Take Target
Commencement Date, the beginning and ending dates set forth above
with respect to the payment of any installment(s) of Base Rental
shall be appropriately adjusted on a per diem basis and set forth
in a Commencement Letter for the Must Take Space to be prepared by
Landlord. In the event that the Base Rental rate adjusts (up or
down) on any day other than the first day of the month, Base Rental
for the month in which such adjustment occurs shall be determined
based on the number of days in such month for which each particular
Base Rental rate is applicable.
2. Tenant shall pay Additional Base Rental (i.e. Basic Costs) for
the Must Take Space on the same terms and conditions set forth in
Exhibit B-2 of this Lease, provided that effective as of the Must
Take Commencement Date, Tenant's Pro Rata Share shall increase by
1.17% to account for the addition of the Must Take Space.
C. 1. IMPROVEMENTS TO MUST TAKE SPACE. Tenant has inspected the Must
Take Space and agrees to accept the same "as is" without any
agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or
improvements, except as may be expressly provided otherwise in this
Amendment.
2. COST OF IMPROVEMENTS TO MUST TAKE SPACE. Provided Tenant is
not in default, Tenant shall be entitled to receive an improvement
allowance (the "Must Take Improvement Allowance") in an amount not
to exceed Forty-Four Thousand Four Hundred Seventy-Three and No/100
Dollars ($44,473.00) to be applied toward the cost of performing
initial construction, alteration or improvement of the Must Take
Space, including but not limited to the cost of space planning,
design and related architectural and engineering services (the
"Must Take Space Improvements"). In the event the total cost of the
initial improvements to the Must Take Space exceeds the Must Take
Improvement Allowance, Tenant shall pay for such excess upon
demand. The entire unused balance of the Must Take Improvement
Allowance, if any, shall accrue to the sole benefit of Landlord.
Landlord shall pay such Must Take Improvement Allowance directly to
the contractors retained to perform the construction, design or
related improvement work to the Must Take Space.
3. RESPONSIBILITY FOR IMPROVEMENTS TO MUST TAKE SPACE.
Landlord shall enter into a direct contract for the initial
improvements to the Must Take Space with a general contractor
selected by Tenant, subject to Landlord's reasonable approval.
Tenant shall devote such time in consultation with Landlord or
Landlord's architect as may be required to provide all information
Landlord deems necessary in order to enable
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<PAGE>
Landlord to complete, and obtain Tenant's written approval of, the
plans for the initial improvements to the Must Take Space in a
timely manner. All plans for the initial improvements to the Must
Take Space shall be subject to Landlord's consent, which consent
shall not be unreasonably withheld. If the cost of such
improvements exceeds the Must Take Improvement Allowance, then
prior to commencing any construction of improvements to the Must
Take Space, Landlord shall submit to Tenant a written estimate
setting forth the anticipated cost, including but not limited to
the cost of space planning, design and related architectural and
engineering services, labor and materials, contractor's fees, and
permit fees. Within a reasonable time thereafter, Tenant shall
either notify Landlord in writing of its approval of the cost
estimate or specify its objections thereto and any desired changes
to the proposed improvements. In the event Tenant notifies
Landlord of such objections and desired changes, Tenant shall work
with Landlord to reach a mutually acceptable alternative cost
estimate.
III. OPTIONAL MUST TAKE SPACE.
A. Subject to the availability of the Optional Must Take Space
(hereinafter defined) as determined by Landlord in its sole
discretion, Tenant hereby leases from Landlord and Landlord hereby
leases to Tenant approximately 2,350 square feet of Rentable Area
(plus or minus up to 10% as determined by Landlord) of space, the
exact location of which shall be determined by Landlord anywhere
in the Building (the "Optional Must Take Space"). On or before
September 30, 1997 ("Optional Must Take Space Notice"), Landlord
shall advise Tenant of the location and the terms under which
Landlord will lease the Optional Must Take Space to Tenant.
Provided Landlord has given Tenant the Optional Must Take Space
Notice, the Lease Term with respect to the Optional Must Take Space
shall commence on January 1, 1998 (the "Optional Must Take
Commencement Date"). In the event Landlord fails to give Tenant the
Optional Must Take Space Notice by the date set forth above, Tenant
shall not be required to take the Optional Must Take Space and
Landlord shall have no further obligation to offer such space to
Tenant.
B. The Optional Must Take Space is leased by Tenant pursuant to all of
the terms and conditions of the Lease, except that the Base Rental
for the Optional Must Take Space shall be the greater of: a) the
Base Rental rate per square foot for the Fourth Expansion Space on
the date the term for the Optional Must Take Space commences; and
b) the prevailing market rate (as reasonably determined by
Landlord) per square foot for the Optional Must Take Space. If Base
Rental is based upon the rate per square foot for the Fourth
Expansion Space, the Base Rental rate for the Optional Must Take
Space shall increase at such times and in such amount as Base
Rental for the Fourth Expansion Space so that the Base Rental rate
per rentable square foot for the Optional Must Take Space shall
always be the same as the Base Rental rate per rentable square foot
for the Fourth Expansion Space. If Base Rental is based upon the
prevailing market rate, Base Rental shall increase, if at all, in
accordance with the increases assumed in the determination of the
prevailing market rate. Notwithstanding the foregoing, if the Base
Rental is based on the prevailing market rate, in no event shall
the Base Rental rate be greater than 110% of the Base Rental
payable for the Fourth Expansion Space. Tenant shall be entitled to
receive an improvement allowance for the Optional Must Take Space
in an amount determined as part of the prevailing market rate (as
reasonably determined by Landlord).
C. Subject to any improvement allowance provided to Tenant as part of
the prevailing market rate, Landlord shall have no obligation to
perform any demolition or improvement work in the Optional Must
Take Space, it being agreed that any improvements to such space
shall be performed by Tenant in accordance with the terms and
conditions of Section X.B. of the Lease. The term for the Optional
Must Take Space and, accordingly, Tenant's obligation to pay Rent
for such space, shall commence on the Optional Must Take Space
Commencement Date as described above regardless of whether Tenant
has completed the initial improvements with respect to the
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Optional Must Take Space. The Optional Must Take Space shall be
considered Premises, subject to all the terms and conditions of
this Lease, except that no allowances, credits, abatements or other
concessions (if any) set forth in this Lease for the initial
Premises shall apply to the Optional Must Take Space.
IV. OTHER PERTINENT PROVISIONS. Landlord and Tenant agree that the
Lease shall be in the following additional respects:
A. Effective as of the Fourth Expansion Effective Date, Article V.,
Right of First Offer, of the Third Amendment shall be deleted in
its entirety and of no further force or effect.
B. Effective as of the date of this Amendment, Subparagraph (a) of
Paragraph IV. A. of the Third Amendment to the Lease is deleted in
its entirety. Paragraph IV. A. of the Third Amendment to the Lease
is hereby amended by replacing the three (3) references to
"December 31, 1997" with "July 1, 1997" and replacing
Subparagraph (d) with the following:
"(d) Tenant is in occupancy of at least 47,669 rentable
square feet in the Building;"
Paragraph IV. B of the Third Amendment to Lease is hereby amended
by replacing the reference to "July 1, 1998" with "November 1,
1997." In addition, the second sentence of the second paragraph of
Paragraph IV. B shall be amended by adding the following at the end
of the sentence: or (5) Tenant ceases to occupy at least 47,669
rentable square feet of space in the Building", or (6) Tenant's OR
THE GUARANTOR'S net worth FOR June 30, 1997 as shown on Tenant's
then current financial statements prepared in accordance with
generally accepted accounting principles and submitted to Landlord
upon Landlord's request is less than $800,000.00, or at any time
thereafter, Tenant's net worth as shown on Tenant's or the
Guarantor's then current financial statements prepared in
accordance with generally accepted accounting principles and
submitted to Landlord from time to time upon Landlord's request is
less than $500,000.00.
V. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the parties
with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements.
B. Except as herein modified or amended, the provisions, conditions
and terms of the Lease shall remain unchanged and in full force
and effect.
C. In the case of any inconsistency between the provisions of the
Lease and this Amendment, the provisions of this Amendment shall
govern and control.
D. Submission of this Amendment by Landlord is not an offer to enter
into this Amendment but rather is a solicitation for such an offer
by Tenant. Landlord shall not be bound by this Amendment until
Landlord has executed and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such
capitalized terms are defined therein and not redefined in this
Amendment.
F. This Amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below shall
agree that their guarantee shall apply to the Lease as amended
herein, unless such requirement is waived by Landlord in writing.
G. Tenant hereby represents to Landlord that Tenant has dealt with no
broker other than Mark D. Jordan in connection with this Amendment.
Tenant agrees to indemnify and hold Landlord and the Landlord
Related Parties harmless from all claims of any brokers claiming
to have represented Tenant in connection with this Amendment.
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<PAGE>
H. TENANT HEREBY WAIVES ALL RIGHTS TO PROTEST THE APPRAISED VALUE OF
THE PROPERTY OR TO APPEAL THE SAME AND ALL RIGHTS TO RECEIVE
NOTICES OF REAPPRAISALS AS SET FORTH IN SECTIONS 41.413 AND 42.015
OF THE TEXAS TAX CODE.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Amendment as of the day and year first above written.
WITNESSES; ATTESTATION LANDLORD: ZML - North Central Plaza Three
Limited Partnership, a Delaware limited
partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C., a Delaware
limited liability company as Agent
By: /s/ KIM J. KOEHN
------------------------------------------
- ---------------------------- Name: Kim J. Koehn
- ---------------------------- Title: Senior Vice President - Asset Management
TENANT: Management Alliance Corporation, a
Texas corporation
/s/ TERRI S. WEISS By: /s/ ??????
- ---------------------------- ------------------------------------------
Its: SECRETARY
- ---------------------------- -----------------------------------------
GUARANTOR: Diversified Corporate Resources,
Inc., a Texas corporation (as successor-in-
interest to Diversified Human Resources Group,
Inc., a Texas corporation)
/s/ TERRI S. WEISS By: /s/ ??????
- ---------------------------- ------------------------------------------
Its: C.F.O.
- ---------------------------- -----------------------------------------
7
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EXHIBIT A
OUTLINE AND LOCATION OF FOURTH EXPANSION SPACE
[MAP]
8
<PAGE>
EXHIBIT B
OUTLINE AND LOCATION OF THE MUST TAKE SPACE
[MAP]
9
<PAGE>
FIFTH AMENDMENT
This Fifth Amendment (the "Amendment") is made and entered into as of
the 7th day of January, 1997, by and between ZML-North Central Plaza Three
Limited Partnership ("Landlord") by its agent, Equity Office Holdings,
L.L.C., a Delaware limited liability company and Management Alliance
Corporation, a Texas corporation ("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the
19th of December, 1994 currently containing approximately 47,669 rentable
square feet of space described as Suite No(s). 100, 220, 250, 260, 350, 400,
and 1170 on the 1st, 2nd, 3rd, 4th and 11th floor(s) of the building commonly
known as North Central Plaza Three the address of which is 12801 North Central
Expressway, Dallas, Texas (the "Building"), which lease has been previously
amended or assigned by instrument(s) dated February 20, 1995, February 22,
1995, November 3, 1995 and October 24, 1996 (collectively, the "Lease"); and
B. WHEREAS, Tenant has requested that additional space consisting of
approximately 287 rentable square feet on the 1st floor of the Building shown
on Exhibit A hereto (the "Fifth Expansion Space") be added to the Premises and
that the Lease be appropriately amended, and Landlord is willing to do the
same on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good.and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
I. EXPANSION AND EFFECTIVE DATE. Effective as of the Fifth Expansion
Effective Date (as hereinafter defined), the Premises is increased from 47,669
rentable square feet on the 1st, 2nd, 3rd, 4th, and 11th floor(s) to 47,956
rentable square feet on the 1st, 2nd, 3rd, 4th and 11th floor(s) by the
addition of the Fifth Expansion Space. The lease term for the Fifth Expansion
Space shall commence on the Fifth Expansion Effective Date and end on the
Extended Termination Date. The Fifth Expansion Space is subject to all the
terms and conditions of the Lease except as expressly modified herein and
except that Tenant shall not be entitled to receive any allowances, abatement
or other financial concession granted with respect to the Premises unless such
concessions are expressly provided for herein with respect to the Fifth
Expansion Space.
II. The Fifth Expansion Effective Date shall be the later to occur of (i)
February 1, 1997 and (ii) the date the initial improvements to the Fifth
Expansion Space are substantially completed, provided, however, the Fifth
Expansion Effective Date shall be no later than May 1, 1997.
III. MONTHLY BASE RENTAL. In addition to Tenant's obligation to pay Base
Rental for the Premises, Tenant shall pay Landlord the sum of Twenty-Five
Thousand Six Hundred Forty and 83/100 Dollars ($25,640.83) as Base Rental for
the Fifth Expansion Space in seventy-three (73) monthly installments as
follows:
A. Thirteen (13) equal installments of $324.55 each payable on or
before the first day of each month during the period beginning February
1, 1997 and ending February 28, 1998.
B. Twenty-four (24) equal installments of $340.81 each payable on or
before the first day of each month during the period beginning March
1, 1998 and ending February 29, 2000.
C. Thirty-six (36) equal installments of $367.84 each payable on or
before the first day of each month during the period beginning March 1,
2000 and ending February 28, 2003.
All such Base Rental shall be payable by Tenant in accordance with the
terms of Article V. of the Lease.
IV. TENANT'S PRO RATA SHARE. For the period commencing with the Fifth
Expansion Effective Date and ending on the Extended Termination Date, Tenant's
Pro Rata Share for the Fifth Expansion Space is one tenth percent (0.10%).
V. BASIC COSTS. For the period commencing with the Fifth Expansion
Effective Date and ending on the Extended Termination Date,
<PAGE>
A. the Base Year for the computation of Tenant's Pro Rata Share of
Basic Costs applicable to the Fifth Expansion Space shall be in
accordance with Exhibit B-2 of the Lease.
VI. IMPROVEMENTS TO FIFTH EXPANSION SPACE.
A. Tenant has inspected the Fifth Expansion Space and agrees to
accept the same "as is" without any agreements, representations,
understandings or obligations on the part of Landlord to perform any
alterations, repairs or improvements, except as may be expressly
provided otherwise in this Amendment.
B. COST OF IMPROVEMENTS TO FIFTH EXPANSION SPACE. Provided Tenant
is not in default, Tenant shall be entitled to receive an
improvement allowance (the "Fifth Expansion Improvement Allowance")
in an amount not to exceed Thirty-Seven Hundred Thirty-One and
No/100 Dollars ($3,731.00) to be applied toward the cost of
performing initial construction, alteration or improvement of the
Fifth Expansion Space, including but not limited to the cost of
space planning, design and related architectural and engineering
services. In the event the total cost of the initial improvements
to the Fifth Expansion Space exceeds the Fifth Expansion Improvement
Allowance, Tenant shall pay for such excess upon demand. The entire
unused balance of the Fifth Expansion Improvement Allowance, if any,
shall accrue to the sole benefit of Landlord. Landlord shall pay
such Fifth Expansion Improvement Allowance directly to the
contractors retained to perform the construction, design or related
improvement work to the Fifth Expansion Space.
C. RESPONSIBILITY FOR IMPROVEMENTS TO FIFTH EXPANSION SPACE.
Landlord shall enter into a direct contract for the initial
improvements to the Fifth Expansion Space with a general contractor
selected by Tenant, subject to Landlord's reasonable approval.
Tenant shall devote such time in consultation with Landlord or
Landlord's architect as may be required to provide all information
Landlord deems necessary in order to enable Landlord to complete,
and obtain Tenant's written approval of, the plans for the initial
improvements to the Fifth Expansion Space in a timely manner. All
plans for the initial improvements to the Fifth Expansion Space
shall be subject to Landlord's consent, which consent shall not be
unreasonably withheld. If the cost of such improvements exceeds the
Fifth Expansion Improvement Allowance, then prior to commencing any
construction of improvements to the Fifth Expansion Space, Landlord
shall submit to Tenant a written estimate setting forth the
anticipated cost, including but not limited to the cost of space
planning, design and related architectural and engineering services,
labor and materials, contractor's fees, and permit fees. Within a
reasonable time thereafter, Tenant shall either notify Landlord in
writing of its approval of the cost estimate or specify its
objections thereto and any desired changes to the proposed
improvements. In the event Tenant notifies Landlord of such
objections and desired changes, Tenant shall work with Landlord to
reach a mutually acceptable alternative cost estimate.
VII. OTHER PERTINENT PROVISIONS. Landlord and Tenant agree that the Lease
shall be amended in the following additional respects:
A. PARKING. Effective as of the Fifth Expansion Effective Date,
Landlord shall provide Tenant, with respect to the Fifth Expansion
Space, one (1) unreserved parking Permit.
B. SIGNAGE ACCELERATED EXPIRATION DATE. Effective as of the date
hereof, the Signage Accelerated Expiration Date is hereby revised
from December 31, 1999 pursuant to the Third Amendment to February
29, 2000
VIII. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There have
been no additional oral or written representations or agreements.
B. Except as herein modified or amended, the provisions,
conditions and terms of the Lease shall remain unchanged and in full
force and effect.
C. In the case of any inconsistency between the provisions of the
Lease and this Amendment, the provisions of this Amendment shall
govern and control.
<PAGE>
D. Submission of this Amendment by Landlord is not an offer to
enter into this Amendment but rather is a solicitation for such an
offer by Tenant. Landlord shall not be bound by this Amendment until
Landlord has executed and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the
same definitions as set forth in the Lease to the extent that such
capitalized terms are defined therein and not redefined in this
Amendment.
F. This Amendment shall be of no force and effect unless and until
accepted by any guarantors of the Lease, who by signing below shall
agree that their guarantee shall apply to the Lease as amended
herein, unless such requirement is waived by Landlord in writing.
G. Tenant hereby represents to Landlord that Tenant has dealt with
no broker other than Mark D. Jordan in connection with this
Amendment. Tenant agrees to indemnify and hold Landlord and the
Landlord Related Parties harmless from all claims of any brokers
claiming to have represented Tenant in connection with this
Amendment.
H. TENANT HEREBY WAIVES ALL RIGHTS TO PROTEST THE APPRAISED VALUE
OF THE PROPERTY OR TO APPEAL THE SAME AND ALL RIGHTS TO RECEIVE
NOTICES OF REAPPRAISALS AS SET FORTH IN SECTIONS 41.413 AND 42.015
OF THE TEXAS TAX CODE.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Amendment as of the day and year first above written.
WITNESSES; ATTESTATION LANDLORD: ZML - North Central Plaza Three
Limited Partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C., a
Delaware limited liability company,
as agent
By: /s/ Kim J. Koehn
- ---------------------- ---------------------------------------
Name: Kim J. Koehn
- ---------------------- -------------------------------------
Title: SVP
------------------------------------
TENANT: Management Alliance Corporation,
a Texas corporation
By: /s/ ?????????
- ---------------------- ---------------------------------------
Its: Secretary
- ---------------------- --------------------------------------
GUARANTOR: Diversified Corporate Resources,
Inc., a Texas corporation (as successor in
interest to Diversified Human Resources
Group, Inc., a Texas corporation)
By: /s/ ???????
- ---------------------- ---------------------------------------
Its: President
- ---------------------- --------------------------------------
<PAGE>
EXHIBIT A
Fifth Expansion Space
[MAP]
<PAGE>
EXHIBIT 11.1
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
STATEMENT REGARDING EARNINGS PER SHARE
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
--------------------- ---------------------------------
PRIMARY 1997 1996 1996 1995 1994
- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SHARES OUTSTANDING:
Weighted average number of
shares outstanding 1,699,598 1,742,047 1,701,823 1,758,211 1,758,211
Net effect of dilutive
stock options(1) 128,543 111,017 112,193 - -
--------- --------- ---------- ---------- ----------
1,828,141 1,853,064 1,814,016 1,758,211 1,758,211
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Income before extraordinary
item 833,796 789,326 $1,538,812 $ 285,872 $ 16,264
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Earnings per common share
before extraordinary item 0.46 0.43 $ 0.84 $ 0.16 $ 0.01
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Income from extraordinary
item 43,083 -- $ 246,125 $ 174,811 $ 208,212
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Earnings per common share
from extraordinary item 0.02 -- $ 0.14 $ 0.10 $ 0.12
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Net income 876,879 789,326 $1,784,937 $ 460,683 $ 224,476
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Net income per common share 0.48 0.43 $ 0.98 $ 0.26 $ 0.13
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
FULLY DILUTED
- -------------
SHARES OUTSTANDING:
Weighted average number
of shares outstanding 1,699,598 1,742,047 1,748,091 1,758,211 1,758,211
Net effect of dilutive
stock options(1) 179,738 111,017 112,193 - -
--------- --------- ---------- --------- ----------
Total 1,879,336 1,853,064 1,860,284 1,758,211 1,758,211
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Income before extraordinary
item 833,796 789,326 $1,538,812 $ 285,872 $ 16,264
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Earnings per common share
before extraordinary item 0.45 0.43 $ 0.83 $ 0.16 $ 0.01
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Income from extraordinary
item 43,083 -- $ 246,125 $ 174,811 $ 208,212
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Earnings per common share
from extraordinary item 0.02 -- $ 0.13 $ 0.10 $ 0.12
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Net income 876,879 789,326 $1,784,937 $ 460,683 $ 224,476
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Net income per common share 0.47 0.43 $ 0.96 $ 0.26 $ 0.13
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
</TABLE>
(1) The effect of dilutive stock options are based upon the treasury stock
method using average market price during the period for primary amounts,
and the higher of average market price or the market price at the end of
the period for fully diluted amounts.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
Amendment No. 1 (File No. 333-31825) of our reports dated May 30, 1997, on
our audit of the consolidated financial statements and financial statement
schedule of Diversified Corporate Resources, Inc. and Subsidiaries. We also
consent to the references to our firm under the captions "Experts."
Coopers & Lybrand L.L.P.
Dallas, Texas
September 2, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this registration statement of Diversified Corporate
Resources, Inc. on Form S-1 (Amendment No. 1) of our reports dated April 9,
1996, appearing in the Prospectus, which is part of this registration
statement, and to the reference to us under the heading "Experts" in such
Prospectus.
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
September 2, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DIVERSIFIED CORPORATE RESOURCES, INC. AND
SUBSIDIARIES AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND FOR THE YEAR
ENDED DECEMBER 31, 1996.
</LEGEND>
<CIK> 0000779226
<NAME> DIVERSIFIED CORPORATE RESOURCES, INC.
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 271,753 612,512
<SECURITIES> 0 0
<RECEIVABLES> 4,814,695 3,881,138
<ALLOWANCES> 452,000 494,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,739,615 4,043,419
<PP&E> 1,747,518 1,474,431
<DEPRECIATION> 574,302 666,434
<TOTAL-ASSETS> 6,562,927 5,203,890
<CURRENT-LIABILITIES> 4,443,079 3,947,942
<BONDS> 92,118 68,157
0 0
0 0
<COMMON> 203,116 188,116
<OTHER-SE> 2,027,730 999,675
<TOTAL-LIABILITY-AND-EQUITY> 6,562,927 5,203,890
<SALES> 15,652,534 27,430,288
<TOTAL-REVENUES> 15,652,534 27,430,288
<CGS> 10,968,514 19,675,352
<TOTAL-COSTS> 14,685,704 25,378,344
<OTHER-EXPENSES> (34,455) 53,031
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 74,131 235,327
<INCOME-PRETAX> 927,154 1,763,586
<INCOME-TAX> 93,358 224,774
<INCOME-CONTINUING> 833,796 1,538,812
<DISCONTINUED> 0 0
<EXTRAORDINARY> 43,083 246,125
<CHANGES> 0 0
<NET-INCOME> 876,879 1,784,937
<EPS-PRIMARY> .48 .98
<EPS-DILUTED> .47 .96
</TABLE>
