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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ____ FROM TO ____.
COMMISSION FILE NUMBER 0-26146
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HNC SOFTWARE INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 33-0248788
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5930 CORNERSTONE COURT WEST
SAN DIEGO, CA 92121
(Address of principal executive offices, including zip code)
(619) 546-8877
(Registrant's telephone number, including area code)
-------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES [X] NO [ ]
AS OF JULY 31, 1997 THERE WERE 19,433,958 SHARES OF COMMON STOCK, $0.001 PAR
VALUE, OUTSTANDING.
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INDEX LISTING
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Page
Number
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PART I FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Consolidated Balance Sheet at June 30, 1997 (unaudited) 3
and December 31, 1996.
Consolidated Statement of Operations (unaudited) for the 4
three and six month periods ended June 30, 1997
and 1996
Consolidated Statement of Cash Flows (unaudited) for 5
the six month periods ended June 30, 1997
and 1996
Notes To Consolidated Financial Statements (unaudited) 6
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K 19
PART III EXHIBITS
STATEMENT REGARDING COMPUTATION OF PER SHARE
EARNINGS
FINANCIAL DATA SCHEDULE
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PART I - FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
HNC SOFTWARE INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
ASSETS
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June 30, December 31,
1997 1996
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(unaudited)
Current assets:
Cash and cash equivalents $ 5,366 $ 7,517
Short-term investments 14,301 7,353
Accounts receivable, net 20,468 18,832
Current portion of deferred income taxes 6,668 6,400
Other current assets 2,629 2,505
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Total current assets 49,432 42,607
Property and equipment, net 6,921 5,966
Deferred income taxes, less current portion 21,415 22,966
Other assets 3,013 3,305
Long-term investments 22,658 19,375
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$ 103,439 $ 94,219
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,751 $ 3,270
Accrued liabilities 5,469 4,058
Deferred revenue 4,499 3,377
Other current liabilities 259 418
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Total current liabilities 12,978 11,123
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Other non-current liabilities 493 683
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Common stock, $0.001 par value - 50,000 shares authorized:
19,421 and 19,126 shares issued and outstanding, respectively 19 19
Paid-in capital 86,396 83,554
Foreign currency translation adjustment 22 54
Unrealized gain (loss) on investments 45 (59)
Retained earnings (accumulated deficit) 3,486 (1,155)
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Total stockholders' equity 89,968 82,413
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$ 103,439 $ 94,219
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See accompanying notes to consolidated financial statements.
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HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Three Months Ended Six Months Ended
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June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
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Revenues:
Software license and installation $ 19,184 $ 9,505 $ 34,939 $ 16,425
Contracts and other 1,805 3,051 4,531 6,030
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Total revenues 20,989 12,556 39,470 22,455
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Operating expenses:
Software license and installation 4,254 2,676 7,445 5,246
Contracts and other 1,454 1,938 3,304 4,009
Research and development 4,771 3,223 9,048 5,559
Sales and marketing 4,885 2,614 9,117 4,821
General and administrative 2,161 1,496 4,031 2,838
------------ ------------ ------------ ------------
Total operating expenses 17,525 11,947 32,945 22,473
------------ ------------ ------------ ------------
Operating income (loss) 3,464 609 6,525 (18)
Other income, net 438 395 842 832
------------ ------------ ------------ ------------
Income before income tax provision 3,902 1,004 7,367 814
Income tax provision 1,444 638 2,726 1,175
------------ ------------ ------------ ------------
Net income (loss) $ 2,458 $ 366 $ 4,641 $ (361)
============ ============ ============ ============
Net income (loss) per share $ 0.12 $ 0.02 $ 0.23 $ (0.02)
============ ============ ============ ============
Shares used in computing
net income (loss) per share 20,504 20,455 20,448 18,407
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, except per share data)
(unaudited)
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Six Months Ended
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June 30, 1997 June 30, 1996
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Cash flows from operating activities:
Net income (loss) $ 4,641 $ (361)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,035 1,311
Changes in assets and liabilities:
Accounts receivable, net (1,636) (4,118)
Other assets (295) (1,163)
Deferred income taxes -- 1,139
Accounts payable (519) 1,548
Accrued liabilities 1,411 236
Deferred revenue 1,089 1,651
Other liabilities (64) (333)
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Net cash provided by (used in) operating activities 6,662 (90)
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Cash flows from investing activities:
Purchases of investments (21,546) (21,164)
Maturities of investments 6,350 1,655
Proceeds from sale of investments 5,038 1,649
Acquisitions of property and equipment (2,496) (1,739)
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Net cash used in investing activities (12,654) (19,599)
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Cash flows from financing activities:
Net proceeds from issuance of common stock 1,698 1,005
Tax benefit from stock options 2,427 --
Proceeds under bank line of credit -- 309
Repayments under bank line of credit -- (623)
Proceeds from issuance of bank notes payable -- 1,999
Repayment of debt from asset purchases -- (707)
Repayment of capital lease obligations (252) (267)
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Net cash provided by financing activities 3,873 1,716
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Effect of exchange rate changes on cash (32) --
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Net decrease in cash and cash equivalents (2,151) (17,973)
Cash and cash equivalents at the beginning of the period 7,517 20,583
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Cash and cash equivalents at the end of the period $ 5,366 $ 2,610
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</TABLE>
See accompanying notes to consolidated financial statements.
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HNC SOFTWARE INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note I GENERAL
In management's opinion, the accompanying unaudited consolidated
financial statements for HNC Software Inc. (the "Company") for the three and six
month periods ended June 30, 1997 and 1996 have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
include all adjustments (consisting only of normal recurring accruals) that the
Company considers necessary for a fair presentation of its financial position,
results of operations, and cash flows for such periods. However, the
accompanying financial statements do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All such financial statements are unaudited except the
December 31, 1996 balance sheet. This report and the accompanying unaudited and
audited financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto presented in its Annual Report
for the fiscal year ended December 31, 1996. Footnotes which would substantially
duplicate the disclosures in the Company's audited financial statements for the
fiscal year ended December 31, 1996 contained in the 1996 Annual Report have
been omitted. The interim financial information contained herein is not
necessarily indicative of the results to be expected for any other interim
period or for the full fiscal year ending December 31, 1997.
Note 2 BASIS OF PRESENTATION
The consolidated financial statements and related notes give
retroactive effect to the mergers on August 30, 1996 with Risk Data Corporation
and on November 29, 1996 with Retek Distribution Corporation, for all periods
presented, accounted for as poolings of interests.
Note 3 PENDING ACQUISITION
On July 15, 1997, the Company announced that it had signed a definitive
agreement to acquire CompReview, Inc. ("CompReview"). CompReview develops and
markets integrated payment system and medical bill review software products and
services that are used primarily by insurance carriers, managed care companies,
state funds, large corporate self insurers, and third-party administrators
("TPA's") who pay or administer workers' compensation and personal injury
insurance claims. This transaction has not yet been consummated and remains
subject to the satisfaction of certain conditions, including approval of the
Company's stockholders, clearance under the Hart-Scott-Rodino Antitrust
Improvements Act, and qualification of the transaction
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for "pooling of interests" accounting treatment. Under the current terms of the
pending transaction, the consideration payable by the Company to acquire all of
CompReview's stock would consist of an aggregate total of approximately
5,000,000 shares of the Company's Common Stock. HNC stock options will be issued
in exchange for outstanding CompReview stock options.
Note 4 LINE OF CREDIT
During July 1997, the Company entered into a Loan and Security
Agreement with Wells Fargo Bank to provide for a $15 million unsecured revolving
line of credit through July 11, 1999. The line of credit bears interest at the
bank's prime rate or LIBOR plus 1.5% and requires an annual $5,000 commitment
fee. The agreement requires that the Company maintain certain financial ratios
and levels of working capital, tangible net worth and profitability, and also
restricts the Company's ability to pay cash dividends, make loans, advances or
investments without the bank's consent.
Note 5 NEW PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128 ("FAS128"), "Earnings Per
Share," which the Company will adopt as required for all periods ending after
December 15, 1997. Pursuant to this Statement, companies will replace the
reporting of "primary" earnings per share ("EPS") with "basic" EPS. Basic EPS is
calculated by dividing the income available to common stockholders by the
weighted average number of common shares outstanding for the period, not
including potential common stock. "Fully diluted" EPS will be replaced by
"diluted" EPS. Diluted EPS is computed similarly to fully diluted EPS under the
provisions of APB Opinion No. 15.
The pro forma effect of the adoption of FAS128 is as follows:
<TABLE>
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THREE MONTHS ENDED SIX MONTHS ENDED
6/30/97 6/30/96 6/30/97 6/30/96
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Basic earnings (loss) per share $ 0.13 $ 0.02 $ 0.24 $ (0.02)
Diluted earnings (loss) per share $ 0.12 $ 0.02 $ 0.23 $ (0.02)
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("FAS130"), "Reporting Comprehensive
Income." The Company will adopt FAS130 as required for all periods beginning
after December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components in financial statements.
Comprehensive income is defined as "the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from
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investments by owners and distributions to owners." The Company is currently
evaluating the impact that the adoption of FAS130 will have on its financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 ("FAS131"), "Disclosures about
Segments of an Enterprise and Related Information." The Company will adopt
FAS131 as required for all periods beginning after December 15, 1997, commencing
with its annual financial statements for the year ended December 31, 1998. This
statement requires the disclosure of certain information about operating
segments in the financial statements. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. The Company
is currently evaluating the impact that the adoption of FAS131 will have on its
financial statements.
Note 6 LEASES
On May 30, 1997, the Company's Retek subsidiary entered into a new
lease for approximately 42,226 square feet in which to locate its Minneapolis
headquarters. This facility will be leased to Retek through the year 2004 with
an option to extend the lease for two additional periods of five years each.
Note 7 RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the
current period presentation.
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HNC SOFTWARE INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED
This Item 2 contains certain forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking statements include,
without limitation: the Company's ability to successfully develop new products
for both new markets and markets currently served by the Company; the Company's
ability to successfully market its products to international customers; customer
acceptance of new products; the Company's loss of a large customer or key
personnel; the Company's acquisition of (or failure to acquire) other
businesses; the Company's ability to manage growth and to successfully integrate
acquired businesses; the impact of competition (including competition from
customers' internal development staffs) on the Company's revenues, market share
or ability to maintain its premium usage-based pricing terms and to generate
recurring revenue from certain products; the availability to the Company, at
reasonable cost, of data required to operate or update its intelligent decision
software products; changes in law or regulatory requirements that adversely
affect or preclude customers from using the Company's products for certain
applications; the Company's inability to secure new government contracts for
technology development; delays in the Company's introduction of new products;
and failure by the Company to keep pace with emerging technologies. Accordingly,
no assurances can be given that events or results mentioned in any such
forward-looking statements will in fact occur.
When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions related to future events are
intended to identify forward-looking statements, but are not the exclusive means
of identifying forward-looking statements. Readers are cautioned not to place
undue reliance on any forward-looking statements, which speak only as of the
date of this report. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission.
The Company's quarterly revenues and operating results have varied
significantly in the past and may do so in the future. Although to date a
significant portion of the Company's revenues has come from monthly usage fees
under long-term contracts, there can be no assurance that the Company will
continue to realize such
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recurring revenues or that customers under such contracts would not seek to
cancel such contracts if the Company's products were not competitive or did not
achieve effective results. A significant portion of the Company's business has
been derived from substantial orders placed by large organizations, and the
timing of such orders has caused material fluctuations in the Company's
operating results. In addition, because the Company provides certain of its
products to customers under perpetual licenses with no significant continuing
obligations for which collection of the related receivable is probable, it
recognizes the majority of its revenue upon the delivery of the software and
acceptance by the customer. Thus, revenues derived by the Company may be more
likely to be recognized in irregular patterns that may result in quarterly
variations in the Company's revenues.
The Company's expense levels are based in part on its expectations
regarding future revenues and in the short term are fixed to a large extent.
Therefore, the Company may be unable to adjust its spending in a timely manner
to compensate for any unexpected revenue shortfall. As a result, if anticipated
revenues in any quarter do not occur or are delayed, the Company's operating
results for the quarter would be disproportionately affected. Operating results
also may fluctuate due to factors such as the demand for the Company's products,
product life cycles, the introduction and acceptance of new products and product
enhancements by the Company or its competitors, changes in the mix of
distribution channels through which the Company's products are offered, changes
in the level of operating expenses, customer order deferrals in anticipation of
new products, competitive conditions in the industry and economic conditions
generally or in various industry segments.
The Company expects quarterly fluctuations to continue for the
foreseeable future. Accordingly, the Company believes that period-to-period
comparisons of its financial results should not be relied upon as an indication
of the Company's future performance. No assurance can be given that the Company
will be able to achieve or maintain profitability on a quarterly or annual basis
in the future. Due to all of the foregoing factors, it is possible that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996 REVENUES.
Revenues for the three months ended June 30, 1997 were $21.0 million,
an increase of 67% over revenues of $12.6 million for the same period in the
prior year. This increase was due to greater software license and installation
revenues, which were $19.2 million for the quarter ended June 30, 1997, an
increase of 102% from $9.5 million for the comparable quarter in 1996. The
Company's software license and installation revenues are derived from periodic
recurring license fees, perpetual license fees, installation fees and
maintenance fees. This increase in software license and installation revenues
was due primarily to the growth of license fee revenues from
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products of recently acquired companies, including the Retek Merchandising
System, which provides management solutions for retailers, and PMAdvisor, a
product developed by the Company's Risk Data subsidiary that automates the
comparison of therapy treatments against clinical guidelines. Other products
contributing to the increase in software license and installation revenues were
Capstone, which processes credit card applications, ProfitMax, which detects
fraud in credit card applications, and growth in revenue from Falcon license
fees.
Contracts and other revenues for the three months ended June 30, 1997
were $1.8 million, a decrease of 41% as compared to $3.1 million for the same
period in the prior year. Contracts and other revenues are derived primarily
from development and consulting contracts with commercial customers and research
and development contracts with the United States Government. All revenues for
new product pilots (i.e., the first production installation of a product) are
also reported as contract and other revenues. The Company had a fewer number of
new product pilot installations in process during the quarter ended June 30,
1997 than during the quarter ended June 30, 1996, which accounted in part for
the decrease in contracts and other revenues during that quarter. Revenues from
contract services are generally recognized as the services are performed using
the percentage of completion method based on costs incurred to date compared to
total estimated costs at completion.
During 1996, the Company had a significant number of new product
development projects in process consisting of new product pilot installations,
most of which the Company began shipping in production versions in 1997. Any
significant delay in the completion of these or other new products, or the
failure of such products, if and when installed, to achieve any significant
market acceptance, would have a material adverse effect upon the Company's
business.
The Company's success depends upon its ability to successfully enter
new markets by developing new products for those markets on a timely and
cost-effective basis. The Company's products often require customer data to
develop the decision models and rules that comprise a product's decision engine
system installation. As a result, completion of new products may be delayed
while the Company extracts sufficient amounts of statistically relevant data and
develops the statistical models that form a product's core. During this
development process, the Company relies on its potential customers in the new
market to provide relevant industry data and to help train Company personnel in
the use, relevance and meaning of the data in the specific industry. These
relationships also assist the Company in establishing presence and credibility
in the new market. There can be no assurance the Company will succeed in
developing products that satisfy customers in new markets or that potential
customers and other companies, most of which have significantly greater
financial and marketing resources than the Company, will not compete with the
Company in the future or will not otherwise discontinue their relationships with
or support of the Company, either during development of the Company's products
or thereafter.
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The Company's success is also dependent on its ability to develop
successful "follow on" products that are marketed to existing customers in
markets already served by the Company.
The sales cycle associated with the purchase of the Company's products
is typically lengthy and subject to a number of significant risks, including
customers' budgetary constraints and internal acceptance reviews, over which the
Company has little or no control.
The Company's success also depends upon its ability to maintain
competitive technologies, enhance its current products and develop new products
for varied markets in a timely and cost-effective manner that meets changing
market conditions, including evolving customer needs, new competitive product
offerings, emerging industry standards and changing technology.
SOFTWARE LICENSE AND INSTALLATION EXPENSES. Software license and
installation expense primarily consists of the Company's expenses for personnel
engaged in installation and support activities, costs of travel to customer
sites and the costs of documentation materials. Software license and
installation expenses for the second quarter of 1997 were $4.3 million and
constituted 22% of software and installation revenues for the quarter, whereas
such expenses were $2.7 million and represented 28% of software and installation
revenues in the second quarter of 1996. The primary reason for the increase in
these expenses in absolute dollars was increased staffing and associated costs
in client services to support the increased volume of business. Software license
and installation expenses represented a lower percentage of revenues in the
quarter ended June 30, 1997 than in the comparable quarter in the prior year.
The increase in gross margins was due in part to the fact that the Company had a
higher volume of full priced transactions for the quarter ended June 30, 1997 as
compared to the same period of the prior year. Early adopter installations
typically yield lower margins due to price discounts given to early adopter
customers of new products. When a new product is later sold to other non-early
adopter customers, the Company normally transitions to full pricing, and hence
higher margins, for that product. A larger percentage of the revenue for the
quarter ended June 30, 1997 was derived from such higher margin full priced
transactions. Consequently, the Company's margins may vary from quarter to
quarter depending upon, among other things, the relative mix of early adopter
priced product revenues versus full priced product revenues for the quarter.
CONTRACTS AND OTHER EXPENSES. Contracts and other expenses consist
primarily of personnel-related expenses associated with the Company's
performance of such contracts. Contracts and other expenses in the second
quarter of 1997 were $1.5 million or 81% of contracts and other revenues as
compared to $1.9 million or 64% of such revenues in the second quarter of 1996.
The increase in these expenses as a percent of revenues is due to the completion
of several higher margin commercial development
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contracts during the second quarter of 1997. The remaining development contracts
are primarily government contacts and on-going model development projects, which
typically yield lower margins than commercial new product pilot contracts.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in
the second quarter of 1997 were $4.8 million or 23% of total revenues compared
to $3.2 million or 26% of total revenues in the second quarter of the prior
year. The increase in these expenses in absolute dollars was due primarily to
increases in staffing and related costs to support increased product development
activities, primarily related to enhancements to Retek Merchandising, Retek Data
Warehouse, and Retek's ARI product, and to a lesser extent, CompCompare,
ProviderCompare, and Capstone.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $4.9
million or 23% of total revenues in the second quarter of 1997 compared to $2.6
million or 21% of total revenues in the second quarter of 1996. The increase in
sales and marketing expenses was due primarily to increased staffing related to
the Company's expansion of its direct sales and marketing staff, including
opening sales offices in Germany, South Africa and France, and increased
expenses for trade shows, advertising and other marketing programs to support
the roll-out of new products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses were $2.2 million or 10% of total revenues in the second quarter of
1997, compared to $1.5 million or 12% of total revenues in the prior year. The
increase in these costs was due to increased staffing and related expenses,
including recruiting costs, to support higher levels of sales and development
activity of the Company resulting in part from the fiscal 1996 acquisitions of
Risk Data Corporation and Retek Distribution Corporation. The decrease in
general and administrative expenses as a percent of total revenues is due to
relatively higher increases in revenues as compared to the increase in general
and administrative expenses.
OPERATING INCOME. The above factors resulted in operating income of
$3.5 million, constituting 17% of total revenues for the second quarter of 1997,
compared to operating income of $609,000 or 5% of total revenues in the same
quarter of the prior year.
OTHER INCOME, NET. Other income for the second quarter of 1997 was
$438,000 compared to $395,000 in the second quarter of the prior year. The
increase was due to an increase in interest income during the second quarter of
1997 as a result of higher cash and investment balances due to the cash
generated by operating activities.
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INCOME BEFORE INCOME TAX PROVISION. The resulting income before income
tax provision for the second quarter of 1997 was $3.9 million or 19% of total
revenues, compared to income before tax provision of $1.0 million or 8% of total
revenues for the comparable quarter of 1996.
INCOME TAX PROVISION. The income tax provisions of $1.4 million and
$638,000 in the second quarters of 1997 and 1996, respectively, are based on
management's estimates of the effective tax rates to be incurred by the Company
during those respective full fiscal years. The income before income tax
provision of $1.0 for the second quarter of 1996 includes losses incurred by
Risk Data Corporation for which no tax benefit was available during that period,
resulting in a higher than normal effective tax rate.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 REVENUES.
Revenues for the six months ended June 30, 1997 were $39.5 million, an
increase of 76% over revenues of $22.5 million for the same period in the prior
year. This increase was due to greater software license and installation
revenues, which were $34.9 million for the six months ended June 30, 1997, an
increase of 113% from $16.4 million for the comparable period in 1996. The
Company's software license and installation revenues are derived from periodic
license fees, perpetual license fees, installation fees and maintenance fees.
This increase in software license and installation revenues was due primarily to
the growth of license fee revenues from products of recently acquired companies,
including the Retek Merchandising System, which provides management solutions
for retailers, and PMAdvisor, which automates the comparison of therapy
treatments against clinical guidelines. Also contributing to the increase in
software license and installation revenues was growth in revenue from Falcon
license fees, Capstone, which processes credit card applications, ProfitMax,
which detects fraud in credit card applications and, to a lesser extent, revenue
from CompCompare, which permits insurers to compare historical costs of workers'
compensation insurance claims.
Contracts and other revenues for the six months ended June 30, 1997
were $4.5 million, a decrease of 25% as compared to $6.0 million for the same
period in the prior year. The Company had a fewer number of new product pilot
installations in process during the six months ended June 30, 1997 than during
the six months ended June 30, 1996, which accounted in part for the decrease in
contracts and other revenues during that period. Revenues from contract services
are generally recognized as the services are performed using the percentage of
completion method based on costs incurred to date compared to total estimated
costs at completion.
During 1996, the Company had a significant number of new product
development projects in process consisting of new product pilot installations,
most of which the Company began shipping in production versions in 1997. Any
significant
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delay in the completion of these or other new products, or the failure of such
products, if and when installed, to achieve any significant market acceptance,
would have a material adverse effect upon the Company's business.
SOFTWARE LICENSE AND INSTALLATION EXPENSES. Software license and
installation expense primarily consists of the Company's expenses for personnel
engaged in installation and support, costs of travel to customer sites and the
costs of documentation materials. Software license and installation expenses for
the first six months of 1997 were $7.4 million and constituted 21% of software
and installation revenues for the period, whereas such expenses were $5.2
million and represented 32% of software and installation revenues in the first
six months of 1996. The primary reason for the increase in these expenses was
increased staffing and associated costs in client services to support the
increased volume of business. Software license and installation expenses
represented a lower percentage of revenues in the period ended June 30, 1997
than in the comparable period in the prior year. The increase in gross margins
was due in part to the fact that the Company had a higher volume of full priced
transactions for the period ended June 30, 1997 as compared to the same period
of the prior year. Early adopter installations typically yield lower margins due
to price discounts given to early adopter customers of new products. When a new
product is later sold to other non-early adopter customers, the Company normally
transitions to full pricing, and hence higher margins, for that product. A
larger percentage of the revenue for the period ended June 30, 1997 was derived
from full priced transactions. Consequently, the Company's margins may vary from
period to period depending upon, among other things, the relative mix of early
adopter priced product revenues versus full priced product revenues for the
period.
CONTRACTS AND OTHER EXPENSES. Contracts and other expenses consist
primarily of personnel-related expenses associated with the Company's
performance of such contracts. Contracts and other expenses in the first six
months of 1997 were $3.3 million or 73% of contracts and other revenues as
compared to $4.0 million or 66% of such revenues in the first six months of
1996. The increase in these expenses as a percent of revenues is due to the
completion of several higher margin commercial development contracts during the
second quarter of 1997. The remaining development contracts are primarily
government contacts and on-going model development projects which typically
yield lower margins than commercial new product pilot contracts.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in
the first six months of 1997 were $9.0 million or 23% of total revenues compared
to $5.6 million or 25% of total revenues in the first six months of the prior
year. The increase in these expenses in absolute dollars was due primarily to
increases in staffing and related costs to support increased product development
activities, primarily related to enhancements to Retek Merchandising, Retek Data
Warehouse, and Retek's ARI product, and to a lesser extent, CompCompare,
ProviderCompare, and Capstone.
15
<PAGE> 16
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $9.1
million or 23% of total revenues in the first six months of 1997 compared to
$4.8 million or 21% of total revenues in the first six months of 1996. The
increase in sales and marketing expenses was due primarily to increased staffing
related to the Company's expansion of its direct sales and marketing staff,
including opening sales offices in the United Kingdom, Japan, South Africa,
Germany, and France, and increased expenses for trade shows, advertising and
other marketing programs to support the roll-out of new products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses were $4.0 million or 10% of total revenues in the first six months of
1997, compared to $2.8 million or 13% of total revenues in the prior year. The
increase in these costs was due to increased staffing and related expenses,
including recruiting costs, to support higher levels of sales and development
activity of the Company resulting in part from the fiscal 1996 acquisitions of
Risk Data Corporation and Retek Distribution Corporation. The decrease in
general and administrative expenses as a percent of total revenues is due to
relatively higher increases in revenues as compared to the increase in general
and administrative expenses.
OPERATING INCOME (LOSS). The above factors resulted in operating income
of $6.5 million, constituting 17% of total revenues for the first six months of
1997, compared to an operating loss of $18,000 in the same period of the prior
year.
OTHER INCOME, NET. Other income for the first six months of 1997 was
$842,000 compared to $832,000 in the first six months of the prior year. The
increase was due to an increase in interest income during the first six months
of 1997 as a result of higher cash and investment balances due to the cash
generated by operating activities. Interest income in the first six months of
1996 is offset by interest expense of $286,000 related to Risk Data's bank notes
payable.
INCOME BEFORE INCOME TAX PROVISION. The resulting income before income
tax provision for the first six months of 1997 was $7.4 million or 19% of total
revenues, compared to income before tax provision of $814,000 or 4% of total
revenues for the comparable period of 1996.
INCOME TAX PROVISION. The income tax provisions of $2.7 million and
$1.2 million in the first six months of 1997 and 1996, respectively, are based
on management's estimates of the effective tax rates to be incurred by the
Company during those respective full fiscal years. The income before income tax
provision of $814,000
16
<PAGE> 17
for the first six months of 1996 includes losses incurred by Risk Data
Corporation and Retek Distribution Corporation for which no tax benefit was
available during that period, resulting in a higher than normal effective tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the first six months
of 1997 was $6.7 million, which represented net income before depreciation and
amortization of approximately $6.7 million, further increased by increases in
accrued liabilities of $1.4 million and deferred revenue of $1.1 million,
related to contract and license prepayments, and offset by increases in accounts
receivable of $1.6 million and other assets of $295,000, and a decrease accounts
payable of $519,000. Net cash used in operating activities during the first six
months of 1996 of $90,000 represented net income before depreciation and
amortization of approximately $950,000. This was increased by increases in
deferred revenue of $1.7 million related to contract and license prepayments and
accounts payable of $1.5 million, and a decrease in deferred tax assets of $1.1
million offset by increases in accounts receivable of $4.1 million and other
assets of $1.2 million.
Net cash used in investing activities was $12.7 million during the
first six months of 1997, primarily due to net purchases of investments of $10.2
million. In addition, the Company expended $2.5 million for property and
equipment during the first six months of 1997, including $2.2 million for
computer equipment to support the increased staffing across the Company. Net
cash used in investing activities was $19.6 million during the first six months
of 1996 as a result of net purchases of investments of $17.9 million. The
Company also acquired approximately $1.7 million of property and equipment
(primarily computer equipment) during the first six months of 1996.
Net cash provided by financing activities was $3.9 million during the
first six months of 1997 primarily due to the tax benefit from stock option
exercises of $2.4 million and the net proceeds from the issuance of common stock
of $1.7 million, offset by capital lease repayments. Net cash provided by
financing activities was $1.7 million during the first six months of 1996,
primarily as a result of proceeds from Risk Data Corporation's bridge loan and
bank line of credit totaling $2.3 million and the net proceeds from the issuance
of common stock of $1.0 million, offset by repayments of the revolving line of
credit, notes payable to stockholders and capital lease obligations totaling
$1.6 million.
At June 30, 1997, the Company had $42.3 million in cash, cash
equivalents and investments. Management believes that the Company's cash and
investments and cash generated from operations will be adequate for the
Company's cash requirements for the next twelve months. Management intends to
invest the Company's cash in excess of current operating requirements in
short-term, interest-bearing, investment grade securities. A portion of the
Company's cash could be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary
17
<PAGE> 18
technologies or data. From time to time, in the ordinary course of business, the
Company evaluates potential acquisitions of such businesses, products,
technologies or data.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits with this
Report:
Exhibit 10.01 Retek Office Building Lease dated as of May
30, 1997, between Retek Information Systems,
Inc. and Midwest Real Estate Holdings, Inc.
Exhibit 10.02 Loan and Security Agreement dated as of July
11, 1997, between the Company and Wells Fargo
Bank, National Association
Exhibit 11.01 Statement Regarding Computation of Pro Forma
Per Share Earnings
Exhibit 27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
HNC SOFTWARE INC.
Date: August 13, 1997 By: /s/ RAYMOND V. THOMAS
-----------------------------------------------
Raymond V. Thomas
Vice President, Finance & Administration and
Chief Financial Officer
(for Registrant as duly authorized officer
and as Principal Financial Officer and Principal
Accounting Officer)
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<PAGE> 21
INDEX TO EXHIBITS
The following exhibits are filed with this Report:
Exhibit 10.01 Retek Office Building Lease dated as of May 30, 1997,
between Retek Information Systems, Inc. and Midwest
Real Estate Holdings, Inc.
Exhibit 10.02 Loan and Security Agreement dated as of July 11, 1997,
between the company and Wells Fargo Bank, National
Association
Exhibit 11.01 Statement Regarding Computation of Per Share Earnings
Exhibit 27.01 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.01
STANDARD OFFICE LEASE AGREEMENT (NET)
THIS LEASE AGREEMENT (hereafter called the "LEASE AGREEMENT") made as of the
30th day of May, 1997, by and between MIDWEST REAL ESTATE HOLDINGS, INC., a
Minnesota corporation, having offices at Suite 200, 3500 West 80th Street,
Bloomington, Minnesota, 55431 (hereafter called the "LANDLORD"), and RETEK
INFORMATION SYSTEMS, INC., a Delaware corporation (hereafter called the
"TENANT").
WITNESSETH
FOR AND IN CONSIDERATION of the sum of One Dollar ($1.00) in hand paid by each
of the parties to the other, and other good and valuable consideration, receipt
and sufficiency of which is hereby acknowledged, Landlord does hereby lease and
let unto Tenant, and Tenant does hereby hire, lease and take from Landlord,
those areas described in Article 3 below as (i) the entire eleventh (11th) floor
of the West Tower containing approximately 12,300 rentable square feet and
graphically shown on Exhibit A-1 attached hereto and a portion of the eleventh
(11th) floor of the East Tower containing approximately 17,666 rentable square
feet and graphically shown on Exhibit A-2 attached hereto (hereafter called the
"PHASE 1 PREMISES") and (ii) all of the remaining portion of the eleventh (11th)
floor of the East Tower containing approximately 12,300 rentable square feet and
graphically shown on Exhibit A-3 attached hereto (hereafter called the "PHASE 2
PREMISES") (hereafter the Phase 1 Premises and the Phase 2 Premises containing
in the aggregate approximately 42,266 rentable square feet are sometimes
referred to together as the "PREMISES") at 801 Nicollet Mall and 800 Marquette
Avenue, containing two towers (the "West Tower" and the "East Tower") commonly
known as the Midwest Plaza Building (hereafter called the "BUILDING") in the
City of Minneapolis, County of Hennepin, State of Minnesota to be occupied by
Tenant on the respective Commencement Dates indicated in Article 3 below. The
term Building as it is used herein shall consist of the West Tower and the East
Tower (the "West Tower and the East Tower are sometimes each referred to as a
"Tower") including the parking ramp under the East Tower ("PARKING RAMP") on all
the real estate legally described on Exhibit A-4 hereto.
It is acknowledged by the parties hereto that the Premises under this Lease
Agreement shall be measured by Landlord's architect or other design professional
to obtain the useable square footage of the Premises and then converting the
useable square footage number to rentable square feet by utilizing the
Building's R/U factor (Rentable/Useable) which is 1.06 for single tenant floors
and 1.15 for multi-tenant floors. Such area determination shall be used in
connection with determining Tenant's "Pro Rata Share of Real Estate Taxes and
Operating Expenses" pursuant to Article 6 below and to make any necessary
proportionate adjustments in the Minimum Rental, Improvement Allowance, Leasing
Commissions and PM Fees payable under this Lease Agreement.
ARTICLE 1 - TERM
To have and to hold said Premises, or portions thereof as hereinafter
provided, for a term commencing August 18, 1997 and terminating August 31, 2004
(hereafter called the "TERM") upon the rentals and subject to the conditions set
forth in this Lease Agreement, and the Exhibits attached hereto.
The commencement and termination dates are specifically subject to the
provisions of Article 5 hereof.
ARTICLE 2 - USE
The Premises shall be used by the Tenant solely for the following
purposes: General office use and any other legally permitted uses incidental
thereto
ARTICLE 3 - RENTALS
Tenant agrees to pay to Landlord as minimum rental (hereafter called
"MINIMUM RENTAL") for the Premises, except as may be otherwise required herein,
without notice, set-off or demand, the amounts set forth below commencing on the
dates indicated (each a "Commencement Date"):
THE PHASE 1 PREMISES CONTAINING APPROXIMATELY 29,966 RENTABLE SQUARE FEET IN THE
AGGREGATE AS DEPICTED ON EXHIBITS A-1 AND A-2 ATTACHED HERETO:
<TABLE>
<CAPTION>
Commencement Date Annual Rate Per RSF Monthly Minimum Rental
----------------- ------------------- ----------------------
<S> <C> <C>
8/18/97 $9.00 $22,474.50
</TABLE>
THE PHASE 2 PREMISES CONTAINING APPROXIMATELY 12,300 RENTABLE SQUARE FEET AS
DEPICTED ON EXHIBIT A-3 ATTACHED HERETO:
<TABLE>
<CAPTION>
Commencement Date Annual Rate Per RSF Monthly Minimum Rental
----------------- ------------------- ----------------------
<S> <C> <C>
3/1/98 $9.00 $ 9,225.00
</TABLE>
The Minimum Rental shall be payable in equal monthly installments, said monthly
installments to be due and payable by Tenant in advance on the first day of each
calendar month during the Term of this Lease Agreement, or any extension or
renewal thereof, at the office of Landlord set forth in the preamble to this
Lease Agreement or at such other place as Landlord may designate. In the event
of any fractional calendar month, Tenant shall pay for each day in such partial
month a rental equal to 1/30 of the Minimum Rental. Tenant agrees to pay, as
Additional Rent, which shall be collectible to the same extent as Minimum
Rental, all amounts which may become due to Landlord hereunder and any tax,
charge or fee that may be levied, assessed or imposed upon or measured by the
rents reserved hereunder by any governmental authority acting under any present
or future law before any fine, penalty, interest or costs may be added thereto
for non-payment. Pursuant to Article 6 hereof, Landlord's estimated Operating
Expenses for 1997 are $6.14 per rentable square foot and estimated Real Estate
Taxes payable in 1997 are $3.84 per rentable square foot.
ARTICLE 4 - CONSTRUCTION
A.1. Landlord agrees to make the "Tenant Improvements" (as defined
below) to the Premises (including the Phase 1 Premises and the Phase 2 Premises)
to be shown on the "Approved Plans" (as defined below) pursuant to the
provisions of this Article 4 A. In consideration of Landlord making such Tenant
Improvements, Tenant agrees to pay to Landlord all costs exceeding the
"Improvement Allowance" (as defined below) as Tenant's share of the cost of such
Tenant Improvements, said payment to be made without demand in cash within
fifteen (15) days following "Substantial Completion" (as defined below) of the
Tenant Improvements and submission by Landlord to Tenant of an itemized
statement of construction costs of such Tenant Improvements and if so requested
by Tenant, supporting invoices or other written evidence substantiating said
construction costs. Any other improvements to the Premises, and the furnishing
of the Premises, shall be made by Tenant, at the sole cost and expense of
Tenant, subject to all other provisions of this Lease Agreement.
2. After execution of this Lease Agreement, Tenant's architect
("Tenant's Architect") shall prepare plans based on information as to Tenant's
requirements supplied directly by Tenant for the improvements to be made to the
Premises (herein called the "Tenant Improvements", which term is more fully
defined below). Tenant agrees to diligently work with Tenant's Architect in
providing such information so as to enable Tenant's Architect to (i) complete
final construction drawings for the Tenant Improvements (the "Construction
Drawings") and to submit said Construction Drawings to Landlord for approval no
later than May 30, 1997, time being of the essence and (ii) complete final
construction plans for the mechanical, electrical and plumbing components of the
Tenant Improvements (the "MEP Construction Plans") and submit said MEP
Construction Plans to Landlord for approval no
1
<PAGE> 2
later than June 6, 1997, time being of the essence. Said Construction Drawings
and MEP Construction Plans shall be subject to Landlord's reasonable approval.
Said Construction Drawings and MEP Construction Plans shall:
a. provide for the Building's standard grade of materials, or
upgrades thereof;
b. provide that the electrical wiring, HVAC and other Building
systems to be installed or affected by said final plans shall be
approved, at no cost to Tenant, by Landlord's contractors, and/or
electrical, HVAC or other systems' subcontractors and/or
consultants as being of a quality comparable to the systems
installed elsewhere in the Building; and
c. provide only for permanent improvements to the Premises, as
opposed to personal property, equipment, trade fixtures and
furnishings of Tenant or of the business to be conducted by Tenant
within the Premises.
Once so approved, said Construction Drawings and MEP Construction Plans shall be
initialed by the parties and shall be deemed the "Approved Plans." Thereafter,
any changes to the Approved Plans shall require Landlord's reasonable approval.
3. Subject to the conditions set forth below, Landlord agrees to
provide Tenant with an allowance towards the actual costs of constructing the
Tenant Improvements to the Premises (the "Improvement Allowance"). The
Improvement Allowance shall be up to $633,990.00 (i.e., $15.00 per rentable
square foot of the Premises). The Improvement Allowance shall be available
towards the cost of:
a. Construction of the Tenant Improvements;
b. Engineering and architectural fees in connection with the
preparation of the Approved Plans (including those prepared by
Tenant's Architect);
c. Cabling costs;
d. Installation of the light fixtures and ceiling tiles;
e. Any modifications to the Building's sprinkler and HVAC systems
required under the Approved Plans;
f. Ceramic tile for the floors and walls of the Existing Bathroom
Facilities (as defined below) being renovated by Landlord;
g. All building and other permits and governmental fees relating to
the Tenant Improvements;
h. The cost of hoists (other than use of the freight elevators which
shall be provided at no cost to Tenant);
i. Project supervision (labor only) at Landlord's normal and
customary rate; and
j. A construction management fee payable to Landlord of three percent
(3%) and project administration and overhead of five percent (5%)
of the total cost (exclusive of the costs under g. and i. above)
of the Tenant Improvements.
In addition to the Tenant Improvements and the Improvement Allowance, Landlord
shall provide Tenant with the following at Landlord's expense:
a. asbestos abatement, if necessary;
b. new 2x4 light fixtures (stacked on the floor);
c. new 2x2 ceiling tiles (stacked on the floor);
d. new 2x2 ceiling grid (installed);
e. installation of life safety and life support systems as are
required by building code for shell space;
f. building-standard mini-blinds (installed and clean);
g. drinking fountain at core;
h. electrical and telephone closets;
i. building fire stairwells for exiting;
j. mechanical equipment room with air handling unit and primary duct
system currently in place above ceiling;
k. shell space shall include only sheetrocked perimeter walls and
interior columns, elevator lobby and core;
l. fire protection alarm and communication system installed according
to building code for shell space;
m. smooth and level concrete floor in accordance with industry
standards;
n. 208/110 volt and 480/277 volt power panels (fused to current
building code) connected to building power and providing 8 watts
per rentable square foot demand for power on the floor;
o. for multi-tenant floors only, finished floor lobby and common
areas in accordance with building-standard finishes;
p. one (1) 2x4 light fixture per 100 usable square feet;
q. for multi-tenant floors only, finished inside surface of corridor
walls, taped, sanded and ready for paint; and
r. plans and/or drawings for areas of the Building other than the
Premises which may be required in order for the Tenant
Improvements to be constructed and Tenant being able to lawfully
occupy the Premises.
4. In addition to the Tenant Improvements and the Improvement
Allowance, Landlord shall also, at Landlord's sole cost and expense, (i)
renovate the existing bathroom facilities in the Premises (i.e., the men's and
women's restrooms in each of the West Tower and the East Tower) (the "Existing
Bathroom Facilities") exclusive of ceramic tile for the floors and walls thereof
and (ii) construct a new "unisex" bathroom complying with all applicable
governmental laws, ordinances, rules and regulations next to the existing men's
bathroom in the East Tower.
5. Landlord shall act as construction manager for purposes of
coordinating construction of the Tenant Improvements, there being no "general
contractor." Upon completion of the Approved Plans, Landlord shall obtain bids
for construction of the Tenant Improvements from at least three (3) reputable
contractors for each "Major Contract" other than for architectural, mechanical
and electrical (a "MAJOR CONTRACT" shall be deemed any contract in excess of
$5,000.00). For each such Major Contract, Tenant shall have the right to suggest
contractors from whom Landlord shall solicit bids. All Major Contract bids shall
be disclosed and reviewed with Tenant. Prior to commencing construction of the
Tenant Improvements, Landlord shall obtain Tenant's approval of (i) Landlord's
Preliminary Tenant Improvement Budget Estimate (the "Budget") for the Tenant
Improvements and (ii) the final costs of said Tenant Improvements (the "Final
Costs"), both of which shall be of sufficient detail so as to show the costs set
forth in paragraph 3 above of this Article 4 A., which approval shall be deemed
automatically given in the event Tenant has not responded in writing to Landlord
within forty-eight (48) hours (exclusive of Saturdays, Sundays and legal
holidays) of Landlord's request for approval. Landlord shall cause construction
of the Tenant Improvements to the Premises in due course, in a prompt manner,
subject to delays caused by Tenant or otherwise beyond Landlord's reasonable
control.
6. Under no circumstances shall any unused portion of the Improvement
Allowance be paid or payable to Tenant.
7. Gregory A. Effertz is hereby designated by Tenant as Tenant's
"Construction Representative" and John S. Healy is hereby designated by Landlord
as Landlord's Construction Representative. Said Construction Representatives
shall have authority to bind their respective parties with respect to all
matters related to the design and construction of the Tenant Improvements under
this Article 4, including approving the Approved Plans, the Budget and the Final
Costs, change orders, requests for information and the like. Landlord and
Tenant, through their respective Construction Representatives, shall respond to
all requests for approval or information made by the other party related to the
design and construction of the Tenant Improvements under this Article 4, within
forty-eight (48) hours (exclusive of Saturdays, Sundays and legal holidays) of
said other party's request. All requests and other communications to and from
the Construction Representatives shall be deemed effectively made when
transmitted by facsimile (with a follow-up telephone
2
<PAGE> 3
call or voice mail message indicating that such a facsimile transmission has
been made). By written notice to the other party given pursuant to Article 25
below, either party may replace its existing Construction Representative by
designating another individual to so act.
ARTICLE 5 - POSSESSION
A. Subject to Articles 5 B. and C. below, Landlord shall deliver
possession of the Phase 1 Premises and the Phase 2 Premises "Substantially
Completed" (as defined below) on or before the respective Commencement Dates set
forth above, but delivery of possession prior to the applicable Commencement
Date shall not affect the expiration date of this Lease Agreement. Failure of
Landlord to deliver possession of either the Phase 1 Premises or the Phase 2
Premises "Substantially Completed" by the applicable Commencement Date
hereinabove provided, due to a Force Majeure Delay (as defined below) shall
automatically postpone such Commencement Date. As used herein, "Substantially
Completed" or "Substantial Completion" shall mean:
(i) Landlord has sufficiently completed all the work required to be
performed by Landlord under this Lease Agreement (except for minor
"punchlist" items which Landlord shall promptly thereafter complete)
such that Tenant can lawfully conduct its normal business operations
from the Premises;
(ii) Tenant has been delivered complete and uninterrupted access to the
Premises (and other required portions of the Building); and
(iii) All of the systems, equipment, machinery and fixtures used in
connection with, and necessary for, the operation of the Building and
required service to the Premises shall be in operating order.
B. The rentals herein reserved for the Phase 1 Premises and the Phase 2
Premises shall begin on the respective Commencement Dates, provided, however,
and subject to Article 5 C. below, in the event of any occupancy by Tenant of
the Phase 1 Premises or the Phase 2 Premises for the purpose of conducting
business therein prior to the applicable Commencement Date, such occupancy shall
in all respects be the same as that of a tenant under this Lease Agreement, and
the rental shall commence as of the date that Tenant enters into such occupancy
of the Phase 1 Premises or the Phase 2 Premises, it being specifically
acknowledged and agreed by the parties that it is the intent of the parties that
the Tenant Improvements for the Phase 1 Premises and the Phases 2 Premises shall
be made at the same time by Landlord, and Tenant, at its option, may elect to
take occupancy of the Phase 2 Premises prior to March 1, 1998 for the purpose of
conducting business therein and begin paying rental therefor. Provided however,
that if Landlord shall be delayed in delivery of either the Phase 1 Premises or
the Phase 2 Premises to Tenant due to a Tenant Delay (as defined below), then in
such case the rental shall be accelerated by the number of days of such Tenant
Delay, and the rentals shall commence the same as if occupancy had been taken by
Tenant. Prior to the applicable Commencement Date, Landlord shall have no
responsibility or liability for loss or damage to fixtures, facilities or
equipment installed or left on the Phase 1 Premises or the Phase 2 Premises. By
occupying either the Phase 1 Premises or the Phase 2 Premises as a Tenant for
the purpose of conducting business therein, Tenant shall be conclusively deemed
to have accepted the same and to have acknowledged that the Phase 1 Premises or
the Phase 2 Premises, as the case may be are in the condition required by this
Lease Agreement, except items which are not in compliance with the Approved
Plans therefor and for which Tenant has given Landlord a written "punch list"
within thirty (30) days of Tenant's first occupancy and except for latent
defects of which Tenant has given Landlord written notice within one (1) year of
Tenant's first occupancy, it being agreed by Landlord, however, that in the
event a latent defect is covered by a warranty in favor of Landlord extending
beyond (1) year, Landlord shall use its best efforts to enforce such warranty
for and on behalf of Tenant. Immediately after Tenant's occupancy of the Phase 1
Premises and again after Tenant's occupancy of the Phase 2 Premises, the
Landlord and Tenant shall execute a ratification agreement which shall set forth
the applicable Commencement Date and shall acknowledge the Minimum Rental, the
rentable square footage of the Phase 1 Premises or the Phase 2 Premises, as the
case may be and delivery of the Phase 1 Premises or the Phase 2 Premises, as the
case may be in the condition required by this Lease Agreement, subject to latent
defects and "punch list" items which are not in compliance with the Approved
Plans, as aforesaid.
C. In the event the Delivery Date (as defined below) for the Phase 1
Premises has not occurred by 11:59 p.m. on August 8, 1997 for reasons other than
Tenant Delay or Force Majeure Delay, then commencement of the payment of the
rentals for the Phase 1 Premises shall be delayed for the number of days or
partial days (inclusive of Saturdays, Sundays and legal holidays) equal to the
delay in the occurrence of the Delivery Date for the Phase 1 Premises beyond
11:59 p.m. on August 8, 1997 and in addition thereto, Tenant shall receive a
credit, as liquidated damages and not as a penalty (the parties acknowledge that
under certain circumstances actual damages may be difficult to ascertain)
against the Minimum Rental and Additional Rental under Article 6 of this Lease
Agreement that would otherwise be payable under this Lease Agreement by Tenant
for the Phase 1 Premises, of one day's free Minimum Rental and Additional Rental
calculated on both the Phase 1 Premises and the Phase 2 Premises for each day or
partial day (inclusive of Saturdays, Sundays and legal holidays) the occurrence
of the Delivery Date is delayed beyond 11:59 p.m. on August 8, 1997.
D. As used in this Article 5, the following terms shall have the
following meanings:
1. Delivery Date. The term "Delivery Date" shall mean the date
Landlord has delivered possession of the Premises Substantially
Complete so that Tenant may install its freestanding work stations,
fixtures, furnitures, equipment and telecommunications and computer
cabling systems in the Premises. For a period of ten (10) days
following the Delivery Date, Tenant may occupy the Premises rent-free
for such purposes so long as Tenant does not commence conducting
business therein.
2. Tenant Delay. The term "Tenant Delay" shall mean any delay
incurred by Landlord in the design and construction of the Tenant
Improvements because of any act or omission of any nature by Tenant or
its employees, agents or contractors, including specifically Tenant's
Construction Representative, including, without limitation, any: (1)
delay attributable to changes in or additions to the Approved Plans or
to the Tenant Improvements made at the request of Tenant; (2) delay by
Tenant in delivering the Construction Drawings by May 30, 1997 or in
delivering the MEP Construction Plans by June 6, 1997 or in the
submission of information or the giving of authorizations or approvals,
including to the Approved Plans (or necessary modifications thereof),
the Budget and the Final Costs within the time limits set forth in this
Lease Agreement; and (3) delay attributable to the failure of Tenant to
pay, when due, any amounts required to be paid by Tenant. Any
prevention, delay or stoppage due to any Tenant Delay shall excuse the
performance of the Landlord for a period of time equal to any such
prevention, delay or stoppage.
3. Force Majeure Delay. The term "Force Majeure Delay" shall mean
any delay incurred by Landlord in the design and construction of the
Tenant Improvements attributable to any: (1) actual delay or failure to
perform attributable to shortages of materials or labor or to any
strike, lockout or other labor or industrial disturbance, further order
claiming jurisdiction, act of public enemy, war, riot, sabotage,
blockage, embargo; (2) delay due to changes in any applicable laws or
the interpretation thereof; or (3) delay attributable to lightning,
earthquake, fire, storm, hurricane, tornado, flood, washout, explosion,
or any other similar industry-wide or Building-wide cause beyond the
reasonable control of the Landlord, or any of its contractors or other
representatives. Any prevention, delay or stoppage due to any Force
Majeure Delay shall excuse the performance of the Landlord for a period
of time equal to any such prevention, delay or stoppage.
ARTICLE 6 - TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND OPERATING EXPENSES
A. During each full or partial calendar year during the Term of this Lease
Agreement, Tenant shall pay to Landlord, as Additional Rental, an amount equal
to the Real Estate Taxes and Operating Expenses (both as hereafter defined) per
square foot of rentable area in the Building multiplied by the number of square
feet of rentable area in the Premises prorated for the respective periods that
Tenant has occupied the Phase 1 Premises and the
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Phase 2 Premises. Notwithstanding the preceding sentence, if the Building's
average occupancy during a calendar year is less than ninety-five percent (95%),
then the following Operating Expenses shall be adjusted to reflect ninety-five
percent (95%) occupancy: cleaning, management, and energy expenses.
B. Landlord shall, each year during the Term of this Lease Agreement, give
Tenant an estimate of Operating Expenses and Real Estate Taxes payable per
square foot of rentable area for the coming calendar year. Tenant shall pay, as
Additional Rental, along with its monthly Minimum Rental payments required
hereunder, one-twelfth (1/12) of such estimated Operating Expenses and Real
Estate Taxes and such Additional Rental shall be payable until subsequently
adjusted for the following year pursuant to this Article.
C. As soon as possible after the expiration of each calendar year, but in no
event later than one hundred twenty (120) days following each calendar year,
Landlord shall determine and certify to Tenant the actual Operating Expenses and
Real Estate Taxes for the previous year per square foot of rentable area in the
Building and the amount applicable to the Premises. If such statement shows that
Tenant's share of Operating Expenses and Real Estate Taxes exceeds Tenant's
estimated monthly payments for the previous calendar year, then Tenant shall,
within thirty (30) days after receiving Landlord's certification, pay such
deficiency to Landlord. In the event of an overpayment by Tenant, such
overpayment shall be refunded to Tenant, at the time of certification, in the
form of an adjustment in the Additional Rental next coming due, or if at the end
of the Term by a refund made within thirty (30) days following Landlord's
certification. By giving written notice to Landlord no later than one hundred
twenty (120) days following receipt by Tenant of such a certification by
Landlord, Tenant shall have the right, at its cost and expense, to audit the
books and records of Landlord and/or its property manager relating to the
Operating Expenses and Real Estate Taxes that are the subject of such
certification, said audit to be at a date and place reasonably acceptable to
Landlord and Tenant. Notwithstanding the foregoing, in the event Tenant engages
the services of an independent auditor and the results of its audit establish
that Tenant has overpaid Operating Expenses and Real Estate Taxes by an amount
in excess of five percent (5%) of the Operating Expenses and Real Estate Taxes
that should have been paid by Tenant, Landlord shall reimburse Tenant for the
cost of the audit up to a maximum amount of $2,500.00.
D. For the purposes of this Article, the term "REAL ESTATE TAXES" means the
total of all taxes, fees, charges and assessments, general and special, ordinary
and extraordinary, foreseen or unforeseen, which become due or payable upon the
Building. Notwithstanding the foregoing, to the extent special assessments that
may otherwise be included in Real Estate Taxes hereunder may be paid in annual
installments, Real Estate Taxes for a given year under this Article 6 shall only
include the current year's installment of special assessments. All costs and
expenses incurred by Landlord during negotiations for or contests of the amount
of Real Estate Taxes shall be included within the term "Real Estate Taxes." For
purposes of this Article, the term "OPERATING EXPENSES" shall be deemed to mean
all costs and expenses directly related to the Building incurred by Landlord in
the repair, operation, management and maintenance of the Building including
interior and exterior and common area maintenance, management fees, cleaning
expenses, energy expenses, insurance premiums, and the amortization of capital
investments made to reduce operating costs or that are necessary due to
governmental requirements, all in accordance with generally accepted accounting
principles. Notwithstanding anything herein to the contrary, the term "Operating
Expenses" shall not be deemed to include any of the items set forth on Exhibit B
attached hereto.
E. Landlord may at any time designate a fiscal year in lieu of a calendar year
and in such event, at the time of such a change, there may be a billing for the
fiscal year which is less than 12 calendar months.
F. Landlord reserves, and Tenant hereby assigns to Landlord, the sole and
exclusive right to contest, protest, petition for review, or otherwise seek a
reduction in the Real Estate Taxes. Landlord shall pay to Tenant its pro rata
portion of any refund received by Landlord (net of all expenses, including
attorneys' fees incurred by Landlord in obtaining such refund if such expenses
have not already been included in Real Estate Taxes pursuant to Article 6 D.
above) of Real Estate Taxes applicable to the Term of this Lease Agreement.
ARTICLE 7 - UTILITIES AND SERVICE
A. Landlord agrees to furnish water, electricity, elevator service, and
janitorial service Monday through Friday of each week (exclusive of legal
holidays) in accordance with the specifications attached hereto as Exhibit C. In
the event Tenant's requirements and/or usage of such utilities and services is
substantially greater than is customarily supplied to a typical tenant in the
Building, Landlord may request that the difference in such requirement and/or
usage be determined and that appropriate adjustments be made in the Minimum
Rental provided for in Article 3 of this Lease Agreement. Notwithstanding the
foregoing, if Tenant's requirements for electrical service in its "computer
room" are substantially greater than is customarily supplied to a typical tenant
in the Building, electrical service to the computer room shall be submetered, in
which event Landlord shall pay the cost of installing the submeter and Tenant
shall be solely responsible thereafter for the cost of the electrical service to
the computer room.
B. Landlord agrees to furnish heat during the usual heating season and air
conditioning during the usual air conditioning season, all during normal
business hours as defined in this Lease Agreement, for the comfortable use and
enjoyment of the Premises by Tenant. Notwithstanding anything to the contrary
herein, HVAC shall, upon at least eight (8) business hours' prior request, be
available to Tenant outside of normal business hours at a charge to Tenant not
to exceed Landlord's actual cost therefor, which cost is currently approximately
$45.00 per hour per floor per Tower. Landlord represents and warrants that the
Building's HVAC, electrical and plumbing systems and equipment serving the
Premises are in good working order.
C. No temporary interruption or failure of such services incidental to the
making of repairs, alterations or improvements, or due to accidents or strike or
conditions or events not under Landlord's control, shall be deemed as an
eviction of the Tenant or relieve the Tenant from any of the Tenant's
obligations hereunder. Notwithstanding the foregoing, in the event any
interruption or failure of such services is the result of Landlord's negligence
or willful misconduct, such interruption or failure of services continues for
five (5) consecutive business days and as a result thereof, Tenant has been, and
will be unable to carry on its business operations from the Premises, then the
payment of Minimum Rental and Additional Rental under Article 6 of this Lease
Agreement shall abate until such time as such services are restored.
D. For the purposes of this Article 7, normal business hours shall be deemed to
mean the periods of time between 8:00 a.m. and 6:00 p.m., Monday through Friday
and between 8:00 a.m. and 1:00 p.m. on Saturdays, and specifically excluding
Sundays and legal holidays. Notwithstanding the foregoing, Tenant shall have
elevator access to the Premises (including the restrooms) seven (7) days a week,
twenty-four (24) hours a day, subject to Landlord's security measures and
card-access system.
E. Landlord shall have personnel on-site at the Building seven (7) days a week,
twenty-four (24) hours a day and escort service shall be available to the
Parking Ramp.
F. Tenant shall have access to the freight elevator of the Building at no charge
to Tenant (other than as may be properly included in Operating Expenses under
Article 6 hereof).
ARTICLE 8 - NON-LIABILITY OF LANDLORD
Except in the event of negligence of Landlord, its agents, employees or
contractors, Landlord shall not be liable for any loss or damage for failure to
furnish heat, air conditioning, electricity, elevator service, water, sprinkler
system or janitorial service. Landlord shall not be liable to Tenant for
personal injury, death or any damage from any cause about the Premises or the
Building except if caused by the negligence of Landlord or its agents or
employees.
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ARTICLE 9 - CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as they were in
at the time Tenant took possession of same, reasonable wear and tear and damage
from fire and other casualty excepted;
2. To keep the Premises in a clean and sanitary condition;
3. Not to commit any nuisance or waste on the Premises, overload the
Premises or the electrical, water and/or plumbing facilities in the Premises or
Building, throw foreign substances in plumbing facilities, or waste any of the
utilities furnished by Landlord;
4. To abide by such rules and regulations as set forth in Exhibit D
attached hereto, as may be from time to time reasonably supplemented and amended
by Landlord. Landlord agrees that whenever Landlord's consent or approval is
required under the rules and regulations with respect to Tenant, Landlord shall
not unreasonably withhold such consent or approval;
5. To preserve and protect all carpeted areas and to provide and use
carpet protector mats in all locations within the Premises where chairs with
castors are used; and
6. To obtain Landlord's prior approval of the interior design of any
portion of the Premises visible from the common areas or from the outside of the
Building. "Interior design" as used in the preceding sentence shall include but
not be limited to floor and wall coverings, furniture, office design, artwork
and color scheme.
B. If Tenant shall fail to keep and preserve the Premises in the state of
condition required by the provisions of this Article 9, the Landlord may at its
option and upon at least fifteen (15) days written notice to Tenant (except in
an emergency, in which case no notice need be given), put or cause the same to
be put into the condition and state of repair agreed upon, and in such case the
Tenant, on demand, shall pay the cost thereof.
ARTICLE 10 - NON-PERMITTED USE
Tenant agrees to use the Premises only for the purposes set forth in Article 2
hereof. Tenant further agrees not to commit or permit any act to be performed on
the Premises or any omission to occur which shall be in violation of any
statute, regulation or ordinance of any governmental body or which will increase
the insurance rates on the Building or which will be in violation of any
insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to Tenant's specific use and occupancy of the Premises
and shall promptly comply with all governmental orders, rulings and directives
for the correction, prevention and abatement of any violation in connection with
Tenant's specific use and occupancy of the Premises, including the making of any
alterations or improvements to the Premises, all at Tenant's sole cost and
expense. The Tenant shall not disturb other occupants of the Building by making
any undue or unseemly noise or otherwise and shall not do or permit to be done
in or about the Premises anything which will be dangerous to life or limb.
ARTICLE 11 - INSPECTION
The Landlord or its employees or agents shall have the right, upon reasonable
verbal or written notice to Tenant (except in an emergency, in which case no
notice need be given), without any diminution of rent or other charges payable
hereunder by Tenant to enter the Premises at all reasonable times for the
purpose of exhibiting the Premises to prospective purchasers and mortgagees and
during the last twelve (12) months of the Term of this Lease Agreement, to
prospective tenants, inspection, cleaning, repairing, testing, altering or
improving the same or said Building, but nothing contained in this Article shall
be construed so as to impose any obligation on the Landlord to make any repairs,
alterations or improvements.
ARTICLE 12 - ALTERATIONS
Tenant will not make any alterations, repairs, additions or improvements in or
to the Premises or add, disturb or in any way change any plumbing, wiring,
life/safety or mechanical systems, locks, or structural components of the
Building without the prior written consent of the Landlord as to the character
of the alterations, additions or improvements to be made, the manner of doing
the work, and the contractor doing the work. Such consent shall not be
unreasonably withheld or delayed, if such alterations, repairs, additions or
improvements are required of Tenant or are the obligation of Tenant pursuant to
this Lease Agreement. All such work shall comply with all applicable
governmental laws, ordinances, rules and regulations. Notwithstanding the
foregoing, the Tenant may make alterations, repairs, additions or improvements
of a non-structural nature that do not affect the primary plumbing, wiring,
life/safety or mechanical systems of the Building ("primary" meaning systems
affecting areas of the Building as well as the Premises) (i) without the consent
of Landlord if such alterations, repairs, additions or improvements cost less
than $10,000.00 and Landlord is given at least ten (10) days advance written
notice by Tenant prior to such alterations, repairs, additions or improvements
being made and (ii) with the written consent of Landlord if such alterations,
repairs, additions or improvements cost $10,000.00 or greater, which consent
shall not be unreasonably withheld by Landlord. The Landlord as a condition to
said consent may require a surety performance and/or payment bond from the
Tenant for said actions. Tenant agrees to indemnify and hold Landlord free and
harmless from any liability, loss, cost, damage or expense (including reasonable
attorney's fees) by reasons of any said alteration, repairs, additions or
improvements.
ARTICLE 13 - SIGNS
Tenant agrees that no signs or other advertising materials shall be erected,
attached or affixed to any portion of the interior or exterior of the Premises
or the Building without the express prior written consent of Landlord.
Notwithstanding the foregoing, Tenant shall be entitled to the Building-
standard suite entry and directory signage at no charge to Tenant. Landlord
further agrees that the lobby of the eleventh floor of the West Tower may
contain such signage identifying Tenant as Tenant desires and the Improvement
Allowance may be used to pay the cost of said signage and the installation
thereof.
ARTICLE 14 - COMMON AREAS
A. Tenant agrees that the use of all corridors, passageways, elevators, toilet
rooms, parking areas and landscaped area in and around said Building, by the
Tenant or Tenant's employees, visitors or invitees, shall be subject to such
rules and regulations as may from time to time be made by Landlord for the
safety, comfort and convenience of the owners, occupants, tenants and invitees
of said Building. Tenant agrees that no awnings, curtains, drapes or shades
shall be used upon the Premises except as may be approved by Landlord.
B. In addition to the Premises, Tenant shall have the right of non-exclusive
use, in common with others, of all loading facilities, freight elevators and
other facilities as may be constructed in the Building, all to be subject to the
terms and conditions of this Lease Agreement and to reasonable rules and
regulations for the use thereof as prescribed from time to time by Landlord.
C. Landlord shall have the right to make changes or revisions in the site plan
and in the Building so as to provide additional leasing area. Landlord shall
also have the right to construct additional buildings on the land described on
Exhibit A-4 for such purposes as Landlord may deem appropriate. Landlord also
reserves all airspace rights above, below and to all sides of the Premises,
including the right to make changes, alterations or provide additional leasing
areas. Notwithstanding the foregoing, the exercise of Landlord's rights under
this Article 14 C. shall not materially impair Tenant's access to the Premises
or increase Tenant's proportionate share of Operating Expenses and Real Estate
Taxes under Article 6 above.
D. (INTENTIONALLY OMITTED)
E. Pursuant to a separate storage agreement to be entered into between Landlord
and Tenant at any time during the initial Term of this Lease Agreement and
provided that such storage space is available at the time of Tenant's request
therefor, Tenant shall have the right to lease up to 5,000 square
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feet of storage space as designated from time to time by Tenant in the basement
of the Building (the "Storage Space") at a gross annual rental rate in effect
during the initial Term of this Lease Agreement of $10.00 per square foot
payable in advance in equal monthly installments. Notwithstanding the foregoing
contingency that the Storage Space be available at the time of Tenant's request
therefor, Landlord shall at all times during the initial Term of this Lease
Agreement provide Tenant with at least two hundred (200) feet of Storage Space
within thirty (30) days of Tenant's request therefor.
F. Pursuant to one or more separate parking agreements to be entered into
between Landlord and Tenant or at Tenant's option with respect to one or more of
Tenant's employees, directly between Landlord and said employees, Tenant shall
be entitled (x) during the initial Term of this Lease Agreement, to park
rent-free (i) four (4) vehicles in the non-heated, non-reserved portion of the
Parking Ramp and (ii) one (1) vehicle in the heated, reserved portion of the
Parking Ramp and (y) during the initial Term of this Lease Agreement or any
extensions thereof, to park, at the prevailing market rates, one (1) additional
vehicle in the non-heated, non-reserved portion of the Parking Ramp for each
whole increment of 1,000 rentable square feet of Premises Tenant is leasing
under this Lease Agreement in excess of 5,000 rentable square feet.
G. Landlord shall manage, maintain and operate the Building and the common areas
and Building systems (including HVAC, plumbing and electrical) thereof, in a
first class manner consistent with comparable buildings in the central business
district of Minneapolis, Minnesota, and except as may be required of Tenant
under Article 10 above, Landlord shall keep the Building common areas and
systems in compliance with all applicable governmental laws, ordinances, rules
and regulations.
H. Pursuant to a separate roof license agreement to be entered into between
Landlord and Tenant, Tenant shall be entitled at any time during the initial
Term of this Lease Agreement or any extension thereof, at no rental charge or
license fee, to install and maintain on the roof of the Building one (1)
satellite or microwave dish.
ARTICLE 15 - ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, mortgage or encumber this Lease
Agreement, the Premises, or any part thereof, whether by voluntary act,
operation of law, or otherwise, without the specific prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld or
delayed by Landlord. If Tenant is a corporation or a partnership, transfer of a
controlling interest of Tenant other than through a recognized stock exchange or
over the counter, shall be considered an assignment of this Lease Agreement for
purposes of this Article. Consent by Landlord in one such instance shall not be
a waiver of Landlord's rights under this Article as to requiring consent for any
subsequent instance. Notwithstanding the foregoing, Tenant may assign this Lease
Agreement or sublet all or any portion of the Premises to an Affiliate of Tenant
without having to obtain the written consent of Landlord. As used herein, an
"Affiliate" of Tenant shall be any entity which, directly or indirectly, either
controls, is controlled by or is under common control with Tenant, with
"control" meaning the power to direct the management and policies, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise. In the event Tenant desires to sublet a part or all of the Premises,
or assign this Lease Agreement, whether to an Affiliate, Tenant shall give
written notice to Landlord at least twenty (20) days prior to the proposed
subletting or assignment, which notice shall state the name of the proposed
subtenant or assignee, the terms of any sublease or assignment documents and if
proposed to a person or entity other than an Affiliate, copies of financial
reports or other relevant financial information of the proposed subtenant or
assignee. In any event no subletting or assignment, regardless of whether to an
Affiliate, shall release Tenant of its obligation to pay the rent and to perform
all other obligations to be performed by Tenant hereunder for the Term of this
Lease Agreement. The acceptance of rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof.
B. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and, providing the
purchaser succeeds to the interests of Landlord under this Lease Agreement,
Landlord shall thereupon be entirely freed of all obligations of the Landlord
hereunder and shall not be subject to any liability resulting from any act or
omission or event occurring after such conveyance.
ARTICLE 16 - LOSS BY CASUALTY
If the Building is damaged or destroyed by fire or other casualty, the Landlord
shall have the right to terminate this Lease Agreement, provided it gives
written notice thereof to the Tenant within sixty (60) days after such damage or
destruction. If a portion of the Premises is damaged by fire or other casualty,
and Landlord does not elect to terminate this Lease Agreement, the Landlord
shall, at its expense, restore the Premises to as near the condition which
existed immediately prior to such damage or destruction, as reasonably possible,
and the rentals (including Operating Expenses and Real Estate Taxes under
Article 6) shall abate during such period of time in the proportion that the
unusable portion of the Premises bears to the entire Premises, it being
acknowledged and agreed that damage to one area of the Premises (e.g., the
computer room) may under certain circumstances make other undamaged areas of the
Premises unusable up to and including the entire Premises. Notwithstanding the
foregoing, Tenant shall have the right to terminate this Lease Agreement (i) by
written notice to Landlord within sixty (60) days of the date of damage if, in
the reasonable judgment of Landlord, said damage cannot be repaired within nine
(9) months of the date of said damage or (ii) if said damage is not, in fact,
repaired within said nine (9) month period, by written notice to Landlord within
ten (10) days thereafter.
ARTICLE 17 - WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible, provided however,
that this release shall be applicable and in force and effect only with respect
to loss or damage occurring during such times as the releasing party's policies
shall contain a clause or endorsement to the effect that any such release would
not adversely affect or impair said policies or prejudice the right of the
releasing party to recover thereunder. Landlord and Tenant agree that they will
request their insurance carriers to include in their policies such a clause or
endorsement.
ARTICLE 18 - EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement shall
automatically terminate as of the date of taking. If a portion of the Building
is taken by eminent domain, the Landlord shall have the right to terminate this
Lease Agreement, provided it gives written notice thereof to the Tenant within
sixty (60) days after the date of taking. If a portion of the Premises is taken
by eminent domain and this Lease Agreement is not terminated by Landlord, the
Landlord shall, at its expense, restore the Premises to as near the condition
which existed immediately prior to the date of taking as reasonably possible,
and the rentals (including Operating Expenses and Real Estate Taxes under
Article 6) shall abate during such period of time in the proportion that the
unusable portion of the Premises bears to the entire Premises, it being
acknowledged and agreed that one area of the Premises that is taken (e.g., the
computer room) may under certain circumstances make other areas of the Premises
that are not taken unusable up to and including the entire Premises. All damages
awarded for such taking under the power of eminent domain shall belong to and be
the sole property of Landlord, irrespective of the basis upon which they are
awarded, provided, however, that nothing contained herein shall prevent Tenant
from making a separate claim to the condemning authority for its moving expenses
and trade fixtures and so long as the award to Landlord is not reduced thereby,
for Tenant's business interruption, goodwill and other write-offs. For purposes
of this Article, a taking by eminent domain shall include Landlord's giving of a
deed under threat of condemnation.
ARTICLE 19 - SURRENDER
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On the last day of the Term of this Lease Agreement or on the sooner termination
thereof in accordance with the terms hereof, Tenant shall peaceably surrender
the Premises in good condition and repair consistent with Tenant's duty to make
repairs as provided in Article 9 hereof. On or before said last day, Tenant
shall at its expense remove all of its equipment from the Premises, repairing
any damage caused thereby, and any property not removed shall be deemed
abandoned. All alterations, additions and fixtures other than Tenant's trade
fixtures, which have been made or installed by either Landlord or Tenant upon
the Premises shall remain as Landlord's property and shall be surrendered with
the Premises as a part thereof, or shall be removed by Tenant, at the option of
Landlord, in which event Tenant shall at its expense repair any damage caused
thereby. Notwithstanding the foregoing, Tenant shall have no obligation
hereunder to remove the initial Tenant Improvements; provided, however, in all
cases, Landlord, at its option, may require Tenant to restore the wall and
doorway area in the Premises between the West Tower and the East Tower to the
condition it is in as of the date hereof. Anything herein to the contrary also
notwithstanding, Tenant shall only be obligated hereunder to remove a subsequent
alteration or addition to the Premises if prior to the making of such alteration
or addition Tenant was notified by Landlord that Tenant may be required under
the provisions of this Article 19 to remove such alteration or addition. It is
specifically agreed that any and all telephonic, coaxial, ethernet, or other
computer, wordprocessing, facsimile, or electronic wiring installed by Tenant
within the Premises (hereafter "WIRING") shall be removed at Tenant's cost at
the expiration of the Term, unless Landlord has specifically requested in
writing that said Wiring shall remain, whereupon said Wiring shall be
surrendered with the Premises as Landlord's property. If the Premises are not
surrendered at the end of the Term or the sooner termination thereof, Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises, including, without limitation, claims
made by any succeeding tenant founded on such delay. Tenant shall promptly
surrender all keys for the Premises to Landlord at the place then fixed for
payment of rental and shall inform Landlord of combinations on any locks and
safes on the Premises.
ARTICLE 20 - NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs: (1) a rent payment or any other
payment due from Tenant to Landlord shall be and remain unpaid in whole or in
part for more than ten (10) days after same is due and payable; (2) Tenant shall
violate or default on any of the other covenants, agreements, stipulations or
conditions herein, or in any parking agreement(s) or other agreements between
Landlord and Tenant relating to the Premises, and such violation or default
shall continue for a period of thirty (30) days after written notice from
Landlord of such violation or default; or (3) if Tenant shall commence or have
commenced against Tenant proceedings under a bankruptcy, receivership,
insolvency or similar type of action, provided, however in the case of an
involuntary proceeding commenced against Tenant, Tenant shall have a period of
sixty (60) days to have such proceeding dismissed; then it shall be optional for
Landlord, without further notice or demand, to cure such default or to declare
this Lease Agreement forfeited and the said Term ended, or to terminate only
Tenant's right to possession of the Premises, and to re-enter the Premises, with
or without process of law, using such force as may be necessary to remove all
persons or chattels therefrom, and Landlord shall not be liable for damages by
reason of such re-entry or forfeiture; but notwithstanding re-entry by Landlord
or termination only of Tenant's right to possession of the Premises, the
liability of Tenant for the rent and all other sums provided herein shall not be
relinquished or extinguished for the balance of the Term of this Lease Agreement
and Landlord shall be entitled to periodically sue Tenant for all sums due under
this Lease Agreement or which become due prior to judgment, but such suit shall
not bar subsequent suits for any further sums coming due thereafter. Tenant
shall be responsible for, in addition to the rentals and other sums agreed to be
paid hereunder, the cost of any necessary maintenance, repair, restoration,
reletting (including related cost of removal or modification of tenant
improvements) or cure in connection with maintaining and preparing the Premises
for, and reletting, as well as reasonable attorney's fees incurred or awarded in
any suit or action instituted by Landlord to enforce the provisions of this
Lease Agreement, regain possession of the Premises, or the collection of the
rentals due Landlord hereunder. Tenant shall also be liable to Landlord for the
payment of a late charge in the amount of 5% of the rental installment or other
sum due Landlord hereunder if said payment has not been received within ten (10)
days from the date said payment becomes due and payable, or cleared by
Landlord's bank within five (5) business days after deposit. Tenant agrees to
pay interest at the rate of 12% per annum, on all rentals and other sums due
Landlord hereunder not paid within ten (10) days from the date same become due
and payable. Each right or remedy of Landlord provided for in this Lease
Agreement shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease Agreement now or hereafter existing at law or
in equity or by statute or otherwise.
ARTICLE 21 - LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under this Lease Agreement until
Tenant has given Landlord written notice specifying the nature of the default
and Landlord does not cure such default within thirty (30) days after receipt of
such notice or within such reasonable time thereafter as may be necessary to
cure such default where such default is of such a character as to reasonably
require more than thirty (30) days to cure.
ARTICLE 22 - HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by lapse of time
or termination, give up immediate possession to Landlord. If Tenant fails to
give up possession the Landlord may, at its option, serve written notice upon
Tenant that such holdover constitutes either (i) the creation of a
month-to-month tenancy or (ii) the creation of a tenancy at sufferance. If
Landlord does not give said notice, Tenant's holdover shall create a tenancy at
sufferance. In any such event the tenancy shall be upon the terms and conditions
of this Lease Agreement, except that upon at least thirty (30) days written
notice by Landlord to Tenant, the Minimum Rental shall be one hundred fifty
percent (150%) of the Minimum Rental Tenant was obligated to pay Landlord under
this Lease Agreement immediately prior to termination (in the case of tenancy at
sufferance such Minimum Rental shall be prorated on the basis of a 365 day year
for each day Tenant remains in possession); excepting further that in the case
of a tenancy at sufferance, no notices shall be required prior to commencement
of any legal action to gain repossession of the Premises. In the case of a
tenancy at sufferance, Tenant shall also pay to Landlord all damages sustained
by Landlord resulting from retention of possession by Tenant. The provisions of
this paragraph shall not constitute a waiver by Landlord of any right of
re-entry as otherwise available to Landlord; nor shall receipt of any rent or
any other act in apparent affirmance of the tenancy operate as a waiver of the
right to terminate this Lease Agreement for a breach by Tenant hereof.
ARTICLE 23 - SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any mortgage(s)
that may now or hereafter be placed upon the Building or any part thereof, and
to any and all advances to be made thereunder, and to the interest thereon, and
all renewals, replacements, and extensions thereof, provided the mortgagee named
in such mortgage(s) shall agree to recognize this Lease Agreement and not
disturb Tenant's rights under this Lease Agreement, in the event of foreclosure
provided the Tenant is not in default beyond any applicable grace or cure
periods. In confirmation of such subordination and non-disturbance, Tenant shall
promptly execute and deliver any instrument, in recordable form, as required by
Landlord's mortgagee. In the event of any mortgagee electing to have the Lease
Agreement a prior incumbrance to its mortgage, then and in such event upon such
mortgagee notifying Tenant to that effect, this Lease Agreement shall be deemed
prior in incumbrance to the said mortgage, whether this Lease Agreement is dated
prior to or subsequent to the date of said mortgage. Landlord represents and
warrants to Tenant that as of the date hereof, no real estate mortgages are
outstanding against the Building or the real estate legally described on Exhibit
A-4.
ARTICLE 24 - INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for so long as this Lease
Agreement remains in effect public liability insurance with respect to the
Premises in which Landlord shall be named as an additional insured, in companies
and in form acceptable to Landlord with a minimum combined limit of liability of
Two Million Dollars ($2,000,000.00). Said insurance shall also provide for
contractual liability coverage by endorsement. Tenant will further deposit with
Landlord the policy or policies of such insurance or certificates thereof, or
other acceptable evidence that such insurance is in effect, which evidence shall
provide that Landlord shall be notified in writing thirty (30) days prior to
cancellation, reduction in the amount or scope of coverage, or failure to renew
the insurance. Tenant further covenants and agrees to indemnify and hold
Landlord and Landlord's manager of the Building harmless for any claim, loss or
damage, including reasonable attorney's fees, suffered by Landlord, Landlord's
manager or Landlord's
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other tenants caused by: i) any act or omission by Tenant, Tenant's employees,
agents or contractors in, at, or around the Premises or the Building; ii) the
conduct or management of any work or thing whatsoever done by Tenant in or about
the Premises; or iii) Tenant's failure to comply with any and all governmental
laws, rules, ordinances or regulations applicable to the use of the Premises and
its occupancy for which Tenant is otherwise responsible under the terms of this
Lease Agreement. If Tenant shall not comply with its covenants made in this
Article 24, Landlord may, at its option upon ten (10) days' written notice to
Tenant, cause insurance as aforesaid to be issued and in such event Tenant
agrees to pay the premium for such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of the Premises
and all property kept, stored or maintained in the Premises. Tenant represents
that it is satisfied with the security of said Building and Premises for the
protection of any property which may be owned, held, stored or otherwise caused
or permitted by Tenant to be present upon the Premises. The placement and
sufficiency of all safes, vaults, cash or security drawers, cabinets or the like
placed upon the Premises by Tenant shall be at the sole responsibility and risk
of Tenant. Tenant shall maintain in force throughout the Term, insurance upon
all contents of the Premises, including Tenant's equipment and any trade
fixtures of Tenant.
C. Landlord shall carry and cause to be in full force and effect a fire and
extended coverage insurance policy on the Building, but not contents owned,
leased or otherwise in possession of Tenant. The cost of such insurance shall be
an Operating Expense.
ARTICLE 25 - NOTICES
All notices from Tenant to Landlord required or permitted by any provisions of
this Lease Agreement shall be directed to Landlord postage prepaid, certified or
registered mail, at the address provided for Landlord in the preamble to this
Lease Agreement or at such other address as Tenant shall be advised to use by
Landlord. All notices from Landlord to Tenant required or permitted by any
provision of this Lease Agreement shall be directed to Tenant, postage prepaid,
certified or registered mail, at the Premises and at the address, if any, set
forth on the signature page of this Lease Agreement. Landlord and Tenant shall
each have the right at any time and from time to time to designate one (1)
additional party to whom copies of any notice shall be sent.
ARTICLE 26 - APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State of
Minnesota.
ARTICLE 27 - MECHANICS' LIEN
In the event any mechanic's lien shall at any time be filed against the Premises
or any part of the Building by reason of work, labor, services or materials
performed or furnished to Tenant or to anyone holding the Premises through or
under Tenant, Tenant shall forthwith cause the same to be discharged of record.
If Tenant shall fail to cause such lien forthwith to be discharged within
fifteen (15) days after being notified of the filing thereof, then, in addition
to any other right or remedy of Landlord, Landlord may, but shall not be
obligated to, discharge the same by paying the amount claimed to be due, or by
bonding, and the amount so paid by Landlord and all costs and expenses,
including reasonable attorney's fees incurred by Landlord in procuring the
discharge of such lien, shall be due and payable in full by Tenant to Landlord
on demand.
ARTICLE 28 - SECURITY INTEREST
(INTENTIONALLY OMITTED)
ARTICLE 29 - BROKERAGE
Each of the parties represents and warrants that except as set forth below,
there are no claims for brokerage commissions or finder's fees in connection
with this Lease Agreement (collectively, the "Leasing Commissions"), and agrees
to indemnify the other against, and hold it harmless from all liabilities
arising from any such claim, including without limitation, the cost of
attorney's fees in connection therewith. Notwithstanding the foregoing, Landlord
agrees to pay any Leasing Commission payable to Landlord's broker, United
Properties Corporation. Landlord further agrees to pay to Tenant's broker,
CB/Madison (i) a Leasing Commission in the amount of $126,798.00 ($3.00 per
rentable square foot of original Premises) and (ii) a project management fee
(the "PM Fee") in the amount of $21,133.00 ($0.50 per rentable square foot of
original Premises) which Leasing Commission and PM Fee shall be payable one half
(1/2) upon full execution of this Lease Agreement and one half (1/2) upon
occupancy of the Phase 1 Premises by Tenant and the commencement of Tenant's
obligation to pay Minimum Rental therefor. With respect to any additional space
leased in the Building by Tenant pursuant to Articles 32, 33, 34 and/or 35 of
this Lease Agreement (for purposes hereof "Expansion Space"), Landlord shall pay
CB/Madison (i) a Leasing Commission in the amount of $1.50 per rentable square
foot of Expansion Space so long as Tenant confirms in writing to Landlord that
CB/Madison has been engaged as Tenant's broker for purposes of the lease of such
Expansion Space and (ii) a PM Fee of $0.50 per rentable square foot of Expansion
Space so long as Tenant confirms in writing with Landlord that CB/Madison has
been engaged to perform project management services with respect to such
Expansion Space, any said Leasing Commission and PM Fee to be payable by
Landlord upon occupancy of the Expansion Space by Tenant and the commencement of
Tenant's obligation to pay Minimum Rental therefor.
ARTICLE 30 - SUBSTITUTION
With respect to any space now or hereafter leased by Tenant under the provisions
of this Lease Agreement that does not encompass the entire floor of either the
East Tower or the West Tower (the "Partial Floor Space"), Landlord reserves the
right, on written notice to Tenant, to substitute other premises within the
Building for such Partial Floor Space, which substitution of premises shall
occur no earlier than the 31st day following such notice by Landlord and no
later than the 60th day following such notice by Landlord (the "Relocation
Period"). Upon at least thirty (30) days written notice by Tenant to Landlord,
Tenant may specify when during the Relocation Period the substitution of
premises shall occur. If no such notice is timely given by Tenant, the
substitution of premises shall occur on the 60th day following Landlord's
notice. The substituted premises shall contain substantially the same square
footage as such Partial Floor Space, shall contain comparable improvements
(i.e., having improvements and finishes that are comparable in design, quality
and workmanship as those contained in such Partial Floor Space at the time of
the substitution), and the Minimum Rental for the substituted space shall be
calculated at the same annual rate per rentable square foot in effect for such
Partial Floor Space. Upon presentation of invoices or other written
documentation of the cost thereof, Landlord shall pay (i) the reasonable costs
of physically relocating Tenant's furniture, equipment and other personal
property to the substituted premises (including the design of the installation
of, and the installation of all telecommunications and computer cabling) and
(ii) such other reasonable costs (not to exceed $0.50 per rentable square foot
of substituted premises) directly related to Tenant's relocation from the
Partial Floor Space to the substituted premises, including any outside
consultant fees.
ARTICLE 31 - ESTOPPEL CERTIFICATES
Each party hereto agrees that at any time, and from time to time during the Term
of this Lease Agreement (but not more often than twice in each calendar year),
within ten (10) days after request by the other party hereto, it will execute,
acknowledge and deliver to such other party or to any prospective purchaser,
assignee or mortgagee designated by such other party, an estoppel certificate in
a form acceptable to Landlord. Tenant agrees to provide Landlord (but not more
often than twice in any calendar year), within ten (10) days of request, the
then most current financial statements of Tenant and any guarantors of this
Lease Agreement, which shall be certified by Tenant, and if available, shall be
audited and certified by a certified public accountant. Notwithstanding the
foregoing, (i) with respect to guarantor HNC Software Inc., the parent company
of Tenant (the "Parent Company"), Landlord agrees that the then most recent SEC
Form 10-K and, when available, annual report or Form 10-Q, as applicable of the
Parent Company may be provided to Landlord in lieu of such financial statements
and (ii) in lieu of separate financial statements for Tenant, Tenant may provide
the most recent SEC Form 10-K, annual report or Form 10-Q of the Parent showing
consolidated financial statements of the Parent Company and its subsidiaries,
including
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Tenant. Landlord shall keep such financial statements (other than any such Form
10-K, annual report or 10-Q) confidential, except Landlord shall, in confidence,
be entitled to disclose such financial statements to existing or prospective
mortgagees, investors or purchasers of the Building.
ARTICLE 32 - EXPANSION RIGHTS ON 17TH AND 18TH FLOORS OF WEST TOWER
A. Subject to the terms and conditions hereinafter provided, Tenant
shall have the right to lease from Landlord all of the 18th floor of the West
Tower (hereinafter referred to as "18W") and if Tenant so elects, all of the
17th Floor of the West Tower (hereinafter referred to as "17W"), it being
acknowledged and agreed by Tenant that Tenant may not lease hereunder only a
part of 17W or 18W and in the event Tenant elects to lease only one floor,
Landlord shall determine whether it shall be 18W or 17W as hereinafter provided.
On or before October 1, 1999, Landlord shall notify Tenant in writing of the
Market Rate that would be applicable to the annual Minimum Rental for 18W and
17W for the remainder of the initial Term of this Lease Agreement as reasonably
determined by Landlord as provided below and which floor (17W or 18W) Tenant
shall lease in the event Tenant elects to lease only one floor under this
Article 32. Provided Tenant is not then in default under this Lease Agreement
beyond all applicable grace or cure periods, Tenant shall exercise its rights
under this Article 32 by giving written notice to Landlord no later than
November 1, 1999, time being of the essence specifying therein whether Tenant
has elected to lease both 18W and 17W or only one of said floors (as theretofore
designated by Landlord) ("Tenant's Notice"). In the event that Tenant shall fail
to give Tenant's Notice in a timely manner, Landlord shall be free to lease 17W
and 18W to any third party or third parties. In the event that Tenant has
elected to lease only one of said floors (as theretofore designated by Landlord)
by timely giving Tenant's Notice, Landlord shall be free to lease the other
floor to any third party or third parties. Any space leased by Tenant under the
provisions of this Article 32 (the "Expansion Space") shall be leased commencing
as of November 1, 2000 (the "Effective Date"). At least seven (7) months prior
to said Effective Date, Tenant shall submit to Landlord for Landlord's approval,
which approval shall not be unreasonably withheld construction drawings for the
improvements Tenant desires to have made to the Expansion Space (the "Expansion
Space Improvements"). The Expansion Space leased hereunder by Tenant shall be
leased on the same terms and conditions as are applicable to the original
Premises, including a term that is co-terminous with the remainder of the
initial Term of this Lease Agreement and the payment of Additional Rental under
Article 6 of this Lease Agreement for the Expansion Space; provided, however,
(i) the annual Minimum Rental payable for the Expansion Space shall be equal to
the lesser of (x) the Market Rate (as defined in Article 38 A. below) as
reasonably determined by Landlord or (y) $12.00 per rentable square foot of
Expansion Space and (ii) Landlord shall furnish to Tenant an improvement
allowance of up to $8.04 per rentable square foot (the "Article 32 Improvement
Allowance") for any Expansion Space Improvements to be made. Any Expansion Space
Improvements and the Article 32 Improvement Allowance therefor shall be handled
in a manner consistent with Article 4 hereof. In addition to the Expansion Space
Improvements, Landlord shall be responsible for abating prior to the Effective
Date any asbestos in the Expansion Space. Prior to the Effective Date, the
parties hereto shall enter into an amendment to this Lease Agreement
memorializing the terms of Tenant's lease of Expansion Space pursuant to the
provisions of this Article 32.
B. It is acknowledged and agreed that Tenant's rights under this
Article 32 are personal to Tenant and should Tenant assign this Lease Agreement
or sublet all or any part of the Premises to anyone other than an Affiliate of
Tenant, this Article 32 shall become null and void and of no further force or
effect.
ARTICLE 33 - EXPANSION RIGHTS ON 9TH FLOOR OF EAST TOWER
A. During the initial Term of the Lease Agreement, provided Tenant is
not in default hereunder beyond all applicable grace or cure periods, Tenant,
subject to and conditioned upon the provisions of this Article and subject at
all times to the right of first offer of the Board of Pensions Evangelical
Lutheran Church in America ("BOARD OF PENSIONS"), the substance of which
Landlord has disclosed to Tenant, shall have the right to lease space on the 9th
floor of the East Tower (hereafter referred to as the "9E FLOOR"), in the event
it becomes "Available for Leasing" (as defined below).
B. Landlord shall notify Tenant ("LANDLORD'S NOTICE") each time any
space on the 9E Floor (hereinafter referred to as the "9E SPACE") becomes
"Available for Leasing" and Landlord shall include with said notification the
Market Rate that would be applicable to the annual Minimum Rental for the 9E
Space for the remainder of the initial Term of this Lease Agreement as
reasonably determined by Landlord as provided below. Within fourteen (14) days
of receiving Landlord's Notice, Tenant shall notify Landlord as to whether
Tenant desires to lease the 9E Space as so identified in Landlord's Notice, time
being of the essence ("TENANT'S 9E NOTICE"). If Tenant shall fail to give
Tenant's 9E Notice in a timely manner, Landlord shall be free to lease the 9E
Space identified in Landlord's Notice to any third party by entering into a
written lease agreement at any time during the next one hundred eighty (180)
days (the "EXCLUSION PERIOD") without the giving of any further Landlord's
Notice. If the said 9E Space remains Available for Leasing after the Exclusion
Period, then Landlord shall again provide Tenant with a Landlord's Notice prior
to leasing the 9E Space to a third party. Any 9E Space leased by Tenant under
the provisions of this Article 33 shall be leased on the same terms and
conditions as are applicable to the original Premises, including a term
co-terminous with the remainder of the initial Term of this Lease Agreement and
the payment of Additional Rental under Article 6 of this Lease Agreement for
such 9E Space; provided, however, (i) if the commencement date of Tenant's lease
of the 9E Space (the "9E SPACE COMMENCEMENT DATE") is on or after August 1,
2000, the annual Minimum Rental payable for the 9E Space shall be equal to the
Market Rate (as defined in Article 38 A. below) as reasonably determined by
Landlord and if the 9E Space Commencement Date is prior to August 1, 2000, the
annual Minimum Rental payable for the 9E Space shall be equal to the lesser of
(x) the Market Rate (as defined in Article 38 below) as reasonably determined by
Landlord or (y) $12.00 per rentable square foot of 9E Space decreased by $0.0833
per rentable square foot of 9E Space for each full calendar month the 9E
Commencement Date occurs prior to August 1, 2000 and (ii) Landlord shall furnish
to Tenant an improvement allowance of up to $15.00 per rentable square foot of
9E Space reduced by $0.1785 per rentable square foot of 9E Space for each full
calendar month the 9E Space Commencement Date occurs after August 1, 1997 (the
"9E Improvement Allowance") for any improvements Tenant desires to be made to
the 9E Space. Any improvements to the 9E Space and the 9E Improvement Allowance
therefor shall be handled in a manner consistent with Article 4 hereof.
C. For purposes of this Lease, "AVAILABLE FOR LEASING" shall mean the
9E Space is not subject to any existing lease (including provisions in said
lease granting the tenant thereunder the right to renew the term thereof) and
the Board of Pensions shall have elected not to lease such 9E Space pursuant to
its right of first offer with respect to such 9E Space; provided, however,
Landlord may make such 9E Space "Available for Leasing" as early as six (6)
months prior to the expiration of said existing lease contingent upon the Board
of Pensions electing not to lease such 9E Space pursuant to its right of first
offer. For purposes of this Article 33 C., the term "existing lease" shall mean
(i) any lease in existence as of the date of this Lease Agreement, (ii) any
lease or lease amendment entered into with Board of Pensions pursuant to its
right of first offer with respect to any 9E Space, or (iii) any lease entered
into with any other party with respect to any 9E Space during the Exclusion
Period for such 9E Space.
D. In the event Tenant shall lease 9E Space in accordance with the
provisions of this Article 33, the parties shall enter into an amendment to the
Lease Agreement memorializing the terms of lease of such 9E Space.
E. It is acknowledged and agreed that Tenant's rights under this
Article 33 are personal to Tenant and should Tenant assign this Lease Agreement
or sublet all or any part of the Premises to anyone other than an Affiliate of
Tenant, this Article 33 shall become null and void and of no further force or
effect.
ARTICLE 34 - EXPANSION RIGHTS ON 3RD FLOOR OF WEST TOWER
A. During the initial Term of the Lease Agreement, provided Tenant is
not in default hereunder beyond all applicable grace or cure periods, Tenant,
subject to and conditioned upon the provisions of this Article and subject at
all times to the right of first offer of Valentine-McCormick-Ligibel, Inc.
("VML"), the substance of which Landlord has disclosed to Tenant, shall have the
right to lease space on the 3rd floor of the West Tower (hereafter referred to
as the "3W FLOOR"), in the event it becomes "Available for Leasing" (as defined
below).
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B. Landlord shall notify Tenant ("LANDLORD'S NOTICE") each time any
space on the 3W Floor (hereinafter referred to as the "3W SPACE") becomes
"Available for Leasing" and Landlord shall include with Landlord's Notice the
Market Rate that would be applicable to the annual Minimum Rental for the 3W
Space for the remainder of the initial Term of this Lease Agreement as
reasonably determined by Landlord as provided below. Within fourteen (14) days
of receiving Landlord's Notice, Tenant shall notify Landlord as to whether
Tenant desires to lease the 3W Space as so identified in Landlord's Notice, time
being of the essence ("TENANT'S 3W NOTICE"). If Tenant shall fail to give
Tenant's 3W Notice in a timely manner, Landlord shall be free to lease the 3W
Space identified in Landlord's Notice to any third party by entering into a
written lease agreement at any time during the next one hundred eighty (180)
days (the "EXCLUSION PERIOD") without the giving of any further Landlord's
Notice. If the said 3W Space remains Available for Leasing after the Exclusion
Period, then Landlord shall again provide Tenant with a Landlord's Notice prior
to leasing the 3W Space to a third party. Any 3W Space leased by Tenant under
the provisions of this Article 34 shall be leased on the same terms and
conditions as are applicable to the original Premises, including a term
co-terminous with the remainder of the initial Term of this Lease Agreement and
the payment of Additional Rental under Article 6 of this Lease Agreement for
such 3W Space; provided, however, (i) if the commencement date of Tenant's lease
of the 3W Space (the "3W SPACE COMMENCEMENT DATE") is on or after August 1,
2000, the annual Minimum Rental payable for the 3W Space shall be equal to the
Market Rate (as defined in Article 38 A. below) as reasonably determined by
Landlord and if the 3W Space Commencement Date is prior to August 1, 2000, the
annual Minimum Rental payable for the 3W Space shall be equal to the lesser of
(x) the Market Rate (as defined in Article 38 below) as reasonably determined by
Landlord or (y) $12.00 per rentable square foot of 3W Space decreased by $0.0833
per rentable square foot of 3W Space for each full calendar month the 3W
Commencement Date occurs prior to August 1, 2000 and (ii) Landlord shall furnish
to Tenant an improvement allowance of up to $15.00 per rentable square foot of
3W Space reduced by $0.1785 per rentable square foot of 3W Space for each full
calendar month the 3W Space Commencement Date occurs after August 1, 1997 (the
"3W Improvement Allowance") for any improvements Tenant desires to be made to
the 3W Space. Any improvements to the 3W Space and the 3W Improvement Allowance
therefor shall be handled in a manner consistent with Article 4 hereof.
C. For purposes of this Lease, "AVAILABLE FOR LEASING" shall mean the
3W Space is not subject to any existing lease (including provisions in said
lease granting the tenant thereunder the right to renew the term thereof) and
VML shall have elected not to lease such 3W Space pursuant to its right of first
offer with respect to such 3W Space; provided, however, Landlord may make such
3W Space "Available for Leasing" as early as five (5) months prior to the
expiration of said existing lease contingent upon VML electing not to lease such
3W Space pursuant to its right of first offer. For purposes of this Article 34
C., the term "existing lease" shall mean (i) any lease in existence as of the
date of this Lease Agreement, (ii) any lease or lease amendment entered into
with VML pursuant to its right of first offer with respect to any 3W Space, or
(iii) any lease entered into with any other party with respect to any 3W Space
during the Exclusion Period for such 3W Space.
D. In the event Tenant shall lease 3W Space in accordance with the
provisions of this Article 34, the parties shall enter into an amendment to the
Lease Agreement memorializing the terms of lease of such 3W Space.
E. It is acknowledged and agreed that Tenant's rights under this
Article 34 are personal to Tenant and should Tenant assign this Lease Agreement
or sublet all or any part of the Premises to anyone other than an Affiliate of
Tenant, this Article 34 shall become null and void and of no further force or
effect.
ARTICLE 35 - OTHER EXPANSION RIGHTS
A. Upon written request of Tenant, Landlord shall in good faith attempt
to obtain approximately 10,000 rentable square feet of contiguous space on the
9E Floor (as defined in Article 33 above) for lease and occupancy by Tenant
effective December 1, 1998 (the "CONTIGUOUS 9E SPACE COMMENCEMENT DATE"), it
being acknowledged by Tenant that in order for Landlord to be able to make such
space (hereinafter referred to as the "CONTIGUOUS 9E SPACE") available for
Tenant, one or more existing tenant(s) may have to be relocated and the Board of
Pensions would have to elect not to exercise its preferential lease rights over
such Contiguous 9E Space. In the event Tenant requests to lease such Contiguous
9E Space and Landlord is able to make such Contiguous 9E Space available for
Tenant, such Contiguous 9E Space shall be leased on the same terms and
conditions as are applicable to the original Premises, including a term that is
co-terminous with the remainder of the initial Term of this Lease Agreement and
the payment of Additional Rental under Article 6 of this Lease Agreement for the
Contiguous 9E Space; provided, however, (i) the annual Minimum Rental payable
for the Contiguous 9E Space shall be equal to $10.00 per rentable square foot of
Contiguous 9E Space and (ii) Landlord shall furnish Tenant an improvement
allowance of up to $12.15 per rentable square foot of Contiguous 9E Space (the
"Article 35 Improvement Allowance"). In addition to the Minimum Rental and
Additional Rental payable by Tenant for such Contiguous 9E Space, Tenant shall
reimburse Landlord in the manner hereinafter provided for (x) the gross rent
that was lost by Landlord, calculated at an annual rate of $20.00 per rentable
square foot, on account of having to hold all or any part of the Contiguous 9E
Space vacant until the Contiguous 9E Space Commencement Date (hereinafter
referred to as the "LOST RENT REIMBURSEMENT") and (y) the out-of-pocket costs
incurred by Landlord in relocating other tenant(s) to other available space in
the Building or in terminating the leases of such other tenant(s) (hereinafter
referred to as "LANDLORD'S ARTICLE 35 EXPENSES"). The amount of the Lost Rent
Reimbursement and Landlord's Article 35 Expenses together with interest thereon
at the rate of ten percent (10%) per annum shall be amortized over the period
commencing on the Contiguous 9E Space Commencement Date and ending upon
expiration of the initial Term of this Lease Agreement and repaid by Tenant to
Landlord as Additional Rental in equal monthly installments on the same day
monthly installments of Minimum Rental are due hereunder for such Contiguous 9E
Space. Any improvements to the Contiguous 9E Space and the Article 35
Improvement Allowance therefor shall be handled in a manner consistent with
Article 4 hereof. Notwithstanding anything herein to the contrary, in the event
that Tenant shall exercise its rights under this Article 35 by giving written
notice to Landlord, Landlord shall give a reasonable estimate to Tenant in
writing of the Lost Rent Reimbursement and Landlord's Article 35 Expenses that
would likely apply and Tenant shall have a period of fourteen (14) days
following receipt of Landlord's written estimate to elect to rescind Tenant's
exercise of its rights under this Article 35 by giving written notice to
Landlord, in which case Tenant's exercise of its rights under this Article 35
shall be deemed rescinded and this Article 35 shall become null and void and of
no further force or effect.
B. It is acknowledged and agreed that Tenant's rights under this
Article 35 are personal to Tenant and should Tenant assign this Lease Agreement
or sublet all or any part of the Premises to anyone other than an Affiliate of
Tenant, this Article 35 shall become null and void and of no further force or
effect.
ARTICLE 36 - OPTION TO TERMINATE EARLY
A. Provided Tenant is not in default under this Lease Agreement beyond
all applicable grace or cure periods at the time of giving the Termination
Notice or at any time thereafter and subject to Article 36 B. below, Tenant
shall have the one-time right to terminate this Lease Agreement effective as of
the fifth (5th) anniversary of the initial Term of this Lease Agreement (the
"TERMINATION DATE") by (i) giving written notice to Landlord no later than
twelve (12) months prior to the Termination Date of Tenant's election to
terminate early (the "TERMINATION NOTICE") and (ii) paying to Landlord with said
Termination Notice a termination fee (the "TERMINATION FEE") equal to the
Unamortized Transaction Costs as of the Termination Date. The "Unamortized
Transaction Costs" shall be the remaining balance, as of the Termination Date,
determined by taking (i) the Improvement Allowance actually provided by Landlord
under Article 4 of the Lease Agreement, (ii) the Leasing Commissions and PM Fees
incurred by Landlord for the original Premises under this Lease Agreement and
(iii) any Improvement Allowances, Leasing Commissions, PM Fees, Lost Rent
Reimbursement and Landlord's Article 35 Expenses provided and/or incurred by
Landlord for any additional space leased by Tenant pursuant to the provisions of
Articles 33, 34 and/or 35 above, and then taking each of the aforesaid sums and
amortizing such amount together with interest thereon at the rate of ten (10%)
per annum in equal monthly installments over the number of months remaining in
the eighty-four (84) month initial Term of the Lease Agreement when said amount
was provided and/or incurred by Landlord.
10
<PAGE> 11
B. Notwithstanding anything in Article 36 A. of this Lease Agreement to
the contrary, in the event that Tenant shall elect to lease additional space in
the Building under Articles 32, 33, 34 and/or 35 above, Section 36 A. of this
Lease Agreement shall become null and void and of no further force or effect and
the Lease Agreement shall continue for the remainder of the initial Term;
provided, however, Tenant may lease up to 10,000 rentable square feet in the
aggregate under Articles 33, 34 and/or 35 above during the first two (2) years
only of the Term of this Lease Agreement, in which event Section 36 A. shall
remain in full force and effect and the Lease Agreement may be terminated by
Tenant in accordance with the provisions thereof.
ARTICLE 37 - OPTION TO RENEW
Landlord hereby grants to Tenant the right to extend the Term of this
Lease Agreement for two (2) additional periods of five (5) years each (the
"FIRST RENEWAL TERM" and "SECOND RENEWAL TERM", respectively), subject to and
conditioned upon the following terms and conditions:
(1) That Tenant must give Landlord notice of Tenant's intention to
renew ("INTENTION TO RENEW NOTICE") no earlier than fifteen (15) months
and no later than twelve (12) months prior to the expiration of the
initial Term or the First Renewal Term, as applicable. If Tenant fails
to timely give the Intention to Renew Notice, then this Lease Agreement
shall expire at the end of the initial Term or the First Renewal Term,
as the case may be. Time is of the essence with respect to the giving
of such Intention to Renew Notice;
(2) That Tenant is not in default under this Lease Agreement beyond all
applicable grace or cure periods at the time of its exercise of its
rights hereunder or at the time of the commencement of the First
Renewal Term or the Second Renewal Term, as the case may be;
(3) That the extension of the Term hereunder for the First Renewal Term
and the Second Renewal Term shall be on the same terms and conditions
as herein contained; provided, however, (i) Articles 32, 33, 34, 35 and
36 of this Lease Agreement shall not apply to either the First Renewal
Term or the Second Renewal Term, (ii) this Article 37 shall not apply
to the Second Renewal Term and (iii) the annual Minimum Rental payable
for the Premises for each of the First Renewal Term and the Second
Renewal Term shall be equal to the Market Rate (as defined in Article
38 A. below) as determined pursuant to Article 38 B. below. Any
improvements made or improvement allowance furnished shall be handled
in a manner consistent with Article 4;
(4) That any extension of the Term hereunder for the First Renewal Term
and the Second Renewal Term shall apply to the entire Premises as then
existing; and
(5) That Tenant's rights under this Article 37 are personal to Tenant
and should Tenant assign this Lease Agreement or sublet all or any part
of the Premises to anyone other than an Affiliate of Tenant, this
Article 37 shall become null and void and of no further force or
effect.
ARTICLE 38 - DEFINITION OF MARKET RATE; ARBITRATION
A. Whenever under the terms of this Lease Agreement the Market Rate
must be determined, the "Market Rate" shall mean the annual net rental rate that
a tenant would pay to a landlord under a net lease having a comparable term and
having a tenant of comparable creditworthiness and containing other terms and
conditions substantially as set forth in this Lease Agreement with respect to
comparable premises in comparable buildings in the central business district of
Minneapolis, Minnesota where both the landlord and the tenant are willing and
able to enter into such a lease transaction but neither would be under any
compulsion to do so, and taking into account all relevant facts and
circumstances concerning the Building, the parties, the relevant market and any
improvements to the Premises, allowances or other tenant inducements, if any
that are to be made or given.
B. In the event that Tenant exercises its option to renew pursuant to
the provisions of Article 37 above, the following provisions shall apply in
determining the Market Rate that would be applicable to the annual Minimum
Rental payable for the Premises for the First Renewal Term or the Second Renewal
Term, as applicable:
(1) Landlord shall submit to Tenant in writing, not less than thirty
(30) days following receipt of Tenant's Intention to Renew Notice
Landlord's proposed Market Rate for the First Renewal Term or the
Second Renewal Term, as applicable.
(2) If Tenant does not agree with Landlord's proposed Market Rate and
so notifies Landlord in writing, then for at least thirty (30) days
following receipt by Tenant of Landlord's proposed Market Rate, the
parties shall negotiate in good faith with a view to reaching agreement
as to the Market Rate. In connection therewith, each party shall submit
to the other party such evidence as it then has to substantiate its
proposed Market Rate.
(3) If the Market Rate is not resolved as provided for above, then
within ten (10) days after the expiration of said thirty (30) day
period, each party shall notify the other as to the name, address, and
telephone number of an arbitrator it has selected to serve on the board
of arbitration ("Board"). The two (2) arbitrators shall appoint a third
arbitrator as promptly as reasonably possible and the three (3)
arbitrators shall constitute the Board. All three (3) arbitrators shall
have the following qualifications:
(i) The arbitrator must be a person totally disinterested
in any economic way in the ultimate resolution of
Market Rate; and
(ii) The arbitrator must be an MAI appraiser or licensed
commercial real estate broker or salesperson familiar
with rental values in the commercial office market of
the central business district of Minneapolis, Minnesota
and having at least five (5) continuous years of
relevant experience.
(4) After the Board is appointed, it will proceed as expeditiously as
reasonably possible to resolve the dispute and to notify the parties of
its decision as to Market Rate within thirty (30) days of the
appointment of the last member of the Board. Both Landlord and Tenant
shall each state in writing what it proposes the Market Rate should be
and shall include whatever support for such contention it wishes to
have considered by the Board. The Board shall arrange for such
simultaneous exchange of such written information to both Landlord and
Tenant and shall accept additional written evidence, rebuttals or other
matters the parties may wish to present until five days prior to the
date on which the Board shall render its decision.
(5) The role of the Board shall be to select from the two (2) proposed
Market Rates submitted the one which is closest to the Board's opinion
as to Market Rate. The Board shall have no power to adopt a compromise
or "middle ground" between the proposed Market Rates submitted by the
parties or to adopt a Market Rate other than the proposed Market Rate
which is closest to the Board's opinion as to Market Rate; except,
however, if both proposed Market Rates differ from the Board's opinion
as to Market Rate by more than ten percent (10%), then the Board shall
have the authority in rendering its decision to use its opinion as to
Market Rate. In all events, the decision of any two (2) of the
arbitrators as to the Market Rate shall be the decision of the Board
and shall be binding on both parties. Each party shall be responsible
for the fees of the arbitrator named by said party, and the third
arbitrator's fee shall be divided equally between the parties.
(6) After the Market Rate has been determined, the parties agree, upon
request of either, to execute a ratification agreement, confirming the
new Minimum Rental for the First Renewal Term or the Second Renewal
Term, as applicable.
11
<PAGE> 12
ARTICLE 39 - ADDITIONAL AGREEMENTS
A. On or before fifteen (15) days following written notice by Landlord
given no earlier than the Commencement Date of the Phase 1 Premises and in
addition to the rentals due under this Lease Agreement, Tenant shall pay
Landlord a non-refundable fee of $30,000.00.
B. So long as Tenant complies with the guidelines specified in
Landlord's asbestos operations and maintenance program, Landlord shall
indemnify, defend and hold Tenant harmless from and against any and all claims,
proceedings, lawsuits, liabilities, damages, losses, fines, penalties,
judgments, awards, costs and expenses (including, without limitation, reasonable
attorneys' fees and costs) caused by the presence of asbestos or asbestos-
containing materials in, on or about the Building or the Premises.
ARTICLE 40 - GENERAL
This Lease Agreement does not create the relationship of principal and agent or
of partnership or of joint venture or of any association between Landlord and
Tenant, the sole relationship between Landlord and Tenant being that of landlord
and tenant. No waiver of any default of Tenant hereunder shall be implied from
any omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect any default
other than the default specified in the express waiver and that only for the
time and to the extent therein stated. The covenants of Tenant to pay the
Minimum Rental and the Additional Rental are each independent of any other
covenant, condition, or provision contained in this Lease Agreement. The
marginal or topical headings of the several Articles, paragraphs and clauses are
for convenience only and do not define, limit or construe the contents of such
Articles, paragraphs or clauses. All preliminary negotiations are merged into
and incorporated in this Lease Agreement. This Lease Agreement can only be
modified or amended by an agreement in writing signed by the parties hereto. All
provisions hereof shall be binding upon the heirs, successors and assigns of
each party hereto. If any term or provision of this Lease Agreement shall to any
extent be held invalid or unenforceable, the remainder shall not be affected
thereby, and each other term and provision of this Lease Agreement shall be
valid and be enforced to the fullest extent permitted by law. If Tenant is a
corporation, each individual executing this Lease Agreement on behalf of said
corporation represents and warrants that he is duly authorized to execute and
deliver this Lease Agreement on behalf of said corporation in accordance with a
duly adopted resolution of the Board of Directors of said corporation or in
accordance with the Bylaws of said corporation, and that this Lease Agreement is
binding upon said corporation in accordance with its terms. No receipt or
acceptance by Landlord from Tenant of less than the monthly rent herein
stipulated shall be deemed to be other than a partial payment on account for any
due and unpaid stipulated rent; no endorsement or statement of any check or any
letter or other writing accompanying any check or payment of rent to Landlord
shall be deemed an accord and satisfaction, and Landlord may accept and
negotiate such check or payment without prejudice to Landlord's rights to (i)
recover the remaining balance of such unpaid rent or (ii) pursue any other
remedy provided in this Lease Agreement. Neither party shall record this Lease
Agreement or any memorandum thereof, and any such recordation shall be a breach
of this Lease Agreement void, and without effect. Time is of the essence with
respect to the due performance of the terms, covenants and conditions herein
contained. Submission of this instrument for examination does not constitute a
reservation of or option for the Premises, and this Lease Agreement shall become
effective only upon execution and delivery thereof by Landlord and Tenant.
ARTICLE 41 - EXCULPATION
Tenant agrees to look solely to Landlord's interest in the Building for the
recovery of any judgment from Landlord, it being agreed that Landlord and
Landlord's partners, whether general or limited (if Landlord is a partnership)
or its directors, officers or shareholders (if Landlord is a corporation), shall
never be personally liable for any such judgment.
IN WITNESS WHEREOF, this Lease Agreement has been duly executed by the parties
hereto as of the day and year indicated above.
TENANT: RETEK INFORMATION LANDLORD: MIDWEST REAL ESTATE
SYSTEMS, INC. HOLDINGS, INC.
BY /s/ GREGORY A. EFFERTZ BY /s/ BOYD B. STOFER
----------------------------------- -------------------------
Gregory A. Effertz, Executive Boyd B. Stofer, President
Director Finance and Administration
BY /s/ FRANK J. DUTKE
-------------------------------------
Frank J. Dutke, Senior Vice President
Address for Notices, if other than the Premises:
- ----------------------------------------------------
- ----------------------------------------------------
- ----------------------------------------------------
12
<PAGE> 13
EXHIBIT A-1
(MAP)
<PAGE> 14
EXHIBIT A-2
(MAP)
<PAGE> 15
EXHIBIT A-3
(MAP)
<PAGE> 16
EXHIBIT A-4
LEGAL DESCRIPTION
FILE NO.: C 2449634 1ST SUPPLEMENTAL
PARCEL 1:
That certain leasehold estate in the following described property: the
Northeasterly 157 feet of Lot 6, Block 231, Brown and Jackins' Addition to
Minneapolis, including the adjoining 1/2 of vacated alley. Together with all
that part of 8th Street South vacated, described as follows: All that part of
the Southwesterly 15 feet of 8th Street South which lies Northeasterly of and
adjacent to the Northeasterly line of Block 231, Brown & Jackins' Addition to
Minneapolis, lying Northwesterly of the Northeasterly extension of the
Southeasterly line of said Block 231 and lying Northeasterly of the following
described line: Beginning at the most Easterly corner of said Block 231, thence
running Northwesterly along the Northeasterly line of said Block 231, a distance
of 110.76 feet to the actual point of beginning of the line to be described;
thence deflecting 30 degrees to the right and running Northwesterly a distance
of 25.98 feet thence deflecting to the left on a tangential curve having a
radius of 15 feet (delta angle 30 degrees, tangent 4.02 feet) for a distance of
7.85 feet, more or less to a point in the Northeasterly line of said
Southwesterly 15 feet of 8th Street South and there terminating, lying between
the extensions Northeasterly of the Southeasterly and Northwesterly lines of the
aforesaid property, all in Hennepin County, Minnesota; TOGETHER WITH all
buildings and improvements erected or located thereon; created by that certain
lease dated November 15, 1965, filed November 21, 1975, as Document No. 4177486
by and between Kern B. Fontaine, Jr. Successor trustee under Trust Agreement
dated December 5, 1947 by and between Franklin E. Knoblauch, Edith F. Fontaine,
and Alice L. Long, as donors, and Franklin E. Knoblauch, as trustee, as party of
the first part, called "Lessor", and Minneapolis Federal Savings and Loan
Association (a Savings and Loan Association incorporated under laws of the
United States of America, with its principal place of business as Minneapolis,
Minnesota, as party of the second part called "tenant", for a term of 100 years
ending April 30, 2066, as supplemented by Agreement dated August 5, 1968, filed
November 21, 1975 as Document No. 4177495 according to the plat thereof on file
and of record in the office of the Register of Deeds, in and for Hennepin
County, Minnesota.
The Lessee's interest in Lease Document No. 4177486 and as supplemented by
Document No. 4177495 assigned to Connecticut Mutual Life Insurance Company (A
Connecticut Corporation) by assignment dated December 12, 1975, filed December
12, 1975 as Document No. 4181560.
The Lessee's interest in Lease Document No. 4177486 and as supplemented by
Document No. 4177495 further assigned to Tuxedo Corporation N.V. (a Netherlands
Antilles Corporation) by assignment dated June 30, 1977, filed July 1, 1977 as
Document No. 4296055.
The Lessee's interest in Lease Document No. 4177486 has been further assigned to
Soften Financing Corp., N.V., by Assignment filed February 28, 1979, as Document
No. 4455191, and by Quit Claim Deed filed February 28, 1979, as Document No.
4455196.
The Lessee's interest in Lease Document No. 4177486 has been further assigned to
Bracksville Investment Corporation, N.V. by Assignment filed February 28, 1979,
as Document No. 4455240, and by Quit Claim Deed filed February 28, 1979, as
Document No. 4455245.
The Lessee's interest in Lease Document No. 4177486 has been further assigned to
Edgewater Plaza Apartments, an Illinois Genera Partnership, by Assignment filed
February 29, 1979, as Document No. 4455251, and by Quit Claim Deed filed
February 28, 1979, as Document No. 4455256.
The Lessee's interest in Lease Document No. 4177486 has been further assigned to
Midwest Plaza Limited Partnership, a Minnesota Limited Partnership, by
assignment filed January 26, 1984, as Document No. 4862629. The Lessee's
interest in Lease Document No. 4177486 has been further assigned to 801 Nicollet
Mall, L.P., a Delaware Limited Partnership, by Assignment and Assumption of
Ground Lease filed January 27, 1993 as Document No. 6030476.
<PAGE> 17
PARCEL 2:
That certain leasehold estate in the following described property; The
Northeasterly 157 feet of Lot 7, Block 231, Brown and Jackins' Addition to
Minneapolis including the adjoining 1/2 of vacated alley, together with all
that part of 8th Street South vacated, described as follows: All that part of
the Southwesterly 15 feet of 8th Street South which lies Northeasterly of and
adjacent to the Northeasterly line of Block 231, Brown and Jackins' Addition to
Minneapolis lying Northwesterly of the Northeasterly extension of the
Southeasterly line of said Block 231, and lying Northeasterly of the following
described line: Beginning at the most Easterly corner of said Block 231, thence
running Northwesterly along the Northeasterly line of said Block 231, a distance
of 110.76 feet to the actual point of beginning of the line to be described;
thence deflecting 30 degrees to the right and running Northwesterly a distance
of 25.98 feet, thence deflecting to the left on a tangential curve having a
radius of 15 feet (delta angle 30 degrees, tangent 4.02 feet) for a distance of
7.85 feet, more or less to a point in the Northeasterly line of said
Southwesterly 15 feet of 8th Street South and there terminating, lying between
the extensions Northeasterly of the Southeasterly and Northwesterly lines of the
aforesaid property, all in Hennepin County, Minnesota; TOGETHER WITH all
buildings and improvements erected or located thereon; created by that certain
lease dated September 9, 1965, filed November 15, 1965, as Document No. 3574433
by and between Florence W. Knoblauch, a widow, Daniel A. Knoblauch, Emilie K.
Thorpe, formerly Emilie F. Knoblauch, Francis :H. Knoblauch, and Mark K.
Dalrymple, formerly Mark J. Knoblauch, parties of the first part, The
Minneapolis Federal Savings and Loan Association, a corporation under the laws
of the United States of America, which Lessee is now known as Midwest Federal
Savings and Loan Associate, party of the second part as Lessee for a term ending
April 30, 2066, as supplemented by Agreement dated September 18, 1968, filed
November 24, 1975 as Document No. 4177703 according to the plat thereof on file
and of record in the office of the Register of Deeds, in and for Hennepin
County, Minnesota.
The Lessee's interest in Lease Document No. 3574433 and as supplemented by
Document No. 4177703 assigned to Connecticut Mutual Life Insurance Company (A
Connecticut Corporation) by assignment dated December 12, 1975, filed December
12, 1975 as Document No. 4181561.
The Lessee's interest in Lease Document No. 3574433 and as supplemented by
Document No. 4177703 further assigned to Tuxedo Corporation N.V. (a Netherlands
Antilles Corporation) by assignment dated June 30, 1977, filed July 1, 1977 as
Document No. 4296056.
The Lessee's interest in Lease Document No. 3574433 has been further assigned to
Northwestern National Bank of Minneapolis, by Assignment of Lease dated November
9, 1965, filed May 4, 1966 as Document No. 3602475.
The Lessee's interest in Lease Document No. 3574433 has been further assigned to
Soften Financing Corp., N.V. by Assignment filed February 28, 1979, as Document
No. 4455192, and by Quit Claim Deed filed February 28, 1979, as Document No.
4455196.
The Lessee's interest in Lease Document No. 3574433 has been further assigned to
Bracksville Investment Corporation, N.V., by Assignment filed February 28, 1979,
as Document No. 4455241, and by Quit Claim Deed filed February 28, 1979, as
Document No. 4455245.
The Lessee's interest in Lease Document No. 3574433 has been further assigned to
Edgewater Plaza Apartments, and Illinois General Partnership, by Assignment
filed February 28, 1979, as Document No. 4455252, and by Quit claim Deed filed
February 28, 1979, as Document No. 4455256.
The Lessee's interest in Lease Document No. 3574433 has been further assigned to
Midwest Plaza Limited Partnership, a Minnesota Limited Partnership, by
Assignment filed January 26, 1984, as Document No. 4862630. The Lessee's
interest in Lease Document No. 3574433 has been further assigned to 801 Nicollet
Mall, L.P., a Delaware Limited Partnership, by Assignment of Ground Lease filed
January 27, 1993 as document No. 6030476.
PARCEL 3:
<PAGE> 18
That certain leasehold estate in the following described property: The
Southwesterly eight feet of the portion of the vacated alley running between the
Nicollet Mall and Marquette Avenue lying between the projection Northeasterly of
the Northwesterly and Southeasterly lines of Lot two, Block two hundred
thirty-one, Walls, Sampson & Bell's Addition to Minneapolis; TOGETHER WITH all
buildings and improvements erected or located thereof; created by that certain
lease dated September 3, 1968, filed December 2, 1975, as Document No. 4179221
by and between Margaret M. Bronson, a single woman, Northwester National Bank of
Minneapolis, as guardian of the estate of Emma Henzel Levering, incompetent, and
Northwestern National Bank of Minneapolis, as trustee under the will of Caroline
M. Henzel, deceased, as parties of the first part, "lessor" and Midwest Federal
Savings and Loan Association of Minneapolis, as party of the second part,
"lessee" for a term of 100 years ending April 30, 2066, according to the plat
thereof on file and of record in the office of the Register of Deeds, in and for
Hennepin County, Minnesota.
The Lessee's interest in Leas Document No. 4179221 and as supplemented by
Document No. 4177703 assigned to Connecticut Mutual Life Insurance Company (A
Connecticut Corporation) by assignment dated December 12, 1975, filed December
12, 1975 as Document No. 4181562.
The Lessee's interest in Lease Document No. 4179221 further assigned to tuxedo
Corporation N.V. (a Netherlands Antilles Corporation) by assignment dated June
30, 1977, filed July 1, 1977 as Document No. 4296057.
The Lessee's interest in Lease Document No. 4179221 has been further assigned to
Soften Financing corp., N.V. by Assignment filed February 28, 1979, as Document
No. 4455193, and by Quit Claim Deed filed February 28, 1979, as Document No.
4455196.
The Lessee's interest in Lease Document No. 4179221 has been further assigned to
Bracksville Investment Corporation, N.V., by Assignment filed February 28, 1979,
as Document No. 4455242, and by Quit Claim Deed filed February 28, 1979, as
Document No. 4455245.
The Lessee's interest in Lease Document No. 4179221 has been further assigned to
Edgewater Plaza Apartments, and Illinois General Partnership, by Assignment
filed February 28, 1979, as Document No. 4455253, and by Quit Claim Deed filed
February 28, 1979, as Document No. 4455256.
The Lessor's interest of Margaret H. Bronson, deceased, in Lease Document No.
4179221, has been distributed to Richard H. Bronson and Jane Bronson Schulze,
each an undivided 1/2 interest, by Decree of Distribution dated May 10, 1972,
filed June 23, 1972, as Document No. 3953878.
The Lessor's interest of Emma H. Levering, deceased, in Lease Document No.
4179221, has been distributed to Richard Henzel Bronson and Jane Bronson
Schulze, each an undivided 1/2 interest, by Decree of Distribution dated
December 29, 1975, filed January 22, 1976, as Document No. 4188652.
The Lessor's interest of Northwester National Bank of Minneapolis, as Trustee
under the Will of Caroline M. Henzel, deceased, in Lease Document No. 4179221,
has been conveyed to Richard Henzel Bronson and Jane Bronson Schulze by
Trustee's Deed dated October 15, 1974, and filed December 17, 1974, as Document
No. 4119948 and by Trustee's Deed dated October 15, 1974, filed December 1974,
as Document No. 4119949.
The Lessee's interest in Lease Document No. 4179221 has been further assigned to
Midwest Plaza Limited Partnership, a Minnesota Limited Partnership, by
Assignment filed January 26, 1984, as Document No. 4862631. The Lessee's
interest in Lease Document No. 3574433 has been further assigned to 801 Nicollet
Mall, L.P., a Delaware Limited Partnership, by Assignment of Ground Lease filed
January 27, 1993 as document No. 6030476.
PARCEL 4:
Lots 8 and 9, Block 231, Brown and Jackin's Addition to Minneapolis, and Lots 8,
9, 10, 11, Block 231, Wells, Sampson and Bell's Addition to Minneapolis, except
that part of Lot 11, Block 231, Wells, Sampson and Bell's Addition to
Minneapolis, described as follows: Commencing at the Southwest corner of said
Lot 11; thence Northeasterly along the Northwesterly line of said Lot 11, a
distance of 44 feet; thence Southeasterly, at a right
<PAGE> 19
angle, a distance of 80 feet; thence Southwesterly at a right angle, a distance
of 44 feet to the point of intersection with the Northeasterly line of the
vacated alley in said Block 231, Wells, Sampson and Bell's Addition to
Minneapolis; thence Northwesterly along the Northeasterly line of said vacated
alley a distance of 80 feet to the point of commencement. Together with the
Northeasterly half of that part of the vacated alley in Block 231, Brown and
Jackin's Addition to Minneapolis, and in Block 231, Wells, Sampson and Bell's
Addition to Minneapolis lying between the Southwesterly extensions across it of
the Southeasterly line of Lot B, Block 231, Brown and Jackin's Addition to
Minneapolis and a line drawn parallel with, and distant 80 feet Southeasterly
from, as measured at a right angle to, the Northwesterly line of Lot 11, Block
231, Wells, Sampson and Bell's Addition to Minneapolis, TOGETHER WITH the
Southwesterly half of that part of the vacated alley in Block 231, Wells,
Sampson and Bell's Addition to Minneapolis, lying between the Northeasterly
extensions across it of the Northwesterly and Southeasterly lines of Lot 12,
Block 231, Wells, Sampson and Bell's Addition to Minneapolis. Together with that
part of the Southwesterly 1/2 of the vacated alley in Block 231 of the plat of
Wells, Sampson and Bell's Addition to Minneapolis, lying between the
Northeasterly extension of the line between Lots 2 and 3, said Block 231, and
the East line of the plat of Wells, Sampson and Bell's Addition to Minneapolis.
(Being Registered property as set for on Certificate of Title No. File 435575).
Together with the following described land: Commencing at a point on the line
between Lots 2 and 3, Block 231, Wells, Sampson and Bell's Addition to
Minneapolis (which dividing line is perpendicular and at right angles to Ninth
Street South, Minneapolis, and parallel to Marquette Avenue, formerly First
Avenue South, Minneapolis) 85 feet Northeasterly from the intersection of the
line between said Lots 2 and 3, Block 231, Wells, Sampson and Bell's Addition to
Minneapolis, and South Ninth Street in the City of Minneapolis; thence
Southeasterly parallel to said Ninth Street a distance of 41.85 feet; thence
Northeasterly parallel with said line between said Lots 2 and 3, Block 231,
Wells, Sampson and Bell's Addition to Minneapolis along a line to its
intersection with the extension Southeasterly of the Northeasterly line of Lot
3, Block 231, Wells, Sampson and Bell's Addition to Minneapolis being the point
of beginning of the tract of land to be described; thence continuing
Northeasterly along said line a distance of 8 feet to the rear of Northeasterly
line of said Lots 3 and 4, Block 231, Brown and Jackin's Addition to
Minneapolis; thence Northwesterly along the rear of Northeasterly line of Lots 3
and 4, Block 231, Brown and Jackin's Addition to Minneapolis to the most
Northerly corner of said Lot 3, Block 231, Brown and Jackin's Addition to
Minneapolis; thence Southerly along the West line of said Lot 3, Block 231,
Brown and Jackin's Addition to Minneapolis to the rear or Northeasterly line of
Lot 3, Block 231, Wells, Sampson and Bell's Addition to Minneapolis; thence
Southeasterly along the etension Southeasterly of the Northeasterly line of Lot
2, Block 231, Wells, Sampson and Bell's Addition to Minneapolis to the point of
beginning. (Being registered property as set forth on Certificate of Title No.
435576).
Together with the Northeasterly 8 feet of the following described land: all that
part of Lots 4 and 5, in Block 231, in Brown and Jackin's Addition to
Minneapolis and of Lots 3 and 4 in Block 231 in Wells, Sampson and Bell's
Addition to Minneapolis described as follows: Commencing at a point on the
dividing line between said Lot 5 in Block 231 in Brown and Jackin's Addition to
Minneapolis and First Avenue South in the City of Minneapolis, 75 feet in a
Northeasterly direction from the intersection of said line and Ninth Street;
thence at right angles in a Northwesterly direction parallel with said Ninth
Street 63.23 feet more or less to a point distant 102 feet from the line between
Lots 2 and 3, Block 231, Wells, Sampson and Bell's Addition to Minneapolis;
thence at a right angle parallel with said First Avenue South Northeasterly 10
feet; thence at a right angle in a Northwesterly direction and parallel with
said Ninth Street 50.15 feet more or less to a point 41.85 feet from the line
between Lots 2 and 3, Block 231, Wells, Sampson and Bell's Addition to
Minneapolis; thence Northeasterly parallel to said line between Lots 2 and 3,
Block 231, Wells, Sampson and Bell's Addition to the rear or Northeasterly line
of Lots 4 and 5, Block 231, Brown and Jackin's Addition; thence in a
Southwesterly direction along said First Avenue South to place of beginning.
(Being Registered Property as set forth on Certificate of Title No. 439062.)
Together with that part of the following described vacated 8th Street South
which lies Northwesterly of the Northeasterly extension of the Southeasterly
line of Lot 8, Block 231, Brown and Jackin's Addition to Minneapolis:
All that part of the Southwesterly 15 feet of 8th Street South which lies
Northwesterly of the Northeasterly extension of the Southeasterly line of Block
231, Brown and Jackin's Addition to Minneapolis, and which lies Northeasterly of
the following described line: Commencing at the most Easterly corner of said
Block 231; thence Northwesterly along the Northeasterly line of said Block 231,
a distance of 110.76 feet to the actual point of commencement of the line to be
described; thence Northwesterly deflecting 30 degrees to the right, a distance
of 25.98 feet; thence Northwesterly along a tangential curve, concave to the
Southwest radius 15 feet, delta angle 30 degrees, tangent 4.02 feet, a distance
of 7.85 feet, more or less to the point of intersection with the Northeasterly
line of the Southwesterly 15 feet of vacated 8th Street South and there
terminating.
<PAGE> 20
PARCEL 5:
That certain leasehold estate in the following described property: That part of
Lot 11, Block 231, Wells, Sampson and Bell's Addition to Minneapolis commencing
at the Southwest corner of said Lot 11, being the corner of said lot formed by
intersection of the alley running through said Block with Nicollet Avenue,
thence Northeasterly along the dividing line between said lot and Nicollet
Avenue 44 feet, thence at right angles Southeasterly 80 feet, thence at right
angles Southwesterly 44 feet to the Northeasterly line of said beginning,
according to the recorded plat thereof, including the adjoining 1/2 of alley
vacated; TOGETHER WITH all buildings and improvements erected or located
thereof; created by that certain lease dated September 9, 1965, filed November
15, 1965, as Document No. 3574434, by and between First National Bank of
Minneapolis (a National Banking Association), successors trustee under the last
will and testament of Hattie L. Knoblauch, deceased, party of the first part,
and Florence W. Knoblauch, widow, Daniel A. Knoblauch, Emilie K. Thorpe, Francis
M. Knoblauch, and Mark K. Dalrymple, parties of the second part, "lessors"
(spouses joining) and Minneapolis Federal Savings and Loan Association, "tenant"
for a term of 100 years ending April 30, 2066, according to the plat thereof on
file and of record in the office of the Register of Deeds, in and for Hennepin
County, Minnesota.
The Lessee's interest in Lease Document No. 3574434 has been assigned to
Connecticut Mutual Life Insurance Company (A Connecticut Corporation) by
assignment dated December 12, 1975, filed December 12, 1975 as Document No.
4181563.
The Lessee's interest in Lease Document No. 3574434 has been further assigned to
Tuxedo Corporation N.V. (a Netherlands Antilles Corporation) by assignment dated
June 30, 1977, filed July 1, 1977 as Document No. 4296059.
The Lessor's interest of Florence W. Knoblauch, widow, Daniel A. Knoblauch,
Emilie K. Thorpe, Francis M. Knoblauch, and Mary K. Dalrymple, in Lease Document
No. 3574434, has been assigned to Northwester National Bank of Minneapolis by
Assignment of Lease dated November 9, 1965, filed May 4, 1966, as Document No.
3602475.
The Lessee's interest in Lease Document No. 3574434 has been further assigned to
Soften Financing Corp., N.V., by Assignment filed February 28, 1979, as Document
No. 4455195, and by Quit Claim Deed filed February 28, 1979, as Document No.
4455196.
The Lessee's interest in Lease Document No. 3574434 has been further assigned to
Bracksville Investment Corporation, N.V. by Assignment filed February 28, 1979,
as Document No. 4455244, and by Quit Claim Deed filed February 28, 1979, as
Document No. 4455245.
The Lessee's interest in Lease Document No. 3574434 has been further assigned to
Edgewater Plaza Apartments, an Illinois General Partnership, by Assignment filed
February 29, 1979, as Document No. 4455255, and by Quit Claim Deed filed
February 28, 1979, as Document No. 4455256.
The Lessee's interest in Lease Document No. 3574434 has been further assigned to
Midwest Plaza Limited Partnership, a Minnesota Limited Partnership, by
Assignment filed January 26, 1984, as Document No. 4862633. The Lessee's
interest in Lease Document No. 3574434 has been further assigned to 801 Nicollet
Mall, L.P., a Delaware Limited Partnership, by Assignment and Assumption of
Ground Lease filed January 27, 1993, as Document No. 6030476.
PARCEL 6:
The benefit of easements contained in Declaration dated February 10, 1982 filed
February 25, 1982 as Document No. 4702697 (abstract) and filed February 22, 1982
as Document No. 1458821 (torrens) and the benefits of an
<PAGE> 21
easement for a horizontal support for a parking ramp sign contained in Easement
Agreement filed March 3, 1980 as Document No. 4547542 (abstract) and 1373046
(torrens).
Hennepin County, Minnesota
<PAGE> 22
EXHIBIT B
OPERATING EXPENSE EXCLUSIONS
Operating Expenses will not include: (i) depreciation on the Building
(other than depreciation of capital items which are otherwise allowed as
Operating Expenses); (ii) costs of alterations of space or other improvements
made for specific tenants of the Building; (iii) finder's fees and real estate
brokers' commissions; (iv) ground lease payments, mortgage principal or
interest; (v) costs of replacements to personal property and for which
depreciation costs are included as an Operating Expense; (vi) costs of excess or
additional services provided to any specific tenant in the Building which are
directly billed to such tenant; (vii) cost of repairs due to casualty or
condemnation to the extent reimbursed by third parties; (viii) any cost due to
Landlord's breach of this Lease, (ix) any income, estate, inheritance or other
transfer tax and any excess profit, franchise, or similar taxes on Landlord's
business; (x) all costs, including legal fees incurred by Landlord in enforcing
its rights under other leases for premises in the Building; (xi) costs related
to removing (including any related testing and monitoring) asbestos or other
hazardous materials (other than fluorescent or high-intensity discharge lamps,
CFC's petroleum products and other hazardous materials which are normally used
in the operation, maintenance and repair of comparable office/retail buildings);
(xii) costs for any employees above the rank of general manager of the Building
and reasonable allocation of the costs of employees at or below the rank of
general manager whose duties include work on other buildings or projects; (xiii)
any portion of the management or administrative fee for management of the
Building in excess of 6.0% of the amount which would be Landlord's total revenue
from the Building if at least 95% of the Building were occupied by rent-paying
tenants; provided that Operating Expenses will in any event include the
reasonable out-of-pocket costs of on-site management of the Building (such as,
by way of illustration and not limitation, office rent or rental value at a fair
market rate for an on-site management office, long distance telephone costs,
document reproduction, and out of town travel in connection with the Building);
(xiv) other than the management fee set out above, costs and expenses associated
with off-site management and accounting services for the Building; (xv) costs of
correcting defects in the design or construction of the Building, the major
building systems, equipment or appurtenances or the material used in the
construction of the Building to the extent such items are then under warranty or
are otherwise reimbursed by third parties; (xvi) tenant improvement allowances,
moving allowances, advertising and marketing costs, and other out-of-pocket
costs (including attorneys' fees or leasing agent salaries and/or commissions)
for leasing of space; (xvii) bad debt loss, rent loss, or reserves for bad debt
loss or rent loss; provided that Operating Expenses will in any event include
the entire cost of rental or business interruption insurance other than the
incremental cost for any additional coverage in excess of 24 months; (xviii) any
amount for any item or service paid to any affiliate of (being any subsidiary of
or any person or entity that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with)
Landlord or the building manager or any partner or shareholder of either of them
to the extent it exceeds the competitive cost or rate for such item or service;
(xix) costs or expenses incurred by Landlord which represent amounts paid by
Landlord or its agents in bad faith or resulting from the gross negligence of
Landlord, its agents, servants or employees or Landlord's grossly negligent
failure to manage the Building consistent with the standards required by this
Lease; (xx) the cost of any item or service otherwise included in Operating
Expenses to the extent Landlord, the building manager, or any officer or
employee of either receives from suppliers of goods or services any
"kick-backs", finder's fees, expediting fees or other similar fees in connection
with such item or service; (xxi) costs of operation of the business of the
entity which constitutes Landlord or preservation of Landlord's interest in the
Building, such as by way of illustration and not limitation the cost of internal
accounting (other than budgeting and accounting of Operating Expenses and
capital expenditures) and legal matters, th sale or mortgaging of the Building,
the collection of rent or other legal disputes with any tenant of the Building
relating to its tenancy, or any legal disputes with any holder of a mortgage on
the Building relating to its mortgage, as distinguished from costs of
management, operation, maintenance and repair of the Building; (xxii) amounts
otherwise included in Operating Expenses to the extent they are reimbursed
(after deduction of the out-of-pocket cost of collection of such reimbursement)
by insurance or by any tenant (other than pursuant to an operating expense
clause in such tenant's lease) or otherwise; (xxiii) any incremental increase in
the cost of operating the common areas of the Building arising out of the
permitted use of such common areas by any vendors paying rent to landlord;
(xxiv) costs of renovating or otherwise improving, decorating, or redecorating
spaces for specific tenants or other occupants of the Building or other leasable
spaces (as distinguished from renovations, improvements and decorations to
common areas or otherwise benefiting the Building generally), and (xv) penalties
resulting from failure to pay Real Estate Taxes when due and payable.
<PAGE> 23
EXHIBIT C
NIGHT CLEANING SPECIFICATIONS
(CHART)
<PAGE> 24
EXHIBIT D
BUILDING RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the right
to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All suite identification signs or lettering
shall be in conformance with the Building's standards and shall be installed at
the expense of Tenant by a person or vendor chosen by Landlord. In addition,
Landlord reserves the right to change from time to time the format of the signs
or lettering and to require previously approved signs or lettering to be
appropriately altered.
2. If Landlord objects in writing to any curtains, blinds, shades or
screens attached to or hung in or used in connection with any window or door of
the Premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything or allow
anything to be placed against or near any glass partitions or doors or windows
which may appear unsightly, in the opinion of Landlord, from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public, and Landlord shall in all cases retain the right
to control and prevent access to the Building of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants provided that nothing
contained in this rule shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No tenant and no employee or
invitee of any tenant shall go upon the penthouse and/or roof of the Building.
Furniture placement must kept eighteen inches (18") from the perimeter wall of
the Building (or shall be mobile to be moved from said perimeter) and in no
event shall access to the mechanical panels on the Building's perimeter be
blocked or materially impeded.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only and Landlord reserves the right
to exclude any other names therefrom.
5. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises and/or the
Building. Landlord shall not in any way be responsible to any Tenant for any
loss of property on the Premises, however occurring, or for any damage to any
Tenant's property by the janitor or any other employee or any other person.
6. Landlord will furnish Tenant free of charge with two keys to each
door in the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys, and Tenant shall
not alter any lock or install a new or additional lock or bolt on any door of
its Premises. Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. No equipment, materials, furniture, packages, supplies, merchandise
or other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
9. Tenant shall not place a load upon any floor which exceeds the load
per square foot which such floor was designed to carry and which is allowed by
law. Landlord shall have the right to prescribe the weight, size and position to
all equipment, materials, furniture or other property brought into the Building.
Heavy objects shall stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant which cause noise or vibration that may be
transmitted to the structure of the Building or to any space in the Building to
such a degree as to be objectionable to Landlord or to any tenant shall be
placed and maintained by Tenant, at Tenant's expense on vibration eliminators or
other devices sufficient to eliminate noise or vibration. The persons employed
to move such equipment in or out of the Building must be acceptable to Landlord.
Landlord will not be responsible for loss of, or damage to, any such equipment
or other property from any cause, and all damage done to the Building by
maintaining or moving such equipment or other property shall be repaired at the
expense of Tenant.
10. Tenant shall not waste electricity, water or air conditioning.
Tenant shall keep corridor doors closed.
13
<PAGE> 25
11. Landlord reserves the right to exclude persons from the Building
between the hours of 6 p.m. and 7 a.m. the following day (or such other hours as
may be established from time to time by Landlord) and on Sundays and legal
holidays, unless that person is known to the person or employee in charge of the
Building as being an employee of Tenant and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
shall not be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person.
12. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
13. The toilet rooms, toilets, urinals wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown into
any of them, and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, shall have caused it.
14. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the Building
except by virtue of a separate license negotiated with Landlord. Tenant shall
not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
15. Except as approved by Landlord, Tenant shall not mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix
any floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule.
16. No animals are allowed in the Building with the exception of
seeing-eye, hearing or other trained service animals. In the event any injuries
are caused to Tenant's employees or invitees, the owner of said animal agrees to
indemnify and hold the Landlord and its managing agent and all other tenants
harmless from all costs (including reasonable attorneys' fees) with respect to
the presence of any animals in the Building.
17. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the
Premises, except by the Tenant with Underwriters' Laboratory approved microwave
oven or equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted provided that such equipment and use is in accordance with
all applicable federal, state and city laws, codes, ordinances, rules and
regulations.
19. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with the rubber tires and side
guards or such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building. Tenant must
not utilize any elevator other than the designated freight elevator: i) for
deliveries requiring hand trucks or other material-handling equipment, or ii)
for moving furniture, equipment or other personal property into or out of the
Building.
20. Tenant shall not use the name of the Building in connection with or
in promoting or advertising the business of Tenant except as Tenant's address.
21. Smoking is not allowed anywhere within any common areas of the
Building. Smoking is not permitted in any lavatory or other restroom, lobby,
stairwell, hallway, elevator, atrium or within the parking ramp.
22. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instruction from
Landlord,and no employee of Landlord will admit any person (Tenant or otherwise)
to any office without specific instructions from Landlord.
23. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all of the tenants of the
Building.
14
<PAGE> 26
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
25. Tenant acknowledges that certain areas of the Building has or has
had asbestos containing materials ("ACM"). Landlord has adopted a program to
abate and remove the ACM from the Building and to monitor and maintain in a safe
condition ACM until such time as it is abated and removed. Tenant agrees to
follow and adhere to the guidelines specified in Landlord's asbestos operations
and maintenance program to the extent there exists any ACM in Tenant's premises.
26. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any services on or to the premises for Tenant
to Landlord for Landlord's approval and supervision before performance of any
contractual service as provided in Tenant's lease. This provision shall apply to
all work performed in the Building, including but not limited to the
installation of telephone and computer equipment, electrical devices and
attachments and installations of any nature affecting floors, walls, woodwork,
trim, windows, ceilings, HVAC systems, life safety systems, or any other
physical portion of the Building. Such approval, if given, shall in no way make
the Landlord a party to any contract between Tenant and any such contractor, and
Landlord shall have no liability therefore.
27. Landlord reserves the right to make such other reasonable rules and
regulations, or to amend and revise the foregoing rules and regulations as in
its judgment may from time to time be needed for the safety and security, for
the care and cleanliness of the Building and for the preservation of good order
in and about the Building. Tenant agrees to abide by all such rules and
regulations and any additional or modifications to these rules and regulations
which are adopted from time to time by Landlord.
28. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
15
<PAGE> 27
LEASE GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
MIDWEST REAL ESTATE HOLDINGS, INC., a Minnesota corporation (hereinafter
referred to as "LANDLORD") to enter into the Standard Office Lease Agreement
(Net) dated May __, 1997, pertaining to Premises in the East Tower and the West
Tower of the Midwest Plaza Building in Minneapolis, Minnesota (hereafter
referred to as the "LEASE") with RETEK INFORMATION SYSTEMS, INC., a Delaware
corporation (hereafter referred to as "TENANT"), the undersigned, HNC SOFTWARE
INC., a Delaware corporation hereby absolutely, unconditionally and irrevocably
guarantees to Landlord the full and complete performance of all of the Tenant's
covenants and obligations under said Lease and the full payment by Tenant of all
rentals, and other charges and amounts required to be paid thereunder, including
to the extent Tenant is required to pay said expenses under the Lease,
Landlord's expenses (including reasonable attorneys' fees) in enforcing the
obligations of Tenant under said Lease, and the undersigned will pay all
Landlord's expenses, including reasonable attorneys' fees, incurred in enforcing
this Guaranty. The undersigned further represents to Landlord as an inducement
for Landlord to make said Lease, that the execution and delivery of this
Guaranty is not in contravention of any other lease, mortgage, loan agreement or
other agreement of which the undersigned is a party. This Guaranty shall be
binding upon the undersigned for obligations which accrue during the original
term of the Lease and any renewals and extensions thereof. The undersigned
acknowledges and covenants to Landlord that the undersigned has a beneficial
interest in Tenant and, accordingly, has a direct financial interest in the
making of the Lease.
The undersigned does hereby waive all requirements of notice of the
acceptance of this Guaranty and all requirements of notice of breach or
non-performance by Tenant. Notwithstanding the foregoing, the Landlord shall use
its best efforts to mail to the undersigned a copy of any default notice given
by Landlord to Tenant, it being acknowledged and agreed by the undersigned that
the Landlord's failure to mail a default notice to the undersigned shall not
relieve the undersigned of its obligations under this Guaranty. The
undersigned's obligations hereunder shall remain fully binding although Landlord
may have waived one or more defaults by Tenant, extended the time of performance
by Tenant, released, returned or misapplied other collateral given later as
additional security (including other guaranties) or released Tenant from the
performance of its obligation under such Lease. The undersigned further agrees
that the undersigned's liability under this Guaranty shall be primary, and that
in any right of action which shall accrue to Landlord under said Lease, Landlord
may, at Landlord's option, proceed against the undersigned and Tenant, jointly
or severally, or may proceed against the undersigned without having commenced
any action against or having obtained any judgment against Tenant. The
undersigned's obligations hereunder shall remain fully binding, notwithstanding
any course of dealings between Landlord and Tenant and notwithstanding that
Tenant may assign the Lease or sublet all or part of the Premises to third
parties. Without the written consent of the undersigned, Landlord and Tenant may
not modify, extend, amend, or make other covenants respecting the Lease if as a
result of such modification, extension, amendment or other covenants, the
obligations of the Tenant under the Lease have been materially increased, it
being acknowledged and agreed by the undersigned, however, that amendments that
may be entered into by Landlord and Tenant pursuant to the existing provisions
of the Lease relating to expansion of the Premises under Articles 32, 33, 34 or
35 or renewal of the Term under Article 37 shall not require the consent of the
undersigned. The undersigned shall not be released, but shall continue to be
fully liable for payment and performance of all liabilities, obligations, and
duties of Tenant under the Lease as modified, extended, amended or assigned.
This Guaranty shall be binding upon the undersigned and its successors
and assigns. This Guaranty may be enforced by Landlord or the successors or
assigns of Landlord under the Lease.
<PAGE> 28
IN WITNESS WHEREOF, the undersigned guarantor has caused this Guaranty
to be executed this __ day of May, 1997.
HNC SOFTWARE INC.
By: /s/ ROBERT L. NORTH
--------------------------------------
Its: President
-------------------------------------
By: /s/ R. V. THOMAS
--------------------------------------
Its: CFO
-------------------------------------
<PAGE> 29
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
================================================================================
State of California
County of San Diego
On June 2, 1997 before me, PEGGY K. CRONIN, NOTARY PUBLIC
------------ ------------------------------------------------------
DATE NAME, TITLE OF OFFICER-E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared ROBERT L. NORTH AND RAYMOND V. THOMAS
-------------------------------------------------------------
NAME(S) OF SIGNER(S)
[X] personally known to me - OR - [ ] proved to me on the basis of satisfactory
evidence to be the persons whose names
are subscribed to the within instrument
and acknowledged to me that they
executed the same in their authorized
capacities, and that by their signatures
on the instrument the persons, or the
[NOTARY SEAL] entity upon behalf of which the persons
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ PEGGY K. CRONIN
----------------------------------------
SIGNATURE OF NOTARY
=================================== OPTIONAL ===================================
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL
[X] CORPORATE OFFICER LEASE GUARANTY
PRESIDENT/CEO & CFO, respectively -----------------------------------
--------------------------------- TITLE OR TYPE OF DOCUMENT
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL 2
--------------------------------
[ ] ATTORNEY-IN-FACT NUMBER OF PAGES
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER: __________________________ JUNE 2, 1997
_________________________________ --------------------------------
_________________________________ DATE OF DOCUMENT
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES) NONE
--------------------------------
HNC SOFTWARE INC. SIGNER(S) OTHER THAN NAMED ABOVE
- -------------------------------------
- -------------------------------------
- -------------------------------------
================================================================================
(C) 1993 NATIONAL NOTARY ASSOCIATION
o 8236 Rommet Ave., P.O. Box 7184 o Canoga Park, CA 91309-7184
<PAGE> 1
EXHIBIT 10.02
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of July 11, 1997, by and between HNC
SOFTWARE INC., a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described
below, and Bank has agreed to provide said credit accommodation to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including July 11, 1999, not to exceed at any time the aggregate
principal amount of Fifteen Million Dollars ($15,000,000.00) ("Line of Credit"),
the proceeds of which shall be used for Borrower's working capital. Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A attached hereto ("Line of
Credit Note"), all terms of which are incorporated herein by this reference.
(b) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue standby
and sight commercial letters of credit for the account of Borrower to finance
importation (each, a "Letter of Credit" and collectively, "Letters of Credit");
provided however, that the form and substance of each Letter of Credit shall be
subject to approval by Bank, in its sole discretion; and provided further, that
the aggregate undrawn amount of all outstanding Letters of Credit shall not at
any time exceed One Million Five Hundred Thousand Dollars ($1,500,000.00). Each
Letter of Credit shall be issued for a term not to exceed one hundred eighty
(180) days, as designated by Borrower; provided however, that no Letter of
Credit shall have an expiration date subsequent to the maturity date of the Line
of Credit. The undrawn amount of all Letters of Credit shall be reserved under
the Line of Credit and shall not be available for borrowings thereunder. Each
Letter of Credit shall be subject to
<PAGE> 2
the additional terms and conditions of the Letter of Credit Agreement and
related documents, if any, required by Bank in connection with the issuance
thereof (each, a "Letter of Credit Agreement" and collectively, "Letter of
Credit Agreements"). Each draft paid by Bank under a Letter of Credit shall be
deemed an advance under the Line of Credit and shall be repaid by Borrower in
accordance with the terms and conditions of this Agreement applicable to such
advances; provided however, that if advances under the Line of Credit are not
available, for any reason, at the time any draft is paid by Bank, then Borrower
shall immediately pay to Bank the full amount of such draft, together with
interest thereon from the date such amount is paid by Bank to the date such
amount is fully repaid by Borrower, at the rate of interest applicable to
advances under the Line of Credit. In such event Borrower agrees that Bank, in
its sole discretion, may debit any demand deposit account maintained by Borrower
with Bank for the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
(b) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) Commitment Fee. Borrower shall pay to Bank a non- refundable
commitment fee for the Line of Credit equal to $5,000.00, which fee shall be due
and payable in full upon execution of this Agreement.
(d) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standards and charges then in effect for such activity.
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SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number _______________ with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Note, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those
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<PAGE> 4
disclosed by Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.6. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.7. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.8. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.9. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.10. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or
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<PAGE> 5
state investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste or
substance into the environment. Borrower has no material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Note.
(ii) Articles of Incorporation.
(iii) Corporate Borrowing Resolution.
(iv) Certificate of Incumbency.
(v) Such other documents as Bank may require under any other Section of
this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
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<PAGE> 6
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of the Line of Credit at
any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include balance sheet, income statement,
statement of cash flow and all footnotes;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include
balance sheet and income statement;
(c) not later than 30 days before the end of each fiscal year, Borrower
shall submit projections for the forthcoming fiscal year;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all
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<PAGE> 7
licenses, permits, governmental approvals, rights, privileges and franchises
necessary for the conduct of its business; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$250,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Tangible Net Worth not at any time less than $51,800,000.00 plus, on
a cumulative basis, 100% of quarterly net income commencing with fiscal quarter
ending March 31, 1997 (with no deduction for quarterly losses), with "Tangible
Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets (inclusive of deferred income tax
benefits).
(b) Total Liabilities divided by Tangible Net Worth not at
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<PAGE> 8
any time greater than 0.60 to 1.0, with "Total Liabilities" defined as the
aggregate of current liabilities and non-current liabilities less subordinated
debt, and with "Tangible Net Worth" as defined above.
(c) Quick Ratio not at any time less than 1.50 to 1.0, with "Quick
Ratio" defined as the aggregate of unrestricted cash, receivables convertible
into cash, unrestricted marketable securities, and other liquid investments with
a readily ascertainable market value (but in no event real property interests)
divided by total current liabilities.
(d) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00 on
a quarterly basis, determined as of each fiscal quarter end.
(e) Ratio of Funded Debt to EBITDA not less than 2.00 to 1.0, determined
as of the end of each fiscal quarter on a rolling four quarter basis, with
Funded Debt defined as the aggregate amount of all outstanding indebtedness of
Borrower, excluding accruals and trade payables and current liabilities incurred
in the ordinary course of business, and with "EBITDA" defined as net profit
before tax plus interest expense (net of capitalized interest expense),
depreciation expense and amortization expense.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property in
excess of an aggregate of $250,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's
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<PAGE> 9
prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an aggregate of $5,000,000.00.
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof, (c) to the extent not included in clause (b),
indebtedness incurred in the ordinary course of business for the purpose of
purchasing equipment and/or real estate not to exceed $5,000,000.00 outstanding
at any time, (d) subordinated indebtedness pursuant to subordination agreements
in form and content acceptable to Bank, (e) indebtedness assumed in connection
with mergers and consolidations permitted under Section 5.4, provided that
Borrower retire or refinance with Bank such indebtedness within 90 days of any
such merger or consolidation, and (f) extensions, modifications, refinancings
and refundings of the foregoing, subject to the restriction in clause (e)
hereof, so long as the maximum principal amount is not increased.
SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with, purchase the stock of, or acquire all or substantially all of
the assets of, any other entity unless (i) if a merger or consolidation,
Borrower is the surviving entity, and (ii) no violation of this Agreement exists
at the time of or would exist after such transaction; make any substantial
change in the nature of Borrower's business as conducted as of the date hereof;
nor sell, lease, transfer or otherwise dispose of all or a substantial or
material portion of Borrower's assets except in the ordinary course of its
business. The consideration paid by Borrower in any transaction permitted under
this Section 5.4, other than in the form of its equity securities, shall not
exceed an aggregate of 50% of Borrower's liquid assets at the time of such
permitted transaction.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity except (a) any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, (b) loans or advances in
amounts not to exceed an aggregate of $500,000.00 outstanding at any one time,
and (c) investments by means of stock acquisitions permitted in and subject to
the terms of Section 5.4 hereof.
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<PAGE> 10
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except (a) purchase money security
interests in real property and equipment securing indebtedness permitted under
Sections 5.3(b) and (c), (b) any of the foregoing in favor of Bank, (c) liens
for taxes, assessments or other governmental charges which are not due and which
remain payable without penalty or which are being contested in good faith,
provided that adequate reserves therefor have been established, which reserves
in accordance with generally accepted accounting principles, consistently
applied, (d) liens in connection with insurance or compensation funds, pensions,
social security obligations, bids, tender, leases, statutory obligations, surety
and appeal bonds and other liens arising in the ordinary course of Borrower's
business, including mechanics and materialman's which do not adversely affect
Borrower's business operations, and (e) liens reflected in Borrower's financial
statements dated March 31,1997, previously submitted to Bank.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of
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<PAGE> 11
any contract or instrument (other than any of the Loan Documents) pursuant to
which Borrower has incurred any debt or other liability to any person or entity,
including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The death or incapacity of Borrower. The dissolution or liquidation
of Borrower; or Borrower, or any of its directors, stockholders or members,
shall take action seeking to effect the dissolution or liquidation of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by each Borrower;
(b) the obligation, if any, of Bank to extend any
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<PAGE> 12
further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any credit
accommodation from Bank subject hereto and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: HNC SOFTWARE INC.
5930 Cornerstone Court West
San Diego, CA 92121
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
San Diego Regional Commercial Banking Office
401 B Street, Suite 2201
San Diego, CA 92101
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full
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amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other Loan
Documents, Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
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<PAGE> 14
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon
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<PAGE> 15
any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an
--15--
<PAGE> 16
award shall not be binding upon the parties unless the findings of fact are
supported by substantial evidence and the conclusions of law are not erroneous
under the substantive law of the state of California, and (iii) the parties
shall have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review of
(A) whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous under
the substantive law of the state of California. Judgment confirming an award in
such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of
--16--
<PAGE> 17
any of the Loan Documents or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
HNC SOFTWARE INC. NATIONAL ASSOCIATION
By: ______________________ By: _______________________
Alva Diaz
Title: ___________________ Vice President
--17--
<PAGE> 18
REVOLVING LINE OF CREDIT NOTE
$15,000,000.00 San Diego, California
July 11, 1997
FOR VALUE RECEIVED, the undersigned HNC SOFTWARE INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at San Diego RCBO, 401 B Street, Suite 2201, San Diego, California
92101, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Fifteen Million Dollars ($15,000,000.00), or so much thereof as
may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2), three (3) or six (6) months, as designated by
Borrower, during which all or a portion of the outstanding principal balance of
this Note bears interest determined in relation to LIBOR; provided however, that
no Fixed Rate Term may be selected for a principal amount less than Two Hundred
Fifty Thousand Dollars ($250,000.00); and provided further, that no Fixed Rate
Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate
Term would end on a day which is not a Business Day, then such Fixed Rate Term
shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
<PAGE> 19
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(ii)"LIBOR Reserve Percentage" means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to Prime Rate in effect from time to
time, or (ii) at a fixed rate per annum determined by Bank to be one and
one-half percent (1.50%) above LIBOR in effect on the first day of the
applicable Fixed Rate Term. When interest is determined in relation to the Prime
Rate, each change in the rate of interest hereunder shall become effective on
the date each Prime Rate change is announced within Bank. With respect to each
LIBOR selection hereunder, Bank is hereby authorized to note the date, principal
amount, interest rate and Fixed Rate Term applicable thereto and any payments
made thereon on Bank's books and records (either manually or by electronic
entry) and/or on any schedule attached to this Note, which notations shall be
prima facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion
--2--
<PAGE> 20
thereof so that it bears interest determined in relation to LIBOR for a Fixed
Rate Term designated by Borrower. At such time as Borrower requests an advance
hereunder or wishes to select a LIBOR option for all or a portion of the
outstanding principal balance hereof, and at the end of each Fixed Rate Term,
Borrower shall give Bank notice specifying: (i) the interest rate option
selected by Borrower; (ii) the principal amount subject thereto; and (iii) for
each LIBOR selection, the length of the applicable Fixed Rate Term. Any such
notice may be given by telephone so long as, with respect to each LIBOR
selection, (A) Bank receives written confirmation from Borrower not later than
three (3) Business Days after such telephone notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m., California time, on the first day
of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to accept any such rate by 11:00
a.m., California time, on the Business Day such quotation is given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then (A) no new LIBOR option may be selected by
Borrower, and (B) any portion of the outstanding principal balance hereof which
bears interest determined in relation to LIBOR, subsequent to the end of the
Fixed Rate Term applicable thereto, shall bear interest determined in relation
to the Prime Rate.
(ii)If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's
--3--
<PAGE> 21
option, so that interest on the portion of the outstanding principal balance
subject thereto is determined in relation to the Prime Rate; provided however,
that if any such Change in Law shall permit any LIBOR-based interest rates to
remain in effect until the expiration of the Fixed Rate Term applicable thereto,
then such permitted LIBOR-based interest rates shall continue in effect until
the expiration of such Fixed Rate Term. Upon the occurrence of any of the
foregoing events, Borrower shall pay to Bank immediately upon demand such
amounts as may be necessary to compensate Bank for any fines, fees, charges,
penalties or other costs incurred or payable by Bank as a result thereof and
which are attributable to any LIBOR options made available to Borrower
hereunder, and any reasonable allocation made by Bank among its operations shall
be conclusive and binding upon Borrower.
(iii)If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to
any LIBOR options, or change the basis of taxation of payments
to Bank of principal, interest, fees or any other amount payable
hereunder (except for changes in the rate of tax on the overall
net income of Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances
or loans by, or any other acquisition of funds by any office of
Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable
on the eleventh day of each month, commencing August 11, 1997.
(e) Default Interest. From and after the maturity date of
--4--
<PAGE> 22
this Note, or such earlier date as all principal owing hereunder becomes due and
payable by acceleration or otherwise, the outstanding principal balance of this
Note shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to four
percent (4%) above the rate of interest from time to time applicable to this
Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of the credit agreement between Borrower and Bank defined below;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on July 11, 1999.
(b) Advances. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) ,
any one acting alone, who are authorized to request advances
and direct the disposition of any advances until written notice of the
revocation of such authority is received by the holder at the office designated
above, or (ii) any person, with respect to advances deposited to the credit of
any account of any Borrower with the holder, which advances, when so deposited,
shall be conclusively presumed to have been made to or for the benefit of each
Borrower regardless of the fact that persons other than those authorized to
request advances may have authority to draw against such account. The holder
shall have no obligation to determine whether any person requesting an advance
is or has been authorized by any Borrower.
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
--5--
<PAGE> 23
(a) Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of Two Hundred Fifty Thousand Dollars ($250,000.00); provided
however, that if the outstanding principal balance of such portion of this Note
is less than said amount, the minimum prepayment amount shall be the entire
outstanding principal balance thereof. In consideration of Bank providing this
prepayment option to Borrower, or if any such portion of this Note shall become
due and payable at any time prior to the last day of the Fixed Rate Term
applicable thereto by acceleration or otherwise, Borrower shall pay to Bank
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each
month on the amount prepaid at the interest rate applicable to
such amount had it remained outstanding until the last day of
the Fixed Rate Term applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the
amount prepaid for the remaining term of such Fixed Rate Term at
LIBOR in effect on the date of prepayment for new loans made for
such term and in a principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than
zero, discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum two percent (2%) above
the Prime Rate in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed). Each change in the rate of interest on any such past
due prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
--6--
<PAGE> 24
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of July 11,
1997, as amended from time to time (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an "Event of Default"
under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of which
are expressly waived by each Borrower, and the obligation, if any, of the holder
to extend any further credit hereunder shall immediately cease and terminate.
Each Borrower shall pay to the holder immediately upon demand the full amount of
all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of the
holder's in-house counsel), expended or incurred by the holder in connection
with the enforcement of the holder's rights and/or the collection of any amounts
which become due to the holder under this Note, and the prosecution or defense
of any action in any way related to this Note, including without limitation, any
action for declaratory relief, whether incurred at the trial or appellate level,
in an arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by Bank
or any other person) relating to any Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
HNC SOFTWARE INC.
BY:_______________________________
Title:____________________________
--7--
<PAGE> 1
EXHIBIT 11.1
HNC SOFTWARE INC.
STATEMENT REGARDING
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
------------------------- -------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 2,458 $ 2,458 $ 366 $ 366
======== ======== ======== ========
SHARES (1)
Weighted average common shares outstanding 19,322 19,322 18,621 18,621
Weighted average common stock options and
warrants as determined by application of the
treasury stock method (2) 1,182 1,508 1,834 1,834
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 20,504 20,830 20,455 20,455
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.12 $ 0.12 $ 0.02 $ 0.02
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------------------------- --------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 4,641 $ 4,641 $ (361) $ (361)
======== ======== ======== ========
SHARES (1)
Weighted average common shares outstanding 19,258 19,258 18,407 18,407
Weighted average common stock options and
warrants as determined by application of the
treasury stock method (2) 1,190 1,516 -- --
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 20,448 20,774 18,407 18,407
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.23 $ 0.22 $ (0.02) $ (0.02)
======== ======== ======== ========
</TABLE>
- ----------
(1) All share and per share amounts have been adjusted to give retroactive
effect to the stock split effected as a stock dividend, which occurred on
April 3, 1996.
(2) In accordance with Accounting Principles Board Opinion No. 15, these common
stock equivalents are not included in the six months ended June 30, 1996
computation of earnings per share as the Company incurred a net loss and
their impact would be anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,366
<SECURITIES> 14,301
<RECEIVABLES> 21,404
<ALLOWANCES> (936)
<INVENTORY> 439
<CURRENT-ASSETS> 49,432
<PP&E> 12,976
<DEPRECIATION> (6,055)
<TOTAL-ASSETS> 103,439
<CURRENT-LIABILITIES> 12,978
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 86,463
<TOTAL-LIABILITY-AND-EQUITY> 103,439
<SALES> 39,470
<TOTAL-REVENUES> 39,470
<CGS> 10,749
<TOTAL-COSTS> 10,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 7,367
<INCOME-TAX> 2,726
<INCOME-CONTINUING> 4,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,641
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
