0000950123-01-506788.txt : 20011009 0000950123-01-506788.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950123-01-506788 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BISYS GROUP INC CENTRAL INDEX KEY: 0000883587 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 133532663 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-19922 FILM NUMBER: 1747481 BUSINESS ADDRESS: STREET 1: 150 CLOVE ROAD CITY: LITTLE FALLS STATE: NJ ZIP: 07424 BUSINESS PHONE: 2018128600 MAIL ADDRESS: STREET 1: 150 CLOVE ROAD CITY: LITTLE FALLS STATE: NJ ZIP: 07424 10-K405 1 y53439e10-k405.txt THE BISYS GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001. 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: 0-19922 THE BISYS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3532663 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 PARK AVENUE 10016 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices) 212-907-6000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE (Title of Class) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.02 PAR VALUE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [x] State the aggregate market value of voting stock held by nonaffiliates of the Registrant as of September 21, 2001: $2,830,259,148. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of September 21, 2001: 58,827,575 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE: List the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated: (1) Any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. Portions of the Registrant's Fiscal 2001 Annual Report to Shareholders--Part II and IV; Portions of the Registrant's Definitive Proxy Statement for its November 15, 2001 Annual Meeting of Stockholders--Part III 2 THE BISYS GROUP, INC. FORM 10-K JUNE 30, 2001 PAGE Part I Item 1. Business..........................................................1 Item 2. Properties.......................................................12 Item 3. Legal Proceedings................................................13 Item 4. Submission of Matters to a Vote of Security Holders..............13 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..........................................13 Item 6. Selected Financial Data..........................................13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......13 Item 8. Financial Statements and Supplementary Data......................14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................................14 Part III Item 10. Directors and Executive Officers of the Registrant...............14 Item 11. Executive Compensation...........................................14 Item 12. Security Ownership of Certain Beneficial Owners and Management...14 Item 13. Certain Relationships and Related Transactions...................14 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................................14 3 Some of the statements in this report are not historical facts and are "forward-looking statements" (as defined in the Private Securities Litigation Reform Act of 1995). These statements use words such as "believes," "expects," "intends," "may," "will," "should," "anticipates," and other similar words and, among other things, describe our current strategies, opinions, expectations of future results and other forward-looking information. We derive forward-looking information from information which we currently have and numerous assumptions which we make. We cannot assure that results which we anticipate will be achieved since results may differ materially because of both known and unknown risks and uncertainties which we face. Factors which could cause actual results to differ materially from our expectations include, but are not limited to, those discussed below under the heading "Risk Factors" and other risks and uncertainties we identify from time to time in filings with the Securities and Exchange Commission. We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. PART I ITEM I. BUSINESS. The BISYS(R) Group, Inc. and its wholly-owned subsidiaries ("BISYS" or the "Company") supports more than 15,000 financial institutions and corporate clients through its integrated business units. BISYS distributes and administers over 120 families of mutual funds consisting of approximately 1,100 portfolios; provides retirement plan recordkeeping services to approximately 15,000 companies in partnership with 35 of the nation's leading bank and investment management companies; provides insurance distribution solutions, professional certification training and licensing and continuing education, and investment industry consulting services; and provides information processing and check imaging solutions to approximately 1,000 financial institutions nationwide. BISYS seeks to be the single source of all relevant outsourcing solutions for its clients and to improve their performance, profitability and competitive position. BISYS endeavors to expand the scope of its services through focused account management, emphasizing services with recurring revenues and long-term contracts. BISYS increases its business base through (i) direct sales to new clients, (ii) sales of additional products and services to existing clients, and (iii) acquisitions of businesses that provide complementary outsourcing solutions to financial organizations and other customers. BISYS was organized in August 1989 to acquire certain banking and thrift data processing operations of Automatic Data Processing, Inc. ("ADP"). Its traditional business was established in 1966 by United Data Processing, Inc., the predecessor of the banking and thrift data processing operations of ADP. Together with its predecessors, BISYS has been providing outsourcing solutions to the financial services industry for more than 35 years. BISYS is incorporated under the laws of Delaware and has its principal executive office at 90 Park Avenue, New York, New York 10016 (telephone 212-907-6000). Since its founding in 1989, BISYS has completed a number of acquisitions as part of its strategic growth plan. During the last fiscal year, BISYS acquired the following businesses: July 2000 -- Pictorial Holdings, Inc., the parent company of Pictorial, Inc., now part of BISYS Insurance and Education Services, a provider of professional certification training and licensing and compliance software products for the financial services industry; July 2000 -- Ascensus Insurance Services, Inc. and affiliated entities, now part of BISYS Insurance and Education Services, a provider of distribution services for life insurance, annuity and long term care insurance products and services; November 2000 -- The small plan portion of the 401(k) plan recordkeeping business of Merrill Lynch Pierce, Fenner & Smith Incorporated, now part of BISYS Investment Services; 1 4 February 2001 -- The Advanced Markets, LLC and affiliated companies, now part of BISYS Insurance and Education Services, a mid-Atlantic based insurance brokerage firm; April 2001 -- Boston Institutional Group, Inc. and affiliated companies, now part of BISYS Investment Services, a provider of outsourcing services and competitive research for mutual fund complexes; May 2001 -- The Insurance Exchange of America, Inc., now part of BISYS Insurance and Education Services, a New Jersey based insurance brokerage firm; June 2001 -- Universal Pensions, Inc., now part of BISYS Investment Services, a provider of retirement plan services and related business solutions; and June 2001 -- The Toner Organization, now part of BISYS Insurance and Education Services, a mid-Atlantic based insurance brokerage firm. COMPANY STRATEGY Financial organizations today are challenged to compete more effectively, improve productivity and maximize profits during periods of both economic growth and decline. BISYS provides viable alternatives for automating critical tasks and functions and provides specific expertise and experience to financial organizations. BISYS outsourcing solutions deliver to its clients operational and economic benefits as well as additional resources to generate incremental revenues. BISYS objectives are to increase its client base and to expand the services it offers to them. BISYS seeks to be the premier, full-service outsourcing business partner focused on enhancing its clients' growth, profits and performance, and building shareholder value by consistently increasing both revenues and earnings per share, through a combination of internal growth, new sales and strategic acquisitions. Five key principles have guided BISYS since its formation and continue to shape its strategy for growth: FOCUS ON CLIENT SERVICE. BISYS seeks to thoroughly understand the financial services industry and proactively respond to its evolving support requirements. Its industry recognized customer service and rewarding levels of customer satisfaction are based on decades of day-to-day experience, innovative support tools, and a company-wide commitment to strengthen every client relationship with unsurpassed service. GROW INTERNALLY AND SELL AGGRESSIVELY. BISYS seeks to sell its business solutions to new clients and cross-sell additional products and services to its existing clients. It intends to continue to focus highly targeted sales initiatives on growing markets and introduce new solutions that will enable its clients to retain existing customers, attract new customers and enter new markets. BISYS seeks to grow and profit from its clients' growth and success. LEVERAGE BUSINESS AND PRODUCT SYNERGY. BISYS seeks to capitalize on the inherent synergy among its groups and leverage its existing outsourcing platforms across traditional business lines to capitalize on the significant opportunities being generated by the converging financial services industry. It will continue to seek to acquire complementary firms capable of enhancing its product lines, competitive positioning, client relationships and shareholder value. LEVERAGE TECHNOLOGICAL ADVANCEMENTS. BISYS seeks to enhance its outsourcing platforms by integrating innovative products, services and technologies. It will continue to seek to leverage the tremendous power of the Internet to re-invent how it supports global clients and delivers products, services and vital information. 2 5 OPTIMIZE HUMAN RESOURCES. BISYS values the contribution of its employees who represent critical technical and business disciplines in the financial services industry. BISYS depends on this collective experience and expertise to sustain its industry leadership and growth. BISYS provides its products and services principally through three major business groups: BISYS Investment Services, BISYS Insurance & Education Services, and BISYS Information Services. Certain of the business segment information required to be included herein, is incorporated herein by reference to Note 13 of the Company's consolidated financial statements included in the Company's 2001 Annual Report to Shareholders (the "Annual Report") at pages 38 and 39. Portions of the Annual Report incorporated by reference in this report are included in this report as Exhibit 13. BISYS INVESTMENT SERVICES BISYS Investment Services provides distribution, administration, fund accounting and transfer agency services to over 120 mutual fund complexes encompassing approximately 1,100 individual portfolios with a market value exceeding $450 billion in assets. BISYS also provides 401(k) plan marketing support, administration and recordkeeping services to many of the nation's leading bank and investment management companies. BISYS distributes and administers proprietary open-end mutual funds registered under the Investment Company Act of 1940 (the "Investment Company Act"). BISYS provides distribution services, including the development of joint and external sales and marketing programs and administrative services, including responsibility for administration, transfer agency, shareholder services, compliance and fund accounting. BISYS also provides distribution services through its various wholly-owned broker/dealer subsidiaries. In order to assist its clients' mutual fund sales efforts, BISYS maintains a distribution sales force to raise additional assets for its clients' funds. BISYS integrates its banking and mutual fund expertise to provide a wide array of specialized services, including sweep and wrap account processing. More than a traditional administrator and distributor, BISYS takes a consultative approach to its client relationships, offering innovative, fee-generating and cost-effective solutions to expand and manage the banking institution's mutual fund business. BISYS offers its clients a complete turnkey outsourcing solution for mutual fund operations which includes comprehensive marketing, institutional sales, retail sales, telemarketing, development of new products and markets and institutional and retail shareholder servicing centers. BISYS designs, plans and implements strategies to help mutual funds attain critical mass, reach new prospects and markets and add value in an increasingly competitive market. In addition to its domestic business, BISYS provides distribution and administrative services to offshore fund complexes through its Dublin, Ireland, London, England, Guernsey, Channel Islands and Luxembourg operations. BISYS provides 401(k) plan services for small- and medium-sized companies, providing outsourcing solutions to financial organizations and corporate clients for marketing and sales support and administration and participant recordkeeping services for corporate-sponsored 401(k) plans. BISYS maintains partnerships with financial organizations including banks, and investment and insurance companies and provides marketing and proposal support for their sale of their 401(k) plan investment products. BISYS markets to and builds systems linkage with these investment manager partners and enables them to concentrate on selling 401(k) plans while BISYS provides the administrative and recordkeeping functions for the fund sponsor. On an ongoing basis, BISYS performs 401(k) participant recordkeeping and other services including daily valuation of participant balances, administration of 401(k) loans, discrimination testing, participant statements and participant communications. Targeted at companies with fewer than 500 employees -- one of the fastest growing segments of the retirement plan market -- BISYS services approximately 15,000 corporate-sponsored retirement plans covering approximately 1.3 million employee participants. With the acquisition of Universal Pensions, Inc. in June 2001, BISYS now provides prototype plan documents, which are currently used by approximately 4 million Individual Retirement Accounts (IRAs), employee sponsored retirement plans, and 3 6 retirement plan education programs which train more than 12,000 retirement professionals annually, and maintains a toll-free help line for ongoing access to industry expertise and assistance. BISYS INSURANCE AND EDUCATION SERVICES BISYS provides outsourcing services for the distribution of life insurance, annuities and long-term care products. BISYS is a full-service distributor and administrator of insurance services and employs strategic alliances with major insurance companies and national producer groups to provide a full range of outsourcing services for insurance product distribution. BISYS services a network of, and markets products and services through, approximately 100,000 insurance agents and brokers nationwide. BISYS also offers a full-service, single source solution to support banks' and other financial institutions' initiatives to offer insurance services to their customer bases. BISYS allows clients to use their various distribution channels to offer insurance products and services, ranging from annuities and commodity term products to estate planning products. In addition to product solutions, BISYS provides clients with the systems and services expertise necessary to support their sale of insurance products, including licensing management, marketing and proposal support, application processing and advanced underwriting and commission accounting and processing. BISYS provides comprehensive training and education programs to corporate clients to enable securities brokers, insurance agents and securities traders to obtain initial licensure, advanced designations (including, among others, Chartered Life Underwriter and Chartered Financial Consultant) and continuing education programs. During fiscal year 2001, investment and insurance professionals enrolled in more than 400,000 of BISYS' training courses. BISYS provides licensing management solutions for the insurance industry. Its software and services enable insurance carriers, agencies and agents to comply with the complex licensing and appointment processes for all 50 states. BISYS INFORMATION SERVICES BISYS provides outsourcing solutions for information processing to banking institutions through an integrated family of services and products offered under the registered service mark TOTALPLUS. Although the TOTALPLUS family of services and products are adaptable to most financial institutions, BISYS believes that its primary market consists of banks with $250 million to $10 billion in assets. Using integrated central and client site solutions, the TOTALPLUS product line supports most aspects of a banking institution's automation requirements. The TOTALPLUS Solution is a comprehensive system, providing bank-wide automation which enables community banks to more effectively compete with super regionals, banks serving a national marketplace, and non-bank competitors. The TOTALPLUS family of products and services provides bank-wide automation, integrating mainframe-based, central site and PC-based client site applications. During fiscal year 1998, BISYS launched the banking industry's first true client/server outsourcing alternative based on an open computing environment. BISYS also introduced full-service Internet banking, data warehousing and document imaging. In fiscal year 2000, BISYS introduced a new line of "thin client" solutions delivered in an Application Service Provider ("ASP") environment. ASP, an emerging delivery method, relieves BISYS' clients of the high costs and risks associated with implementing and maintaining the latest technology-based business solutions. The BISYS solution provides diverse financial organizations with the ability to customize each application to meet specialized processing requirements and priorities. BISYS currently has two major data processing centers located in the Chicago, Illinois and Philadelphia, Pennsylvania metropolitan areas. These regional service centers are uniformly automated with multi-tasking IBM (or equivalent) mainframe computer systems on which all TOTALPLUS host computer functions and client data are resident. Each client's individual operating parameters and data are maintained separately, and extensive precautions are in place to ensure data security and privacy of communications 4 7 between the client and the host. Both internal and external backup resources are maintained and regularly tested for BISYS' own disaster recovery purposes. Through its Retained Asset Account processing business, BISYS has expanded its data processing services to include servicing the retained asset programs of more than 100 of the largest life and property/casualty insurance carriers in the United States. This data processing is performed on the TOTALPLUS host computer system. BISYS also provides image-based technology software to financial institutions, including sophisticated Internet-based delivery and access solutions. These imaging solutions convert traditional paper-based checks and other documents into digital images that can be accessed electronically. More than 1,000 banks, credit unions and service bureaus are using BISYS image-based technology software. This software, designed to provide a fully integrated image environment, uses microcomputer technology and supports the majority of image enabled transports available today. This product family includes image capture and archive, image statements, e-mail statement delivery, image proof of deposit, return item/image processing, image signature verification, courtesy amount recognition, CD-ROM image delivery, customer financial analysis and full Internet access. CONTRACTS Services are provided to BISYS clients, for the most part, on the basis of contracts which renew for successive terms, unless terminated by either party. Contracts for distribution services to mutual funds, as required by the Investment Company Act, provide that such contracts may continue for a period longer than two years only if such continuance is specifically approved at least annually by both a majority of the disinterested directors and either the other members of the board of directors or the holders of a majority of the outstanding shares of the fund. Contracts with insurance carriers providing products for BISYS customers provide for compensation based on a percentage of premiums paid and transaction charges and are generally cancellable on less than 90 days notice at the discretion of the parties. BISYS Insurance Services also maintains long-term contracts with the distribution arms of a number of insurance companies, producer groups and banks to provide insurance products and services. BISYS' Education Services products are generally provided to customers on an "as-needed" basis pursuant to long-term programs which are, in some cases, recommended by BISYS to its customers. BISYS fee structure for data processing clients is based primarily on number of accounts, loans, participants and/or transactions handled for each service, in some cases, subject to minimum charges, plus additional charges for special options, services and features. BISYS fee structure for mutual fund services clients is based in part on the average daily net asset value of the fund, in some cases, subject to minimum charges. BISYS 401(k) fee structure is based upon the number of eligible participants in a plan subject to certain minimums. BISYS check imaging software is licensed subject to a one-time fee with recurring maintenance fees. BISYS Insurance Services' fee structure is generally based on sharing a percentage of commissions and/or profits received by BISYS with its clients. Although contract terminations and non-renewals have an adverse affect on recurring revenues, BISYS believes that the contractual nature of its businesses, combined with its historical renewal experience, provides a high level of recurring revenues. CLIENT BASE BISYS clients are located in all 50 states and several international locations, principally Western Europe. BISYS provides outsourcing solutions to commercial banks, mutual savings institutions, thrift organizations, mutual funds, insurance companies, insurance producer groups, corporate clients and other financial organizations including investment counselors and brokerage firms. Total revenue from unaffiliated 5 8 clients located outside the United States for fiscal 1999, 2000 and 2001, was approximately $10.8 million, $20.5 million and $29.3 million, respectively. DISASTER RECOVERY SYSTEMS Where appropriate, BISYS has implemented a disaster recovery system for its various businesses. The key restoration services include off-site storage and rotation of critical files, availability of a third-party "hot site" and telecommunications recovery capability. BISYS believes that its single product and consistent platform approach to data processing and communications and other operating procedures enable it to achieve greater efficiencies in maintaining and enhancing its disaster recovery systems, the capabilities of which are routinely tested by BISYS with the cooperation of its clients. Within the Information Services Group, BISYS has also developed and markets a microcomputer-based client site disaster recovery planning product that is specifically designed to meet the compliance needs of its financial institution clients. SALES, MARKETING AND CLIENT SUPPORT BISYS sells its services directly to potential clients and supports insurance agents and companies, brokerage firms and other entities in their endeavors to gain new clients. In addition to direct sales, BISYS utilizes reseller/distributors to sell its software. BISYS has a number of sales offices located throughout the United States. BISYS utilizes an account executive staff which provides client account management and support. In accordance with BISYS strategy of providing a single source solution to its clients, the account executive staff also markets and sells additional services to existing clients and manages the contract renewal process. Using centralized resources, BISYS provides its direct sales staff and account executives with marketplace data, presentation materials and telemarketing data. BISYS maintains client support personnel at its principal locations, which is responsible for day-to-day interaction with clients and also markets BISYS products and services to existing clients. COMPETITION BISYS believes the markets for its products and services are highly competitive. BISYS believes that it remains competitive due to several factors, including BISYS' overall company strategy and commitment, product quality, reliability of service, a comprehensive and integrated product line, timely introduction of new products and services, and competitive pricing. BISYS believes that, by virtue of its range of product and service offerings and its overall commitment to client service and relationships, it competes favorably in these categories. In addition, BISYS believes that it has a competitive advantage as a result of its position as an independent vendor, rather than as a cooperative, an affiliate of a financial institution, a hardware vendor or competitor to its clients. BISYS principal competitors are independent vendors of computer software and services, in-house departments, affiliates of financial institutions or large computer hardware manufacturers, processing centers owned and operated as user cooperatives, insurance companies, third party administration firms, mutual fund companies and brokerage firms. BISYS believes that no single competitor offers the full range of products and services that are offered by BISYS. RESEARCH AND DEVELOPMENT In order to meet the changing needs of the financial organizations that it serves, BISYS continually evaluates, develops, maintains and enhances various application software and other technology used in its business. During fiscal 1999, 2000 and 2001, BISYS spent approximately $11.5 million, $12.5 million and $11.4 million, respectively, on company-sponsored research and development, primarily focused on its proprietary systems. Most of BISYS central site application software used in its bank data processing 6 9 business has been developed internally, and a majority of the client site application software is licensed from third parties and integrated with BISYS' existing systems. PROPRIETARY RIGHTS BISYS regards certain of its software as proprietary and relies upon trade secret law, internal nondisclosure guidelines and contractual provisions in its license, services and other agreements for protection. Other than one patent relating to its check imaging system, BISYS does not hold any registered patents or registered copyrights on its software. BISYS believes that legal protection of its software is less significant than the knowledge and experience of BISYS management and personnel and their ability to develop, enhance and market new products and services. BISYS believes that it holds all proprietary rights necessary for the conduct of its business. Application software similar to that licensed by BISYS is generally available from alternate vendors, and in instances where BISYS believes that additional protection is required, the applicable license agreement provides BISYS with the right to obtain the software source code upon the occurrence of certain events. GOVERNMENT REGULATION Certain BISYS subsidiaries are registered as broker/dealers with the Securities and Exchange Commission (the "SEC"). Much of the federal regulation of broker/dealers has been delegated to self-regulatory organizations, principally the National Association of Securities Dealers, Inc. (the "NASD") and the national securities exchanges. Broker/dealers are subject to regulation which covers all aspects of the securities business, including sales methods, trading practices, use and safekeeping of customers' funds and securities, capital structure, recordkeeping and the conduct of directors, officers and employees. Additional legislation, changes in rules and regulations promulgated by the SEC, the Municipal Securities Rulemaking Board, the Office of the Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board (the "FRB") and the self-regulatory organizations or changes in the interpretation of enforcement of existing laws, rules and regulations, may also directly affect the mode of operations and profitability of broker/dealers. The SEC, the FRB, the self-regulatory organizations, state securities law administrators, the OCC and the FDIC may conduct regulatory proceedings for violations of applicable laws, rules and regulations. Such violations can result in disciplinary actions (such as censure, the imposition of fines, the issuance of cease-and-desist orders or the suspension or revocation of registrations, memberships or licenses of a broker/dealer or its officers, directors or employees), as well as civil and criminal penalties. The principal purpose of such regulations generally is the protection of the investing public and the integrity of securities markets, rather than protection of securities firms or their creditors or stockholders. In addition, BISYS broker/dealer subsidiaries are subject to SEC Rule 15c3-1 (commonly known as the "Net Capital Rule"). The Net Capital Rule, which specifies the minimum amount of net capital required to be maintained by broker/dealers, is designed to measure the general financial integrity and liquidity of broker/dealers and requires that a certain part of broker/dealers' assets be kept in relatively liquid form. Failure to maintain the required minimum amount of net capital may subject a broker/dealer to suspension or revocation of licenses, registration or membership with the New York Stock Exchange, Inc., the SEC, the NASD, and various state securities law administrators and may ultimately require liquidation of the broker/dealer. Under certain circumstances, the Net Capital Rule also prohibits payment of cash dividends, redemption or repurchase of stock, distribution of capital and prepayment of subordinated indebtedness. Thus, compliance with the Net Capital Rule could restrict BISYS ability to withdraw capital from its broker/dealer subsidiaries. At June 30, 2001, each BISYS broker/dealer subsidiary met or exceeded the requisite net capital requirement. At June 30, 2001, the BISYS broker/dealer subsidiaries had aggregate net capital of approximately $16.2 million, which exceeded the requirements of the Net Capital Rule by approximately $13.6 million. Under the Investment Company Act of 1940, the distribution agreements between each mutual fund and a BISYS subsidiary terminate automatically upon assignment of the agreement. The term "assignment" 7 10 includes direct assignments by BISYS as well as assignments which may be deemed to occur, under certain circumstances, upon the transfer, directly or indirectly, of a controlling block of BISYS voting securities. The Investment Company Act of 1940 presumes that any transfer of more than 25% of the voting securities of any person represents a transfer of a controlling block of voting securities. As a provider of services to banking institutions, BISYS is not directly subject to federal or state banking regulations. However, BISYS may be subject to review from time to time by the FDIC, the National Credit Union Association, the Office of Thrift Supervision, the OCC and various state regulatory authorities. These regulators make certain recommendations to BISYS regarding various aspects of its operations. In addition, BISYS processing operations are reviewed annually by an independent auditing firm. Banks and other depository institutions doing business with BISYS are subject to extensive regulation at the federal and state levels under laws, regulations and other requirements specifically applicable to regulated financial institutions, and are subject to extensive examination and oversight by federal and state regulatory agencies. As a result, the activities of BISYS client banks are subject to comprehensive regulation and examination, including those activities specifically relating to the sale by or through them of mutual funds and other investment products. BISYS is not presently aware of any facts which would lead it to believe that any of its bank clients are not in compliance with applicable federal and state laws, regulations and other requirements concerning the administration and distribution of bank managed mutual funds. The Financial Services Modernization Act of 1999 (the "Act") repealed key provisions of the Glass-Steagall Act and lifted many restrictions limiting banks from the underwriting and distribution of securities. As a result of these recent regulatory changes, BISYS expects that some of its bank customers with proprietary mutual funds may, over time, internalize certain distribution functions currently provided by BISYS. At the same time, BISYS believes this change may result in additional demand for its outsourcing services as financial institutions provide new services to their customers. The near-term and long-term impact of this legislative change on BISYS' business and results of operations are uncertain. Although there can be no assurance, at this time BISYS does not expect a material adverse impact on its business or results of operations as a result of the Act. Federal regulatory agencies have promulgated guidelines or other requirements which apply to depository institutions subject to their respective supervisory jurisdiction with respect to the sale of mutual funds and other non-FDIC insured investment products to retail customers. These requirements apply to, among other things, sales of investment products on bank premises by or through the use of third-party service providers. These requirements generally require banking institutions which contract to sell investment products through the use of third-party service providers to implement appropriate measures to ensure that such activities are being conducted in accordance with applicable bank and securities regulatory requirements (including the agencies' retail sales guidelines), and may in some instances impose certain "due diligence" obligations on regulated depository institutions with respect to the nature and the quality of services provided by such third-party service providers. Such regulatory requirements may increase the extent of oversight which federal regulatory agencies may require BISYS client banks to exercise over the activities of BISYS. Federal and state banking laws grant state and federal regulatory agencies broad authority to take administrative enforcement and other adverse supervisory actions against banks and other regulated depository institutions where there is a determination that unsafe and unsound banking practices, violations of laws and regulations, failures to comply with or breaches of written agreements, commitments or undertakings entered into by such banks with their regulatory agencies, or breaches of fiduciary and other duties exist. Banks engaged in, among other things, mutual fund-related activities may be subject to such regulatory enforcement and other adverse actions to the extent that such activities are determined to be unlawful, unsound or otherwise actionable. Certain operations of BISYS are subject to regulation by the insurance departments of the states in which BISYS sells insurance products. Certain BISYS employees are required to be licensed as insurance producers in certain states. 8 11 EMPLOYEES As of June 30, 2001, BISYS employed approximately 4,300 employees. None of its employees is represented by a union and there have been no work stoppages, strikes or organization attempts. BISYS believes that its relations with its employees are good. The service nature of BISYS makes its employees an important corporate asset. Most employees are not subject to employment agreements; however, a limited number of executives of BISYS operating subsidiaries have such agreements. RISK FACTORS THE FINANCIAL SERVICES MODERNIZATION ACT OF 1999 COULD ADVERSELY IMPACT OUR BUSINESS BY EXPANDING THE POWERS OF OUR BANKING CLIENTS AND REDUCING THEIR OUTSOURCING. The adoption of the Financial Services Modernization Act of 1999 repealed key provisions of the Glass-Steagall Act and lifted many restrictions limiting banks from the underwriting and distribution of securities. As a result of these regulatory changes, we expect that some of our bank customers with proprietary mutual funds may, over time, internalize certain distribution functions that we currently provide. If that were to happen, it could have a material adverse impact on our business and results of operations. OUR BUSINESS CAN BE SIGNIFICANTLY AFFECTED BY DIRECT AND INDIRECT GOVERNMENTAL REGULATION, WHICH REDUCES OUR FLEXIBILITY AND INCREASES THE COSTS OF DOING BUSINESS. Our business is affected by federal, state and foreign regulations. Our noncompliance with these regulations could result in the suspension or revocation of our licenses or registrations, including broker/dealer licenses and registrations and insurance producer licenses and registrations. Regulatory authorities could also impose on us civil fines and criminal penalties for noncompliance. Some of our subsidiaries are registered with the Securities Exchange Commission as broker-dealers. Much of the federal regulation of broker-dealers has been delegated to self-regulatory organizations, principally the National Association of Securities Dealers, Inc. and the national securities exchange. Broker-dealers are subject to regulations which cover all aspects of their securities business, including, for example: - sales methods; - trading practices; - use and safekeeping of customers' funds and securities; - capital structure; - recordkeeping; and - the conduct of directors, officers and employees. The operations of our broker-dealers and their profitability could be affected by: - federal and state legislation; - changes in rules and regulations of the SEC, banking and other regulatory agencies, and self-regulatory agencies; and - changes in the interpretation or enforcement of existing laws, rules and regulations. Banks and other depository institutions with whom we do business are also subject to extensive regulation at the federal and state levels under laws and regulations applicable to regulated financial institutions. They are also subject to extensive examination and oversight by federal and state regulatory 9 12 agencies. Changes in the laws, rules and regulations affecting our client banks and financial institutions and the examination of their activities by applicable regulatory agencies could adversely affect our results of operations. Some of our subsidiaries, and officers and employees of these subsidiaries, are required to be licensed as insurance producers in various jurisdictions in which we conduct our insurance services business. They are subject to regulation under the insurance laws and regulations of these jurisdictions. Changes in the laws, rules and regulations affecting licensed insurance producers could adversely affect our operations. OUR REVENUES AND EARNINGS ARE SUBJECT TO CHANGES IN THE SECURITIES MARKETS. A significant portion of our earnings are derived from fees based on the average daily market value of the assets we administer for our clients. A sharp rise in interest rates or a sudden decline in the securities market could influence an investor's decision whether to invest or maintain an investment in a mutual fund. As a result, fluctuations could occur in the amount of assets which we administer. If investors were to seek alternatives to mutual fund investments, it could have a negative impact on our revenues by reducing the amount of assets we administer. CONSOLIDATION IN THE BANKING AND FINANCIAL SERVICES INDUSTRY COULD ADVERSELY IMPACT OUR BUSINESS BY ELIMINATING THE NUMBER OF EXISTING AND POTENTIAL CLIENTS. There has been and continues to be merger, acquisition and consolidation activity in the banking and financial services industry. Mergers or consolidations of banks and financial institutions in the future could reduce the number of our clients or potential clients. A smaller market for our services could have a material adverse impact on our business and results of operations. Also, it is possible that the larger banks or financial institutions which result from mergers or consolidations could decide to perform themselves some or all of the services which we currently provide or could provide. If that were to occur, it could have a material adverse impact on our business and our results of operations. OUR ACQUISITION STRATEGY SUBJECTS US TO RISKS, INCLUDING INCREASED DEBT, ASSUMPTION OF UNFORESEEN LIABILITIES AND DIFFICULTIES IN INTEGRATING OPERATIONS. In the past several years, we have acquired a number of other companies. We may make additional acquisitions. We cannot predict if or when any additional acquisitions will occur or whether they will be successful. Acquiring a business involves many risks, including: - incurrence of debt; - incurrence of unforeseen obligations or liabilities; - difficulty in integrating the acquired operations and personnel; - difficulty in maintaining uniform controls, procedures and policies; - possible impairment of relationships with employees and customers as a result of the integration of new personnel; - risk of entering markets in which we have minimal prior experience; - decrease in earnings as a result of non-cash charges; and - dilution to existing stockholders from the issuance of our common stock to make or finance acquisitions. 10 13 OUR SYSTEMS MAY BE SUBJECT TO INFILTRATION BY UNAUTHORIZED PERSONS. We maintain and process data on behalf of our clients, some of which is critical to the business operations of our clients. For example, our Information Services Group maintains account information for our bank and insurance company clients it services and our Investment Services Group maintains transfer agency records and processes trades for our mutual fund clients. If our systems were infiltrated and damaged by unauthorized persons, our clients could experience data loss, financial loss and significant business interruption. If that were to occur, it could have a material adverse effect on our business, financial condition and results of operations. WE FACE SIGNIFICANT COMPETITION FROM OTHER COMPANIES. We face significant competition from other companies. Many of our competitors are well-established companies, and some of them have greater financial, technical and operating resources than we do. Competition in our business is based primarily upon pricing, quality of products and services, breadth of products and services, new product development and the ability to provide technological solutions. WE DEPEND ON KEY MANAGEMENT PERSONNEL, MOST OF WHOM DO NOT HAVE LONG-TERM EMPLOYMENT AGREEMENTS. Our success depends upon the continued services of our key senior management personnel including our executive officers and the senior managers of our businesses. None of our executive officers have employment agreements with us and substantially all of our other senior management personnel do not have employment agreements with us. The loss or unavailability of these individuals could have a material adverse effect on our business prospects. WE DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN SKILLED PERSONNEL. Our success depends on our ability to attract and retain highly skilled personnel in all areas of our business, including our information processing, fund management and insurance services businesses. We cannot assure that we will be able to attract and retain personnel on acceptable terms in the future. Our inability to attract and retain highly skilled personnel could have an adverse effect on our business prospects. WE DO NOT INTEND TO PAY DIVIDENDS. We have never paid cash dividends to stockholders and do not anticipate paying cash dividends in the foreseeable future. In addition, our existing credit facility limits our ability to pay cash dividends. OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE. The market price of our common stock has been volatile. From July 1, 2000 to September 21, 2001, the last sale price of our common stock ranged from a low of $28.44 per share to a high of $63.40 per share. FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. Sales of a substantial number of shares of our common stock in the public market, or the appearance that such shares are available for sale, could adversely affect the market price for our common stock. As of August 31, 2001, we had 58,756,975 shares of common stock outstanding. As of August 31, 2001, we also had options to purchase 7,596,163 shares of our common stock outstanding and 3,553,308 shares of our common stock reserved for issuance pursuant to options available for issuance under our stock option plans and employee stock purchase plan, and 4,491,870 shares of our common stock reserved for issuance upon the conversion of our 4% Convertible Subordinated Notes due 2006. 11 14 ANTI-TAKEOVER EFFECTS OF CERTAIN BY-LAW PROVISIONS, DELAWARE LAW, AND OUR SHAREHOLDER RIGHTS PLAN COULD DISCOURAGE, DELAY OR PREVENT A CHANGE IN CONTROL. We have a shareholder rights plan. Under the plan, each holder of shares of our common stock will receive a right to buy one share of our common stock at an exercise price of $87.50. If a person or group were to acquire, or to announce the intention to acquire, 15% or more of our outstanding shares of common stock, and in some cases 10%, each right would entitle the holder, other than the acquiring person or group, to purchase shares of our common stock at the exercise price of the right with a value of twice the exercise price. This plan could have the effect of discouraging, delaying or preventing persons from attempting to acquire us. In addition, the Delaware General Corporation Law, to which we are subject, prohibits, except under circumstances specified in the statute, a corporation from engaging in any mergers, significant sales of stock or assets or business combinations with any stockholder or group of stockholders who own at least 15% of our common stock. ITEM 2. PROPERTIES. All principal properties of the Company are leased. The following table provides certain summary information with respect to such principal properties as of June 30, 2001:
Expiration Location Function Sq. Feet Date New York, NY Corporate headquarters 35,897 2008 Houston, TX Information Services Service Center 58,568 2001 Cherry Hill, NJ Information Services Data processing center 35,625 2011 Lombard, IL Information Services Data processing center 25,240 2010 Columbus, OH Investment Services Service Center 143,552 2017 Ambler, PA Investment Services Service Center 88,218 2002 Brainerd, MN Investment Services Service Center 38,400 2004 Harrisburg, PA Insurance & Education Services Service Center 61,602 2011 Salt Lake City, UT Insurance & Education Services Service Center 43,626 2007 Atlanta, GA Information Services and Insurance & Education Services Service Center 35,034 2006 Indianapolis, IN Insurance & Education Services Service Center 49,534 2010
In addition to the principal facilities listed above, BISYS also leases certain other office and data processing facilities with leases expiring periodically over the next sixteen years. BISYS owns or leases central processors and associated peripheral equipment used in its data processing operations and communications network, 401(k) business and electronic banking business. 12 15 BISYS believes that its existing facilities and equipment, together with expansion in the ordinary course of business, are adequate for its present and foreseeable needs. ITEM 3. LEGAL PROCEEDINGS. BISYS is involved in litigation arising in the ordinary course of business. Management believes that BISYS has adequate defenses and/or insurance coverage against claims arising in such litigation and that the outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect upon BISYS financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders of the Company during the fourth quarter of fiscal 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Certain of the information required in Item 5 is incorporated herein by reference to page 40 of the Company's 2001 Annual Report under the heading "Market Price Information" and Note 4 to the Company's consolidated financial statements included therein. The Company has not paid or declared any cash dividends during its most recent two fiscal years. Portions of the Annual Report incorporated by reference in this report are included in this report as Exhibit 13. On March 13, 2001 and March 26, 2001, BISYS issued an aggregate of $300 million principal amount of 4% Convertible Subordinated Notes due 2006 (the "Notes"). The initial purchasers of the Notes were Bear, Stearns & Co. Inc. and Credit Suisse First Boston. After giving effect to the initial purchaser's discount of $7.5 million and other expenses of the private placement, the sale of the notes resulted in approximately $292.0 million in net proceeds to the Company. In connection with the issuance of the Notes, BISYS relied on exemptions from registration under Rule 144A and Regulation S, both under the Securities Act of 1933, as amended. The Notes are convertible into shares of Common Stock at a rate of 14.9729 shares per each $1,000 principal amount of Notes, subject to adjustment under certain circumstances. ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item 6 is incorporated herein by reference to page 20 of the Annual Report, included in this report as Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item 7 is incorporated herein by reference to pages 21 through 24 of the Annual Report, included in this report as Exhibit 13. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. BISYS does not have material exposure to market risk from derivative or non-derivative financial instruments. BISYS does not utilize such instruments to manage market risk exposures or for trading or speculative purposes. The Company does, however, invest available cash and cash equivalents in highly-liquid financial instruments with original maturities of three month or less. As of June 30, 2001, BISYS had 13 16 approximately $159.4 million of cash and cash equivalents invested in highly-liquid debt instruments purchased with original maturities of three months or less, including $22.5 million of overnight repurchase agreements. BISYS believes that potential near-term losses in future earnings, fair values and cash flows from reasonably possible near-term changes in the market rates for such instruments are not material to BISYS. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item 8 is incorporated herein by reference to pages 25 through 39 of the Annual Report, included in this report as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III Pursuant to Instruction G(3) to Form 10-K, the information required by Items 10 through 13 of this report is incorporated by reference from the Company's definitive proxy statement, which is expected to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the Registrant's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements The consolidated financial statements of the Company as of June 30, 2001 and 2000 and for each of the three fiscal years for the period ended June 30, 2001, together with the report of PricewaterhouseCoopers LLP dated July 30, 2001, are incorporated herein by reference to pages 25 through 39 of the Annual Report, included in this report as Exhibit 13. (a)(2) Financial Statement Schedules All financial statement schedules are omitted for the reason that they are either not applicable or not required or because the information required is contained in the consolidated financial statements or notes thereto. (a)(3) Exhibits: 3.1* -- Amended and Restated Certificate of Incorporation of The BISYS Group, Inc., as amended by Certificate of Amendment to Amended and Restated Certificate of Incorporation of The BISYS Group, Inc. 3.2 -- Amended and Restated By-Laws of The BISYS Group, Inc., (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1997.) 4.1 -- Rights Agreement, dated as of May 8, 1997, by and between The BISYS Group, Inc. and The Bank of New York, as Rights Agent (including the form of Rights Certificate as Exhibit A). (Incorporated by reference to Exhibit 2.1 of Form 8-A filed on May 8, 1997 with the SEC.) 4.2 -- Indenture, dated as of March 13, 2001, between The BISYS Group, Inc. and Chase Manhattan Trust Company, National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated March 15, 2001, Commission File No. 0-19922.) 14 17 10.1 -- Letter Agreement dated May 12, 1995 between the Registrant and Lynn J. Mangum. (Incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, Commission File No. 0-19922.) 10.2 -- Deferred Compensation Plan (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, Commission File No. 0-19922.) 10.3 -- Executive Life Insurance Plan (Incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, Commission File No. 0-19922.) 10.4 -- The BISYS Group, Inc. Executive Officer Annual Incentive Plan. (Incorporated by reference to Exhibit C to Registrant's proxy statement for its 1999 annual meeting of stockholders, Commission File No. 0-19922.) 10.5 -- The BISYS Group, Inc. Amended and Restated Stock Option and Restricted Stock Purchase Plan. (Incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, Commission File No. 0-19922.) 10.6 -- The BISYS Group, Inc. 1995 Stock Option Plan. (Incorporated by reference to Exhibit A to the Registrant's proxy statement for its 1995 annual meeting of stockholders, Commission File No. 0-19922.) 10.7 -- The BISYS Group, Inc. 1996 Stock Option Plan. (Incorporated by reference to Exhibit A to Registrant's proxy statement for its 1996 annual meeting of stockholders, Commission File No. 0-19922.) 10.8 -- The BISYS Group, Inc. 1999 Equity Participation Plan. (Incorporated by reference to Exhibit B to Registrant's proxy statement for its 1999 annual meeting of stockholders, Commission File No. 0-19922.) 10.9 -- BISYS 401(k) Savings Plan. (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999, Commission File No. 0-19922.) 10.10 -- The BISYS Group, Inc. Non-Employee Directors' Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, Commission File No. 0-19922.) 10.11 -- Executive Loan Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, Commission File No. 0-19922.) 10.12 -- Lease of Cherry Hill, New Jersey facility dated November 29, 1990. (Incorporated by reference to Exhibit 10.25 of the Registrant's Registration Statement No. 33-45417.) 10.13 -- Lease Renewal for Cherry Hill, New Jersey facility dated August 17, 2000. (Incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, Commission File No. 0-19922). 10.14 -- Lease of Lombard, Illinois facility dated May 29, 1990. (Incorporated by reference to Exhibit 10.27 of the Registrant's Registration Statement No. 33-45417.) 10.15 -- Lease Amendment for Lombard, Illinois facility dated March 28, 2000. (Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, Commission File No. 0-19922). 10.16 -- Lease of Houston, Texas facility dated June 30, 1986. (Incorporated by reference to Exhibit 10.28 of the Registrant's Registration Statement No. 33-45417.) 10.17 -- Lease of Ambler, Pennsylvania facility dated April 4, 1989. (Incorporated by reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, Commission File No. 0-19922.) 10.18* -- Lease of Columbus, Ohio facility dated May 17, 2001. 10.19 -- Lease of New York, New York facility dated February 26, 1998 (Incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, Commission File No. 0-19922.) 10.20* -- Lease of Harrisburg, Pennsylvania facility dated February 23, 2000. 15 18 10.21 -- Lease of Atlanta, Georgia facility dated December 9, 1999. (Incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, Commission File No. 0-19922). 10.22* -- Lease of Salt Lake City, Utah facility dated September 15, 1999. 10.23* -- Lease of Indianapolis, Indiana facility dated June 3, 1999, as amended by First Lease Amendment dated December 8, 2000. 10.24* -- Lease of Brainerd, Minnesota facility dated July 14, 1998. 10.25 -- Credit Agreement by and among The BISYS Group, Inc., the Lenders party thereto, The Chase Manhattan Bank, The First National Bank of Chicago, First Union National Bank and Fleet Bank, National Association, as co-Agents, and The Bank of New York, as Administrative Agent, with BNY Capital Markets, Inc., as Arranger, dated as of June 30, 1999, without exhibits. (Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999, Commission File No. 0-19922.) 10.26 -- Stock Purchase Agreement dated as of May 26, 2000, between The BISYS Group, Inc. and PRIMEDIA, Inc. relating to the acquisition of Pictorial, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated July 1, 2000, Commission File No. 0-19922.) 13* -- Pages 20 - 40 of the Registrant's 2001 Annual Report to Shareholders. 21* -- List of significant subsidiaries of The BISYS Group, Inc. 23* -- Consent of PricewaterhouseCoopers LLP. *Filed herewith. (b) Reports on Form 8-K On June 6, 2001, the Registrant filed a Current Report on Form 8-K disclosing the acquisition of all of the outstanding capital stock of Universal Pensions, Inc., a Minnesota corporation. 16 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The BISYS Group, Inc. Date: September 28, 2001 By: /s/ Andrew C. Corbin ------------------------------- Andrew C. Corbin Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 28th day of September, 2001.
Signature Title /s/ Lynn J. Mangum Director, Chairman of the Board, and Chief --------------------------- Executive Officer (Principal Executive Officer) (Lynn J. Mangum) /s/ Andrew C. Corbin Senior Vice President and Chief Financial Officer --------------------------- (Principal Financial and Accounting Officer) (Andrew C. Corbin) /s/ Denis A. Bovin Director --------------------------- (Denis A. Bovin) /s/ Robert J. Casale Director --------------------------- (Robert J. Casale) /s/ Thomas A. Cooper Director --------------------------- (Thomas A. Cooper) /s/ Jay W. DeDapper Director --------------------------- (Jay W. DeDapper) /s/ John J. Lyons Director --------------------------- (John J. Lyons) /s/ Thomas E. McInerney Director --------------------------- (Thomas E. McInerney) /s/ Joseph J. Melone Director --------------------------- (Joseph J. Melone)
17 20 INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT NO. DESCRIPTION 3.1 -- Amended and Restated Certificate of Incorporation of The BISYS Group, Inc., as amended by Certificate of Amendment to Amended and Restated Certificate of Incorporation of The BISYS Group, Inc. 10.18 -- Lease of Columbus, Ohio facility dated May 17, 2001. 10.20 -- Lease of Harrisburg, Pennsylvania facility dated February 23, 2000. 10.22 -- Lease of Salt Lake City, Utah facility dated September 15, 1999. 10.23 -- Lease of Indianapolis, Indiana facility dated June 3, 1999, as amended by First Lease Amendment dated December 8, 2000. 10.24 -- Lease of Brainerd, Minnesota facility dated July 14, 1998. 13 -- Pages 20 - 40 of the Registrant's 2001 Annual Report to Shareholders. 21 -- List of significant subsidiaries of The BISYS Group, Inc. 23 -- Consent of PricewaterhouseCoopers LLP.
EX-3.1 3 y53439ex3-1.txt AMENDED & RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INFORMATION OF THE BISYS GROUP, INC. The name under which the Corporation was originally incorporated was BIS ACQUISITION CORP. and the date of filing of the Corporation's original certificate of incorporation with the Secretary of State was August 11, 1989. This document amends and restates as set forth: FIRST: The name of the Corporation is THE BISYS GROUP, INC. SECOND: The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of new castle. The name of the Corporation's registered agent as such address is Corporation Service Company. THIRD: The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the Delaware general Corporation Law. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 80,000,000 shares, consisting of 80,000,000 shares of Common Stock $.02 par value (the "Common Stock"). The following is a statement of the designations, and the powers, preferences and rights, and the qualification, limitations or restrictions thereof, in respect of each class of stock of the Corporation: I. COMMON STOCK All shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges. 1. Dividends When and as dividends are declared upon the Common Stock, whether payable in cash, in property or in shares of stock of the Corporation, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends. 2. Voting Rights Each holder of Common Stock shall be entitled to one vote per share. 2 II. OTHER PROVISIONS No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive rights to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. FIFTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to make, alter or repeal the By-laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any By-law made by the Board of Directors. SIXTH: The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation; and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article. SEVENTH: No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 175 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived any improper personal benefit. EIGHTH: That the said Amended and Restated Certificate of Incorporation has been consented to and authorized by a vote of the majority of the outstanding shares of Common Stock at the Annual Meeting of the Stockholders on November 14, 1995 in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 3 NINTH: That the aforesaid Amended and Restated Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 245 and 242 of the General Corporation Law of the State of Delaware. This document amends and restates. IN WITNESS WHEREOF, said Corporation has caused this Certificate to be signed by Lynn J. Mangum, its Chairman of the Board, and attested by Catherine T. Dwyer, its Secretary, this 8th day of February, 1996. /s/ Lynn J. Mangum ------------------------------------ Lynn J. Mangum, Chairman Attested by: /s/ Catherine T. Dwyer --------------------------------- Catherine T. Dwyer, Secretary 4 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE BISYS GROUP, INC. The BISYS Group, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), DOES HEREBY CERTIFY: FIRST: That by unanimous written consent in lieu of a meeting, the Board of Directors of the Company duly adopted resolutions setting forth a proposed amendment to the Amended and Restated Certificate of Incorporation of the Company, declaring said amendment to be advisable and directing that the proposed amendment be submitted to the stockholders of the Company for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that it is advisable that the Amended and Restated Certificate of Incorporation of the Company be amended to increase the number of authorized shares of capital stock of the Company from 80,000,000 shares of common stock, $.02 par value, to 160,000,000 shares of common stock, $.02 par value, by amending the first sentence of Article Fourth of the Amended and Restated Certificate of Incorporation to read in its entirety as follows: "The total number of shares of stock which the Corporation shall have authority to issue is 160,000,000 shares consisting of 160,000,000 shares of Common Stock, $.02 par value (the "Common Stock")." FURTHER RESOLVED, that said amendment to the Amended and Restated Certificate of Incorporation is 5 hereby authorized, adopted and approved, and it is hereby directed that said amendment be submitted for consideration by stockholders of the Company at the next Annual Meeting of Stockholders of the Company. FURTHER RESOLVED, that upon approval of said amendment to the Amended and Restated Certificate of Incorporation by the stockholders of the Company in the manner prescribed by applicable law, the Designated Officers are severally authorized, empowered and directed to file with the Secretary of State of Delaware a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company with respect to said amendment. FURTHER RESOLVED, that "Designated Officer" means the President, any Executive Vice President, the Treasurer, the Secretary, or any Assistant Secretary. SECOND: That thereafter, the proposed amendment was submitted to the stockholders of the Company for consideration at the annual meeting of stockholders of the Company, duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of the Company shall not be reduced by reason of said amendment. 6 IN WITNESS WHEREOF, The BISYS Group, Inc. has caused this Certificate to be duly executed on this 16th day of November, 2000. THE BISYS GROUP, INC. By: /s/ Lynn J. Mangum ------------------------------- Lynn J. Mangum Chairman of the Board, President and Chief Executive Officer EX-10.18 4 y53439ex10-18.txt LEASE 1 EXHIBIT 10.18 LEASE This LEASE, dated May 17, 2001, between GEORGETOWN BISYS PHASE II, LLC, a Delaware limited liability company, having an office c/o The Georgetown Company, 667 Madison Avenue, New York, New York 10021 ("Landlord"), and The BISYS Fund Services, Inc., a Delaware corporation, having its principal office at 3435 Stelzer Road, Columbus, Ohio 43219 ("Tenant"). W I T N E S S E T H: Whereas, Tenant is the tenant under a Lease Agreement dated August 30, 1994, as amended (the "Phase I Lease") with respect to certain premises more particularly described therein located in a building at the northwest corner of Stelzer Road and Morse Crossing Road, Columbus, Ohio (hereinafter, the "Phase I Premises"); Whereas, as of the date hereof, the landlord under the Phase I Lease ("Phase I Landlord") and Landlord will become affiliated as owners and joint venturers with respect to the Phase I Premises and the premises which are the subject of this Lease upon completion of the Building to be constructed pursuant to the terms of this Lease; Whereas, Landlord owns a parcel of land adjacent to and located to the west of the Phase I Premises ("Phase II Land"); Whereas, Tenant requires expansion space for its business and Landlord has agreed to construct a building for net lease to Tenant on the Phase II Land to meet Tenant's expansion needs; Whereas, the initial term of the Phase I Lease will expire by its terms on September 30, 2005 and pursuant to Exhibit G of the Phase I Lease, Tenant has two 5-year renewal options; Whereas, simultaneously with the execution of this Lease, Tenant and Phase I Landlord will enter into an amendment of the Phase I Lease to provide (i) that the Phase I Lease shall be extended, thereby making the term of the Phase I Lease coterminous with the term of this Lease and (ii) that the Phase I Lease shall have additional renewal options equivalent to the renewal options in this Lease, as more particularly described in Article 18 of this Lease; 2 2 Whereas, Landlord, the Phase I Landlord and Tenant will each secure a substantial benefit from the execution of this Lease and the amendment of the Phase I Lease; Whereas, any reference in this Lease to the amendment of the Phase I Lease is for information purposes only and shall not be binding on the Landlord under the Phase I Lease or Tenant hereunder as tenant under the Phase I Lease, it being intended that the parties to the Phase I Lease will be bound only by an amendment of the Phase I Lease to which they are signatory; Whereas, Landlord and Tenant are entering into this Lease for the purpose of setting forth their understanding with respect to the matters set forth herein. NOW, THEREFORE, for good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 DEMISED PREMISES - TERM - RECIPROCAL EASEMENT AGREEMENT Section 1.1 Landlord hereby leases to Tenant the parcel of land containing approximately 5.352 acres located to the west of the Phase I Premises, in the City of Columbus, County of Franklin and State of Ohio, as more particularly described on the Site Plan attached hereto as Exhibit A, together with the 79,200 square foot building, with a connection to the Phase I Premises, to be constructed thereon (the "Building") and together with parking at the rate of 6.5 parking spaces per 1,000 square feet of rentable area (collectively the "Demised Premises"). This Lease shall be effective, and the parties hereto shall be bound, as of the date hereof (the "Effective Date"). The term (the "Term") of this Lease shall commence on the date (the "Commencement Date"), as defined in Section 6.4 and end on the fifteenth (15th) anniversary of the Rent Commencement Date (as defined in Section 6.5), or such earlier date as this Lease may terminate as hereinafter provided (the "Termination Date"). Following the Commencement Date and the Rent Commencement Date, the parties shall execute a document in the form of Exhibit G attached hereto setting forth each respective date, but the failure of either party to execute the document shall not effect the Commencement Date or the Rent Commencement Date. Section 1.2 For purposes of determining the number of rentable square feet of the Building, Landlord's Architect (as defined in Article 6) will certify to that measurement upon completion of the Building, which certification shall be subject to the 3 3 reasonable approval of or confirmation by Tenant prior to its being finalized. The parties will execute a document confirming their agreement with Landlord's Architect, but the failure of either party to do so will not affect the rights or duties of the parties hereunder. Section 1.3 Tenant acknowledges that the Phase II Premises and the Phase I Premises will be subject to a Reciprocal Easement Agreement ("REA") substantially in the form attached hereto as Exhibit B. Tenant will cooperate as reasonably requested by Landlord in executing any documents that may be required to carry out the requirements of the REA. Tenant further acknowledges that in connection with the construction of the Phase II Premises, Landlord and Landlord's agents, representative of public utilities and other persons or entities may require access to and through the Phase I Premises and Phase I Landlord and Tenant agree to cooperate as set forth in the REA to enable Landlord to construct the Phase II Premises, to install and connect utility lines and communications lines, to build the connection between the Phase I Premises and Phase II Premises, to provide parking and means of ingress and egress, and for any other purpose reasonably necessary to carry out the terms of this Lease provided, however, Landlord agrees that it will take reasonable precautions in the course of the activities described hereinabove to avoid interference with the operation of Tenant's business or the use and enjoyment by Tenant of the Phase I Premises and/or the Phase II Premises but neither Landlord nor Phase I Landlord shall be liable for any reasonable interruption to Tenant's business as a result thereof. Notwithstanding the foregoing, Landlord will be responsible for any cost and expense that Tenant may incur as a result of damage to the Phase I Premises resulting from Landlord's access to the Phase I Premises or otherwise during the course of construction of the Phase II Premises. Landlord shall prior to the commencement of any construction provide Tenant with a contemplated schedule of work with regard thereto and shall provide prior notice to Tenant, which may be by telephone, of any scheduling changes that may have any effect on the Phase I Premises. ARTICLE 2 BASIC RENT - ADDITIONAL RENT Section 2.1 Commencing on the Rent Commencement Date, and throughout the Term, Tenant will pay annual basic rent (the "Basic Rent"), in the amounts determined in accordance with Schedule 1 attached hereto, in equal monthly installments in advance of the first (1st) day of each month during the Term, without notice or demand and without any rights of reduction, counterclaim or offset except as specifically set forth 4 4 in Articles 12 and 13. If the Rent Commencement Date falls on a day other than the first day of a calendar month, the first payment which Tenant shall make on the Rent Commencement Date shall be equal to the proportionate part of the Basic Rent for the partial month from the Rent Commencement Date to the first day of the succeeding calendar month. Basic Rent will be paid to Landlord, at the address of Landlord as above set forth or at such other address as Landlord may designate in writing from time to time. If the Term terminates on a day other than the last day of the month, then the installment of Basic Rent for the last month of the Term will be adjusted accordingly. Section 2.2 This Lease shall be deemed to be a "net lease" and Tenant shall pay to Landlord, absolutely net throughout the Term, without setoff or offset, the Basic Rent and other charges hereunder, free of any charges, assessments, impositions or deductions of any kind, except as specifically set forth herein. Tenant will pay and discharge all costs and expenses incurred in connection with or arising from the use, occupancy, maintenance, management, repair and security of the Demised Premises and all other amounts, liabilities, charges, obligations and other payments which Tenant, under any of the provisions of this Lease, is now or hereafter obligated to pay or discharge ("Costs"). If Tenant fails to pay all or any part of the Costs when due, then such payment may be made by Landlord (but Landlord shall not be required to do so), and Tenant will reimburse Landlord therefor, within twenty (20) days following notice by Landlord to Tenant, together with interest thereon, at Fifteen (15%) per cent per annum (the "Default Rate"), from the date of such notice until reimbursement is made in full. Such reimbursement and interest shall constitute additional rent hereunder ("Additional Rent") and Landlord shall have the same rights, and remedies provided for herein or by statute or otherwise in the case of non-payment of Additional Rent as for non-payment of Basic Rent. 5 5 ARTICLE 3 PAYMENT OF TAXES AND ASSESSMENTS Section 3.1 Landlord will promptly deliver to Tenant all tax bills received by Landlord with respect to the Demised Premises and Tenant will pay, directly to the appropriate governmental authority, before fine, penalty or interest may be added for nonpayment, all real estate taxes, assessments, water and sewer rents and other governmental levies and charges (all taxes, assessments, water and sewer rents and other governmental levies and charges being hereinafter called "real estate taxes") which are imposed or become a lien upon the Demised Premises or become payable, during the Term, and will promptly send Landlord a receipt for such payment or a copy of the tax bill and a copy of Tenant's cancelled check in payment thereof. Section 3.2 In the event any tax bill received by Landlord incorporates property in addition to the Demised Premises also owned by Landlord then, notwithstanding the provisions of this Article 3, all taxes respecting the Demised Premises will be paid by Landlord, and Landlord will thereafter bill Tenant for Tenant's pro rata share of such tax as reasonably determined by Landlord and Tenant. Such sum will be treated as Additional Rent hereunder, which will be due and payable within thirty (30) days following delivery of such bill to Tenant and otherwise in accordance with the terms of this Lease. In the event that the real estate taxes are increased as a direct result of a sale or refinancing of the Demised Premises, the portion of the real estate taxes attributable to the sale or refinancing shall be the obligation of Landlord and not Tenant. Section 3.3 Tenant shall be responsible for, and shall pay when due, all installments of owners' association assessments imposed upon the Demised Premises by the Easton Association, and accruing during the Term. In the event that Landlord pays any assessments directly to Easton Association with respect to the Demised Premises, Tenant will reimburse Landlord within twenty (20) days of request by Landlord. The amount due shall be deemed Additional Rent in accordance with Section 2.2. Landlord shall, upon request of Tenant, seek consent of the Easton Association to assign a share of its voting rights in the Easton Association to Tenant provided that Landlord shall retain rights appropriate to the owner of the fee interest in the Demised Premises. 6 6 ARTICLE 4 INSURANCE Section 4.1 At all times during the Term, at Tenant's expense, Landlord will keep the Demised Premises insured for the mutual benefit of Landlord and Tenant against: (1) loss or damage by fire, and such other risks as may be included in the standard form of extended coverage insurance from time to time available, in an amount not less than full replacement value, less footings and foundations, provided that such amount is sufficient to prevent Landlord or Tenant from becoming a co-insurer within the terms of the applicable policies; (2) loss or damage by explosion of high pressure steam boiler, air conditioning equipment, pressure vessels, motors or similar apparatus, now or hereafter installed in the Demised Premises, in such limits with respect to any one accident as may reasonably be required by Landlord; (3) worker's compensation insurance to the full extent required by applicable law for Tenant's employees; (4) business interruption insurance; and (5) such other insurance and in such amounts as may be reasonably required by any mortgagee to which Landlord has granted or will grant a security interest in the Demised Premises (hereinafter "Landlord's Mortgagee"). Section 4.2 Landlord will also maintain, at Tenant's expense, insurance for the benefit of Landlord and Tenant against claims for bodily injury or property damage occurring on the Demised Premises, under a policy of general commercial public liability insurance, bodily injury and death limits of not less than $5,000,000 for any one occurrence, and $1,000,000 for property damage, as such amounts may be reasonably increased by Landlord from time to time, consistent with amounts of insurance carried by prudent landlords of comparable properties or as reasonably required by any Mortgagee. Section 4.3 All required insurance will be effected under policies issued by insurers reasonably approved by Landlord and licensed to do business in the State of Ohio. Certificates of such insurance will be delivered by Landlord to any Mortgagee. At 7 7 least ten (10) days prior to the expiration date of any policy, the original renewal policy for such insurance or certificate will be delivered to the holder of the expiring original policy. All such policies will contain agreements by the insurers that such policies will not be cancelled except upon thirty (30) days' prior written notice to each named insured and loss payee and will include effective waivers by the insurer of all rights of subrogation against any named insured. Section 4.4 All required policies of insurance will name Landlord and Tenant as the insureds as their respective interests may appear and will also provide for any loss thereunder to be payable to any Mortgagee, pursuant to a standard mortgagee clause or endorsement or to the party insured thereby. Section 4.5 Tenant will reimburse Landlord within twenty (20) days of request for the premium paid by Landlord, or the amount due shall be deemed Additional Rent in accordance with Section 2.2. Section 4.6 Tenant will carry its own insurance insuring its own personal property, and its business interest in the Demised Premises, including business interruption insurance against loss, damage or destruction by fire or other insured casualty. ARTICLE 5 UTILITIES, MAINTENANCE, MANAGEMENT FEES AND OTHER PROPERTY-RELATED EXPENSES Section 5.1 Tenant will pay all costs and charges for insurance, heat, water, gas, electricity, light, telephone, janitorial, repairs, maintenance and all other expenses related to the Demised Premises in order that Basic Rent shall be absolutely net to Landlord throughout the Term of this Lease. Tenant will indemnify Landlord and save it harmless from and against any liabilities and all costs, expenses, claims or damages incurred as a result of Tenant's failure to perform its obligations hereunder. Utility service will be directly metered to the Demised Premises and charged to Tenant. Section 5.2 Landlord will enter into a property management contract (the "Management Contract") with a third party (the "Property Manager"), approved by Tenant, such approval not to be unreasonably withheld or delayed, pursuant to which the Property Manager will manage the Demised Premises for the Term and any Renewal Term. Landlord shall have the right to assign the Management Contract in the event of the sale of the Demised Premises; provided, however, that throughout the term, the 8 8 Property Manager shall be subject to Tenant's reasonable approval. All Management Contracts shall contain a thirty (30) day right to terminate with or without cause. Upon request of Tenant, Landlord shall terminate the Management Contract. Upon such termination, Landlord shall enter into a new Management Contract which shall again be subject to Tenant's reasonable approval as set forth above. If Tenant shall at any time occupy the entire Phase I Premises and Phase II Premises, Tenant may, at its option, take over the management of the Demised Premises, with a Property Manager selected by Tenant, who shall be subject to Landlord's approval, such approval not to be unreasonably withheld or delayed. Section 5.3 At any time that Tenant fails to make any of the payments required by this Article 5 when due, then such payment may be made by Landlord, and Tenant will reimburse Landlord as provided in Section 2.2. ARTICLE 6 LANDLORD AND TENANT IMPROVEMENTS; CHANGES AND ALTERATIONS; SURRENDER OF DEMISED PREMISES Section 6.1 (1) Landlord shall proceed to cause the Landlord Improvements (as hereinafter defined) to be developed and constructed in a good and workmanlike manner, in compliance with all applicable laws, ordinances, rules and regulations and in accordance with the Schematic Design, the Design Documents and the Construction Documents (collectively, the "Plans" and together with the Specifications to be prepared by Landlord and approved by Tenant, all as more particularly described in Exhibit C and in this Article, the "Plans and Specifications."). "Landlord Improvements" shall mean the Building and connecting structure, the parking area and the site improvements which Landlord will construct in a manner that is consistent with the standards for Class A office buildings in the Easton community of suburban Columbus, Ohio (the "Easton Standards"). (2) Landlord shall cause the firm of Acock Associates (which firm has been approved by Tenant), ("Landlord's Architect") to prepare the Plans and Specifications. Landlord shall deliver to Tenant, for and subject to its approval, in accordance with the time frames (the "Time Frames") set forth in Exhibit B, (i) the Schematic Design; (ii) the Design Documents, and (iii) the Construction Documents. Tenant shall deliver written response to Landlord within twenty (20) days of receipt of each of the Schematic Design, the Design Documents and the Construction Documents. Tenant's failure to respond within twenty (20) days to each of Landlord's requests shall be deemed approval. Landlord agrees to incorporate Tenant's comments into the documents to which they 9 9 relate; provided, however, that Landlord shall not be required to incorporate such comments of Tenant to the extent such comments would, in Landlord's reasonable judgment, require the Landlord Improvements to deviate in any material way from the Easton Standards, or, subject to the next sentence, increase Landlord's Costs (as defined in Schedule 1) above those set forth in the preliminary budget prepared by Landlord and approved by Tenant (the "Preliminary Budget") attached hereto as Exhibit D. With respect to changes requested by Tenant that would increase Landlord's Costs, Landlord shall incorporate those changes provided that the requested change is consistent with the Easton Standards and will not increase the Basic Rent for the First Rental Period to an aggregate amount that is in excess of $17.50 per rentable square foot (the "Cap"). As set forth in Exhibit D, Landlord's Costs shall include a payment equivalent to 5% of the total cost of construction, not including any Land acquisition, interest or financing costs. To the extent that Tenant's comments (i) cause a delay in Landlord's ability to adhere to the time periods in Exhibit C, or (ii) increase Landlord's Costs above the Cap, Landlord will give Tenant an opportunity to withdraw such comments. In the event that Tenant does not withdraw the comment, Landlord shall incorporate the comment into the documents to which they relate but any resulting delay in the time periods in Exhibit C shall be deemed a Tenant Delay (as defined in Section 6.4(c) and any additional costs above the Cap shall be deemed Additional Rent and shall be reimbursed to Landlord after the completion of the work to which the same is applicable in accordance with Section 2.2. (3) Tenant's approval rights shall include (i) the final design of the Building, including, without limitation, the massing and spatial character of the exterior, lobby and other common areas, all pursuant to architectural review committee approval of the Easton Association (including the typical office floorplate, the placement of features thereon, core location and layout, support spaces for building core and column bay dimension); (ii) the final design of the internal improvements, including, without limitation, bathrooms, mechanical systems and life safety systems; and (iii) all exterior improvements. Section 6.2 (1) Landlord Improvements shall be developed on an "open-book" basis, with Landlord bidding out all trades on a competitive basis. All consultants engaged by Landlord shall be subject to Tenant's reasonable approval, not to be unreasonably withheld or delayed, after review by Tenant of the proposals submitted by each such consultant. Landlord shall prepare and furnish to Tenant (i) bid packages which Landlord has prepared including specifications, instructions to bidders, and AIA form Contractor's Qualification Statement and (ii) a list of all proposed bidders, all subject to Tenant's approval before bid packages are distributed. Tenant shall either deliver written approval to Landlord within twenty (20) days of receipt of the materials described in (i) and (ii) above or shall be deemed to have approved if no response is 10 10 received by Landlord within twenty (20) days. If Tenant shall not approve the bid packages, the list of prospective bidders, or the consultants, Tenant shall explain the reasons therefor to Landlord and Landlord shall continue to make reasonable efforts to respond to Tenant's objection until rectified to Tenant's reasonable satisfaction. Tenant shall also have approval rights in the same manner as described above, within twenty (20) days of request, 1) if the construction is bid to multiple prime contractors, of each prime contractor and the scope of the portion of Landlord's Improvements to be included in each prime contract, and 2) of all subcontracts in excess of $100,000. Any reasonable suggestions made by Tenant within twenty (20) days of Landlord's request with respect to the bidding process shall be incorporated by Landlord and if Landlord rejects Tenant's proposed suggestion, Landlord will respond to Tenant explaining the reasons therefor. Tenant and its representatives shall have the right to be present at and participate in the negotiation of all bids received with respect to the bid packages prepared by Landlord for amounts in excess of $100,000. Tenant approves Bovis Lend Lease, Inc. or another construction manager satisfactory to both parties as Landlord's construction manager at a fee of 2.5% or at a fee to be agreed to by the parties. (2) Tenant and Tenant's representative shall have the right at all times during the business hours of Landlord or Landlord's general contractor, prime contractors, construction manager or consultants, as the case may be, and at such others times as Tenant may reasonably request, to audit, inspect and review the Plans and Specifications or the other documents referred to in this Article so long as such review does not unreasonably delay the Landlord Improvements. Section 6.3 In coordination with Landlord's schedule for the preparation of the Plans and Specifications, Tenant, at Tenant's sole cost and expense, shall secure the preparation of all necessary plans and specifications ("Tenant Plans") for the design and construction of the interior improvements which are necessary or desirable to prepare the Building for Tenant's initial occupancy (the "Tenant Improvements"). The Tenant Plans shall be subject to Landlord's review and approval which shall not be unreasonably delayed or withheld and shall be deemed approved if Landlord does not respond within twenty days. Any changes by Tenant to the Tenant Plans, once approved by Landlord, shall again be subject to Landlord's review and approval which shall not be unreasonably delayed or withheld and shall be deemed approved if Landlord does not respond within twenty (20) days. Tenant shall cause the construction and installation of the Tenant Improvements to be in compliance with the approved Tenant Plans. Tenant shall, in connection with the construction and installation of the Tenant Improvements, comply with all applicable laws, ordinances, rules and regulations and shall obtain all permits and approvals required or necessary thereunder in order for Tenant to perform the Tenant 11 11 Improvements. The contractor selected by Tenant to perform the Tenant Improvements shall be subject to Landlord's reasonable approval. Section 6.4 (1) Landlord shall notify Tenant not less than forty-five (45) days prior to the date when the Landlord Improvements shall be Substantially Completed (As defined below; such date shall hereinafter be the "Commencement Date", corresponding to Item Numbered 13 on Exhibit C.). Upon such notice, Landlord shall permit Tenant reasonable access to the Building for the construction and installation of the Tenant Improvements. Such access shall be at Tenant's own risk, shall not unreasonably interfere with or delay completion of the Landlord Improvements by Landlord, and shall be only after Tenant has obtained the insurance required under this Lease. Landlord and Tenant agree to cooperate during the construction of the Landlord Improvements and the Tenant Improvements, to coordinate the scheduling of such work and to keep each other informed as to their respective progress. (2) (i) In the event that the Commencement Date does not occur by the date eighteen (18) months after the date hereof, as such date may be extended by Unavoidable Delays and Tenant Delays (as such terms are defined below) (the "Target Date"), then Tenant may either remain in the premises then being occupied by Tenant (provided that Landlord's obligation to reimburse Tenant for its direct out-of-pocket expenses or Tenant's right to deduct such sum from payment of Basic Rent (as described below) shall not exceed market rent and shall not include any penalty that Tenant may incur as a result of becoming a "holdover tenant") or Tenant may lease temporary premises of comparable size to the Phase II Building in the Columbus area by notice to Landlord given within thirty (30) days after the Target Date. If Tenant remains in the premises then being occupied by Tenant, which premises have fewer square feet than the Demised Premises, Tenant may lease additional space so that the temporary space, including Tenant's existing premises are substantially equivalent in size to the Demised Premises. Landlord shall have the right to approve the terms of the leasing of the temporary premises, such approval not to be unreasonably delayed or withheld and, provided that the terms of the temporary leasing shall be at the then market rent on the then market terms for similar properties in the location of the temporary premises, Landlord shall be deemed to have approved. Provided Landlord has approved or is deemed to have approved the terms of the leasing, Landlord shall reimburse Tenant for its direct out-of-pocket expenses incurred in connection with leasing the temporary premises and/or remaining in Tenant's existing premises as described above, Tenant may, at Tenant's option, deduct the sum from payments of Basic Rent due hereunder. (ii) In the event that the Commencement Date does not occur by the date thirty-six (36) months after the date hereof ("Outside Date"), as such date may be extended by 12 12 Tenant Delays, either party shall have the right to terminate this Lease by notice to Landlord given within ten (20) days after the Outside Date, whereupon Landlord shall reimburse Tenant for its direct out-of-pocket expenses incurred in connection with this transaction, and neither party shall have any further rights or responsibilities hereunder, except those specifically stated to survive a termination hereof. Notwithstanding the foregoing, in the event that Landlord shall exercise its right to terminate in accordance with the previous sentence, and at any time within 24 months thereafter Landlord shall desire to enter into another lease for the Demised Premises, Landlord shall not enter into such lease until it has given Tenant not less than 30 days notice of the contemplated transaction and if Tenant shall notify Landlord within 10 days after receipt of Landlord's notice that it wishes to reinstate this Lease on all of its terms, Landlord and Tenant shall enter into an agreement whereby this Lease shall be reinstated. Other than as specifically set forth in this Section, Landlord shall have no liability and Tenant shall have no rights, including without limitation, any right to terminate this Lease, as a result of the delay in Landlord's completion of the Landlord Improvements. (3) As used herein, "Substantially Completed" means that Landlord has so completed the Landlord Improvements that Tenant is permitted to enter the Demised Premises to commence construction of the Tenant Improvements, with appropriate means of ingress and egress and access to the Building systems, in a manner that shall not materially adversely affect Tenant's ability to diligently construct the Tenant Improvements, and without undue delays or interference with Tenant's ability to complete the Tenant Improvements, and including, without limitation, the completion of the following items in any portion of the Demised Premises made available to Tenant for construction of the Tenant Improvements: freight elevators, fire stairs, and the electrical, mechanical and life safety systems (each to the extent necessary for Tenant to expeditiously commence and complete the Tenant Improvements). As used herein, "Unavoidable Delays" means one day for each day that the Commencement Date is delayed by strikes, labor troubles, abnormal or unusual weather conditions, accidents, conditions of supply and demand, or any other cause whatsoever beyond Landlord's control, including but not limited to, laws, governmental preemption, any order, requirement, rule or regulation of any governmental, quasi-governmental, judicial or military authority, national emergency, war, unrest or other emergency. "Tenant Delays"" means one day for each day that the Commencement Date is delayed by (i) any request by Tenant that Landlord delay in proceeding with any segment or part of the Landlord Improvements, (ii) any changes or requests for changes by Tenant to the Landlord Improvements which at the time of such change or request Tenant approves in writing as a Tenant Delay (and if Tenant fails to do so, Landlord shall not make such change), (iii) any acts or omissions of Tenant or its agents, employees or contractors, (iv) any delay 13 13 by Tenant in delivery of its approvals or submissions after the date that Tenant's response was required to be given as set forth in this Article (except in cases where automatic approval shall apply in which event no Tenant Delay shall occur) and (v) any displacement of any portion of the Landlord Improvements from its place in Landlord's construction schedule resulting from any of the causes for delay referred to in clauses (i) through (iv). (4) Not less than seven (7) business days prior to the substantial completion date (as defined in the AIA Contract Documents), and when the Demised Premises are in condition described in subsection (e) below, Landlord shall furnish Tenant with a detailed list of punch list items which, in Landlord's reasonable judgment, will not be completed by the substantial completion date (as described in the AIA Contract Documents). During such seven (7) business day period, Landlord and Tenant shall conduct a formal "walk through" of the Demised Premises in order to develop a final list of punch list items. Following such substantial completion date, Landlord shall use all reasonable efforts to complete the final list of punch list items and, to the extent said items are not completed within thirty (30) days thereafter, Landlord shall furnish Tenant with an explanation as to the reasons therefor and an estimated final completion date for said items and thereafter continue to use reasonable efforts to complete said items as soon as practicable. (5) On the substantial completion date (as defined in the AIA Contract Documents), all of the Building's sanitary, heating, air conditioning, mechanical and other systems shall have been completed and shall be in good operating condition, except for minor adjustments which may be required, the lobby areas of the Building shall have been substantially completed, and all construction debris shall have been removed therefrom, and functional elevator service shall be provided; Landlord and Tenant shall have obtained a temporary or permanent certificate of occupancy for the Building and for any other portion of the Demised Premises for which the municipality typically issues a certificate of occupancy; in addition, the parking area and access to and from the adjacent public roadways shall be available. Section 6.5 The Rent Commencement Date shall be the earlier of (a) the ninety-first day after Tenant occupies the Demised Premises for the conduct of its business, or (b) the first day following the tenth (10th) month anniversary of the Commencement Date. In the event that the Commencement Date is delayed as a result of a Tenant Delays, the Rent Commencement Date shall occur on the date that the Rent Commencement Date would have occurred but for the number of days of Tenant Delays. 14 14 Section 6.6 Landlord will contribute to Tenant a sum equal to Fifteen ($15.00) Dollars per rentable square foot of the Building (which amount Landlord agrees to increase, subject to the Cap, to a maximum of Thirty-Five ($35.00) Dollars per rentable square foot of the Building at the request of Tenant (the "Allowance") toward the costs of Tenant Improvements (the "Work Costs"). The total amount of the Allowance will be included in Landlord's Cost for the calculation of Basic Rent as described on Schedule 1. Any Work Costs in excess of the Allowance shall be paid by Tenant. Tenant may use the Allowance for any cost and/or expense related to the Tenant Improvements, including but not limited to all direct and/or indirect costs all of which shall be included in the Work Costs, whether applied to the Tenant Improvements or to any Allowance during a Renewal Term. In the event the total cost of the Tenant Improvements shall be less than the Allowance Tenant may apply the difference towards the payment of Rent hereunder. Section 6.7 The Allowance shall be paid by Landlord toward the invoices received for the construction of the Tenant Improvements, and shall be paid in accordance with the following procedures: (1) Tenant shall provide Landlord, not more often than once per calendar month, with an invoice prepared and certified by a Vice President or other comparable officer of Tenant, setting forth the Work Costs payable since the last such invoice, together with such other documents as Landlord shall reasonably require evidencing the work performed or materials utilized for which payment is being requested and certifying that all disbursements previously made by Landlord under this Section have been applied toward payment of the Work Costs covered by and described in the previous invoices. (2) Landlord shall pay to Tenant, within thirty (30) days of receipt of the documentation described above, the Work Costs set forth on the invoice. Upon exhaustion of the Allowance, it shall become Tenant's responsibility to pay the Work Costs, and Tenant shall provide Landlord with reasonable evidence of such payment. (3) All items of Tenant Improvements, excluding trade fixtures, shall become the property of Landlord upon expiration or earlier termination of this Lease, and shall remain on the Demised Premises. Section 6.8 In addition to the other provisions set forth in this Article 6, Landlord and Tenant agree that: (1) Each shall require all contractors retained by it to take any and all safety measures reasonably required to protect Landlord and Tenant and their respective agents, 15 15 contractors and employees from injury or damage caused by or resulting from the performance of the construction of the Landlord Improvements and the Tenant Improvements. (2) All construction contracts in connection with the Landlord Improvements and the Tenant Improvements shall contain provisions that obligate the contractors to (i) carry public liability and property damage insurance, with the limitations as would be typically carried by other contractors working on similar construction projects in the Columbus area, naming Landlord and Tenant as additional insureds; (ii) indemnify, defend and hold harmless Landlord and Tenant from and against any claims, costs, losses, expenses (including attorneys' fees and disbursements), liabilities and damages any of them may suffer on account of the negligence of the contractor; and (iii) carry workmen's compensation insurance. (3) All warranties contained in the construction contracts entered into by Landlord in connection with the Landlord Improvements or by Tenant in connection with the Tenant Improvements shall be assignable to the extent obtainable in such contracts. (4) The contractors engaged by Landlord for performance of Landlord Improvements and by Tenant for performance of Tenant Improvements shall be bonded in such amounts and by such companies as shall be reasonable for contractors performing similar work in the vicinity of suburban Columbus. (5) The review and approval by Tenant of the Plans and Specifications is solely for the benefit of Tenant, and, in reviewing and approving the same, Tenant assumes no liability for the design of the Landlord Improvements or the adequacy thereof, nor shall such review or approval by Tenant release Landlord from any obligation or liability in respect thereof. (6) The review and approval by Landlord of the Tenant Plans is solely for the benefit of Landlord, and, in reviewing and approving the same, Landlord assumes no liability for the design of the Tenant Improvements or the adequacy thereof, nor shall such review or approval by Landlord release Tenant from any obligation or liability in respect thereof. Section 6.9 Tenant, at Tenant's election, may install an identifying sign on the Demised Premises, the design and location of which shall be subject to the review and approval of Landlord, which approval will not be unreasonably withheld, and the approval of the Easton Architectural Review Committee. Any sign will comply with 16 16 applicable Requirements (hereinafter defined), shall be maintained by and at the expense of Tenant, and may be removed by Tenant at the end of the Term. Tenant will repair any damage caused by the removal. Section 6.10 At any time after completion of the Improvements, Tenant may make changes, additions and alterations to the Demised Premises as Tenant shall deem necessary or desirable ("Alterations"), provided that Tenant shall first obtain Landlord's consent, only with respect to structural Alterations, which will not be unreasonably withheld or delayed. All Alterations, other than Tenant's trade fixtures, will become a part of the Demised Premises. Tenant will have no obligation to restore the Demised Premises at the end of the Term unless requested to do so by Landlord at the time of making any Alteration. Section 6.11 In the event that, in connection with the exercise of a Renewal Option as described below in Article 18, Tenant shall perform its own Alterations toward which Landlord has contributed an Allowance, the Allowance shall be paid by Landlord in accordance with the following procedures: (1) Tenant shall provide Landlord, not more often than once per calendar month, with an invoice prepared and certified by an officer of Tenant, setting forth the Work Costs payable since the last such invoice together with such other documents as Landlord shall reasonably require evidencing the work performed or materials utilized for which payment is being requested, and certifying that all disbursements previously made under this Section 6.11 have been applied toward payment of the Work Costs covered by and described in the previous invoices. (2) Landlord shall pay to Tenant, within thirty (30) days of receipt of the documentation described above, the Work Costs set forth on the invoice. Following final disbursement of the Allowance, Tenant shall be responsible to pay the Work Costs, and Tenant shall provide Landlord with reasonable evidence of such payment. Section 6.12 On the last day of the Term, as extended by any Renewal Term (as hereinafter defined) Tenant will deliver the Demised Premises to Landlord, broom clean, in good order, condition and repair, ordinary wear and tear excepted. Tenant shall remove its furniture, furnishings and portable equipment and trade fixtures. Section 6.13 Tenant will not hold over its occupancy after the expiration of the Term, including any Renewal Terms. It Tenant holds over, Tenant will pay one and one-half the Basic Rent then in effect for each month during the period of hold over. In 17 17 addition, if the Demised Premises are not surrendered upon the expiration of the Term, including any Renewal Term, Tenant hereby indemnifies Landlord against liability resulting from any delay by Tenant in so surrendering the Demised Premises, including, without limitation, any claims made by any succeeding tenant or prospective tenant founded upon such delay. Landlord will use good faith efforts to avoid incurring damages in connection with any subsequent leasing but Landlord shall be permitted to act in a commercially reasonable manner. In the event that Landlord shall enter into a new lease for the Demised Premises, or any part thereof, Landlord shall provide Tenant with written notice of the Commencement Date of such new lease not less than thirty (30) days prior thereto and within ten business days of execution thereof. ARTICLE 7 REPAIRS AND MAINTENANCE Section 7.1 Tenant, at its sole cost and expense, will take good care of and maintain in good order, condition and repair the Demised Premises, including the Building's systems and adjacent parking areas, subject to reasonable wear and tear. Tenant, at Tenant's expense, will make all repairs as set forth above when required to keep the Demised Premises in good order and condition. Landlord will make structural repairs to the Building, including the roof and shall maintain the roof to be free of leaks, as and when needed to keep the structure and roof in good order and condition; provided, however, that Tenant shall be responsible for the costs of structural repairs and roof repairs, if and to the extent that the need for such repairs arises out of the performance of Tenant Improvements, any negligence of Tenant or its agents or employees or any failure by Tenant to comply with the terms of this Lease. Landlord shall be responsible for any repair costs to the Demised Premises resulting from the negligence of Landlord or its agents or its employees in the course of performing Landlord's repair obligations hereunder, or in connection with the exercise by Landlord of any of Landlord's rights of entry to the Demised Premises. Landlord will assign to Tenant all warranties received by Landlord in connection with construction of the Landlord Improvements, except those relating to roof and structure, for which Landlord has the responsibility of repair. ARTICLE 8 COMPLIANCE WITH LAW Section 8.1 Tenant shall comply with all applicable laws and ordinances which are initially passed and approved after the Commencement Date and with requirements of 18 18 all insurance policies and insurers under the policies required under Article 4 hereof which may be applicable to Tenant's use and occupancy of the Demised Premises and with all agreements, covenants, restrictions and easements of record which affect the Demised Premises and with which Tenant, as tenant, is required to comply, (collectively, "Requirements"). If Tenant shall fail to comply with a Requirement, Landlord may effect such compliance, and Tenant shall reimburse Landlord for the cost thereof as provided in Section 2.2. Section 8.2 Except as set forth above, Landlord will comply with all Requirements in connection with this Lease and with the performance of the Landlord Improvements, and the Tenant will comply with all Requirements in connection with the performance of the Tenant Improvements. ARTICLE 9 MECHANIC'S LIENS Section 9.1 Tenant will make a reasonable effort not to permit any mechanic's lien to be filed against the Demised Premises as a result of labor performed or materials supplied at the request of Tenant. Tenant will discharge any mechanic's lien within thirty (30) days after Tenant receives notice of its filing. ARTICLE 10 ENTRY INTO DEMISED PREMISES BY LANDLORD Section 10.1 Landlord and the authorized representatives of Landlord shall have the right to enter the Demised Premises upon the occurrence of an emergency and otherwise at all reasonable times, on reasonable prior notice during usual business hours and accompanied by a representative of Tenant for the purpose of inspection, making repairs, performing any Tenant obligation which Tenant has failed to perform, or performing any Landlord obligation. In exercising such right, Landlord shall not unreasonably interfere with or disrupt Tenant's business and no exercise of Landlord's rights pursuant to this Section shall materially reduce the size of the Building. Landlord shall be responsible for any injury or damage occasioned to the Demised Premises during such entry due to Landlord's negligence or willful act." 19 19 ARTICLE 11 RIGHT TO PERFORM COVENANTS OF TENANT Section 11.1 If Tenant fails to make any payment or perform any other act on its part to be made or performed under this Lease, Landlord, after not less than twenty (20) days' notice to Tenant (except in case of an emergency, when no prior notice shall be required; however, Landlord shall give notice to Tenant within 24 hours of such act) may, but shall not be obligated to, make such payment or perform such act and in connection therewith to pay expenses and employ counsel as reasonably required. Landlord may not pay any Basic Rent or Additional Rent owed by Tenant hereunder. All reasonable sums paid by Landlord and all reasonable expenses in connection therewith shall be deemed Additional Rent hereunder and shall be payable to Landlord as provided in Section 2.2. ARTICLE 12 DAMAGE OR DESTRUCTION Section 12.1 In case of damage to or destruction of the Leased Premises, this Lease shall, except as provided below, remain in full force and effect. Landlord shall repair and restore the Landlord Improvements and Tenant Improvements (but not any of Tenant's furnishings, equipment or trade fixtures, for which Tenant shall be responsible). Landlord shall reasonably and in good faith allocate the insurance proceeds between the reconstruction costs of the Landlord Improvements and Tenant Improvements. Tenant shall pay to Landlord, as Additional Rent, the amount of any deductible, and the amount of any shortfall in insurance proceeds. Notwithstanding any such damage or destruction, Tenant shall remain liable for the payment of all Basic Rent and Additional Rent payable pursuant to the terms of this Lease; to the extent of rent insurance, and Basic Rent shall otherwise be abated in proportion to the amount of space in the Demised Premises that is damaged until repairs are completed. Section 12.2 If (a) either (i) more than fifty percent (50%) of the Building is destroyed by fire or other casualty, or (ii) an area of the Building which is critical to Tenant's operation, and used for a specialized purpose, but does not consist of general office space, conference rooms, cafeteria, bathrooms, corridors, secretarial stations or other non-critical areas, is destroyed by fire or other casualty, causing a cessation of Tenant's business, and cannot be rebuilt within two hundred seventy (270) days, (b) at the time of the fire or other casualty, there are less than three (3) years remaining in the Term, as extended by any Renewal Terms for which Tenant has already exercised a Renewal Option, and (c) Tenant does not, within forty-five (45) days after such fire or other casualty exercise its next Renewal Option, then either Tenant or Landlord may, at such 20 20 party's option, terminate this Lease by notice to the other within forty-five (45) days after such fire or other casualty. Upon such termination, the Basic Rent and Additional Rent shall be apportioned as of the date of such damage or destruction, Tenant shall vacate and surrender possession of the Demised Premises, and neither party shall have any further rights or obligations hereunder except those which are specifically stated to survive a termination hereof. ARTICLE 13 CONDEMNATION Section 13.1 If all or any substantial portion of the Demised Premises, the Building, the parking area and/or access to and from public roadways is taken by or under threat of condemnation so as to render the Demised Premises wholly untenantable, then this Lease will automatically terminate as of the date of the vesting of title to such property in the condemning authority. If such taking does not render the Demised Premises wholly untenantable, then this Lease will not terminate but subject to Landlord immediately repairing any damages caused by the said taking at Landlord's sole cost and expense, will continue in full force and effect in accordance with its terms, except that the Base Rent will be adjusted to fairly reflect the portion of the Demised Premises, the Building or the Land which was so taken. Landlord will not be liable to Tenant for any inconvenience or interruption to Tenant's business occasioned by any such taking. Subject to the following sentence, Landlord will be entitled to receive the entire award made by the condemning authority for any such taking. The Tenant shall have the right to make a claim against the condemning authority for such claims which it may have and as may be allowed by law, for costs directly incurred by the Tenant and resulting from such condemnation and for severance damages. Landlord will promptly notify Tenant of the institution of any condemnation proceeding affecting the Leased Premises. ARTICLE 14 DEFAULTS AND REMEDIES Section 14.1 The occurrence of anyone or more of the following shall constitute an "Event of Default" under this Lease by Tenant: (1) If Tenant fails to make any payment of Basic Rent, Additional Rent or any other payment required to be made by Tenant under this Lease within ten (10) days of the date when due, except that on any single initial occasion in any calendar year during the 21 21 Term hereof, Landlord shall provide Tenant with a notice in the event that any payment is not received when due and Tenant shall not be in default provided that the payment to which the notice refers is made within five (5) days of Landlord's notice; or (2) If a Default (as defined in the Phase I Lease) by Tenant shall occur under the Phase I Lease, or in the event that Tenant shall enter into the Phase III Lease or the Phase IV Lease, any Event of Default under the Phase III Lease or the Phase IV Lease shall be an Event of Default under this Lease provided that the Landlord hereunder shall be the same Landlord as under the Phase III Lease or the Phase IV Lease at the time that such Default or Event of Default shall occur; or (c) If Tenant fails to observe or perform any other covenant, condition or provision of this Lease to be observed or performed by Tenant, and such failure shall continue for a period of thirty (30) days after notice thereof by Landlord; provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default hereunder if Tenant commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. Section 14.2 In the event of any Event of Default, Landlord may, at Landlord's option, exercise any one or more of the rights and remedies available to a landlord in the State of Ohio to redress such default, consecutively or concurrently, including, without limitation, the rights and remedies described in this Section. (1) Landlord may elect to terminate Tenant's right to possession of the Demised Premises upon thirty (30) days' written notice to Tenant. Following such a termination, Landlord may re-enter, take possession of the Demised Premises and remove any persons or property by legal action. (2) Following re-entry by Landlord, Landlord may relet the Demised Premises for a term longer or shorter than the Term and upon any reasonable terms, including the granting of rent concessions to the new tenant. Landlord may alter, refurbish or otherwise change the character or use of the Demised Premises in connection with such reletting. Landlord shall not be required to relet for any use or purpose which Landlord may reasonably consider injurious to its property or to any tenant which Landlord may reasonably consider objectionable. No such reletting by Landlord following a default by Tenant shall be construed as an acceptance of the surrender of the Demised Premises. If rent received upon such reletting exceeds the rent received under this Lease, Tenant shall have no claim to the excess. 22 22 (3) Following the termination of the Lease, Landlord shall have the right to recover from Tenant the following damages: (1) All unpaid Basic Rent, Additional Rent and other charges for the period prior to re-entry. (2) An amount equal to the Basic Rent and Additional Rent lost during any period during which the Demised Premises are not relet, plus Landlord's reasonable expenses incurred in connection with the termination of this Lease, Landlord's re-entry upon the Demised Premises, and with such reletting. (3) The difference between the Basic Rent reserved under this Lease and the amount actually received by Landlord after such reletting, as such amounts accrue. (4) Landlord may elect, at any time, in lieu of any further deficiency pursuant to Paragraphs (ii) and (iii) above, as and for liquidated and agreed final damages, a sum equal to the difference between (x) the amount of Basic Rent and Additional Rent for the period which otherwise would have constituted the unexpired portion of the Term, less (y) the then fair and reasonable rental value of the Demised Premises, for the same period, as determined by a court of competent jurisdiction, both discounted to present value, less (z) the aggregate amount of deficiencies theretofore collected by Landlord pursuant to Paragraphs (ii) and (iii) above for the same period. (4) In the event that Tenant remains in possession following termination and Landlord does not elect to re-enter, Landlord may recover all back rent or other charges, and shall have the right to cure any nonmonetary default and recover the cost of such cure from Tenant. (5) The foregoing remedies shall not be exclusive, but shall be in addition to all other remedies and rights provided under applicable law, and no election to pursue one remedy shall preclude resort to another consistent remedy. (6) No action of Landlord, other than express written notice of termination pursuant to the provisions of this Lease, shall terminate this Lease. Section 14.3 The parties hereto waive trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected 23 23 with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised Premises, or for the enforcement of any remedy under any statute, emergency or otherwise. If Landlord commences any proceeding against Tenant for the payment of Basic Rent or Additional Rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding (unless failure to impose such counterclaim would preclude Tenant from asserting in a separate action the claim which is the subject of such counterclaim), and will not seek to consolidate such proceeding with any other action which may have been or will be brought in any other court by Tenant. Section 14.4 Landlord shall be in default if it fails to perform any term, condition, covenant or obligation required under its lease for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within thirty (30) days, such default shall be deemed to have been cured if Landlord commences such performance within said thirty (30) day period and thereafter diligently undertakes to complete the same. Following a default by Landlord as described in this Section, Tenant shall have the right to perform the obligation of Landlord and Landlord shall be liable to Tenant for any costs incurred by Tenant in the performance thereof and any actual damages sustained by Tenant as a result thereof. ARTICLE 15 CUMULATIVE REMEDIES - NO WAIVER Section 15.1 The specific remedies to which Landlord or Tenant may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which they may be lawfully entitled in case of any breach or threatened breach by either of them of any provision of this Lease. The failure of Landlord to insist in any one or more cases upon the strict performance of any of the covenants of this Lease, or to exercise any option herein contained, shall not be construed as a waiver or relinquishment for the future of such covenant or option. No waiver, change, modification or discharge by either party hereto of any provision in this Lease shall be deemed to have been made or shall be effective unless expressed in writing and signed by the party to be charged. In addition to the other remedies in this Lease, Landlord and Tenant shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation, of any of the covenants, conditions or provisions of this 24 24 Lease or to a decree compelling performance of any of such covenants, conditions or provisions. ARTICLE 16 SUBORDINATION Section 16.1 This Lease and all rights of Tenant hereunder shall be subject and subordinate at all times to any Mortgage or Mortgages and any renewals or replacements thereof, which now are or hereafter become liens on the Demised Premises, provided the holder of any Mortgage (a "Mortgagee") shall deliver to Tenant an agreement reasonably satisfactory to Tenant and in recordable form stating that in the event of default under such Mortgage, the tenancy herein created shall not be disturbed, provided no Event of Default have occurred and be continuing hereunder. Tenant shall join in such agreement, confirming a covenant by Tenant to attorn to such Mortgagee, as Tenant's landlord hereunder. Any such agreement shall provide that neither Mortgagee, nor anyone claiming by, through or under the Mortgagee, including a purchaser at a foreclosure sale, shall be (a) liable for any act or omission of any prior landlord, except with respect to the continuing failure of the successor landlord to perform such prior landlord's obligations, (b) subject to any defense or offset which Tenant may have against any prior landlord, (c) bound by any payment of Basic Rent, or other money payable by Tenant to Landlord hereunder, including as Additional Rent, which Tenant may have made to any prior landlord more than thirty (30) days in advance of the date upon which such payment was due, (d) bound by any obligation to make any payment to or on behalf of Tenant, or (e) bound by any amendment or modification of this Lease made without its consent after the date of the Mortgage provided Tenant has received notice of the Mortgage. ARTICLE 17 EXPANSION OPTIONS Section 17.1 This Lease shall be separate and distinct from the Phase I Lease, and no act or omission of a party to one shall have any effect on the rights and obligations of the parties to the other, except as specifically set forth herein. Section 17.2 Tenant (but only the Tenant named in this Lease, and provided that Tenant is still in occupancy of two-thirds of the Demised Premises) shall have the option (the "Phase III Option") to lease from Landlord, an additional building, to be constructed by Landlord on vacant land located due west of the Demised Premises which will contain 25 25 approximately 70,000 square feet, parking at the rate of 6.5 parking spaces per 1,000 square feet of rentable area and a connection from the Phase III Premises to the Demised Premises (the "Phase III Premises."). A site plan of the proposed Phase III Premises is attached hereto as Exhibit E. The Phase III Option may be exercised by Tenant at any time not later than sixteen (16) months from the Effective Date (as defined in Article 1), by notice to Landlord, provided that on the date on which Tenant sends such notice and on the date of the execution and delivery by Tenant of the Phase III Lease, no monetary or other material Event of Default has occurred under this Lease or the Phase I Lease and is then continuing beyond any applicable notice and grace periods. If Tenant shall fail to timely exercise the Phase III Option, then Tenant's rights to lease Phase III Premises shall terminate. Section 17.3 (a) If Tenant exercises the Phase III Option, Landlord and Tenant shall execute and deliver a lease of Phase III Premises (the "Phase III Lease") for a fifteen (15) year term, together with an amendment to this Lease and the Phase I Lease providing that (i) the term of the Phase I Lease and this Lease will be coterminous with the term of the Phase III Lease and (ii) for an equivalent number of renewal options and for the equivalent number of renewal terms in the Phase I Lease and this Lease as in the Phase III Lease. In the event that Tenant shall exercise its Renewal Option as described in Article 18 or if this Lease is otherwise extended to accommodate this Section 17.3, the Renewal Rent and or extension rent shall be calculated in the same manner as in Section 18.3 below. The Phase III Lease shall be upon and subject to all of the terms and conditions contained in this Lease, and identical in form to, and completed to the same extent as, this Lease, except (a) the demised premises shall be as described on the site plan attached hereto as Exhibit F, (b) the term of the Phase III Lease shall commence on the Commencement Date (as determined in accordance with the same procedure as in Article 6 hereof), and end on the date immediately preceding the fifteenth (15th) anniversary of the term commencement date provided for therein, (c) the basic rent in the Phase III Lease shall be calculated using the same formula but with the then current amounts for Landlord's Cost and Pay Rate, (d) the Phase III Option shall not be included, (e) the premises demised thereunder shall be developed in accordance with Exhibit E and (f) the amount of the Allowance shall be fifteen Dollars ($15.00) per rentable square foot of the building, subject to C.P.I. increase from the date hereof to the date of the Phase III Lease. If Landlord or Tenant fails to execute and deliver the Phase III Lease and the amendments to the Phase I Lease and to this Lease described above within thirty (30) days after the tender thereof by Landlord to Tenant, provided such lease and the amendments comply with this Section or Tenant approves any changes made thereto, the responding party may at any time between the end of such thirty (30) day period and the execution and delivery of the Phase III Lease and the amendments notify the non- 26 26 responding party that the Phase III Option is void, and thereupon the Phase III Option shall be of no further force or effect. The Phase III Lease shall be separate and distinct from this Lease and the Phase I Lease, and no act or omission of a party to one shall have any effect on the rights and obligations of the parties to the other, except as specifically set forth herein. (b) Tenant acknowledges that Landlord does not currently own the property on which the Phase III Premises would be developed, but that Landlord has an option to purchase such land. In the event that Landlord has not previously delivered a copy of the option to Tenant, which Landlord shall endeavor to do, then a copy of the option is being delivered by Landlord to Tenant simultaneously upon execution of this Lease. If Tenant exercises the Phase III Option, Landlord shall use commercially reasonable efforts to acquire the property by exercising the option in order to develop the Phase III Premises. Tenant waives any right, under statute or otherwise, to rescind the Phase I Lease or the Phase II Lease or to offset against Tenant's obligations under the Phase I Lease or the Phase II Lease any damages which may result from Landlord's failure for any reason to deliver possession of the Phase III Premises or otherwise to perform its obligations hereunder, provided, however, that in the event that Landlord shall be unable to or shall elect not to acquire the Phase III Premises, Landlord will assign all of its rights to acquire the Phase III Premises to Tenant. Section 17.4 Tenant (but only the Tenant named in this Lease, and provided that Tenant is still in occupancy of two-thirds the entire Demised Premises) shall have the option (the "Phase IV Option") to lease from Landlord, an additional building, to be constructed by Landlord on vacant land located north of the Phase III Premises which will contain parking at the rate of 6.5 parking spaces per 1,000 square feet of rentable area and a connection between the Phase III Premises and the Phase IV Premises (the "Phase IV Premises."). A site plan of the proposed Phase IV Premises is attached hereto as Exhibit F. The Phase IV Option may be exercised by Tenant at any time not later than One Hundred and fifty (150) days following the acquisition by Landlord of the Phase III Premises by notice to Landlord, provided that on the date on which Tenant sends such notice and on the date of the execution and delivery by Tenant of the Phase IV Lease, no monetary or other material Event of Default has occurred under the Phase I Lease, the Phase II Lease or the Phase III Lease and is then continuing beyond any applicable notice and grace periods. If Tenant shall fail to timely exercise the Phase IV Option, then Tenant's rights to lease Phase IV Premises shall terminate. Section 17.5 (a) If Tenant exercises the Phase IV Option, Landlord and Tenant shall execute and deliver a lease of Phase IV Premises (the "Phase IV Lease") for a fifteen 27 27 (15) year term, together with an amendment to the Phase I Lease, the Phase II Lease and the Phase III Lease providing that (i) the term of the Phase I Lease, the Phase II Lease and the Phase III Lease will be coterminous with the term of the Phase IV Lease and (ii) for an equivalent number of renewal options and for the equivalent number of renewal terms in the Phase I Lease, the Phase II Lease and the Phase III Lease as in the Phase IV Lease. In the event that Tenant shall exercise its Renewal Option as described in Article 18 or if this Lease is otherwise extended to accommodate this Section 17.5, the Renewal Rent and or extension rent shall be calculated in the same manner as in Section 18.3 below. The Phase IV Lease shall be upon and subject to all of the terms and conditions contained in this Lease, and identical in form to, and completed to the same extent as, this Lease, except (a) the demised premises shall be as described on Exhibit F, (b) the term of the Phase IV Lease shall commence on the Commencement Date (as determined in accordance with the same procedures as in Article 6 hereof), and end on the date immediately preceding the fifteenth (15th) anniversary of the term commencement date provided for therein, (c) the basic rent in the Phase IV Lease shall be calculated using the same formula but with the then current amounts for Landlord's Cost and Pay Rate. (d) the Phase IV Option shall not be included, (e) the premises demised thereunder shall be developed in accordance with Exhibit F and (f) the amount of the Allowance shall be the amount of the Allowance for the Phase III Premises, subject to C.P.I. increase from the date of the Phase III Lease to the date of the Phase IV Lease. If Landlord or Tenant fails to execute and deliver the Phase IV Lease and the amendments to the Phase I Lease, the Phase II Lease and the Phase III Lease, described above, within thirty (30) days after the tender thereof by Landlord to Tenant, provided such lease and the amendments comply with this Section or Tenant approves any changes made thereto, the responding party may at any time between the end of such thirty (30) day period and the execution and delivery of the Phase IV Lease and the amendments notify the non-responding party that the Phase IV Option is void, and thereupon the Phase IV Option shall be of no further force or effect. The Phase IV Lease shall be separate and distinct from each of the Phase I Lease, the Phase II Lease and the Phase III Lease and no act or omission of a party to one shall have any effect on the rights and obligations of the parties to the other, except as specifically set forth herein. (b) Tenant acknowledges that Landlord does not currently own the property on which the Phase IV Premises would be developed but that Landlord has an option to purchase such land. In the event that Landlord has not previously delivered a copy of the option to Tenant, which Landlord shall endeavor to do, then a copy of the option is being delivered by Landlord to Tenant simultaneously upon execution of this Lease. If Tenant exercises the Phase IV Option, Landlord shall use commercially reasonable efforts to acquire the property by exercising the option in order to develop the Phase IV Premises. 28 28 Tenant waives any right, under statute or otherwise, to rescind the Phase I Lease, the Phase II Lease or the Phase IV Lease or to offset against Tenant's obligations under the Phase I Lease, the Phase II or the Phase III Lease any damages which may result from Landlord's failure for any reason to deliver possession of the Phase IV Premises or otherwise to perform its obligations hereunder, provided, however, that in the event that Landlord shall be unable to or shall elect not to acquire the Phase IV Premises, Landlord will assign all of its rights to acquire the Phase IV Premises to Tenant. ARTICLE 18 RENEWAL Section 18.1 Tenant (but only the Tenant named in this Lease and provided that Tenant is still in occupancy of two-thirds of Demised Premises) shall have the option (the "Renewal Option") to extend the term of this Lease for three (3) additional periods of five (5) years each (each a "Renewal Term"). The first Renewal Term (the "First Renewal Term") shall commence on the date immediately succeeding the Termination Date and shall end on the fifth (5th) anniversary of the Termination Date. The second Renewal Term (the "Second Renewal Term") shall commence on the date immediately succeeding the fifth (5th) anniversary of the Termination Date and shall end on the tenth (10th) anniversary of the Termination Date. The third Renewal Term (the "Third Renewal Term") shall commence on the date immediately succeeding the tenth (10th ) anniversary of the Termination Date and shall end on the fifteenth (15th) anniversary of the Termination Date. Section 18.2 Each Renewal Option shall be exercisable by Tenant delivering to Landlord notice of Tenant's exercise thereof (a "Renewal Notice"), at least 12 months prior to the first day of the Renewal Term in question. Time is of the essence with respect to the giving of the Renewal Notice. Upon the giving of a Renewal Notice with respect to this Lease, Tenant shall be deemed to have simultaneously exercised its renewal option under the Phase I Lease. The exercise of a Renewal Option under the Phase I Lease (incorporated therein by amendment simultaneously with the execution of this Lease) shall be deemed to be exercise of a Renewal Option under this Lease. Upon the giving of the Renewal Notice with respect to the Third Renewal Term, Tenant shall have no further right or option to extend or renew the term of this Lease or any Renewal Term, except as may otherwise be provided in Article 17 in connection with an Expansion Option. Notwithstanding the foregoing, Tenant may only exercise a Renewal Option, and an exercise thereof shall only be effective, if at the time of Tenant's exercise of such 29 29 Renewal Option and on the day preceding the commencement of the Renewal Term in question, the following conditions are satisfied, (i) this Lease is in full force and effect and (ii) no monetary or material non-monetary default on the part of Tenant is continuing beyond any applicable notice or cure period then exists under this Lease. Section 18.3 If Tenant exercises a Renewal Option, the Renewal Term shall be upon the same terms, covenants and conditions as those contained in this Lease, except that basic rent during each Renewal Term ("Renewal Basic Rent") shall be equal to (a) ninety-five (95%) percent of the "fair market rental" rate for offices and uses ancillary thereto in Class A buildings of comparable size, quality and location, and payable by tenants of comparable size and credit in suburban Columbus, Ohio, for a comparable triple net lease, upon the same terms and conditions as set forth herein and with respect to the Third Renewal Term only, Tenant shall have no further right to renew this Lease; or (b) such other amount as is otherwise acceptable to both parties; provided, however, that the Renewal Basic Rent for the First Renewal Term shall not be less than the Basic Rent in effect for the last year of the Term, and the Renewal Basic Rent for each succeeding Renewal Term shall not be less than the Renewal Basic Rent in effect for the last year of the preceding Renewal Term. In the absence of any agreement between the parties on the amount of the Renewal Basic Rent, the Renewal Basic Rent shall be determined as provided below. Section 18.4 Tenant may not exercise a Renewal Option unless Tenant has exercised all prior Renewal Options. Upon its exercise of the third (3rd) Renewal Option, Tenant shall have no further right or option to renew this Lease. Section 18.5 For purposes of determining the Renewal Basic Rent, the following procedure shall apply: (1) Landlord and Tenant shall, at the location in the City of Columbus specified by Landlord (by notice to Tenant given at least thirty (30) days prior to the date set forth therein) at the time and on a business day not earlier than nine (9) months prior to the first day of the Renewal Term in question and not later than six (6) months prior to the first day of the Renewal Term in question, exchange their respective written initial determinations of the Renewal Term Basic Rent stated as a dollar amount per square foot of rentable area of the Demised Premises. (Landlord's initial determination of the Renewal Term Basic Rent is referred to as "Landlord's Initial Determination" and Tenant's determination is referred to as "Tenant's Initial Determination"). 30 30 (2) If the parties shall have exchanged determinations in accordance with the foregoing, they shall attempt to agree upon the Renewal Term Basic Rent. If, within ten (10) days after the date of such exchange, they have not so agreed they shall attempt to agree upon an independent real estate appraiser to act hereunder. If, within twenty (20) days after the date of such exchange, they have not so agreed upon such an independent real estate appraiser, such independent real estate appraiser shall be appointed by the American Arbitration Association. The independent real estate appraiser so agreed upon by the parties or so appointed is herein called the "Renewal Term Appraiser". The fee of the Renewal Term Appraiser and of the American Arbitration Association shall be borne equally by Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any determination under this Article. (3) The Renewal Term Appraiser, by notice to the parties, shall establish a date, time and location in the City of Columbus, no earlier than 10 days after the date of such notice, at which either party may, if it elects, deliver to the Renewal Term Appraiser a revised written determination of the Renewal Term Basic Rent ; provided, however, that (a) Landlord's revised determination of the Renewal Term Basic Rent shall be no higher than Landlord's Initial Determination thereof and no lower than 95% of Landlord's Initial Determination thereof, and (b) Tenant's revised determination of the Renewal Term Basic Rent shall no lower than Tenant's Initial Determination thereof and no higher than 105% of Tenant's Initial Determination thereof. (4) If both parties elect to deliver revised determination, they shall do so simultaneously. The Renewal Term Appraiser shall furnish each party with a copy of any revised determination delivered by the other. As used herein the term "Landlord's Final Determination" shall mean (i) if Landlord shall have delivered a revised determination in accordance with this Section, such revised determination, or (ii) otherwise, Landlord's Initial Determination. As used herein the term "Tenant's Final Determination" shall mean (i) if Tenant shall have delivered a revised determination in accordance with this Section, such revised determination, or (ii) otherwise, Tenant's Initial Determination. (5) The Renewal Term Appraiser shall conduct such hearings and investigations as he or she may deem appropriate and shall, within thirty (30) days of the date of his or her designation, choose either Landlord's Final Determination of the Renewal Term Fair Market Rent or Tenant's Final Determination of the Renewal Term Fair Market Rent, and the choice by the Appraiser shall be conclusive and binding upon Landlord and Tenant. 31 31 (6) The Renewal Term Appraiser appointed pursuant to this Article shall be an independent real estate appraiser with at least ten (10) years' experience in valuation of properties that are similar in character to the Building, and a member of the Appraisal Institute (or its successor). The Renewal Term Appraiser shall not have the power to add to, modify or change any of the provisions of this Lease. (7) It is expressly understood that any determination of the Renewal Term Basic Rent pursuant to this Article shall be based on the criteria stated in this Article. Section 18.6 After a determination has been made of the Renewal Term Basic Rent for any Renewal Term, the parties shall execute and deliver to each other an instrument setting forth the Renewal Term Basic Rent, as determined pursuant to this Article and, if applicable, provided however, that failure of either party to execute a written supplement shall not affect the rights and duties of the parties hereunder. Section 18.7 If the final determination of the Renewal Term Basic Rent with respect to any Renewal Term shall not be made on or before the first day of such Renewal Term, then pending such final determination (and subject to retroactive adjustment as provided below), payments of Basic Rent shall be made based upon the rent for the last month of the prior term. If the Renewal Term Appraiser chooses Tenant's Determination of the Renewal Term Basic Rent (or if the Renewal Term Basic Rent as finally determined is otherwise different from Landlord's Determination thereof), Tenant shall be entitled to a credit against the Basic Rent equal to the amount of Tenant's overpayment of Basic Rent. Section 18.8 In the event that Tenant advises Landlord simultaneously with the exercise of a Renewal Option that it wishes to perform Alterations at the commencement of or during any Renewal Term, and requests an additional Allowance from Landlord for that purpose, Landlord will provide the additional Allowance, in the amount requested by Tenant, up to $5.00 per rentable square foot, amortized over the remaining Term of the Lease, as renewed, with an interest factor equal to the 5-year Treasury Rate plus 300 basis points and the Renewal Term Basic Rent will be increased accordingly. ARTICLE 19 QUIET ENJOYMENT 32 32 Section 19.1 Landlord represents and warrants that Tenant may peaceably and quietly hold, occupy and enjoy the Demised Premises during the Term, subject to the terms and conditions of this Lease. ARTICLE 20 NOTICES Section 20.1 All notices required or permitted shall be in writing and shall be delivered to each party at its address first above written, with Landlord's notices addressed to the attention of Adam Flatto and Tenant's notices addressed to the attention of Todd Deavers. Either party may request in writing additional or substitute parties for receiving notices. Notices shall be deemed to have been properly given if served in person (including but not limited to served by a national overnight courier, requiring proof of delivery, such as Federal Express) or if sent by United States registered or certified mail, return receipt requested. Copies of all notices shall be sent to Teachers Insurance and Annuity Association of America, 730 Third Avenue, New York, New York 10017, Attention: Mr. David F. Morrison. ARTICLE 21 CERTIFICATES OF TENANT AND LANDLORD Section 21.1 Each party shall, at any time and from time to time upon not less than fifteen (15) days' prior notice by the other, execute, acknowledge and deliver to the other a statement in writing certifying, if true, that this Lease is unmodified and in full force and effect (or if there have been modifications that the Lease is in full force and effect as modified and stating the modifications) and the dates to which the Basic Rent and Additional Rent have been paid, stating whether or not, to the best knowledge of the signer of such statement, there are defaults by either party and containing such other information as may reasonably be requested by either party or by any Mortgagee. ARTICLE 22 USE Section 22.1 Tenant may use the Demised Premises for general and executive offices, ancillary uses incidental thereto permitted by law and for no other purpose. 33 33 Section 22.2 Tenant shall not use or allow the Demised Premises or any part thereof to be used or occupied for any unlawful purpose or in violation of any certificate of occupancy covering the use of the Demised Premises or any part thereof. Tenant shall not allow the Demised Premises or any part thereof to be used by the United States government, any foreign government, the United Nations or any agency or department of any of the foregoing or any person or entity having sovereign or diplomatic immunity) or any other governmental agency. Landlord shall furnish Tenant with a copy of the certificate of occupancy for the Building and all supporting approvals of governmental authorities having jurisdiction over the Demised Premises promptly following the issuance thereof. ARTICLE 23 ASSIGNMENT AND SUBLETTING Section 23.1 If Tenant shall desire to assign this Lease or to sublet the Demised Premises, Tenant shall submit to Landlord a written notice of Tenant's intent to do so, which notice shall contain all of the material terms pursuant to which Tenant desires to assign this Lease or to sublet the Demised Premises. Section 23.2 Tenant may, with the prior consent of Landlord, which shall not be unreasonably withheld or delayed, subject to the provisions of Section 23.5 hereof, sublet the Demised Premises in whole or in part, on one or more occasions, provided there shall be delivered to Landlord a duplicate original of the sublease, containing the name and address of the subtenant. Landlord shall be deemed to be reasonable in withholding consent to a sublease to the State of Ohio, City of Columbus or County of Franklin, or to any agency or department of any federal, state, county or city government, or for a use likely to cause a significant number of members of the general public to visit the Building. Except as provided in this Article 23, Tenant may not assign this Lease, sublet the Demised Premises or any part thereof, or mortgage or encumber its interest in this Lease. Section 23.3 Notwithstanding the foregoing, the consent of Landlord shall not be required, nor shall the provisions of Sections 23.1 be applicable, in connection with the assignment or subletting by Tenant to an Affiliate of Tenant, provided that the net worth of such Affiliate, in Landlord's reasonable judgment, is an amount sufficient to meet the obligations of such Affiliate as tenant pursuant to the terms of this Lease. 34 34 Section 23.4 Neither an assignment of Tenant's interest in this Lease nor a subletting, occupancy or use of the Demised Premises or any part thereof by any person or entity other than Tenant, nor any collection of rental by Landlord from any person or entity other than Tenant, nor any application of any such rental to Tenant's obligations hereunder shall relieve Tenant of its obligations under this Lease. Section 23.5 At least twenty (20) days prior to any subletting of all or any portion of the Demised Premises (except pursuant to Section 23.3 hereof), or to any assignment, Tenant shall submit a statement to Landlord (a "Tenant Statement") containing the following information: (1) the name and address of the subtenant or assignee, as the case may be, (2) a description of the portion of the Demised Premises to be sublet, (3) the essential terms and conditions of the subletting, including, without limitation, the rent or consideration payable, or of the assignment and (4) the nature and character of the business of the proposed subtenant, or assignee, a statement specifically directing Landlord's attention to the provisions of this Section 23.5 requiring Landlord to respond to Tenant's request for approval of the proposed subletting or assignment within twenty (20) days after Landlord's receipt of the Tenant Statement. If Landlord shall fail to notify Tenant within said twenty (20) day period of Landlord's consent to or reasonable disapproval of the proposed subletting or assignment pursuant to the Tenant Statement, or if Landlord shall have consented to such subletting or assignment, Tenant shall have the right to sublease that portion of the Demised Premises to such proposed subtenant on the same terms and conditions set forth in the Tenant Statement, or to assign the Lease, subject to the terms and conditions of this Lease, including Section 23.3 and this Section 23.5. If Tenant shall not enter into such sublease or assignment within one hundred twenty (120) days after the delivery of the Tenant Statement to Landlord, then the provisions of this Section 23.5 shall again be applicable to any other proposed subletting or assignment. If Tenant shall enter into such sublease or assignment within one hundred twenty (120) days as aforesaid, Tenant shall deliver a true, complete and fully executed counterpart of such sublease or assignment to Landlord within ten (10) business days after execution thereof. In the event that Tenant shall receive rent in excess of Basic Rent, or consideration in connection with an assignment ("Profit") Landlord shall be entitled to fifty (50%) percent of the Profit. ARTICLE 24 INVALIDITY OF PARTICULAR PROVISIONS Section 24.1 If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the 35 35 remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE 25 BROKER Section 25.1 Tenant represents that it has dealt with no broker in connection with this Lease other than CB Richard Ellis, Inc ("Broker"). Landlord will pay the fees of the Broker in connection with this Phase II Lease, only (it being understood that Landlord shall have no liability to Broker in connection with any renewals of the Phase I Lease), pursuant to separate agreement. Landlord and Tenant each indemnify and hold harmless the other from and against any and all losses, claims, liabilities, damages and expenses, including without limitation, attorneys' fees and expenses and court costs arising out of or in connection with any breach or alleged breach of the above representation or any claim by any persons or entity other than Broker for brokerage commissions or other compensation in connection with the consummation of this Lease. The provisions of this Article shall survive the expiration or sooner termination of this Lease. ARTICLE 26 INDEMNITY Section 26.1 Tenant indemnifies and holds harmless Landlord against and from any and all liability, fines, suits, claims, demands, expenses and actions of any kind or nature, including attorneys' fees, arising by reason of injury to person or property occurring on the Demised Premises, or occasioned in whole or in part by any act, omission or negligence of Tenant, or its agents or of any person on the Demised Premises by the license or permission of Tenant, expressed or implied, or by any use or occupancy of the Demised Premises, or any breach, violation or non-performance of any covenant in this Lease on the part of Tenant to be observed or performed from and after the Commencement Date. Section 26.2 Landlord indemnifies and holds harmless Tenant against and from any and all liability, fines, suits, claims, demands, expenses and actions of any kind or nature, including attorney's fees, arising by reason of injury to person or property 36 36 occurring on the Demised Premises during any time while Landlord or its agents is performing work on the Demised Premises, whether during construction of Landlord Improvements or while Landlord is performing any of Landlord's obligations contained in Article 7 or Article 8 or resulting from the negligence of Landlord or its agents or employees. ARTICLE 27 ENVIRONMENTAL PROVISIONS Section 27.1 Landlord and Tenant shall each at all times comply with all applicable laws and ordinances and shall keep the Demised Premises free of contamination arising out of or resulting from: (x) any petroleum or petroleum derivatives: (y) any substance or material presently identified or deemed to be toxic or hazardous under or pursuant to 42 U.S.C. Sections 9601-9675 or any other applicable federal, state or local statute, rule or regulation (any and all federal, state or local statutes, rules, orders or regulations, now or hereafter in effect, dealing with matters involving toxic or hazardous substances, the use, discharge or release of same, the environment or health or safety, are hereinafter collectively, referred to as the "Law"), including, without limitation, whether or not defined as such by the Law, any asbestos, polychlorinated biphenyls ("PCBs"), radioactive substance, methane, volatile hydrocarbons or industrial solvents; or (z) any other material or substance which has in the past or could presently cause or constitute a health, safety or other environmental hazard to any person or property (all of the foregoing described in (x), (y) or (z) above and any other material or substance which may at any time in the future cause or constitute a health, safety or other environmental hazard to any person or property, shall hereinafter be referred to as "Hazardous Substances" and any one of same as a "Hazardous Substance"); (ii) neither Landlord nor Tenant shall cause or suffer to occur, a disposal or release of any Hazardous Substance in violation of the Law at, upon, under or within the Demised Premises, upon the Land or upon any contiguous or adjacent land; (iii) Tenant is not or will not be involved in operations or activities at the Demised Premises that could result in, give rise to, or lead to the imposition of liability upon Landlord or the creation of a lien on the Demised Premises, under the Law; and (iv) Tenant will not knowingly suffer or permit any employee, agent, contractor, subtenant or occupant or licensee of the Demised Premises to engage in any operation or activity on the Demised Premises that could result in, give rise to, or lead to the imposition of liability on Landlord or Tenant, or the creation of a lien on the Demised Premises, under the Law. Tenant shall promptly forward to Landlord copies of all orders, notices, permits, applications, and other communications and reports in connection with any such disposal, release or threatened release of any 37 37 Hazardous Substance or any other matters relating to the Law, as they may affect the Demised Premises. Tenant hereby indemnifies Landlord and agrees to hold Landlord harmless from and against all loss, liability, damage and expense, including reasonable attorneys' fees and expenses, suffered or incurred by Landlord as a result of the acts of Tenant, or the acts of Tenant's agents, employees, contractors, subtenants, guest and invitees, including, but not limited to any and all costs and expenses incurred by Landlord (including, but not limited to, the cost of any investigation to determine whether a cleanup of the Demised Premises is necessary, costs of cleanup payment of fine or penalties, and payment of damages to third parties), (i) under any Law, including the assertion of any lien against the Demised Premises, (ii) from and after the Commencement Date, with respect to the existence of, or any disposal, release or threatened release of, any Hazardous Substance affecting the Demised Premises whether or not the same originates or emanates from the Demised Premises or from any other source caused by Tenant, or Tenant's agents, employees, contractors, subtenants, guests and invitees, including any loss of value of the Premises as a result of such existence, disposal, release or threatened release of any Hazardous Substance; (iii) with respect to any other matter affecting the Demised Premises within the jurisdiction of the Environmental Protection Agency of the United States of America or the agencies having authority for environmental protection and conservation in the State of Ohio, (iv) with respect to Landlord's reliance on any representation or warranty of Tenant. The term "loss" shall include any amounts paid by Landlord in good faith, ten (10) days prior notice, of any claim, demand, loss, liability, cost, charge, suit, order, under the belief that it is liable therefor. The term "Landlord" shall include any successor, assignee or designee of Landlord, which becomes the owner of the Building whether through purchase, foreclosure or acceptance of a deed in lieu thereof and shall include any directors, officers, employees, partners or agents of Landlord and any of the foregoing. Tenant agrees that in the event of any exercise, disposal, release or threatened release of any Hazardous Substance affecting the Demised Premises or originating from the Demised Premises caused by Tenant, or Tenant's agents, employees, contractors, subtenants, guests and invitees, and/or if Tenant shall fail to comply with any of the requirements of the Law, Landlord may, at its election, but without the obligation so to do, give notices and/or cause such work to be performed at the Demised Premises and/or take any and all other actions as Landlord shall deem necessary or advisable in order to remedy said existence, disposal, release or threatened release of any Hazardous Substance or cure said failure of compliance and any amounts paid as a result thereof shall immediately be due and payable by Tenant to Landlord. 38 38 This indemnification and the obligations of Tenant hereunder shall survive the termination of this Lease and continue in full force and effect so long as any matters shall exist against which Tenant has agreed to indemnify Landlord pursuant to the terms hereof, and shall not be affected by the happening from time to time of any event, including, but not limited to, any failure, omission, delay or lack of action on the part of Landlord to enforce, assert or exercise any right, power or remedy conferred upon it hereunder. Section 27.2 Tenant acknowledges and agrees that Landlord has made available to Tenant the "Phase I" Environmental Report that Landlord has obtained with respect to the Phase II Land and that Landlord has not made any representation or warranty as to any Hazardous Substance. The provisions of this Section shall not be deemed to limit the right of Tenant to name Landlord as a party defendant in any action brought by any third party, including any governmental or administrative entity, for damages which such third party alleges have been caused by environmental conditions affecting or related to the Demised Premises which existed prior to the Commencement Date, and Landlord shall indemnify and hold Tenant harmless from and against any liabilities, losses and costs, including Tenant's reasonable counsel fees and any required remediation which Tenant may incur by reason of any such third party claim. ARTICLE 28 COVENANTS BIND AND BENEFIT RESPECTIVE PARTIES; MODIFICATION Section 28.1 The covenants and agreements herein contained shall bind and inure to the benefit of Landlord, its successors, assigns and legal representatives and Tenant and its successors, permitted assigns and legal representatives. The terms and provisions of this Lease may not be altered, modified, waived or terminated except by an agreement in writing signed by the party to be charged. ARTICLE 29 MISCELLANEOUS Section 29.1 Upon any sale of the Demised Premises by Landlord, the grantee shall assume in writing the obligations of Landlord hereunder. Provided that such assumption agreement is obtained, the obligations of Landlord under this Lease shall not 39 39 be binding upon Landlord named herein after the sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of its interest in the Building or the Demised Premises, as the case may be, and in the event of any such sale, conveyance, assignment or transfer, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder. The partners, shareholders, directors, officers, members and principals, direct and indirect, of Landlord and/or Tenant (collectively, the "Parties") shall not be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's and/or Tenant's obligations hereunder and shall not seek any damages against any of the Parties. The liability of Landlord for Landlord's obligations under this Lease shall be limited to Landlord's interest in the Demised Premises and Tenant shall not look to any other property or assets of Landlord or the property or assets of any of the Parties in seeking either to enforce Landlord's obligations under this Lease or to satisfy a judgment for Landlord's failure to perform such obligations. Section 29.2 As used herein, the term "Affiliate" shall mean, with respect to Tenant, an entity which controls, is controlled by or is under common control with Tenant, any entity to which all or substantially all of the stock or assets of Tenant are transferred, or any entity into or with which Tenant shall be merged, and, with respect to Landlord, an entity under the control, directly or indirectly, of The Georgetown Company. Landlord hereby waives any statutory or common law lien or right of distraint against any and all of Tenant's inventory, equipment trade fixtures personality, accounts receivable and proceeds thereof. Section 29.3 This Lease may be executed in separate counterparts which shall together constitute one document. ARTICLE 30 SECURITY DEPOSIT Section 30.1 Within 30 days of the execution of this Lease, Tenant shall delivery to Landlord a standby, unconditional, irrevocable letter of credit in the amount of $693,000 naming Landlord as beneficiary, issued or confirmed by The Bank of New York permitting partial draws thereon, and otherwise in form reasonably acceptable to Landlord as a security deposit under this Lease.. Tenant shall from time to time cause its letter of credit to be renewed (either automatically under the terms thereof or by 40 40 amendment thereto or by replacement thereof) in the amounts described below no later than 30 days prior to any expiration date thereof so that its letter of credit remains in effect for 30 days after the scheduled expiration of the Term; if Tenant fails timely to renew its letter of credit (or if such letter of credit renews automatically under its terms, and such automatic renewal is terminated by the issuer of such letter of credit), then Landlord shall have the right to draw thereon, and retain the amounts so drawn as a security deposit until such time as Landlord receives a replacement letter of credit satisfying the requirements of this article 30. Upon the occurrence of an Event of Default, Landlord may draw upon the letter of credit (but only to the extent required to cure the Event of Default) and apply the proceeds thereof to perform any of Tenant's unperformed obligations under this Lease. Tenant hereby irrevocably appoints Landlord its true and lawful attorney-in-fact , such power of attorney being coupled with an interest, with full power of substitution, to do any one of more of the following in its sole discretion upon the occurrence of an Event of Default under this Lease: (1) demand, collect, receive, sue for, compound and give acquittance for any and all amounts which may be or become due or payable with respect to the letter of credit and all funds evidenced thereby, (2) execute any and all withdrawal receipts or other orders for the payment of money drawn from the letter of credit, (3) file any claim or institute any proceeding with respect to the letter of credit, and (4) take any other action which Landlord may deem necessary or appropriate to protect and preserve the right, title and interest of Landlord under this Lease. Provided no Event of Default has occurred hereunder, Tenant may reduce the amount of the letter of credit by 20-% of the original amount on each anniversary of the date of this Lease except that the letter of credit shall not fall below $115,000 during the term hereof. Notwithstanding the foregoing, if, during the Term, Tenant is granted an investment grade rating (which, for purposes hereof, shall mean a rating of BB or better) by Moody's Investors Service, Inc. or Standard & Poor's Ratings Services, a division of McGraw Hill, Inc., Landlord, upon written request from Tenant and provided no Event of Default shall then exist, shall return to Tenant any letter of credit held by Landlord pursuant to this Article and no letter of credit or other security deposit shall thereafter be required from Tenant pursuant to this Lease. 41 41 IN WITNESS WHEREOF the parties hereto have executed this Lease on the day and year first above written. LANDLORD: GEORGETOWN BISYS PHASE II, LLC By:______________________________ Title:___________________________ TENANT: BISYS FUND SERVICES, INC. By:______________________________ Title:___________________________ EX-10.20 5 y53439ex10-20.txt LEASE 1 Exhibit 10.20 LEASE THIS LEASE, made this 23 day of February, 2000, between A/A REALTY ASSOCIATES with offices at 4201 Crums Mill Road, Harrisburg, Pennsylvania 17112, hereinafter called "LANDLORD", AND BISYS INSURANCE SERVICES, INC. hereinafter called "TENANT". ON Property situate in the Township of Lower Paxton, County of Dauphin, and Commonwealth of Pennsylvania in Building known as Crums Mill IV office Building, having an address of 4150 Crums Mill Road, Harrisburg, Pennsylvania 17112. WITNESSETH: That in consideration of the mutual covenants and agreements herein contained, it is agreed by and between Landlord and Tenant as follows: 1. BASIC PROVISIONS. This Section 1 is an integral part of this Lease and all of the terms are incorporated into this Lease in all respects. In addition to the other provisions which are elsewhere defined in this Lease, the following, whenever used in this Lease, with the first letter of each word capitalized, shall have the meanings set forth in this Section, and only such meanings, unless such meanings are expressly contradicted, limited or expanded elsewhere: A. BUILDING NAME: CRUMS MILL IV OFFICE BUILDING B. LANDLORD'S MAILING ADDRESS: 4201 Crums Mill Road Harrisburg, PA 17112 C. TENANT'S MAILING ADDRESS: 4150 Crums Mill Road Harrisburg, PA 17112 D. PREMISES (Sect.3): As shown on Exhibit A - Landlord will construct a building with a total square footage of 75,000 Square Feet gross floor area, of which Tenant will lease 61,602 square foot, including its proportionate share of common area consisting of the entire second and third floors and suites A and B on the first floor thereof, on a portion of 9.234 acres situate on the southwest quadrant of the intersection of Colonial Road and Crums Mill Road, Lower Paxton Twp., Harrisburg, Pennsylvania. Said building will be in accordance with the plans and specifications of Mass Construction Company, which plans, specifications and drawings are incorporated herein, marked Exhibit "A" and attached to this Lease. For definition, 2 "Premises" shall include the 61,602 square feet of the Building and the right to use the parking area and entrances thereto, and all improvements thereon. E. PERMITTED USE (Sect 5) : Any lawful purpose F. GUARANTOR: None G. TERM (Sect. 4): Ten (10) Years and three (3) months H. "Commencement Date" shall be: The last to occur of (i) the date the Premises are Ready for Occupancy as set forth in 2(C) hereafter; or (ii) the date of Occupancy Permit issuance as required by the governing Municipalities, and the Premises and the balance of the building are Ready for Occupancy. Subject to the provisions of Section 9.A. hereof, in the event the Commencement Date had not occurred, on or prior to 3/31/2001, Tenant may cancel this Lease by written notice to Landlord. Expiration shall be at midnight on the last day of the final month of the term. I. ANNUAL BASE RENTAL (Sect. 7): 1. The Annual Base Rental for the first two (2) years of the Lease, which rent shall commence three (3) months after surrender of possession, shall be $14.75 Per Square Foot ($908,629.50 per annum), plus additional rent as set forth herein. 2. After the initial two (2) year term of the Lease the rental rate shall increase two (2%) percent each year. 3. In the event Tenant exercises its option to renew said Lease as set forth herein, the annual rental shall likewise be increased by two (2%) percent each year. J. TENANT FIT-OUT: Landlord has furnished Tenant a copy of its anticipated construction costs attributable to subject Premises. Included in said costs are the Tenant fit-out expenses of $15.00 per square foot, or a total of $924,030.00. The parties agree that no changes or alterations to Exhibit "A" will be permitted except in writing executed by each of the parties hereto. In the event the projected fit-out expense of $15.00 per square foot or $924,030.00 are exceeded due to changes or alterations at the request of Tenant, or due to additional requirements of any political subdivision, Landlord will pay for said charges and expenses, and Tenant shall reimburse Landlord within thirty (30) days of presentment to Tenant of an itemization of all Tenant fit-out expenses. 2 3 K. SECURITY DEPOSIT: Waived. L. OPERATING EXPENSES: Tenant agrees to pay all Operating Expenses as defined in this Lease which are the responsibility of Tenant. Tenant also agrees to pay all taxes and insurance attributable to the Premises, including all utilities and the cost of insuring its own personal property and its own cost of telephone and telecommunications service. In the event, however, Landlord leases any of the vacant space to a third party, the operating expenses of Tenant shall be the proportion of square footage occupied by Tenant to the total lease area OF 71,550 square feet. 2. DEFINITIONS. This Section 2 is an integral part of this Lease and all of the following terms are incorporated into this Lease in all respects. In addition to the other definitions which are elsewhere defined in this lease, the following, whenever used in this Lease, with the first letter of each word capitalized, shall have the meanings set forth in this Section and only such meanings, unless such meanings are expressly contradicted, limited or expanded elsewhere. A. "Building Area" shall mean the area on all levels of the building designed for the exclusive use and occupancy of Tenant, which is 61,602 square feet and shall include the related improvements for the purposes of this Lease including but not limited to reserved the parking for no less than 289 vehicles and the right to use all delivery areas and access ways. B. If Tenant desires to make any revisions to the plans and specifications which are not consistent with or a logical extension of the general synopsis attached hereto as Exhibit B, then Tenant will so notify Landlord and Landlord will then ask its general contractor to prepare a cost estimate for the making of such changes. Landlord will promptly notify Tenant of any increased cost or savings resulting from such changes, and Tenant will have the right to require Landlord to cause such change to be made to the Plans; provided, however, that such changes will not unreasonably affect the structural integrity of the Building. If the aggregate of all such changes results in a net increase to the cost of the construction of the improvements (net of any savings), then Tenant will reimburse such net increase to Landlord within 30 days after Landlord has incurred and paid the costs in question and has sent a written demand for the payment thereof to Tenant. If any change requested by Tenant will, in the reasonable judgment of Landlord's contractor, cause a delay in the anticipated date for the substantial completion of construction of the Building, then Landlord will so ,notify Tenant of such delay and, if Tenant notifies Landlord within ten days thereafter that it nonetheless requires that the requested change be made, then the contemplated 3 4 substantial completion date will be deferred only for such period of time necessary to complete the work as modified. C. "Governing Municipality" shall mean the State or Commonwealth, County, and Local Governing Bodies,including without limitation, the Township, Borough, Ward or District, having jurisdiction over the area in which the building is located. D. "Ready for Occupancy" shall mean the date on which Landlord has substantially completed all work to be performed by it in accordance with Exhibit "B". The Premises shall be deemed substantially complete provided only minor or insubstantial details of the construction, decoration or mechanical adjustments remain to be done and the Tenant can operate Tenant's business in the entire Premises. E. "Lease Year" The first Lease Year shall commence on the first (1st) day of the Term and shall end at the close of the twelfth (12th) full calendar month following the commencement of the Term; thereafter, a Lease Year shall consist of successive periods of twelve (12) calendar months. Any portion of the Term remaining at the end of the last full Lease Year shall constitute the final Lease Year and rentals and charges shall be apportioned accordingly. F. "Taxes" shall mean for any calendar year, all real estate and other ad valorem taxes and assessments levied against the Premises, or any payments in lieu thereof, including the expense of contesting the amount or validity of any such Taxes, charges or assessments. Such expense to be applicable to the period of the item contested. G. "Land" shall mean the real property consisting of 9.234 acres upon which the Building and related improvements are to be constructed by Landlord. 3. PREMISES AND IMPROVEMENTS. Tenant leases 61,602 square foot of the Building and the right to use the Land and all improvements thereon, including parking area for Tenant's exclusive use, subject however to an easement for ingress and egress to Landlord and any tenant of Landlord, access to include the area of the Building leased to any third party or access to any additional buildings Landlord may construct on the balance of 9.234 acre lot. Landlord shall have the right to construct any other building and/or improvements on any portion of the Land not utilized by Tenant during the term of this Lease. Nothing herein contained however shall prohibit Tenant from adding antennae or other communication equipment to the building at the sole expense of Tenant. [GRAPHIC OF INITIAL CIRCLE] 4 5 Outline specifications describing the Improvements to be provided and installed by Landlord in the premises at Landlord's expense, and the Improvements to be provided and installed by Tenant at its expense, have been agreed to be the parties as set forth is Exhibit "B" attached hereto and made a part of this Lease. Landlord agrees that it will, within a reasonable period of time after execution of this Lease, take all steps necessary to subdivide the portion of 9.234 acres which is not being utilized for the erection of the building and appurtenances leased to Tenant, the cost of which subdivision will be borne by Landlord. In the event Landlord wishes to erect a building or buildings on the subdivided property, Landlord agrees to erect said building or buildings in a manner which will not be detrimental aesthetically to the building leased to Tenant, and which will be of a same or similar quality of construction. Landlord will submit plans to Tenant at least sixty (60) days prior to construction of an additional building or buildings for Tenant's review and comments. 4. TERM & EXPIRATION. A. The term of this Lease (the "Term"), shall commence on and shall be for the number of years set forth in Section 1(G). B. Subject to Tenant's specific right to cancel in Section l(H) hereof, if the Premises are not "Ready for occupancy" on or before 3/31/2001, the Commencement Date of the Term of this Lease shall be the date upon which Tenant is tendered delivery of the possession of the Demised Premises and the building Ready for occupancy in accordance with Section 1(H), or the date Tenant waives any requirement hereunder and takes possession of the Demised Premises. The Lease Term shall expire at 12:00 o'clock, Midnight, on the last day of the final calendar month which completes the number of year(s)and months set forth in Section 1(G). As soon as determined, Landlord and Tenant shall confirm in writing the Commencement Date and expiration dates, and that the Lease is in effect and that Tenant is in occupancy by signing the Commencement Date agreement attached hereto as Exhibit "C". C. This Lease shall expire in accordance with Section 1(H) without the necessity of any notice from either Landlord or Tenant to terminate the same, and Tenant waives notice to vacate the Premises and agrees that Landlord shall be entitled to the benefit of all provisions of law respecting the summary recovery of possession of the Premises from a Tenant holding over to the same extent as if statutory notice had been given. For the period of 5 6 six months prior to the expiration of the Term, or any renewal thereof, and after providing prior reasonable notice to Tenant, and always in the presence of a representative of Tenant, Landlord may show the Premises and all the parts to prospective tenants during normal business hours, provided that Tenant reserves the right to refuse any such showing that would interfere with Tenant's business activities. D. If Tenant shall be in possession of the Premises at the end of the original Term, or any optional extension period, in the absence of any agreement extending the Term, the tenancy under this Lease shall become month to month, terminable by either party on thirty days prior written notice. After 90 days of such occupancy, the Annual Base Rent as defined in Section 6 shall become twice the amount. E. Notwithstanding anything in this Lease to the contrary, the Commencement Date shall not occur unless and until Landlord has delivered to Tenant a title insurance policy in form and content acceptable to Tenant and indicating good and marketable title vested in Landlord, together with an endorsement covering Tenant's leasehold interest in the Premises. 5. USE OF THE PREMISES. A. Tenant shall use the Premises as permitted in Section 1(E). Tenant shall have access to the Premises 24 hours each day, 365 days each year. 6. RENTALS PAYABLE. Tenant covenants and agrees to Pay to Landlord as Rentals, sometimes referred to as "Rent" or "Rental", for the Premises, the following, namely: A. The Annual Basic Rental set forth in Section 1(1),and B. Any and all additional sums, charges or amounts of whatever nature to be paid by Tenant to Landlord in accordance with the Terms of this Lease whether or not such sums, charges or amounts are referred to as "additional rental." 7. ANNUAL BASIC RENTAL AND ADDITIONAL RENT. Annual Basic Rental, as set forth in Section 1(1), shall be payable in equal monthly installments in advance, without demand and/or setoff, on the first (1st) day of each full calendar month during the Term, the first such payment to include any prorated Annual Basic Rental for the period from the date of the 6 7 commencement of the Term to the first day of the first full calendar month in the term. 8. PAYMENT OF RENTALS. A. Except as herein permitted Tenant covenants to pay all Rentals when due and payable, without any setoff, deduction or prior demand. Any additional rental provided for in this Lease which shall become due, shall be payable on the later of thirty (30) days after request therefor or the date upon which and with the next installment of Annual Basic Rental. Rentals required of Tenant shall be paid or delivered to Landlord at the management office of Landlord or at such other place as Landlord may, from time to time, designate in writing to Tenant. B. Any payment by Tenant or acceptance by Landlord of a lesser amount than shall be due from Tenant to Landlord shall be treated as a payment on account. C. Anything in this Lease to the contrary notwithstanding, at Landlord's option, Tenant shall pay as additional rent, a late charge in the amount of one (1%) percent of the outstanding balance per month for any rental payment not made within seven days of the due date. 9. LANDLORD'S IMPROVEMENTS; READY FOR OCCUPANCY. A. Subject to unavoidable delays due to labor disputes, Acts of God or the public enemy, governmental regulations or controls, fire or other conditions or causes beyond its reasonable control, Landlord will as promptly as possible let contracts for and execute the performance of all work to be performed by it in accordance with Exhibits "A" and "B". However, no delay for any reason shall extend the Commencement Date beyond March 31, 2001. B. On the Commencement Date as defined in Section 1(G), Tenant shall be deemed to have: (a) accepted the Premises; (b) acknowledged that the Premises are in the condition called for as "Ready for Occupancy" (as defined in Section 2{D}); and (c) agreed that the obligations of the Landlord under Exhibit "B" have been fully performed, except for (x) any punch list items which shall be set forth in writing by Tenant within a reasonable time after the Commencement Date, and (y) any latent defects that are not ascertainable by a visual inspection. Landlord shall immediately upon execution of this lease (i) prepare a bid solicitation package for the Building and shall deliver a copy thereof to Tenant and (ii) secure all licenses and permits required for construction of 7 8 the Building including the Premises. Tenant shall have the right to grant the construction contract for the Building to the contractor of its choice subject to the following: (i) Landlord and Landlord's contractors will perform all work in a manner that will maintain the integrity of all utilities serving the Land, and the Building. (ii) Landlord shall use only new and first-class materials and will perform all work in a good and workmanlike condition. All materials, equipment, fixtures, systems, installations and construction shall be compatible with and of a quality equal or greater than currently exists in Landlord's adjacent properties and projects. (iii) Landlord will obtain and pay for all permits, approvals, licenses and inspections required for construction and occupancy, including any special permits or approvals relating to the Building and the Premises. (iv) Builder's Risk, Workman's Compensation, Public Liability and Property Damage insurance, shall be provided and at all times maintained by Landlord or its contractors engaged in the completion of the Building. Certificates for such insurance shall be furnished to Tenant prior to the commencement of any Tenant work by Tenant in the Building and the Premises. (v) Tenant shall not be liable in any way for any injury, loss or damage which may occur to the Building during the construction thereof. (vi) Landlord shall guaranty all work on the Building and the Premises for a period of two (2) years from and after the Commencement Date. (vii) Landlord shall construct the Building, the Tenant improvements and related improvements at Landlord's cost and expense. C. Prior the Commencement Date the architect who prepared the Landlord's plans and specifications shall deliver to Tenant a certification, together with the calculations reflecting the process and formulas related thereto, as to the exact gross square footage of the Building the exact square footage of the Premises. The Annual Base Rent shall be determined by multiplying the square footage of the Premises times the applicable square foot rent. Once the fixed rent is established the parties hereto shall execute the Commencement Date agreement setting forth the fixed per annum rent for the initial term and all renewal terms. 8 9 D. Landlord represents and warrants that Landlord has sufficient funds to complete the construction of the entire Building, the Premises and related improvements. E. Notwithstanding anything in the Lease or elsewhere to the contrary Landlord may not assign this Lease, except in connection with a financing of the property, to any entity prior to the end of 24 months after the Commencement Date. 10. CHANGES AND ADDITIONS TO BUILDING AREA. Landlord shall not, without the express written consent of Tenant, which consent may be withheld or delayed in Tenant's reasonable business judgment (a) make or permit changes or revisions in the plans as set forth in Exhibits "B" or "C" including, but not limited to, additions to, subtractions from, rearrangements of, alterations of, modifications of or supplements to the Building and/or the Premises, walkways, hallways, stairwells, escalators, elevators, driveways, or other common facilities; (b) construct other buildings or improvements on the Land or make alterations or additions to the building; and (c) make or permit changes or revisions in the Building, including additions, or to convey portions of the Building Area or Land to others for the purpose of constructing other improvements, including additions and alterations, except as may be required by any governmental subdivision. 11. ALTERATIONS AND SERVICES BY TENANT AND TRADE FIXTURES. A. Tenant shall not do any structural work in or about the Demised Premises or make any structural alterations or additions without the prior written consent of Landlord, which shall not be unreasonably withheld. All such work to which Landlord consents shall be performed and installed at Tenant's sole cost and expense in accordance with plans and specifications to be supplied by Tenant, which plans shall in all instances first be subject to Landlord's reasonable approval. As a part of Landlord's approval, Landlord shall state if it shall require removal and restoration of the alterations or additions at the termination of the Lease. During the work, Tenant shall maintain such insurance as Landlord may reasonably require for the benefit of the Landlord. B. No work or installation by Tenant at the Premises, Land or Building, shall be done except after the filing of a waiver of the right to file any lien (commonly known as a "Mechanics and/or Materialmen's Lien Waiver") with Landlord, so as to constitute an effective waiver by anyone having a right to file such a lien. No work which Landlord permits Tenant to do pursuant to this Section 11, whether in the nature of erection, construction, alteration or repair, shall be deemed to be made upon the express or implied 9 10 request of, nor for the immediate use and benefit of, Landlord, so that no mechanic's or materialman's lien shall be allowed against the estate of Landlord by reason of any consent given by Landlord to Tenant to improve the Premises. Except as above required, Tenant may make such other changes and alterations to the Premises without the necessity of Landlord's approval. C. In the event any mechanic's lien shall at any time be filed against the Premises allegedly by reason of work, labor, service or materials performed or furnished to Tenant or to anyone holding the Premises; through or under Tenant, Tenant shall cause the same to be discharged of record or bonded to the satisfaction of Landlord within thirty (30) days of Tenant becoming aware of the filing. If Tenant shall fail to cause such lien to be so discharged or bonded after being notified of the filing, then, in addition to any other right or remedy of Landlord, Landlord may discharge the same by paying the amount claimed to be due, and the amount so paid by Landlord and all costs and expenses, including reasonable attorneys' fees incurred by Landlord in procuring the discharge of such lien, shall be due and payable by Tenant to Landlord as additional rent on the first (1st) day of the next following month. D. Subject to the provisions of Section 11(A) hereof, any alterations, improvements or additions made by Tenant shall remain upon the Premises at the expiration or earlier termination of this Lease, and shall become the property of the Landlord. E. All trade fixtures and apparatus (as distinguished from leasehold improvements) owned by the Tenant and installed in the Premises shall remain the property of Tenant and shall be removable at any time, including upon the expiration of the Term, and provided further that Tenant shall repair any damage to the Premises caused by the removal of said fixtures to the original order and condition in which they were at the time of delivery of possession to Tenant, ordinary wear and tear excepted. F. Landlord hereby expressly waives any and all rights granted by or under any present or future laws to levy or distrain for rent, in arrears, in advance or both, upon any goods, merchandise, equipment, fixtures, furniture and other personal property of Tenant or any nominee of Tenant in the Premises, delivered or to be delivered thereto. 12. MAINTENANCE BY TENANT. A. In regard to use and occupancy of the Premises, Tenant will at its own expense maintain the entire Premises, including but not limited to: (a) keep all interior surfaces of the Premises clean; (b) replace promptly any cracked or broken glass of the Premises with glass of like kind and quality; (c) maintain the 10 11 Premises in a clean, orderly and sanitary condition and free of insects, rodents, vermin and other pests; (d) keep any garbage, trash, rubbish or refuse in rat-proof containers within the interior of the Premises until removed; (e) have such garbage, trash, rubbish and refuse removed on a daily basis; (f) comply with all laws, ordinances, rules and regulations of governmental authorities and all recommendations of the Fire Underwriters Rating Bureau now or hereafter in effect and specifically attributable to the Tenant's use of the Premises, provided however that Tenant shall be responsible for keeping the inside of all glass in the doors and windows of the Premises clean and keeping the interior of the Premises clean. B. In regard to use and occupancy of the Premises, Tenant will not: (a) Place or maintain any merchandise, trash, refuse, or other articles in any vestibule or entry of the Premises, on the footwalks or corridors adjacent thereto or elsewhere on the exterior of the Premises so as to obstruct any corridor, footwalk, stairwell, elevator, escalator or mall; (b) Permit accumulations of or burn garbage, trash, rubbish or other refuse within or outside of the Premises; (c) Cause or permit objectionable odors to emanate or be dispelled from the Premises; (d) Receive or ship articles of any kind except through service facilities designated by Landlord unless no service door is provided; (e) Use the parking area adjacent to the Premises for the sale or display of any merchandise or for any other business, occupation or undertaking; or (f) Use or permit the use of any portion of the Premises for any unlawful purpose; or (g) Place a load upon any floor which exceeds the floor load for which the floor was designed to carry or, which amount is in excess of that allowed by law; (h) Store, use or allow to be used on the Premises any article or substance which is considered to be hazardous, flammable, explosive or having an offensive odor; (i) Use electricity in the Premises in excess of the capacity of any of the electrical conductors and equipment in or otherwise serving the Premises; (j) Execute or deliver any financing or security agreement or statement that would be a lien upon the Premises or the Land or Building. C. Tenant shall keep the Premises and fixtures in good order and repair, reasonable wear and tear and damage by any casualty not occurring through act of negligence of Tenant or Tenant's agents, employees or invitee excepted, and except for damages as set forth in Section 15 hereof on demand pay Landlord, as additional rent, the cost of repair of the Premises, or the Building, or any part if damaged in whole or in part by the act or negligence of Tenant or Tenant's agents, employees or invitee. D. Within the limits of the Building as constructed Tenant and Landlord shall use every reasonable precaution against fire, or other casualty. 11 12 E. Tenant shall give Landlord prompt written notice of any accident, fire, casualty or damage occurring on or to the Premises, and of any defects in the apparatus in the Premises. 13. STRUCTURAL REPAIRS AND LANDLORD'S OBLIGATIONS A. Landlord will be responsible for structural repairs to exterior walls, roof, structural columns, structural floors of the Premises, Land and Building; Landlord shall also be responsible for repairs to the parking lot, utility lines (including but not limited to sewer and water) between the Building and the street, and structural repairs to the windows; provided Tenant shall give Landlord written notice of the necessity for such repairs and provided that the damage shall not have been caused by negligence or willful acts of Tenant, its concessionaires, officers, employees, licensees or contractors, in which event Tenant shall be responsible. Landlord shall have no obligation for repair, maintenance, alteration or any other action with respect to the Premises, in whole or any part, or any plumbing, electrical, or other mechanical installations, or any of Tenant's improvements or fixtures, except as may be expressly set out in this Lease and/or caused by the negligence or willful act of Landlord or Landlord's employer, contractors, customers and/or deliverymen. Landlord shall keep the roof free of leaks and the Building free of seeping water. In the event Landlord fails to make the required repairs, Tenant shall make such repairs and deduct the cost thereof from future rent payments. B. Landlord will be responsible for replacement or major repairs to the parking lot and the HVAC system during the first five (5) years of this lease. In the event it is necessary to replace or provide major repairs to the parking lot and/or HVAC system during the next five (5) years, the cost thereof shall be paid as follows: (1) During the sixth (6th) year of this Lease, Tenant will be responsible for fifty (50%) percent of the cost and Landlord will be responsible for fifty (50%) percent of the cost. (2) During the seventh (7th) year of this Lease, Tenant will be responsible for forty (40%) percent of the cost and Landlord will be responsible for sixty (60%) percent of the cost. (3) During the eighth (8th) year of this Lease, Tenant will be responsible for thirty (30%) percent of the cost and Landlord will be responsible for seventy (70%) percent of the cost. 12 13 (4) During the ninth (9th) year of this Lease, Tenant will be responsible for twenty (20%) percent of the cost and Landlord will be responsible for eighty (80%) percent of the cost. (5) During the tenth (10th) year of this Lease, tenant will be responsible for ten (10%) percent of the cost and Landlord will be responsible for ninety (90%) percent of the cost. Tenant shall be responsible, however, for normal repair of the parking lot and HVAC system during the entire term of this Lease. C. Tenant will have the benefit of any and all construction warranties Landlord has obtained for any repairs, and Landlord shall use its best effort with the contractor to cover those repairs under the construction warranties. Landlord hereby guarantees any work performed pursuant to this Lease, including but not limited to all work set forth on Exhibits "A" and "B" for one (1) year from and after the time that the Premises are completed and delivered to Tenant as set forth in this Lease. D. If Landlord or Tenant fail to perform any of the foregoing repairs for which they are responsible on a timely and effective basis, Landlord or Tenant as applicable may, after at least twenty (20) days written notice of their intention to do so to the other party, complete such repairs and be entitled to reimbursement for the cost of such repairs from the non-performing party. E. Landlord and Tenant acknowledge that the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time (collectively referred to herein as the "ADA") establish requirements for business operations, accessibility and barrier removal, and that such requirements may or may not apply to the Premises depending on, among other things: (1) whether Tenant's business is deemed a "public accommodation" or "commercial facility", (2) whether such requirements are "readily achievable", and (3) whether a given alteration affects a "primary function area" or triggers "path of travel" requirements. The parties hereby agree that: (a) Landlord shall be responsible for ADA Title III compliance in the Premises, except as provided below, and in connection with the completion of the Construction of the Building, the Premises and with all other Improvements, (b) Tenant shall be responsible for ADA Title III compliance in connection with any alterations to the Premises, (c) Landlord shall perform and shall be responsible for the cost of, ADA Title III "path of travel" requirements and (d) Landlord shall perform, and Landlord shall be responsible for the cost of, ADA Title III compliance in the Common Areas. 13 14 14. INTERIOR REPAIRS. A. Tenant will keep the interior of the Premises, together with all electrical, plumbing and other mechanical installments, excluding items Landlord is to repair pursuant to Sections 12 and 13 hereof, in good order and repair and will make all replacements from time to time as required at its expense. Tenant will surrender the Premises at the expiration of the Term or at such other time as this Lease may terminate in as good condition as when received, excepting depreciation caused by ordinary wear and tear, damage by fire or casualty, unavoidable accident or Act of God. Tenant will not overload the electrical wiring serving the Premises or within the Premises, and will install at its expense, any additional electrical wiring which may be required in connection with Tenant's apparatus. Landlord shall keep the roof free of leaks and the Building free of seeping water. In the event Landlord fails to make the required repairs, Tenant shall make such repairs and deduct the cost thereof from future rent payments. B. Any damage or injury sustained by any person because of mechanical, electrical, plumbing or any other equipment or installations, whose maintenance and repair is the responsibility of Tenant shall be paid by Tenant, and Tenant shall indemnify and hold Landlord harmless from and against all claims, actions, damages and liability, including but not limited to, attorneys' and other professional fees, any other cost which Landlord might reasonably incur as a direct result thereof. 15. DAMAGE TO PREMISES. Except for damage by casualty, as set forth in Section 23, Tenant will repair promptly, at its expense, any damage to the Premises, and upon demand shall reimburse Landlord for the cost of the repair of any damage elsewhere in the Building, caused by negligence or willful acts of Tenant, its concessionaires, officers, employees, licensees or contractors, unless caused by Landlord, its agents, employees or contractors; and in default of such repairs by Tenant, at the expiration of thirty (30) days after delivery of written notice to Tenant, Landlord may make or cause the same to be made and Tenant agrees to pay to Landlord as additional rent, the cost of the repairs with interest at the rate of the lesser of ten (10%) per cent per annum or the maximum rate of interest. 16. ALTERATIONS BY TENANT. A. Tenant will not alter the exterior of the Premises and will not make any structural alterations, renovations or improvements to the Premises without the prior written consent of Landlord, which 14 15 shall not be reasonably withheld. All such work to which Landlord consents shall be performed and installed at Tenant's sole cost and expense in accordance with plans and specifications to be supplied by Tenant, which plans shall in all instances first be subject to Landlord's reasonable approval. As a part of Landlord's approval, Landlord shall state if it shall require removal and restoration of the alterations or additions at the termination of the Lease. During the work, Tenant shall maintain such insurance as Landlord may reasonably require for the benefit of the Landlord. Tenant may make all other alterations without any approval required of Landlord. 17. SIGNS AND ADVERTISING. Tenant, at Tenant's sole cost and expense, may install any sign at the Building subject to local ordinance. 18. GENERAL APPEARANCE. Tenant shall maintain the general appearance of the interior of the Premises in such a manner as will present a neat, clean and orderly appearance. 19. UTILITIES, ELECTRICITY; HVAC; SPRINKLER; AND OTHERS. A. Landlord will provide and maintain the necessary means to bring all utilities, including but not limited to, electricity, sewer and water for Tenant's use to the Premises in accordance with Exhibit "B" attached. Tenant shall pay all charges for heating and air-conditioning, electricity, sprinklers, water and all other utilities and services used by Tenant in the Premises and supplied by a public utility or public authority, or any other person, firm or corporation, whether billed directly to Tenant or billed directly to Landlord (in which event such charges to be reimbursed to Landlord shall be determined on a connected load basis and shall be payable to Landlord upon demand but not prior to the due date thereof). B. Landlord shall incur no liability to Tenant whatsoever should any utility become unavailable from any public utility company, public authority or any other person, firm or corporation, including Landlord, supplying or distributing such utility. Landlord shall under no circumstances be liable to Tenant in damages or otherwise for any interruption in service of water, electricity, heating, air-conditioning or other utilities and services caused by an unavoidable delay, by the making of any necessary repairs or improvements or by any cause beyond Landlord's reasonable control, during which period rent shall be abated. 15 16 20. INSURANCE. A. Landlord will keep in force as long a this Lease remains in effect and during such other times as Tenant occupies the Premises or any part: (1) An all risk insurance policy or fire insurance policy with respect to the Building and Premises based upon coverage limits not less than a reasonable estimate of the cost of replacing the Building and all related improvements. Coverage shall be at least sufficient so that losses shall be paid in full up to the face amount of the policy; and (2) Liability insurance, including contractual liability, with respect to the Premises to afford protection to the limit of not less than Three Million Dollars ($3,000,000) for each occurrence with respect to bodily injury and wrongful death coverage and at least Five Hundred Thousand Dollars ($500,000) for each occurrence with respect to property damage coverage. (3) Prior to commencement of any construction of the Building and the related improvements Landlord shall provide, or cause to be provided, and thereafter shall keep in full force and effect, or cause to be kept in full force and effect, until and only until the date of substantial completion, at no cost to Tenant, the following related to the Premises: (a) comprehensive general liability insurance naming Landlord as an additional insured, such insurance to insure against liability for bodily injury and death and for property damage in an amount not less than $5,000,000.00 combined single limit, such insurance to include operations-premises liability, independent contractor's coverage, completed operations for a period of two (2) years after completion of construction and broad form contractual liability (designating the indemnity provisions of any construction contracts if such coverage is provided by a contractor); and (b) workers' compensation providing statutory benefits for all persons employed at or in connection with the Leased Premises. B. Tenant will keep in force at its expense as long as this Lease remains in effect and during such other time as Tenant occupies the Premises or any part all-risk insurance written at replacement cost value on Tenant's personal property including inventory, trade fixtures, floor covering, furniture and other property removable by Tenant and Tenant's leasehold improvements 16 17 installed by it under Exhibit "B" or otherwise; Tenant will further deposit the policy or policies of such insurance or certificates with Landlord, which policies shall name Landlord as additional named insured, and shall also contain a provision stating that such policy or policies shall not be canceled except after thirty (30) days written notice to Landlord. If the nature of Tenant's operation is such as to place any or all of its employees under the coverage of local workman's compensations or similar statutes, Tenant shall also keep in force, at its expense, so long as this Lease remains in effect and during such other times as Tenant occupies the Premises, workman's compensation or similar insurance affording statutory coverage and containing statutory limits. If Tenant shall not comply with its covenants made in this Section 20, Landlord has no liability and may cause insurance to be issued, and in such event, Tenant agrees to pay as additional rent, the premium for such insurance upon Landlord's demand. C. Tenant shall require any contractor of Tenant who is to perform work on the Premises to keep in force at such contractor's expense during such times as contractor is working in the Premises (including, without limitation, the performance of any Exhibit "B" work to be performed by Tenant): (a) comprehensive general liability insurance, including contractor's liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement, and contractor's protective liability coverage, in companies and in form reasonably acceptable to Landlord, to afford protection to the limit, per occurrence, of not less than one Million Dollars ($1,000,000) combined single limit with respect to personal injury or death and property. Tenant will cause Tenant's contractor to deposit the policy or policies of such insurance or certificates with Landlord prior to commencing any such work, which policies shall name Landlord, or its designee as additional named insured, and shall also contain a provision stating that such policy or policies shall not be canceled except after thirty (30) days' written notice to Landlord. Tenant shall also require its contractor to keep in effect workmen's compensation or similar insurance affording statutory coverage and containing statutory limits during the period such contractor is performing work in the Premises on Tenant's behalf. 21. INDEMNITY BY TENANT. A. Tenant will indemnify and save Landlord harmless from and against all claims, actions, damages, liability and expense, including reasonable attorney's and other professional fees, in connection with loss of life, personal injury and/or damage to property arising from or out of the occupancy or use by Tenant of the Premises or the Building, caused wholly or in part by any act or omission of Tenant, its officers, agents, contractors, or employees. 17 18 B. Unless due to negligence or willful act of Landlord, or Landlord's agents, employees, or contractors, Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage resulting to Tenant, or those claiming, by, through or under Tenant, or its or their property, from the breaking, busting, stoppage or leaking of electrical cable and wires, and water, gas, sewer or steam pipes. C. Except as herein set forth, Tenant agrees that Tenant's use and occupancy of the Premises and the Building is at Tenant's own risk. The provisions of this Section shall be applicable from and after the Commencement Date of this Lease and until the end of the Term of this Lease, and during such further period as Tenant may use or be in occupancy of any part of the Premises of any portion of the Building. D. Landlord shall indemnify and save harmless Tenant and its agents against and from (a) any and all claims, actions, costs, recoveries and legal expense (i) arising from (x) the conduct of Landlord, its employees, agents, contractors, or invitees, or (y) and work or thing whatsoever done, including but not limited to Exhibit "B", or any condition created (other than by Tenant for Tenant's account) in or about the Premises and/or Building during the Term of this Lease or (ii) arising from any negligent or otherwise wrongful act or omission of Landlord or any of its employees, agents, contractors or invitees, and (b) all costs, expenses and liabilities incurred in or in connection with each such claim or action or proceeding brought thereon. In case any action or proceeding be brought against Tenant by reason or any such claim, Landlord, upon notice from Tenant, shall resist and defend such action or proceeding. The provisions of this Section 21(D) shall survive the expiration or sooner termination of this Lease. 22. INCREASE IN INSURANCE PREMIUMS; WAIVER OF SUBROGATION A. To the extent such coverage is available without any cost to Tenant, Tenant shall cause each insurance policy carried by it and insuring the Premises against loss by fire or any of the casualties covered by all-risk insurance to be written in such a manner so as to provide that the insurer waives all right of recovery by way of subrogation against Tenant in connection with any loss or damage covered by the policy. B. To the extent such coverage is available without any cost to Landlord, Landlord shall cause each insurance policy carried by it and insuring the Premises against loss by fire or any of the casualties covered by all-risk insurance to be written in such a manner so as to provide that the insurer waives all right of recovery by way of subrogation against Landlord in connection with any loss or damage covered by the policy. 18 19 C. Neither Landlord nor Tenant shall be liable to the other for any loss or damage caused by fire or any of the casualties covered by all-risk insurance, which loss or damage is covered by the insurance policies maintained by the other party. If such a waiver of subrogation is not available from the insurers of either Tenant or Landlord, this Section 22(B) shall have no effect. It is agreed that, should either party fail to procure such waiver, if available, it will pay to the other in liquidated damages all monies to which any subrogee becomes entitled and the cost of reasonable legal defense of any claim for subrogation. 23. FIRE OR OTHER CASUALTY. A. If the Premises shall be damaged by fire, the elements, accident or other casualty ("Casualty"), and the Premises are not rendered untenantable in whole or in part, Landlord shall promptly coordinate such damage to be repaired (but only with respect to those items to be provided by it under Exhibits "A" and "B"), and the Annual Basic Rent and other charges shall be abated proportionately as to the portion of the Premises rendered untenantable from the date of such Casualty until the Premises are rendered entirely tenantable. If, as the result of Casualty, the Premises are rendered wholly untenantable, subject to the provision of Section 23(B), the Annual Basic Rental and other charges shall be abated from the date of such Casualty until the Premises have been rendered fully tenantable. In the event of such Casualty, Landlord shall not be liable for interruption to Tenant's business or for damage to on replacement or repair of Tenant's personal property, including inventory, trade fixtures, floor coverings, furniture and other property removable by Tenant under the provisions of this Lease or to Tenant's leasehold improvements. B. If the Premises are (a) rendered wholly untenantable, or (b) damaged as a result of any cause which is not covered by Landlord's insurance or is damaged in whole or in part during the last three (3) years of the Term, or (c) all repairs to restore the Building and the Premises to its condition prior to the occurrence of the damage cannot be, or are not, completed within six (6) months of the occurrence of the damage, or (d) if the Building is damaged to the extent of fifty (50%) percent or more of the total square footage, then in any event, Landlord or Tenant may immediately terminate this Lease by giving to the other party notice. Annual Basic Rent and other charges shall be adjusted as of the date of such Casualty. C. If the Building is so substantially damaged that it is reasonably necessary to demolish same for the purpose of reconstruction, Landlord or Tenant may terminate this Lease by giving to the other party notice within ninety (90) days after the 19 20 occurrence of the damage, in which event this Lease shall immediately terminate and the Annual Basic Rental and other charges shall be adjusted as of the date of the occurrence of such Casualty. 24. CONDEMNATION. If the whole or any part of the Premises, parking area and/or access to or from any adjacent public roadways shall be taken under the power of eminent domain, this Lease shall terminate as to the part so taken in the date Tenant is required to yield possession to the condemning authority. Landlord shall make such repairs and alterations as may be necessary in order to restore the part not taken to useful condition and the Annual Basic Rental and additional rent shall be reduced proportionately as to the portion of the Premises so taken. If the portion of the Premises so taken substantially impairs the usefulness of the Premises, either party may terminate this Lease as of the date when Tenant is required to yield possession. If twenty-five (25%) percent or more of the Floor Area, in the Building is taken, then Landlord or Tenant may terminate this Lease as of the date of the taking. All compensation awarded for any taking of the fee (and/or leasehold if Landlord shall then be in possession of the Premises under a ground lease) shall belong to and be the property of Landlord and Tenant assigns to Landlord all rights with respect thereto; provided, however, nothing contained herein shall prevent Tenant from applying for reimbursement from the condemning authority (if permitted by law) for moving expense, or removal of trade fixtures, or loss of business goodwill, or severance damages. 25. INSPECTION BY LANDLORD. Tenant will permit Landlord, its agents, employees and contractors to enter all parts of the Premises during Tenant's business hours in the presence of a representative of Tenant, to inspect the same and to enforce or carry out any provision of this Lease. 26. ASSIGNMENTS AND SUBLETTING. A. Tenant may assign or sublet, for a Permitted Use only, all or any part of the leased Premises, or license concessions or lease departments, without the prior notice to Landlord, subject to Tenant's continued responsibility-under this Lease. The right to sublet or assign for a use other than a lawful use, shall require the express prior, written approval of Landlord. This section includes any subletting or assignment which would otherwise occur by operation of law, merger, consolidation, reorganization, 20 21 transfer or other change of Tenant's corporate or proprietary structure, or an assignment or subletting to or by a receiver or trustee in any Federal or State bankruptcy, insolvency, or other proceedings. B. If Tenant is a corporation and if at any time after execution of this Lease and prior to the end of the Term, any part or all of the corporate shares shall be transferred by sale, assignment, bequest, inheritance, operation or law or other disposition (including such a transfer to or by a receiver or trustee in Federal or State bankruptcy, insolvency, or other proceedings) so as to result in a change in the present control of said corporation by the person or persons now owning a majority of said corporate shares, Tenant shall notify Landlord of this event within fifteen (15) days from the date of such transfer. In such event and whether or not Tenant has given such notice, Landlord may terminate this Lease at any time, by giving Tenant at least sixty (60) days written notice, which notice must be delivered to Tenant within twenty (20) days of the notice to or discovery by Landlord of such fact. This provision shall not be applicable to Tenant if it is a corporation whose outstanding voting stock is listed on a national securities exchange (as defined in the Securities Exchange Act of 1934, as amended). C. Tenant shall have the right, without Landlord's consent, to assign or sublet this lease to an Affiliate (as hereafter defined). "Affiliate" shall mean (a) any entity which is controlled by, is under common control with, or which controls Tenant, or which Tenant has greater than fifty (50%) percent voting or ownership interest, (b) any entity into which Tenant merges or is consolidated, or any entity into which Tenant is merged or any other corporation or entity resulting from the consolidation or merger of Tenant with some other entity, in either case in connection with the reasonable and valid business purpose of Tenant and not intended to avoid the restrictions set forth in Section 26(A) or (C) any successor corporation or other entity arising from any bona fide reorganization of Tenant. Tenant may also assign this Lease, without the consent of the Landlord in connection with the sale or transfer of all or a portion of the stock or assets of the Tenant. 27. QUIET POSSESSION; SUBORDINATION; ATTORNMENT. A. So long as Tenant is not in default, Tenant shall have peaceful and quiet use and possession of the Premises, subject to all matters of record and to any mortgage, ground lease, or other agreements to which this Lease is or may hereafter be subordinated. This Lease is and shall at all times hereafter be subject and subordinate in all respects to all present and future mortgages and other security instruments encumbering all or any part of the Premises and to all amendments, renewals, modifications, 21 22 substitutions, increases, supplements, consolidations and extensions thereof, subject to Tenant's right of peaceful, quiet and undisturbed use and possession of the Premises. B. If there shall occur any default by Landlord with respect to any obligation of this Lease, which default is of such nature as to give Tenant right to terminate this Lease, or to reduce, offset or delay the rent payable under this Lease, or to claim any credit, offset or delay against future rents, then, notwithstanding any provision in this Lease to the contrary, Tenant shall take no action as a result of such default, and shall continue to perform all terms of this Lease as though such default shall not have occurred, until written notice thereof shall be delivered to Landlord and to the holder (the "Lender") any mortgage encumbering the Premises of which Tenant has written notice and until neither Landlord nor Lender shall have cured or remedied such default within thirty (30) days after receipt of such notice to Lender. Lender shall have the right, but not the obligation, to remedy or cure such default. So long as Tenant is not in default in the payment of rent, additional rent or other charges, or in the performance or any of the terms, covenants or conditions of this Lease, Tenant shall not, by reason of foreclosure of any mortgage, acceptance of a deed in lieu of foreclosure, or the exercise of any remedy provided in a mortgage, be disturbed by Lender in Tenant's occupancy of the Premises during the term of this Lease or any extension herein set forth. Landlord and Tenant agree with Lender that Tenant shall pay directly to Lender all rent and other sums paid by Tenant under this Lease upon Tenant's receipt of written notice from Lender of the exercise of such rights, and Landlord hereby authorizes and directs Tenant to make all such payments to Lender. Tenant shall attorn to and recognize as Tenant's landlord any purchaser at a foreclosure or judicial sale relating to a mortgage or debt secured thereby, or any transferee by deed or assignment in lieu thereof, and its successors and assigns, and the successor Landlord will accept such attornment and recognize Tenant's rights of possession and use of the Premises in accordance with the provisions of the Lease, and without further evidence of such attornment and acceptance, Tenant shall be bound by and comply with all the terms, provisions, covenants and obligations contained in this Lease on its part to be performed; provided, however, that nothing contained herein shall impose upon such purchaser or its successors or assigns any obligation to complete any improvements or any work or restoration to be performed under this Lease or to reimburse Tenant or any other party for any costs thereof; provided, however, that if such purchaser or its successors or assigns elects not to complete any such improvements or work or restoration to be performed under this Lease, Tenant shall have the right to terminate this Lease by giving such purchaser or its successors or assigns written notice of such termination promptly after receiving notice of the election by such purchaser or its successors or assigns not to complete any such improvements, work or restoration. Neither Lender nor any purchaser at a foreclosure 22 23 or judicial sale relating to the mortgage or debt secured thereby, nor any transferee by deed or assignment in lieu thereof nor any of its successors or assigns shall in any way or to any extent be: (a) liable for any act or omission of any prior Landlord (including Landlord) in contravention of any provision of this Lease, unless same shall continue after such successor or assignee becomes the landlord hereunder; or (b) subject to any offsets, claims or defenses which Tenant might have against any prior Landlord (including Landlord); or (c) bound by any rent or additional rent which Tenant might have paid for more than thirty (30) days in advance to any prior Landlord (including Landlord); or (d) bound by any amendment or modification of this Lease made without Lender's written consent; or (e) in any way responsible for deposit or security which was delivered to any prior Landlord (including Landlord) but which was not subsequently delivered to Lender or such other person or entity, as the case may be. In the event of a default under this Lease by any purchaser at a foreclosure or judicial sale relating to the mortgage or debt secured thereby, or by any transferee by deed or assignment in lieu thereof by any of its successors or assigns, Tenant shall have no recourse to any assets of such purchaser or transferee, or of its successors or assigns other than its interest in the property of which the Premises form a part. Tenant shall from time to time upon request by Landlord, execute and deliver one or more instruments in recordable form confirming that this Lease is subject and subordinate to the matters and instruments referred to in this Section 27 provided said instrument contains appropriate language of non-disturbance. Tenant also agrees that any such lessor, mortgagee or trustee above may elect to have this Lease prior to its ground lease and/or the lien of its mortgage, deed of trust or other security instrument, respectively, and that, in the event of such election and upon written notice to Tenant, this Lease shall be deemed prior in lien to such ground lease and/or mortgage, deed of trust or other security instrument whether or not this Lease is dated prior to, or subsequent to the date of said ground lease, and/or mortgage, deed of trust or other security instrument. C. Landlord shall deliver to Tenant a written agreement from the holder of each mortgage or ground lease covering the Premises providing for the following: (a) So long as there exists a no default, Tenant's possession of the Premises and Tenant's rights and privileges under this Lease, including the rights with respect to the application of insurance and condemnation proceeds, shall not be diminished or interfered with by any mortgagee or ground lessor of the Premises; (b) Any such mortgagee or ground lessor shall agree that so long as there exists no default, no such mortgagee or ground lessor will join Tenant as a party defendant in any action or proceeding for the purpose of terminating Tenant's interest and estate under this Lease because of any default under any mortgage or ground lease involving Landlord; and (c) In the event that Landlord shall at any time fail to pay any installment of principal or interest or any other sum under any mortgage now or 23 24 hereafter placed on the Premises, or in the event that Landlord shall fail to pay any rent payable under any ground lease to which this Lease is subordinate, or in the event Landlord shall do or fail to do any act which constitutes an event of default under such mortgage or ground lease, Tenant, if not in default hereunder, shall have the right to simultaneously notice of Landlord's default from the holder of any such mortgage or ground lease and the same grace period to cure such default of Landlord as is available to Landlord. If Tenant elects to cure such default as hereinabove provided, by paying such principal, interest, rent and other sum, or by taking such action with respect to which Landlord may be in default as aforesaid, Tenant shall have the right to deduct the amount of such payment and the cost and expense incurred by reason of Landlord's other defaults, with interest thereon at 12% per annum from the date of Tenant's payments, from the rent and additional rent due and to become due under this Lease. If Landlord fails to deliver the foregoing on or prior to the Commencement Date then in such event Tenant may cancel this Lease without further liability to the Landlord. 28. BANKRUPTCY. If any sale of Tenant's interest in the Premises created by this Lease shall be made under execution or similar legal process; or if Tenant or any guarantor of Tenant admits in writing its inability to pay its debts when due; or if a receiver or trustee shall be appointed for Tenant's or its guarantor's business or property; or if a petition is filed by (or filed against and such filing is not released within sixty (60) days) Tenant or its guarantor for bankruptcy, a corporate reorganization or Tenant or an arrangement with its creditors under any state bankruptcy law; or if Tenant or its guarantor shall make an assignment for the benefit of creditors; or if in any other manner Tenant's interest under this Lease shall pass to another by operation of Law, Tenant shall be deemed to have breached a material covenant and Landlord may reenter the Premises and terminate this Lease and the tenancy created. Notwithstanding such termination, Tenant shall remain liable for all rent and damages which may be due at the time of such termination and shall be liable for the damages set forth herein. 29. PERFORMANCE BY LANDLORD AND EMERGENCIES. A. Landlord covenants and agrees to perform all obligations expressed on its part to be performed. Upon receipt of written notice specifying action desired by Tenant in connection with any such obligation if Landlord shall not commence and proceed diligently to comply with such notice to the satisfaction of Tenant within three (3) days, Tenant may do the things specified in said notice. Tenant shall have no liability to Landlord for any loss or 24 25 damage resulting in any way from such action by Tenant, and Landlord agrees to pay promptly upon demand any expense incurred by Tenant in taking such action, together with interest at the rate of the lesser of fifteen (15%) percent, per annum or the maximum rate of interest permitted by law. 30. REMEDIES OF LANDLORD. A. If Tenant shall violate either (a) the covenant to pay rent and shall fail to comply with said covenant within ten (10) days after written notice of such failure, or (b) any other covenant, and shall fail to comply or commence compliance within thirty (30) days after being sent written notice from Landlord, by certified or registered mail, of such violation and diligently proceed to cure its default, or if Tenant shall repeatedly violate any covenant, Landlord may reenter the Premises and declare this Lease and the tenancy created terminated. Landlord shall be entitled to the benefit of all provisions of applicable laws respecting the speedy recovery of the Premises or proceedings in forcible entry and detainer. B. Subject to (A) above, Landlord may perform for the account of Tenant any such default of Tenant and immediately recover as in this Lease set forth as additional rent any expenditures made and the amount of any obligations incurred in connection therewith, plus the prevailing prime interest rate per annum from the date of any such expenditure. C. In the event of a default hereunder and failure to cure as set forth above, Landlord may accelerate all rent and additional rent due for the balance of the term of this Lease discounted to current value and declare the same to be immediately due and payable; in determining the amount of any future payments due Landlord due to increases in Real Estate Taxes and Operating Expenses, Landlord may make such determination based upon the amount of Real Estate Taxes and Operating Expenses paid by Tenant for the calendar year of such default. D. Landlord may by proper legal process, at any time after the occurrence of any event of default, reenter and repossess the Premises and any part thereof, and attempt in its own name, as agent for Tenant if this Lease not be terminated, or in its own behalf if this Lease be terminated, to relet all or any part of such Premises for and upon such terms and to such persons and for such period or periods as Landlord, in its sole discretion, shall determine, including the term beyond the termination of this Lease; and Landlord shall not be required to accept any tenant offered by Tenant or observe any instruction given by Tenant about such reletting or do any act or exercise any care or diligence with respect to such reletting or to the mitigation of damages. For the purpose of such reletting, Landlord may decorate or make repairs, 25 26 changes, alterations or additions in or to the Premises to the extent deemed by Landlord desirable or convenient; and the cost of such decoration, repairs, changes, alterations or additions shall be charges to and be payable by Tenant as additional rent, as well as any reasonable brokerage and attorney fees expended by Landlord; and any sums collected by Landlord from any new tenant obtained on account of the Tenant shall be credited against the balance of the rent due. Tenant shall pay to Landlord monthly, on the days when the rent would have been payable under this Lease, the amount due less the amount obtained by Landlord from such new tenant. E. Landlord shall have the right of injunction, in the event of a breach or threatened breach by Tenant of any of the terms and conditions hereof, to restrain the same and the right to invoke any remedy allowed by law or in equity, whether or not other remedies, indemnity or reimbursements are herein provided. The right and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies; and no one of then, whether or not exercised by Landlord, shall be deemed to be in exclusion of any of the others. 31. REMEDIES CUMULATIVE. No reference to any specific right or remedy shall preclude Landlord from exercising any other right or from having any other remedy or from maintaining any action to which it may otherwise be entitled at law or in equity. Landlord's failure to insist upon a strict performance of any covenant of this Lease or to exercise any option or right herein contained shall not be a waiver or relinquishment for the future of such covenant right or option, but the same shall remain in full force and effect. 32. LANDLORD'S LIABILITY. Anything in this Lease to the contrary notwithstanding, Tenant agrees that it shall look solely to the estate and property of the Landlord in the Land and Building which includes the Premises, including the rent therefrom, subject to prior rights of any mortgagee or trustee, for the collection of any judgement or other judicial process requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of this Lease to be observed and/or performed by Landlord, and no other assets of the Landlord shall be subject to levy, execution, or other procedures for the satisfaction of Tenant's remedies. In the event Landlord transfers this Lease and the Premises, except as collateral security for a loan, upon such transfer Landlord shall be released from all liability and obligations provided that the transferee assumes the obligations of Landlord under this Lease. 26 27 33. 4200 CRUMS MILL ROAD LEASE (THE "CRUMS LEASE"). Upon commencement of this lease, BISYS Insurance Services, Inc. shall have the right to compel A/A Realty Associates to sub-lease any or all of premises under the same terms and conditions as the original lease between the parties. During the term of said lease for premises situate at 4200 Crums Mill Road and the corresponding sublease, A/A Realty grants BISYS Insurance Services, Inc. the right of first refusal to lease any or all space which is available or becomes available at 4200 Crums Mill Road during the term of said CRUMS Lease under the same terms and conditions as set forth therein, provided the Tenant exercises its option in writing within sixty (60) days notice to Landlord of its intention to lease subject premises or any portion thereof. In the event Tenant, BISYS Insurance Services, Inc., does not notify Landlord of its intention to exercise its option, A/A Realty will have no further obligation under this right of first refusal. 34. RIGHT OF FIRST OPTION TO LEASE. In the event any space unleased by Tenant becomes available for lease, Landlord shall immediately notify Tenant of the availability of such space, and Tenant shall have the right within thirty (30) days of receipt of written notification thereof, to lease said available space under the same terms and conditions as contained in this Lease. In the event Tenant fails to exercise its right to lease within said thirty (30) day period, Landlord shall have the right to lease said space to any third party. 35. RIGHT OF FIRST REFUSAL TO PURCHASE. In the event Landlord receives a written offer to purchase the Building and Land which it wishes to accept, Landlord - shall immediately forward a copy of said offer to purchase to Tenant, which shall have a right of first refusal to purchase the Building and Land under the same terms and conditions as the offer to purchase received by Landlord, provided said right of first refusal is exercised in writing within thirty (30) days of receipt thereof. 36. SUCCESSORS AND ASSIGNS. This Lease and the covenants and conditions shall inure to the benefit of Landlord and be binding upon Landlord, its successors and assigns, and shall be binding upon Tenant and its successors and shall inure to the benefit of Tenant and its successors. 27 28 37. NOTICES. All notices, requests, consents, waivers, elections and demands (collectively, "Notices") required or permitted under this Lease shall be in writing and shall be personally delivered or sent by messenger, certified U.S. mail (return receipt requested), express courier service or telecopier (with confirmation copy sent by overnight delivery service unless receipt of the telecopy is confirmed), in all cases with postage or charges prepaid, and any such Notice shall be effective when first received where delivery is refused): If to Landlord: A/A Realty Associates 4201 Crums Mill Road Harrisburg, PA 17112 Attn: Arthur A. Kusic, P.C. Telecopier: 717-540-7618 to Tenant: BISYS Insurance Services, Inc. 4150 Crums Mill Road Harrisburg, PA 17112 Attn: Anthony A. Pascotti Telecopier: 717-703-4971 with a copy to: Scarinci & Hollenbeck 500 Plaza Drive P.O. Box 3189 Secaucus, NJ 07096-3189 Attn: V. E. Kinon, Esq. Telecopier: 201-348-3877 Any party may alter the address to which Notices are to be sent by giving notice of such change of address in conformity with the provisions of this section for the giving of Notices. 38. APPLICABLE LAW. This Lease shall be enforced and interpreted in accordance with the laws of the Commonwealth of Pennsylvania. 28 29 39. INTERPRETATIONS. Unless specifically stated to the contrary, this Lease shall include by reference the terms and conditions of all Exhibits and Schedules attached. Captions, the index and headings are for the convenience and reference only and in no way shall be used to construe or modify the provisions set forth in this Lease. The singular shall include the plural, the plural shall include the singular; and the use of any gender shall refer to any other gender, all where applicable. 40. BROKER'S COMMISSION. Landlord acknowledges that it has utilized the services of C. B. Richard Ellis as its broker and agrees that it will enter into a commission agreement with C. B. Richard Ellis in consideration for its services. Each of the parties represents and warrants that there are no other claims for brokerage commissions or finder's fees in connection with the execution of this Lease. Each party hereto shall indemnify and hold the other party harmless from any claim for brokerage fees or commissions from any broker or other entity claiming a right through the indemnifying party, except as provided herein. 41. ESTOPPEL CERTIFICATE. Tenant agrees that at any time and from time to time, within fifteen (15) days after written request by Landlord, Tenant will execute, acknowledge and deliver to Landlord and to such assignee, mortgagee or other party as may be designated by Landlord, a certificate (in a form to be specified by Landlord) stating to the extent accurate: (a) that by such certificate the Lease is ratified; (b) the date on which Tenant has entered into occupancy of the Premises; (c) the amount of the monthly portion of the Annual Basic Rental; (d) that the Lease (unmodified or as modified, as the case may be) represents the entire agreement between the parties as to the leasing (or if such is not the case, the certificate shall so state, specifying the particulars of any other applicable agreement or statement of facts) and is in full force and effect; (e) the date on which the Lease expires; (f) that, as of the date of the certificate, there are no defaults by Landlord or Tenant under the Lease, including without limitation that all conditions under the Lease to be performed theretofore by Landlord have been satisfied and there are no existing defense or offsets which Tenant has against the enforcement of the Lease by Landlord (or, if such is not the case, the certificate shall so state specifying the particulars); (g) the amount of Advance Rental which has been deposited with Landlord; (h) the month and year through 29 30 which the Annual Basic Rental has been paid; and (i) such other matters relating to the Lease as may be reasonably requested by Landlord. In the event that Tenant fails to provide such certificate within fifteen (15) days after written request by Landlord, Tenant shall be deemed to have approved the contents of the certificate and Landlord is authorized to so certify. 42. NOT A JOINT VENTURE. Any intention to create a joint venture or partnership relation between the parties is expressly disclaimed. 43. NO OPTION. The submission of this Lease for examination does not constitute a reservation of or option for the Premises. This Lease shall become effective only upon approval, execution and delivery of this Lease by Landlord. 44. NO MODIFICATION. This writing is intended by the parties as a final expression of their agreement and as a complete and exclusive statement of the terms, all negotiations, considerations and representations between the parties having been incorporated. No course of prior dealings between the parties or their officers, employees, agents, or affiliates shall be relevant or admissible to supplement, explain, or vary any of the terms of this Lease. Acceptance of, or acquiescence in, a course of performance rendered under this or any prior agreement between the parties or their affiliates shall not be relevant or admissible to determine the meaning of any of the terms of this Lease. No representations, understandings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth. This Lease can only be modified by a writing signed by the parties against whom the modification is enforceable. 45. SEVERABILITY. If any term or provision, or any portion, of this Lease or the application, to any person or circumstances shall, to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to person or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected, and each term and provision of this Lease shall be valid and, be enforced to the fullest extent permitted by law. 30 31 46. THIRD PARTY BENEFICIARY. Nothing contained in this Lease shall be construed so as to confer upon any other party the rights of a third party beneficiary (except rights contained for the benefit of Landlord's ground lessor, and for mortgage or trustee, as the case may be). 47. CORPORATE TENANTS. In the event Tenant is a corporation, the persons executing this Lease on behalf of Tenant covenant and warrant that: Tenant is a duly constituted corporation qualified to do business in the Governing Municipality and the execution of this Lease has been duly authorized by Tenant. The authorized officers must sign on behalf of the corporation and, by doing so, such officers make the covenants and warranty contained in this Section 45. The Lease must be executed for Tenant, if a corporation, by the President or Vice-President and be attested by the Secretary or Assistant Secretary, unless the By-Laws or a resolution of the Board of Directors shall otherwise provide, in which event, a certified copy of the By-Laws or resolution, as the case may be, must be furnished. 48. OPTIONAL EXTENSION. Tenant shall have two (2) options to extend the term of this Lease for a period of five (5) years each (the "Renewal Term(s)"), exercisable only upon the following conditions: A. Tenant or its subtenant or assignee is in possession of the Premises and not in default under any of the terms of conditions of this Lease which default continues after notice thereof and the expiration of any applicable cure period; B. Each such option must be exercised by written notice sent to Landlord at least two (2) months prior to the end of the prior Term; and C. During each of the Renewal Term(s) all terms and provisions of the Lease shall remain the same and in full force, except that Basic Rental for the Renewal Term(s) shall be as set forth in Section 1(1)(1-3). 49. LANDLORD'S WARRANTIES. A. Landlord represents and warrants that: (1) The Building electrical system is sufficient to supply electric current for the operation of equipment, including but not limited to, normal and usual desk-top office equipment, 31 32 computers, telefax, word processing and photocopying machines and other similar equipment used in business offices. (2) The Building electrical system is sufficient to supply electric current for Tenant's intended uses. (3) The Building electrical system is capable of furnishing a minimum of 16.5 watts of electrical power per usable square foot. B. Landlord represents that the heating, ventilating and air-conditioning system ("HVAC system") serving the Premises shall meet the following performance criteria: (1) Summer conditions: The entire air-conditioning system for all spaces except the Computer Room is to maintain a 74 degrees Fahrenheit Dry Bulb temperature, plus or minus 2 degrees Fahrenheit, and a 50% relative humidity, plus of minus 5%, at 95 degrees Fahrenheit Dry Bulb outdoor temperature. (2) Winter conditions: The entire heating system for all spaces except the Computer Room is to maintain a 72 degree Fahrenheit Dry Bulb temperature, plus or minus 2 degrees Fahrenheit, with relative humidity not to drop below 40%, at a minute 10 degrees Fahrenheit Dry Bulb outside temperature. (3) The HVAC system shall at all times provide fresh air in a quantity of not less than 0.25 cubic feet per minute per square foot of the floor area. C. Landlord represents and warrants that on the Commencement Date, the Premises and Building will comply with all applicable laws, rules, regulations and ordinances of all federal, state, county and municipal authorities having jurisdiction thereof (individually called "Law", collectively called "Laws"), including without limitation, fire, environmental, health, and safety laws. Landlord shall at its expense promptly comply with all laws to which the Premises and Building may be subject during the Tenant's Lease Term (other than compliance required by reason of Tenant's particular and unique manner of use of the Premises), including, without limitation, Laws requiring the making of any structural repairs, modifications, capital expenditures or improvements. Any Law requiring the installation of sprinklers, fire-retarding or compartmentalizing walls, or fire detection or extinguished equipment in the Premises shall be complied with by Landlord at its sole expense. (1) Landlord's Failure to Comply. If Landlord's failure to comply promptly with any Law results in interference with Tenant's business, operations or in potential liability, legal action, or danger to the health, safety or welfare of Tenant or its employees or invitees, Tenant shall have the right, after written 32 33 notice to Landlord, to comply with such Law, and Landlord shall promptly reimburse Tenant for Tenant's costs of such compliance. If Landlord fails to reimburse Tenant for such costs within thirty (30) days after Tenant's invoice therefor to Landlord, Tenant shall have the right to deduct such amounts from Annual Base Rent and additional rent, if any, payable under this Lease. D. Toxic Materials or Substances Warranty. Landlord warrants and represents that no part of the Premises, Building or the Land upon which the same is located, including without limitation, the walls, ceilings, buildings ventilation system, structural steel, flooring, pipes or boilers, is wrapped, insulated, fireproofed or surfaced with any toxic, hazardous or unlawful substance or materials that might be harmful or injurious to the health, safety or welfare of Lessee or its employees or invitees, including, without limitation, asbestos or formaldehyde (hereinafter "TCM"). (1) During the Lease Term if any testing or examination indicates the presence of TCM in the Premises, Building, or on the land, upon thirty (30) days written notice to Landlord, Landlord shall remove such TCM and restore the affected area to its prior condition, but the new con-TCM wrapping, insulation, fireproofing or surfacing. Such removal and restoration shall be performed by Landlord at its sole expense: (a) in compliance with all applicable Laws governing, handling, removal, or disposal of TCM; (b) in the safest manner possible; and (c) so as to minimize any interference with Tenant's business operations. (2) If within thirty (30) days after receipt of Tenant's notice Landlord has not completed such removal and restoration, Tenant shall have the option, but not the obligation, either to terminate this Lease effective upon the date set forth in Tenant' s notice, or to hire any contractors and experts Tenant reasonably deems necessary to perform such removal and restoration. (3) Tenant shall have the right to claim from Landlord all damages arising out of Landlord's breach of the warranty and representation contained in the above. In addition, if Tenant performs such removal and restoration of the area affected by TCM, Tenant shall have the right to claim from Landlord all costs, and expenses associated therewith, including without limitations: (a) restoration; (b) removal and disposal of TCM; 33 34 (c) air quality and materials testing, including analyzing the Building ventilation system to be sure that TCM fibers are not circulated or vented in to the Premises; (d) related consultants' and experts' fees; and (e) fines, fees or costs of any nature whatsoever charged or assessed by any governmental authority or agency regulating or supervising such removal and disposal of TCM. If Landlord fails to reimburse Tenant for such amounts promptly after receipt of Tenant's invoice therefor, Tenant shall have the right to deduct such amounts from the Base Rent and Additional Rent payable under this Lease. E. Landlord represents and warrants that it is the sole owner of the Building and the Land upon which the Premises is located, that is has the full right and authority to enter into this Lease, and that the execution of this Lease by the officer(s) executing it as Landlord's agent(s) has been duly authorized by all required actions of Landlord's Board of Directors. Prior to execution of this Lease, Landlord shall furnish Tenant with appropriate documents satisfactory to Tenant documenting the authority if the officer(s) of Landlord who will sign this Lease. 50. ARBITRATION. Any dispute arising out of this Lease shall at the option of either party be settled by arbitration. Within ten (10) days after either party shall have requested arbitration in writing, the parties shall agree on an impartial arbitrator, and failing agreement, such arbitrator shall be selected by the American Arbitration Association at the request of either party. The arbitration shall be conducted in accordance with the then current rules of the American Arbitration Association, and judgment upon the award granted by the arbitrator may be entered in any court having jurisdiction thereof. Fees, costs and expenses of the arbitrator shall be borne by the party against whom the arbitration shall be determined, or in such proportions as the arbitrator shall designate. 34 35 51. CONDITION PRECEDENT. As a condition precedent to entering into this Lease, Landlord represents and warrants to Tenant that (i) neither the Building, the Premises, not the land upon which the same are located have been used to dump, discard, landfill, deposit or dispose of any substance material above, on or below ground, which is toxic or hazardous to human health, which would constitute unlawful disposal and/or which would require clean up, removal or special disposal under current federal and/or state environmental laws or regulations; (ii) there are not underground tanks or toxic hazardous substances used in or about the Building, Land or the Premises including, but not limited to PCB, asbestos, Urea Formaldehyde Foam Insulation or the like; and (iii) the Building, Land and the Premises are in full compliance with all pending laws and federal environmental laws, including but not limited to, all applicable rules and regulations related thereto. Landlord shall indemnify and hold Tenant harmless from and against * any liabilities, losses, and costs, including Tenant's reasonable counsel fees, which Tenant may incur by reason of Landlord's breach of the foregoing representation and warranty and shall, at Landlord's sole cost and expense, immediately remove any hazardous substance from the Premises. The foregoing provision shall survive the termination, expiration or cancellation of this Lease. 52. DEMISE. The Tenant, at no additional cost therefore, shall have the right to the exclusive use of the delivery areas serving the Building of which the Premises is a part, to the exclusive use of the access driveways and allocated parking spaces for its business purposes and for those of its agents, servants, employees or invitees, and to the exclusive use of the entire parcel of Land upon which the Building has been constructed. 53. COMPLETE BUILDING. While the Exhibits attached hereto represent work to be completed by Landlord in connection with this Lease, it is understood and agreed by the parties hereto and warranted by the Landlord the Tenant that Tenant is leasing among other things a completed Building ready for occupancy as an integrated unit together with appropriate amenities consistent with a first class office Building. The parties recognize that it is difficult if not impossible to list all items required to construct such a Building; however, it is the intent of the Landlord to complete and deliver a completed Building for Tenant's business use. Landlord, as a construction and development expert warrants and represents to Tenant that the Building upon completion and delivery shall be a fully integrated project and usable by Tenant without further 35 36 construction or addition, except as set forth herein for the purpose intended by Tenant. IN WITNESS WHEREOF, the parties hereto intending to be legally bound hereby have executed this Lease as of the day and year above written. WITNESS: LANDLORD: A/A REALTY ASSOCIATES By: ---------------------------------------- WITNESS: TENANT: BISYS INSURANCE SERVICES, INC. By: ---------------------------------------- Date: 02/18/00 36 EX-10.22 6 y53439ex10-22.txt LEASE 1 EXHIBIT 10.22 LEASE In consideration of the rights, covenants and agreements herein contained, Landlord does hereby lease, demise and let unto Tenant the Premises hereinafter described for the term of this Lease upon the following terms and conditions: 1. BASIC LEASE INFORMATION. 1.1 Lease Date: September 15, 1999 1.2 Lease Term: The Lease Term for the Premises shall be seven (7) years, commencing on January 1, 2000 (the "Commencement Date") and terminating on December 31, 2007 (the "Termination Date"). 1.3 Tenant: Ascensus Insurance Services Tenant's Address: Attn: Leonard Reynolds or Warren Christensen, 280 South 400 West, Suite 100, Salt Lake City, Utah, 84101 1.4 Landlord: Pioneer Partners, L.C. Landlord's Address: Attn: John W. Williams, 48 Market Street, Suite 250, Salt Lake City, Utah 84101. 1.5 Land: The real property more particularly described on Exhibit "A" attached hereto. 1.6 Landlord's Building: The building known as the Ford Building located at 280 South 400 West, Salt Lake City, UT. 84101, which is situated on the Land. 1.7 Premises: Suite No. 100, which is approximately 35,880 rentable square feet on the first floor and mezzanine of Landlord's Building ("Premises"). 1.8 Annual Basic Rent: The rent for the Premises shall be as follows: Year 1 $17.50 per rentable square foot. Year 2 $17.50 per rentable square foot. Year 3 $17.50 per rentable square foot. Year 4 $18.03 per rentable square foot. Year 5 $18.57 per rentable square foot. Year 6 $19.12 per rentable square foot. Year 7 $19.70 per rentable square foot.
1.9 Security Deposit: $58,900.00 which represents the last months rent. 1.10 Rentable Square Feet in the Premises: The Premises consists of approximately 2 35,880 rentable square feet based on Building Owners and Managers Association ("BOMA") standards for measurement. 1.11 Useable Square Feet in the Premises: The Premises consists of approximately 31,480 usable square feet based on BOMA standards for measurement. 1.12 Rentable Square Feet in Landlord's Building: Approximately 84,500 rentable square feet based on BOMA standards for measurement. 1.13 Parking Spaces: Throughout the Lease Term, Landlord shall make available up to one hundred and sixty (160) parking spaces in the Parking Lot (as defined in Section 36.a.) free of charge. If Tenant exercises it's Right of First Refusal to lease additional space in the building, Landlord shall make available three parking spaces per thousand square feet of usable space within the additional space in a Parking Lot within 600 feet of Landlord's Building. 1.14 Exhibits: Exhibit A: Legal Description of Land Exhibit B: Space Plan of Premises Exhibit C: Tenant Building Improvements Exhibit D: Rules and Regulations Exhibit E: Option to Renew The above Basic Lease Information and attached Exhibits are hereby incorporated into and made a part of this Lease. Any reference in the Lease to the above terms shall mean and refer to the information and terms set forth in the above Basic Lease Information, as well as all of the additional terms and provisions of the applicable sections of the Lease where such Basic Lease Information is more fully set forth. 2. PARTIES. This Lease is made by and between the Landlord and Tenant identified in Section 1. 3. PREMISES. a. Landlord hereby rents to Tenant and Tenant hereby leases from Landlord the Premises identified in Section 1 and as more fully described in the Space Plan attached as Exhibit "B". b. The respective obligations of Landlord and Tenant to perform the work and supply the necessary materials and labor to prepare the Premises for occupancy are described in detail on Exhibit "C", Tenant Building Improvements. c. Unless otherwise agreed in writing by Landlord, upon occupancy of the Premises by Tenant, all of the obligations of Landlord set forth in Exhibit "C", except for punch list and latent defects shall be deemed to be satisfactorily completed. 4. TERM AND POSSESSION. 3 a. The term of the Lease shall be for the period which commences on the Commencement Date and ends on the Termination Date identified in Section 1, unless sooner terminated pursuant to any provision hereof. b. If the Landlord, for any reason whatsoever, cannot deliver possession of the Premises to the Tenant on or before January 1, 2000, this Lease may be voidable by Tenant upon thirty (30) days notice unless Landlord delivers possession of the Premises within such thirty (30) day period. This Section 4.b. is conditioned upon Landlord and Tenant agreeing to a construction plan for the Premises by September 15, 1999. c. Tenant's occupancy of the Premises prior to the Commencement Date shall be subject to all the provisions of this Lease including but not limited to the obligation to pay all Basic Rent. Any early possession shall not advance the Termination Date. 5. RENT. a. Tenant agrees to pay to Landlord the Basic Rent set forth in Section 1, payable in monthly installments, in advance, on or before the first day of each calendar month during the term hereof. Rent for any partial month occurring during the term hereof shall be pro-rated on a per diem based upon a thirty (30) day month. All rent shall be paid to Landlord without deduction or offset at Landlord's Address. b. Simultaneously with the execution of this Lease, Tenant has paid the Basic Rent for the first full calendar month or any initial partial month of the term, receipt of which is hereby acknowledged by Landlord. c. If Tenant's rent or other payments due under this Lease are received by Landlord more than ten (10) days after their due date more than once during any consecutive twelve (12) month period, Tenant may be charged a late fee equal to ten percent (10%) late fee of the current late payment. Such late fee shall compensate Landlord for costs not contemplated by this Lease, including, but not limited to (i) the costs attributable to giving notice of delinquency, (ii) the expense of servicing the mortgage loan on Landlord's Building from alternative funds, and (iii) Landlord's loss of interest. Any rent or other payments which are not paid within thirty (30) days of their due date shall also bear interest thereafter at the rate of one and one-half percent (1 -1/2%) per month, until paid. 6. SECURITY DEPOSIT. Tenant shall provide the amount specified in Section 1.9 as a security deposit. The Security Deposit shall be paid on the first business day prior to Tenant moving into the Premises. If Tenant is in default, Landlord can use the Security Deposit, or any portion of it, to cure the default or to compensate Landlord for all damages sustained by Landlord resulting from Tenant's default. Tenant shall immediately on demand pay to Landlord a sum equal to the portion of the Security Deposit expended or applied by Landlord as provided in this paragraph so as to maintain the Security Deposit in the sum initially deposited with Landlord. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the deposit to Tenant within thirty (30) days of the termination of this Lease. Landlord's obligations with respect to the 4 Security Deposit are those of a debtor and not a trustee. Landlord can maintain the Security Deposit separate and apart from Landlord's general funds or can commingle the Security Deposit with Landlord's general and other funds. Landlord shall not be required to pay Tenant interest on the Security Deposit unless Landlord has failed to timely return the same, and in such event, interest shall accrue on the unreturned portion at the rate of one and one-half percent (1-1/2%) per month. 7. RESTRICTIONS ON USE. a. Tenant shall use and occupy the Premises and all parts thereof only for general office purposes; and no use shall be made or permitted to be made of the Premises, nor acts done, which will cause a cancellation of any insurance policy covering Landlord's Building or any part thereof, nor shall Tenant sell, or permit to be kept, used, or sold, in or about the Premises, anything which may be prohibited by standard forms of fire insurance policies. Tenant shall, at its expense, comply with all requirements pertaining to the Premises of any insurance organization or company covering Landlord's Building. b. Tenant shall not permit or allow any wasteful, abusive, destructive or nuisance use of the Premises to occur. c. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other tenants of Landlord's Building by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the Premises or in Landlord's Building. Tenant shall not use or keep in the Premises or in Landlord's building any firearms, kerosene, gasoline or inflammable or combustible fluid or material d. Tenant shall not install any telephone or other special utility lines within the Premises without first obtaining Landlord's consent, which consent shall not be unreasonably withheld. Landlord shall designate the areas within the Premises in which telephone and other special utility lines and related equipment may be installed and how and where such lines are to be introduced. e. Tenant shall not dispose of any hazardous substances in, on, or under Landlord's Building and Tenant shall not otherwise handle, treat, deal with, or otherwise use in, on, or under Landlord's Building any hazardous substances except as may be directly required in connection with the use of the Premises as authorized by Landlord and in complete conformity and compliance with all governmental laws, ordinances, regulations, rules and other and prudent industry practices relating to any such substances. Upon expiration or earlier termination of this Lease, Tenant shall cause any and all hazardous substances placed on the Premises by Tenant, its agents, employees or contractors to be removed in accordance with applicable laws, regulations, rules, ordinances and orders. As used in this Lease, the term "hazardous substance" shall mean any and all hazardous or toxic substances, chemicals, materials, or waste, including, but not limited to, those substances, chemicals, materials or wastes listed, identified, or otherwise characterized as hazardous or toxic under now existing or hereafter enacted local, state and federal laws, ordinances, regulations, rules or orders. 5 f. Tenant shall faithfully observe and comply with the Rules and Regulations, attached as Exhibit "D". Landlord reserves the right from time to time to make all reasonable non-discriminatory modifications to the Rules and Regulations. Any reasonable additions and modifications to these Rules and Regulations shall be binding upon delivery of a copy to Tenant. Violations by Tenant, its employees, invitees and others acting on its behalf of the Rules and Regulations shall constitute a default under this Lease. Landlord shall not be responsible to Tenant for the nonperformance of any said Rules and Regulations by any other tenant or occupants. 8. COMPLIANCE WITH LAW. Tenant shall not use the Premises in any way which may violate any law, statute, ordinance, or governmental rule or regulation now in force or which may hereinafter be enacted or promulgated, including without limitation, all laws relating to toxic or hazardous substances. Tenant shall, at its sole cost and expense, comply with such laws, statutes, ordinances and governmental rules, regulations or requirements relating to the conduct of Tenant's business from and use of the Premises. 9. ALTERATIONS. Tenant shall not make or permit to be made any alterations, additions or improvements to the Premises or any part thereof in excess of three thousand dollars ($3,000.00) without the written consent of Landlord. Any request for Landlord's consent shall be accompanied by plans and specifications showing in detail Tenant's proposed alterations, additions or improvements. Any approval by Landlord may be conditional upon Landlord first approving the contractor which is to perform the permitted work and upon Tenant first making certain modifications to its proposed plans and specifications if requested by Landlord. Any alterations, additions or improvements to the Premises made by Tenant, except for removal of trade fixture, shall at once become a part of the realty and belong to Landlord. In the event Landlord consents to the making of any alterations, additions or improvements to the Premises by Tenant, they shall be made by Tenant at Tenant's sole cost and expense. Tenant shall cause any alterations, additions or improvements made by it pursuant to this Section to be constructed by a bonded general contractor who carries comprehensive coverage and broad form property damage endorsement in the single limit amount of $1,000,000.00 and who carries adequate workers' compensation and other insurance required by law. 10. MECHANIC'S LIENS. Tenant shall keep the Premises and the property in which the Premises are situated free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. Tenant shall cause any permitted alterations, additions or improvements to be constructed in a good and workmanlike manner free of any liens for labor and materials and in strict accordance with the plans and specifications approved by Landlord. Tenant agrees to indemnify, hold harmless from, and defend Landlord against any loss, liability, injury or damage resulting from such work. Landlord may require, at Landlord's sole option, that Tenant shall provide, at Tenant's sole cost and expense, a lien payment and completion bond in an amount equal to one and one-quarter (1-1/4) times any and all estimated cost of any permitted improvements, additions, or alterations to the Premises with an estimated cost in excess of 6 twenty five thousand dollars ($25,000.00) to insure Landlord against any liability for mechanics and materialmen's liens and to insure completion of the work. 11. SURRENDER. Upon the Termination Date or sooner expiration of this Lease, Tenant shall peaceably deliver up and surrender the Premises in their same condition as they were on the Commencement Date, reasonable wear and tear and permitted alterations, additions and improvements excepted. Before surrendering the Premises, Tenant shall remove all personal property and trade fixtures and shall repair any damage caused by such property or the removal thereof and shall leave the Premises in a clean and orderly condition. Without limiting the foregoing, and after taking into account normal wear and tear, Tenant agrees to repair any damage on walls or to floor coverings, to repair any damage to light fixtures, window coverings or other fixtures within the Premises, to steam clean all carpeting within the Premises. On or prior to the Termination Date or sooner expiration of this Lease, Tenant shall surrender all keys to the Premises. 12. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time during the term hereof, and if Tenant shall so abandon, vacate or surrender the Premises, or be dispossessed by process of law, or otherwise, or default in the terms hereof, any personal property or trade fixtures belonging to Tenant shall remain and become the property of the Landlord in accordance with the provisions of Landlord's Lien Rights in Section 24 hereof. 13. ASSIGNMENT OR SUBLETTING. Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease, or any interest therein, and Tenant shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person to occupy or use the Premises, or any portion thereof, without the prior written consent of the Landlord, which consent shall not be unreasonably withheld. Without in any way limiting Landlord's right to refuse such consent, Landlord may refuse to give such consent unless Tenant remains fully liable during the unexpired term of the Lease and Landlord further may refuse to give such consent if in Landlord's reasonable opinion the quality of tenancy is or may be in any way adversely affected during the term of the Lease or the financial worth of the proposed new tenant is less than that of the Tenant executing this Lease. Tenant agrees to reimburse Landlord up to one thousand dollars ($1,000.00) for Landlord's reasonable attorney's fees and other costs incurred in conjunction with the processing and documentation of any such requested assignment, transfer, subletting, change of ownership or hypothecation of this Lease or Tenant's interest in and to the Premises. Any assignment consented to by Landlord shall in no way relieve or release Tenant from liability hereunder of from any of the terms, covenants and obligations required to be performed by Tenant under this Lease. This Lease shall not, nor shall any interest herein, be assignable as an interest of Tenant by operation of law, without the prior written consent of Landlord. Any profit recognized from an assignment or subletting shall be divided evenly between Tenant and Landlord. Commensurate with the signing of this Lease, Landlord consents to Tenant entering into a sublease with AgencyWorks for a portion of the Premises. 7 14. CONDITION AND REPAIR OF PREMISES. Subject to Landlord's obligation set forth on Exhibit "C" attached hereto, Tenant has accepted the Premises "as is" and acknowledges that the Premises are in good, sanitary condition and repair and are satisfactory for Tenant's occupancy and use. Except as specifically provided in Exhibit "C" to this Lease, Landlord shall have no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof and the parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises or Landlord's Building except as specifically herein set forth. 15. REPAIRS. a. Landlord shall, at all times during the term of this Lease, keep in good order, condition and repair those portions of the roof, foundations and structural walls of Landlord's Building which affect the use and occupancy of the Premises. Landlord shall also, at its cost and expense, keep and maintain the heating and air conditioning systems, plumbing, lighting fixtures within or serving the Premises and the other utility lines to the Premises in good order condition and repair. Notwithstanding the foregoing, however, Landlord shall not be responsible to repair any damage to the Premises or to Landlord's Building resulting from the negligent acts or omissions of Tenant, Tenant's employees or invitees, or resulting from fire, acts of God, or other casualties or resulting from condemnation, except to the extent described in Sections 26 and 27 below. b. Notwithstanding subparagraph (a) above, Tenant shall repair, at its expense, any damage to Landlord's Building or the Premises caused by, or resulting from, any negligent act of Tenant, its employees, invitees or others acting on its behalf. Tenant shall also, at its cost and expense, maintain in good order, condition and repair all wall, window and floor coverings, all trade fixtures and all personal property of Tenant within the Premises. c. Landlord shall not be required to make any repairs hereunder until Tenant has notified Landlord of the need for such repairs. Following receipt of such notice, Landlord shall promptly pursue the completion of any such repairs with due diligence. Except as provided herein, there shall be no abatement of rent and no liability of Landlord by reason of any damages to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of Landlord's Building or the Premises or in or to fixtures, appurtenances and personal property therein. Tenant waives the right to terminate this Lease in the event of any failure to make repairs or maintenance and the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. Nothing in the Section 15.c. will impair Tenant's right to recover damages from Landlord. 16. INDEMNIFICATION AND RELEASE. a. Tenant and all those claiming through or under Tenant shall store their property in and shall occupy and use the Premises solely at their own risk. Tenant and all those claiming through or under Tenant hereby release Landlord from all claims of every kind, including loss of life, personal or bodily injury, damage to equipment, fixtures or other property, or damage to business (including business interruption) arising, directly or indirectly, out of or from or on account of such occupancy and use or resulting from any present or future condition or state of repair thereof, except to the extent caused by the willful misconduct or active negligence of Landlord, 8 its agents, employees or contractors, including without limitation any damage or injury caused by or resulting from (i) the bursting, breaking, leaking, overflowing or backing up of utility lines, (ii) water, steam, gas, sewage, snow or ice in any part of Landlord's Building, (iii) acts of God or the elements, or (iv) any defect in the construction, operation or use of Landlord's Building or any of the equipment, fixtures, machines, appliances or apparatus therein, or adjacent thereto. b. Tenant shall indemnify and hold harmless Landlord against and from any and all claims arising from Tenant's use of the Premises or the conduct of its business or from any activity, work, or other thing done, permitted or suffered by the Tenant in or about Landlord's Building or the Premises, and shall further indemnify and hold harmless Landlord against and from any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or negligence of the Tenant, or of any employee, invitee or other person acting on Tenant's behalf, and from and against all costs, reasonable attorney's fees, expenses and liabilities incurred because of any such claim or any action or proceeding brought thereon, and in the event any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord or Landlord shall have the right to retain its own counsel to defend any action with all costs to be paid by Tenant. Notwithstanding any provision contained herein, Tenant shall have no liability to Landlord for any injury or damage to the extent caused by the acts or omissions of Landlord or its agents, employees or contractors. 17. INSURANCE. a. Landlord shall maintain fire and extended coverage insurance on the Landlord's Building, including any additions and improvements by Tenant which Tenant does not have the right to remove upon termination of this Lease. Such insurance shall be in amounts and with deductibles desired by Landlord at the expense of Landlord (as a part of the Operating Costs), and payments for losses thereunder shall be made solely to Landlord and/or Landlord's lender(s), as their interests may appear. Tenant shall maintain at its expense fire and extended coverage insurance on all of its personal property, including removable trade fixtures, located in the Premises and on all additions and improvements made by Tenant and not required to be insured by Landlord above. If the annual premiums to be paid by Landlord shall exceed the standard rates because Tenant's operations, contents of the Premises, or improvements with respect to the Premises beyond Building standard result in extra-hazardous exposure, Tenant shall pay the excess amount of the premium upon request therefor by Landlord. b. Tenant shall, at its expense, procure and at all times maintain comprehensive general liability insurance covering Landlord and Tenant, as coinsureds, against death, bodily or personal injury or property damage occurring within the Premises or Landlord's Building. Such insurance as obtained by Tenant shall be in a combined single limit not less than $2,000,000.00 for injury or death, and shall contain cross-liability endorsements. c. All insurance shall be underwritten by insurance companies with a rating of A or better according to AM Best and authorized to do business in the State of Utah. Tenant shall furnish Landlord with certificates issued by approved insurance companies certifying that such insurance is in effect. Such certificates shall provide the insurance may not be canceled without at least 10 days advance notice to Landlord. 9 d. To the extent permitted by applicable law in the State of Utah and under the insurance policies, and to the extent any loss is actually covered by insurance proceeds, each of the parties hereby waives any rights it may have against the other party on account of any loss or damage to its property (including the Premises and the contents thereof) or injury which arises from any risk covered by insurance obtained hereunder, whether or not such party may have been negligent or at fault in causing such loss or damage. 18. SERVICES AND UTILITIES. a. During the term of this Lease and so long as Tenant is not in default, Landlord agrees to cause to be furnished to the Premises in such manner as is customary in similar buildings in the same geographical area, the following utilities and services (the cost of which shall be included within Operating Costs): (1) Electricity, water, gas and sewer service. The interruption or curtailment of any service caused by any event beyond Landlord's reasonable control shall not constitute constructive eviction and shall not entitle Tenant to any abatement of rent or any other claim against Landlord, nor shall any interruption be grounds for constructive eviction, rent abatement or termination of this Lease or any other claim provided Landlord exercises reasonable diligence to remedy such interruption. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises which will increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space. If such extra service is permitted by Landlord, Landlord may cause a water meter or electric meter to be installed in the Premises. The cost of such meters, and any increase in utility charges shall be promptly paid by Tenant. (2) Telephone connection to the core space on the floor on which the Premises are located, but not including wiring from the core, telephone stations and equipment (it being expressly understood and agreed that Tenant shall be responsible for the ordering and installation of telephone lines and equipment to and within the Premises). (3) Heat and air conditioning to such extent and to such levels as are reasonably required for the comfortable use and occupancy of the Premises. If the Premises are rendered untenantable by reason of Landlord's failure to maintain such levels then Tenant shall be entitled to a full abatement of Basic Rent for each day the Premises are untenantable, after two working days. Tenant shall not use any method of heating, ventilating or air conditioning other than that supplied by Landlord. (4) Snow and trash removal service. (5) Landscaping and groundskeeping service. (6) Elevator service. (7) Janitorial service five (5) days per week, holidays excluded; provided if the cost to Landlord for cleaning the Premises is increased due to the installation in the Premises, at Tenant's request, of any materials or finish other than those which are Building standards, Tenant 10 shall pay to Landlord an amount equal to such increase in cost. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter Landlord's Building for the purpose of cleaning the same; provided, Tenant shall be entitled to have separate contractors clean and vacuum the Premises if desired by Tenant, at Tenant's sole cost and expense. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Janitor service shall include ordinary dusting, normal vacuuming and trash removal, and annual cleaning of carpets, but excludes cleaning of rugs, moving of furniture or other special services. Janitor service will not be furnished on nights when rooms are occupied after 9:30 p.m. or when janitor service is refused. b. Tenant may activate the HVAC system after hours. The cost for such after hour's HVAC use is $25.00 per hour. 19. TAXES. Tenant shall pay all taxes and assessments levied against the fixtures, furnishings, equipment and other personal property of Tenant contained within the Premises and, if possible, shall cause such personal property taxes to be assessed and billed separately from the taxes on real property owned by Landlord. 20. HOLDING OVER. If, with Landlord's consent, Tenant holds possession of the Premises after the Termination Date or sooner expiration of this Lease, Tenant shall become a tenant from month-to-month upon the terms herein specified and at a monthly rent of one hundred twenty five percent (125%) of the last monthly rent paid by Tenant under this Lease. Tenant shall continue in possession until such tenancy shall be terminated by either party giving the other party fifteen (15) day's prior written notice of its election to terminate. 21. ENTRY BY LANDLORD. Landlord and Landlord's representatives shall have the right to enter upon the Premises at all reasonable times to inspect or exhibit the same to prospective purchasers, mortgagees and tenants, to place, maintain and repair all utility lines and equipment in or adjacent to the Premises and Landlord's Building, and to make such repairs, additions, alterations or improvements as Landlord may deem necessary or appropriate. Landlord shall be allowed to take all material upon the Premises that may be reasonably required to accomplish the foregoing without the same constituting a forcible entry into or an unlawful detainer of the Premises or an actual or constructive eviction of Tenant, and the rents reserved herein shall not abate while any such work described herein is in progress. 22. DEFAULT. 11 The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: a. The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder within a period of five (5) days after notice of nonpayment provided after the date the same is due and payable; b. Failure by Tenant to observe or perform any provision of this Lease concerning abandonment or vacating the Premises, restrictions on use or compliance with law, assignment or subletting of the Premises without Landlord's prior written consent, or the failure to procure and maintain insurance; c. Tenant makes any general assignment for the benefit of creditors; a petition is filed by or against Tenant to have Tenant adjudged bankrupt or for reorganization or arrangement under any law relating to bankruptcy or insolvency (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); a trustee or receiver is appointed to take possession of substantially all of Tenant's Lease, or any trustee under the Federal Bankruptcy Code or other similar statute attempts to assume this Lease or take possession of the Premises; or there occurs any attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease and such seizure is not discharged within thirty (30) days; or d. Failure to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for ten (10) days after written notice is given to Tenant; provided, however, that if the nature of such default is such that the same cannot reasonably be cured within such ten (10) day period, Tenant shall not be deemed to be in default if Tenant within such period commences such cure and thereafter diligently prosecutes the same to completion. 23. REMEDIES. Upon the occurrence of any default described above, Landlord shall have the option to take any or all of the following actions, without further notice or demand of any kind to Tenant, or to any other person. a. Landlord may terminate this Lease or, without terminating this Lease, terminate Tenant's right of possession and forthwith repossess the Premises by forcible entry and detainer suit or otherwise without liability for trespass or conversion and be entitled to recover as damages a sum of money equal to the total of (i) the cost of recovering the Premises, (ii) the unpaid rent due and payable at the time of termination, plus interest thereon at the rate hereinafter specified from the due date, (iii) the balance of the rent for the remainder of the term less the fair market rental value of the Premises for such period, and (iv) any other sum of money and damages owed by Tenant to Landlord. b. Landlord may terminate Tenant's right of possession and may repossess the Premises by forcible entry or detainer suit or otherwise without liability for trespass or conversion, without demand or notice of any kind to Tenant and without terminating this Lease, in which event Landlord may, but shall be under no obligation to, relet the same for the account of Tenant for 12 such rent and upon such terms as shall be satisfactory to Landlord. For the purpose of such reletting, Landlord is authorized to decorate or to make any repairs, changes, alterations, or additions in or to the Premises that may be necessary or convenient to restore Premises to the same condition as of the date of occupancy. If Landlord exercised the remedies provided in this paragraph, Tenant shall pay to Landlord, and Landlord shall be entitled to recover from Tenant, an amount equal to the total of the following: (i) unpaid rent, plus interest at the rate hereinafter provided, owing under this Lease for all periods of time that the Premises are not relet; plus (ii) the cost of recovering possession, and all of the costs and expenses of such decorations, repairs, changes, alterations, and additions, and the expense of such reletting and of the collection of the rent accruing therefrom to satisfy the rent provided for in this Lease to be paid; plus (iii) any deficiency in the rentals and other sums actually received by Landlord from any such reletting from the rent and additional rent required to be paid under this Lease with respect to the periods the Premises are so relet, and Tenant shall satisfy and pay any such deficiency upon demand therefor from time to time. Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this paragraph from time to time; and that no delivery or recovery of any portion due Landlord hereunder shall be a defense in any action to recover any amount not theretofore reduced to judgment in favor of Landlord, nor shall such reletting be construed as an election on the part of Landlord to terminate this Lease unless a written notice of such intention be given to Tenant by Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous default. c. Landlord may offset against any rents, damages or other sums of money owed by Tenant any security deposit and/or any advance rent applicable to any time period after the occurrence of the default and any sums which would then or thereafter otherwise be due from Landlord to Tenant. d. Should Tenant fail to make any payment or to do any act as herein provided, then Landlord, but without obligation so to do and without demand upon Tenant and without releasing Tenant from any obligation hereof, may (i) make or do the same in such manner and to such extent as Landlord may deem necessary to protect Landlord's interest in the Premises, (ii) commence, appear in and defend any action or proceeding purporting to affect Landlord's interest in the Premises or its rights hereunder, including without limitation, any suit brought by a third party for recovery of possession of the Premises, for the attachment of rent or any other amount due under the provisions of this Lease, or because of the breach of any other covenant herein contained on the part of Tenant to be kept or performed, (iii) pay, purchase, contest, or compromise any encumbrance, charge or lien which in the judgment of Landlord appears to affect Landlord's interest in the Premises, and (iv) in exercising any such powers, incur any liability, expend whatever amounts in its absolute discretion it may deem necessary therefor, employ counsel, and pay reasonable attorney's fees. In the event Landlord expends such sums are set forth above, Tenant shall immediately reimburse Landlord for such sums expended, and any sums not immediately reimbursed shall carry interest at the rate of twelve percent (12%) per annum from the date they were incurred. e. The exercise of any remedies hereunder by Landlord shall not be construed as an election by Landlord to terminate this Lease unless a written notice of such intention is given by Landlord to Tenant. In the event of termination of this Lease by written notice to Tenant, Tenant agrees to immediately surrender possession of the Premises and Tenant understands that such 13 termination shall not relieve Tenant of any obligation hereunder, including without limitation the obligation to pay rent for the full term hereof. f. The remedies given to Landlord in this paragraph may be exercised jointly or severally, shall be cumulative and shall be in addition and supplemental to all the rights and remedies which Landlord may have at equity or under the laws then in force. 24. LANDLORD'S LIEN. As security for payment of rent, damages and all other payments required to be made by this Lease, Tenant hereby grants to Landlord a lien upon all property of Tenant now or subsequently located upon the Premises. If Tenant abandons or vacates any substantial portion of the Premises or is in default of any provisions of this Lease, Landlord may enter upon the Premises, and take possession of all or any part of Tenant's trade fixtures or personal property, store such property in a private or public place, and may sell all or any part of the fixtures or personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash. The proceeds of the sale shall be applied by Landlord towards the costs of removal and storage, next towards reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment of all sums due by Tenant to Landlord under the terms of this Lease. 25. ATTORNEY'S FEES. If any action or proceeding is taken or brought for the enforcement of this Lease, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Lease, the successful or prevailing party shall be entitled to recover reasonable attorney's fees, expert witness fees and all other costs and expenses incurred whether by filing suit, commencing an arbitration proceeding, or otherwise, in addition to any other relief to which it may be entitled. 26. RECONSTRUCTION. a. If Landlord's Building shall be partially damaged by fire or other casualty insured against under property damage insurance and if Landlord is not required to apply the proceeds of such insurance toward repayment of the debt secured by any mortgage or deed of trust covering the Landlord's Building, Landlord shall, within a reasonable period of time, but in no event later than sixty (60) days following the casualty, commence repair to Landlord's Building to a condition which is substantially similar to the condition in existence prior to such casualty. If either (i) Landlord's Building is damaged as a result of flood, earthquake, nuclear radiation or contamination, act of war or other risk which is not covered by insurance, or (ii) Landlord is required to apply the available insurance proceeds toward repayment of debt secured by a deed of trust or mortgage covering the Landlord's Building, and if in either of these events the Landlord reasonably estimates the cost of repair or reconstruction to exceed one million dollars, Landlord may terminate this lease upon written notice given to Tenant at any time within thirty (30) days after the occurrence of such damage. b. Notwithstanding the foregoing, if the Premises or Landlord's Building would require more than one hundred eighty (180) days to repair and restore to the condition in existence prior 14 to such casualty, Landlord or Tenant may terminate this Lease upon written notice given by Tenant or Landlord to the other party hereto at any time within thirty (30) days after the occurrence of such damage. If neither party exercises its right to terminate, or if both parties waive their right to terminate, then Landlord shall commence as soon as is reasonably possible restoration of Landlord's Building. c. In the event this Lease is not terminated and Landlord undertakes to repair any portion of the Premises, until such repair is complete, rent shall abate proportionately by the portion of the Premises rendered untenable. d. Landlord shall have no responsibility to repair the trade fixtures and improvements installed by Tenant within the Premises or to repair and replace any of Tenant's furniture or other property damaged by such casualty. 27. EMINENT DOMAIN. If all or more than twenty percent (20%) of the Premises shall be taken or appropriated by any public or other authority under the power of eminent domain, or transferred in lieu thereof, either party hereto shall have the right, at its option, to terminate this Lease. If all or such part of the Premises (more than 20%) shall be so taken or appropriated and neither party hereto elects to terminate this Lease or if twenty percent (20%) or less of the Premises shall be taken or appropriated, the rental thereafter to be paid shall be proportionately reduced by the portion of the Premises so taken. Landlord shall be entitled to any award or other payment made by any public or other authority in connection therewith. 28. SALE BY LANDLORD OR CHANGE OF LOCATION. a. In the event of a sale or conveyance by Landlord of the Premises or Landlord's Building, the same shall operate to release Landlord from any liability arising upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant following the sale or conveyance, and in such event Tenant agrees to look solely to the successor-in-interest of Landlord for performance of such covenants and conditions. This Lease shall not be affected by any such sale, and Tenant agrees to recognize and attorn to Landlords successor-in-interest as the Landlord hereunder. b. Landlord, subject to the approval of Tenant, said approval not to be unreasonably withheld, may relocate the Premises and substitute as the Premises other space within Landlord's Building, for all purposes hereunder as though originally leased to Tenant; provided, however (i) that the substituted Premises shall contain an area not less than the square footage contained in the original Premises without any increase in the rent hereunder, (ii) that the power under this subparagraph may be exercisable by Landlord only once during the Term, and (iii) that Landlord shall pay the expenses reasonably incurred by Tenant as a result of such substitution of Premises, excluding consequential damages, but including moving expenses, door lettering and expenses in connection with change of telephone. In the event of such relocation, Landlord agrees to provide in the substitute Premises decorations and improvements reasonably equivalent to those which were in the original Premises. If Landlord gives notice to Tenant to relocate, then Tenant shall have the right to terminate this Lease, without receiving compensation therefore, by written notice to Landlord given not more than sixty (60) days after receipt of Landlord's notice to 15 relocate, effective at the end of the calendar month next following the month in which Tenant gives notice of such termination or forty five days following the date Tenant gives notice of such termination, whichever shall last occur. 29. TENANT'S CERTIFICATE. From time to time after the Commencement Date and when requested by Landlord, Tenant shall execute and deliver to Landlord within fifteen (15) days following such request a written certificate: a. Ratifying this Lease; b. Affirming the Commencement Date and Termination Date hereof; c. Certifying this Lease is in full force and effect and had not been assigned, modified or amended (except by such writings as shall be described); d. Stating all conditions under this Lease to be performed by Landlord have been so performed or have been waived by Tenant (or stating which conditions remain unsatisfied); e. Declaring there are no uncured defaults or defenses or offsets against the enforcement of this Lease (or describing such defaults, defenses and offsets as are then known by Tenant); f. Stating the date to which rentals have been paid and whether there have been any advanced rentals then paid by Tenant; g. Agreeing that no amendment, modification or cancellation of this Lease shall be effective without the prior written consent of any mortgagee of Landlord; and h. Setting forth such other information as Landlord may reasonably request. Landlord, Landlord's mortgage lenders and any purchasers of Landlord's Building shall be entitled to rely upon such certificate. 30. FINANCING AND SUBORDINATION. a. Tenant agrees that from time to time it shall, if so requested by Landlord and if doing so will not materially and adversely affect Tenant's economic interests under this Lease or its use of the Premises, join with the Landlord in amending the terms of this Lease so as to meet the reasonable needs or requirements of any lender who is considering furnishing, or who has furnished, any financing which is, or will be, secured by Landlord's Building or the Premises. b. Upon request by Landlord, Tenant will subordinate its rights in this Lease to the lien of any mortgage or deed of trust or other security interest resulting from any method of financing or refinancing which encumbers or is intended to encumber Landlord's Building or the Premises, and to all advances subsequently made upon the strength of such security. Tenant may require, as a condition of such subordination, that the lender agree that Tenant's rights under this Lease shall not be terminated as a result of any foreclosure (or transfer in lieu thereof) of such mortgage 16 or other security instrument to which Tenant's rights are subordinated pursuant to this subparagraph, if Tenant agrees to attorn to the purchaser at such foreclosure (or transferee in lieu thereof). 31. WAIVER. a. The waiver by Landlord of any term, covenant or condition herein contained shall not be deemed to be a continuing waiver of such term, covenant or condition or a waiver of such term, covenant or condition in the event of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No waiver shall be binding unless executed in writing by the party granting the waiver. b. No payment by Tenant or receipt by Landlord of an amount less than is due hereunder shall be deemed to be other than payment towards or on account of the earliest portion of the amount then due (being first applied to late charges, interest and attorney's fees, if any); nor shall any endorsement or statement on any check or payment (or any letter accompanying any check or payment) be deemed an "accord and satisfaction" (or payment in full) and Landlord may accept such check or payment without prejudice to Landlord's rights to recover the balance of such amount or pursue any other remedy provided herein. 32. NOTICES. All notices and demands which may or are required to be given by either party to the other under this Lease shall be delivered in person or sent by United States mail, postage prepaid, and shall be addressed as set forth in paragraph 1 or to such other person or place as the parties may from time to time designate in a notice. Any such notice or demand shall be deemed given on the date personally delivered, or on the date deposited in the United States mail, properly addressed and stamped. If the notice is to Landlord, a copy shall be personally delivered or mailed to Rand Cook, Van Cott, Bagley, Cornwall and McCarthy, 50 South Main Street, Suite 1600, Salt Lake City, UT 84144. 33. INTERPRETATION AND JOINT OBLIGATION. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular where appropriate. Words used in one gender shall be deemed to include the other genders. If there is more than one Tenant, such Tenants shall be jointly and severally obligated for performance of all terms, covenants and conditions hereunder. The laws of the State of Utah shall govern the performance, enforcement and interpretation of this Lease. The invalidity or unenforceability of any provision hereof shall not affect or impair any other provision of this Lease. 34. SUCCESSORS AND ASSIGNS. 17 The covenants and conditions herein contained shall, subject to the provisions of this Lease relating to Assignment or Subletting, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto. 35. FORCE MAJEURE. Landlord shall be excused for the period of any delay in the performance of any of its obligations hereunder when prevented from doing so by a cause beyond its control, including without limitation, strikes and labor disputes; civil commotion; war; governmental regulations or controls; fire or other casualty; inability to obtain any material (or a reasonable substitute therefor), labor or service; acts of God; or failure or slowness of governmental entities to take action. 36. PARKING. a. The parking lot adjacent to Landlord's Building (the "Parking Lot"), or designated portions thereof, shall be available for the use of Tenant, but subject to the Rules and Regulations (Exhibit "D"), posted non-discriminatory parking regulations and signs, and monthly passes as established by the Landlord from time to time. The driveways and loading zones next to Landlord's Building shall be kept free by Tenant of parked automobiles. b. During the term of this Lease and provided Tenant is not in breach hereof, Landlord shall provide Tenant the number of unreserved parking stalls in the Parking Lot set forth in Section 1. The Parking Lot will be available to Landlord after Normal Business Hours as defined in Exhibit "D", Rules and Regulations, for use by the public at large. c. Landlord shall have the right to cause to be removed any cars parked in violation of the terms, including the posted parking regulations and signs, without liability. Tenant agrees to hold Landlord harmless from and defend it against any and all claims, losses, or damage and demands asserted or arising in automobiles of Tenant or Tenant's employees and invitees parked in violation hereof. Tenant shall from time to time upon request of Landlord, supply Landlord with a list of license plate numbers of all automobiles owned by Tenant and Tenant's employees who are to have parking privileges hereunder. Landlord may require that Tenant cause an identification sticker to be hung from the rear view mirror of all automobiles authorized to park in the Parking Lot. 37. QUIET POSSESSION. Tenant, upon paying the rent and observing and performing all of the terms, covenants and conditions on its part to be performed hereunder, shall peaceably and quietly enjoy the Premises for the term hereof. 38. ENTIRE AGREEMENT AND RECORDATION. a. This Lease and any exhibits attached hereto constitute the entire agreement between the parties. Any prior conversations or writings are merged herein and are extinguished. No subsequent amendments to this Lease shall be binding upon Landlord unless reduced to writing and signed. 18 b. Tenant shall not record this Lease or a memorandum hereof without Landlord's written consent which shall not be unreasonably withheld. 39. NO PARTNERSHIP INTENDED. Landlord shall not be construed or held to be a partner or associate of Tenant in the conduct of the business of Tenant upon the Premises or elsewhere. It is expressly understood and agreed that the relationship between the parties hereto is and shall at all times remain and be that of Landlord and Tenant. 40. TIME. Time is of the essence of this Lease and every provision hereof to be performed by Tenant. 41. BROKERS. Tenant and Landlord agree that no commission is due or payable to any broker, agent or brokerage firm, and Tenant or Landlord have not retained a broker, agent or brokerage firm to represent them in this transaction. 42. AUTHORITY OF SIGNATORIES. Each person executing this Lease on behalf of an entity, individually and personally represents and warrants that he or she is duly authorized to execute and deliver the same on behalf of the entity for which he or she is signing (whether it be a corporation, general or limited partnership, or otherwise) and that this Lease is binding upon such entity in accordance with its terms. 43. RIGHT OF FIRST REFUSAL. Landlord grants Tenant a right of first refusal at market rates on any contiguous space that becomes available in the building during the Lease Term, to lease the contiguous space. Contiguous space is defined as any space on Tenant's initial floor(s), and the floor above and below such floor(s), as applicable. This Right of First Refusal shall be subordinate to rights already granted KISN Broadcast, LP. In the event Landlord receives an offer to lease the contiguous space, Landlord shall promptly notify Tenant of the identity of the proposed new tenant. Tenant shall have ten calendar (10) days following Landlord's notice during which to notify Landlord that Tenant shall exercise its right to lease the contiguous space, following which the parties shall amend this Lease to include the contiguous space and adjust the rental obligations proportionately. 44. SECURITY. 19 Landlord agrees to provide a security guard at Landlord's building twenty-four hours a day, seven days a week, until such time that Tenant and Landlord mutually agree that 24 hour security services are not necessary. IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and year written above in Section 1. LANDLORD: Pioneer Partners, L.C. By: ________________________________ Its: ________________________________ TENANT: Ascensus Insurance Services By: __________________________________ Its: ________________________________ 20 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is entered into this ___ day of March, 2000 by and between PIONEER PARTNERS, L.C., a Utah limited liability company, ("Landlord") and ASCENSUS INSURANCE SERVICES, a Utah corporation ("Tenant"). WITNESSETH: WHEREAS, the parties have entered into that certain Lease dated September 15, 1999 (the "Lease") for Suite 100 on the first (1st) floor and west mezzanine of Landlord's building commonly known as the Ford Building located at 280 South, 400 West, Salt Lake City, Utah (the "Premises"); WHEREAS, the parties wish to amend the Lease as provided herein. NOW, THEREFORE, for mutual and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree with each other as follows: 1. TERMS. All terms used in this First Amendment shall have the same meaning as in the Lease except when the context of this First Amendment requires otherwise. Except as specifically modified or amended by this First Amendment, the Lease shall continue in full force and effect unchanged. 2. NO DEFAULT. The parties acknowledge and agree that as of the date of this First Amendment, to the best of their knowledge and belief, each of the parties are in full and complete compliance with all of the terms and conditions of the Lease. 3. PREMISES. Suite #100, which is approximately 43,626 rentable square feet on the first floor and mezzanine of Landlord's building (the "Premises"). 4. LEASE TERM. The Lease Term for the Premises shall be seven (7) years Commencing on March 1, 2000 (the "Commencement Date") and terminating on February 28, 2007 (the "Termination Date"). 5. SECURITY DEPOSIT. $71,619.35, which represents the last months rent. 6. RENTABLE SQUARE FEET IN THE PREMISES. The Premises consists of approximately 43,626 rentable square feet based on modified Building Owners and Managers Association ("BOMA") standards for measurement agreed to by Tenant and Landlord at the time of this Amendment. 7. USABLE SQUARE FEET IN THE PREMISES. The Premises consists of approximately 38,268 usable square feet based on modified BOMA standards for measurement. 21 IN WITNESS WHEREOF, the parties hereto have executed this First Amendment on the date first written above. PIONEER PARTNERS, L.C., ASCENSUS INSURANCE SERVICES, A UTAH LIMITED LIABILITY A UTAH CORPORATION CORPORATION By: _________________________ By: ________________________________ Name: John W. Williams Name: Title: Managing Member Title: EX-10.23 7 y53439ex10-23.txt LEASE 1 EXHIBIT 10.23 June 3, 1999 ARTICLE 1 - LEASE OF PREMISES Section 1.01. Basic Lease Provisions and Definitions. A. *Leased Premises (shown outlined in red on Exhibit A attached hereto): Suite: ___; Floor: ___; Building Address: ___________________________________________, ("Building"); B. **Rentable Area: approximately 49,000 rentable square feet; Landlord shall use commercially reasonable standards, consistently applied, in determining the Rentable Area and the rentable area of the Building. The Rentable Area shall include the area within the Leased Premises plus a pro rata portion of the area covered by the common areas within the Building, as reasonably determined by Landlord from time to time. Landlord's determination of Rentable Area shall be deemed correct for all purposes hereunder. C. **Building Expense Percentage: 74.81% [Gross rentable area of the Leased Premises (49,000 rentable square feet) divided by the total gross rentable area of the Building (65,500 rentable square feet)]; D. ***Minimum Annual Rent: Years 1 - 5 $840,350.04 per year; Years 6 - 10 $913,850.04 per year;
E. ***Monthly Rental Installments: Months 1 - 60 $ 70,029.17 per month; Months 61 - 120 $ 76,154.17 per month;
F. Term: Ten (10) years and zero (0) months; G. Target Commencement Date: April 20, 2000; H. Security Deposit: $70,029.17; I. Broker(s): Duke Realty Limited Partnership representing Landlord and Olympia Partners representing Tenant; J. Permitted Use: General office and warehouse purposes; K. Working Drawings Approval Date: See Exhibit B-3; 2 L. Address for payments and notices as follows: Landlord: Duke Realty Limited Partnership Attn: Property Management 8888 Keystone Crossing, Suite 1200 Indianapolis, IN 46240 With Rental Payments to: Duke Realty Limited Partnership P.O. Box 66259 Indianapolis, IN 46266 Tenant: Pictorial, Inc. Before Completion 8081 Zionsville Road of Building: Indianapolis, IN 46268 Attn: Richard M. Rella, Vice President and Chief Financial Officer *After Completion _______________________________ of Building: _______________________________ _______________________________ With a copy to: Primedia, Inc. 745 Fifth Avenue New York, NY 10151 Attn: Domenic Maggio, Vice President Real Estate M. Guarantor(s): Primedia, Inc.; N. Landlord's Share of Operating Expenses: $5.00 per rentable square foot of the Leased Premises. Such amount includes an estimate of non-abated real estate taxes. Section 1.02. Lease of Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord under the terms and conditions herein the Leased Premises. ARTICLE 2 - TERM AND POSSESSION Section 2.01. Term. The term of this Lease shall be the period of time specified in Item F of the Basic Lease Provisions ("Lease Term") and shall commence on (i) the Target Commencement Date; or (ii) upon such later date as Substantial Completion (as hereinafter defined) of the Finish Work (hereinafter defined) is achieved; provided, however, that the Commencement Date shall not be extended as a result of any Tenant Caused Delays (as hereinafter defined) or Tenant requested change orders; or (iii) upon such earlier date as Tenant takes possession or commences use of the Leased Premises. The date of commencement as defined above, hereinafter called the "Commencement Date," shall be confirmed by Tenant in a letter of understanding acknowledging (i) the Commencement Date of this Lease, (ii) the "Expiration Date", and (iii) that Tenant has accepted the Leased Premises. Section 2.02. Construction. A. Shell Work. The scope of the work for the shell improvements ("Shell Work") to be performed by Landlord is set forth in the preliminary plans and specifications and written descriptions thereto all of which are listed on the attached Preliminary Exhibit B-1. Landlord will prepare final plans and specifications and actual working drawings, which upon completion, shall be substituted and attached hereto as Exhibit B-1 ("Shell Plans and Specifications"). Landlord shall, at its sole cost and expense, construct in a good workmanlike manner all of the improvements and supply all work, labor, materials and equipment necessary to complete the Shell Work in accordance with the Shell Plans and Specifications, which shall include, without limitation, the installation of landscaping, parking lots, driveways and all improvements as shown on the Shell Plans and Specifications for the benefit of the Leased Premises. B. Tenant Finish Improvements. Landlord agrees to perform and complete, at Landlord's sole cost and expense, the work on the tenant finish improvements for the Leased Premises ("Finish Work") in accordance with Tenant's preliminary space plans and specifications which are attached hereto as Preliminary Exhibit B-2, subject to events and delays due to causes beyond its Page 2 of 19 3 reasonable control. Final plans and specifications with respect to the Finish Work shall be substantially similar in scope to the work set forth in Preliminary Exhibit B-2 and shall be completed and mutually agreed to by Landlord and Tenant in accordance with the Project Schedule attached hereto as Exhibit B-3, but in no event later than June 21, 1999, which upon completion, shall be substituted and attached hereto as Exhibit B-2 ("Interior Plans and Specifications"). Moreover, the final plans and specifications with respect to the Finish Work shall include finish grades similar to those used in another building owned by Landlord in the vicinity commonly referred to as Woodland Corporate Center I located at 7602 Woodland Drive, Indianapolis, Indiana; excluding ceiling tile and security access system. In addition, Landlord and Tenant acknowledge and agree that CSO Architects, Engineers & Interiors, Inc. shall perform and complete, at Landlord's sole cost and expense, all space planning and construction drawing associated with the Finish Work as set forth in Final Exhibit B-2; provided, however, that supplemental design services, or excessive revisions to the plans and drawings shall be at Tenant's sole cost and expense. Tenant and Tenant's representative shall be permitted to review the space plans and construction drawings for both the Shell Work and Finish Work on three separate occasions; provided, however, that Tenant shall have no rights to cause any changes, modifications, or revisions to the Shell Work and Finish Work. Landlord and Tenant hereby agree that all work on any subsequent tenant finish improvements in the Leased Premises and any expansion space shall also be performed by Duke Construction Management, Inc. or an affiliate of Landlord (collectively "Construction Manager") which shall receive a construction management fee equal to the fair market rate for comparable tenant finish construction work, including quality, experience, reliability and availability of Construction Manager. C. Project Design Schedule and Permits. The Shell Plans and Specifications and the Interior Plans and Specifications shall be designed and the Shell Work and Finish Work shall be constructed by Landlord in a good and workmanlike manner and in accordance with the Project Schedule attached hereto as Exhibit B-3. Landlord shall apply for and obtain as expeditiously as possible, at its sole cost and expense, all permits, licenses and certificates necessary for the construction and completion of the Shell Work and Finish Work. D. Substantial Completion. The Leased Premises shall be deemed to be substantially completed ("Substantial Completion") at such time as Landlord shall certify in writing to Tenant that said Leased Premises have been completed in substantial accordance with the Shell Plans and Specifications and the Interior Plans and Specifications described above subject only to minor punch list items (i.e., such unfinished items as shall not impair Tenant's ability to use the Leased Premises in the manner intended by the Lease). In the event Landlord and Tenant do not agree upon the date of Substantial Completion, Landlord shall furnish Tenant with a Certificate of Substantial Completion from an independent architect within five (5) business days after Landlord's receipt of notice of disagreement. In the event of any dispute with respect to the date of Substantial Completion of the Leased Premises, Landlord and Tenant agree that Landlord's initial determination of such date shall be deemed correct unless and until otherwise shown by the architect's Certificate of Substantial Completion. If Substantial Completion of the Leased Premises has not occurred on or before April 20, 2000, and Landlord's failure to achieve such Substantial Completion is not the result of force majeure of any Tenant Caused Delay, Landlord shall be responsible for (i) in the event of a consensual holdover, payment of the holdover penalty portion of the monthly rental, defined in Tenant's existing lease dated August 29, 1989, as amended, with Trustee of the Mary A. Lange Trust U/A ("Existing Lease"), commencing on April 20, 2000 and continuing until the date of Substantial Completion (hereinafter referred to as "Holdover Rent"); and (2) and in the event of a non-consensual holdover, payment of Tenant's Holdover Rent plus payment of Tenant's reasonable attorneys fees actually incurred by Tenant in defending any litigation instituted as a result of Tenant's non-consensual holdover (hereinafter referred to as "Attorneys Fees"). In the event Tenant is required to holdover under the Existing Lease, Tenant agrees to use its best efforts to obtain the existing landlord's consent to such holdover and to take any other reasonable measures to minimize the Holdover Rent or Attorney Fees. In addition, if Substantial Completion has not occurred on or before May 20, 2000, and Landlord's failure to achieve such Substantial Completion is not the result of force majeure or any Tenant Caused Delay, Landlord shall be responsible for (i) the Holdover Rent as otherwise provided in this Lease; (ii) the Attorneys Fees as otherwise provided in this Lease; and (iii) one (1) day's Minimum Annual Rental abatement for each day of delay after May 20, 2000. Finally, if Substantial Completion has not occurred on or before June 20, 2000, and Landlord's failure to achieve Substantial Completion is not the result of force majeure or any Tenant Caused Delay, Tenant shall have the right to terminate this Lease by providing written notice to Landlord prior to the date of Substantial Completion. Upon such termination, both parties shall be released from further liability under this Lease, except for any obligation which either expressly or by its nature survives termination of this Lease. The Page 3 of 19 4 damages described herein Section 2.02D of this Lease shall be Tenant's sole remedy for Landlord's failure to deliver the Leased Premises as set forth above, and Tenant shall not be entitled to other damages (consequential or otherwise) as a result thereof. E. Fixturing. Tenant shall have the right and privilege of going into the Leased Premises to complete interior decoration work and to otherwise prepare the Leased Premises for its occupancy, in accordance with the Project Schedule attached hereto as Exhibit B-3, subject to Tenant Caused Delays or any other events beyond Landlord's control, provided, however, that its schedule in so doing shall be communicated to Landlord and the approval of Landlord secured so as not to unreasonably interfere with or delay other work of Landlord in the Leased Premises. Landlord shall have no liability whatsoever for any loss or damage to any of Tenant's fixtures, equipment or any other items brought into the Leased Premises prior to the Commencement Date. Notwithstanding the foregoing, all of the terms and conditions of this Lease will become effective upon Tenant taking possession of the Leased Premises for fixturing purposes as contemplated by this Section, except for payment of Minimum Annual Rent and Annual Rental Adjustment, which shall commence on the Commencement Date. F. Tenant Caused Delays. Tenant Caused Delay or Delays shall include any delay caused by or resulting from the following or any combination of the following: (1) failure of Tenant to comply with the Project Schedule; (2) any change orders requested by Tenant; (3) failure of Tenant to timely or properly arrange its furnishings or be present for any scheduled walk-through of the Leased Premises; (4) failure of Tenant to cooperate with Landlord and respond promptly to any reasonable request of Landlord; or (5) Tenant's fixturing of the Leased Premises prior to the Commencement Date. G. Change Orders. Tenant shall have the right to request in writing that Landlord make changes from time to time in the construction drawings for the Leased Premises and Landlord shall not unreasonably refuse to do so. Any additional cost associated with said changes shall be paid in cash by Tenant to Landlord as additional rent upon completion of such work. The cost to Tenant resulting from a change order and any delay in completion of the tenant finish improvements shall be quoted to Tenant by Landlord within three (3) business days after submission, provided, however, that in the event any change order relates to work which has not previously been contracted for, Landlord shall have up to five (5) business days to respond to Tenant. Landlord shall respond to Tenant's request for any change order as soon as is reasonably possible, and Tenant may then decide whether or not it desires to proceed with such change order. A construction management fee equal to ten percent (10%) of the sum of the sub-contractor's contract prices and the general conditions and overhead, which include but are not limited to, supervisory and permitting fees representing the total construction costs for such change order work. H. Compliance. Landlord shall cause the construction of the Building and Leased Premises to be made in accordance with all applicable laws, rules, codes, ordinances and regulations, including the Americans With Disabilities Act and all applicable zoning and building ordinances and codes. Section 2.03. Surrender of the Premises. Upon the expiration or earlier termination of this Lease, Tenant shall immediately surrender the Leased Premises to Landlord in broom-clean condition and in good order, condition and repair. Tenant shall remove its personal property, computer equipment, wiring and cabling (including above ceiling) in the Leased Premises, at its sole cost and expense. Tenant shall, at its expense, promptly repair any damage caused by any such removal, and shall restore the Leased Premises to the condition existing prior to the installation of the items so removed (excluding ordinary wear and tear damage). All Tenant property which is not removed within ten (10) days following Landlord's written demand therefore shall be conclusively deemed to have been abandoned and Landlord shall be entitled to dispose of such property at Tenant's cost without incurring any liability to Tenant. The provisions of this section shall survive the expiration or other termination of this Lease. Section 2.04. Holding Over. If Tenant retains possession of the Leased Premises after the expiration or earlier termination of this Lease, Tenant shall become a tenant from month to month at One Hundred Twenty-five Percent (125%) of the Monthly Rental Installment and Annual Rental Adjustment for the Leased Premises in effect upon the date of such expiration or earlier termination, and otherwise upon the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease. After expiration or earlier termination of the Lease, Tenant shall vacate and surrender the Leased Premises to Landlord upon Tenant being given thirty (30) days prior written notice from Landlord to vacate. This Section 2.04 shall in no way constitute a consent by Landlord to any Page 4 of 19 5 holding over by Tenant upon the expiration or earlier termination of this Lease, nor limit Landlord's remedies in such event. ARTICLE 3 - RENT Section 3.01. Base Rent. Tenant shall pay to Landlord the Minimum Annual Rent in the Monthly Rental Installments in advance, without deduction or offset on the Commencement Date and on or before the first day of each and every calendar month thereafter during the Lease Term. The Monthly Rental Installments for partial calendar months shall be prorated. Section 3.02. Annual Rental Adjustment Definitions. A. "Annual Rental Adjustment" - shall mean the amount of Tenant's Proportionate Share of Operating Expenses for a particular calendar year. B. "Operating Expenses" - shall mean the amount of all of Landlord's costs and expenses paid or incurred in operating, repairing, replacing as expressly provided herein, and maintaining the Building (including the Common Areas as defined below) in good condition and repair for a particular calendar year, including all additional costs and expenses which Landlord reasonably determines that it would have paid or incurred during such year if the Building had been ninety-five percent (95%) occupied, including by way of illustration and not limitation: all Real Estate Taxes, as hereinafter defined, insurance premiums and deductibles; water, sewer, electrical and other utility charges other than the separately billed electrical and other charges paid by Tenant as provided in this Lease; service and other charges incurred in the repair, replacement, operation and maintenance of the elevators and the heating, ventilation and air-conditioning system; cleaning and other janitorial services; tools and supplies; repair costs; landscape maintenance costs; security services; license, permit and inspection fees; management or administrative fees; supplies, costs, wages and related employee benefits payable for the management, maintenance and operation of the Building; maintenance, repair and replacement of the driveways, parking and sidewalk areas (including snow and ice removal), landscaped areas, and lighting; maintenance and repair costs, dues, fees and assessments incurred under any covenants or owners association (the "Covenants"). There shall also be included in Operating Expenses the amortization of capital improvements (as such term is defined in accordance with generally accepted accounting principles "GAAP") that produce a net reduction in operating costs together with interest at the rate of twelve percent (12%) per annum on the unamortized balance thereof; and the cost or portion of any capital improvements (as such term is defined in accordance with GAAP) reasonably allocable to the Building together with interest at the rate of twelve percent (12%) per annum, made to the Building by Landlord after the date of this Lease which are required under any governmental law or regulation that was not applicable to the Building at the time it was constructed. The cost of any capital improvement shall be amortized over the useful life of such improvement (as reasonably determined by Landlord), and only the amortized portion shall be included in Operating Expenses. "Operating Expenses" shall not include any amount paid or incurred to an affiliate of Landlord or any of its agents in excess of the amount which would have been paid or incurred on an open market basis and on a competitive basis in the absence of such affiliations. Notwithstanding the foregoing, Landlord's costs and expenses for snow removal, janitorial and cleaning services, and insurance premiums shall be consistent with the fair market costs for such services or products in an open and competitive market including factors such as quality experience, reliability, and availability. C. "Tenant's Proportionate Share of Operating Expenses" - shall be an amount equal to the remainder of (i) the product of Tenant's Building Expense Percentage times the Building Operating Expenses less (ii) Landlord's Share of Operating Expenses, provided that such amount shall not be less than zero. D. "Real Estate Taxes" - shall include any form of real estate tax or assessment commercial rental tax or other similar charge or tax enacted or to be enacted by any applicable taxing authority (other than inheritance, personal income or estate taxes) imposed upon the Building or common areas (or against Landlord's business of leasing the Building) by any authority having the power to so charge or tax, together with costs and expenses of contesting the validity or amount of Real Estate Taxes, which at Landlord's option may be calculated as if such contesting work had been performed on a contingent fee basis (whether charged by Landlord's counsel or representative; provided, however, that said fees are reasonably comparable to the fees charged for similar services by others not affiliated with Landlord, but in no event shall said fees exceed thirty-three percent (33%) of the good faith estimated tax savings). Notwithstanding the foregoing, Landlord shall exercise commercially reasonable efforts in determining whether to contest the validity or amount of Real Estate Taxes. E. "Common Areas" - shall mean the areas of the Building and the land which are designed for use in common by all tenants of the Building and their respective employees, agents, customers, invitees Page 5 of 19 6 and others, and includes, by way of illustration and not limitation, entrances and exits, hallways and stairwells, elevators, restrooms, sidewalks, driveways, parking areas, landscaped areas and other areas as may be designated by Landlord as part of the Common Areas of the Building. Tenant shall have the non-exclusive right, in common with others, to the use of the Common Areas. F. Maximum Increase in Operating Expenses. Notwithstanding anything in this Lease to the contrary: (i) Uncontrollable Expenses. Tenant will be responsible for Tenant's Proportionate Share of real estate taxes, including the reasonable costs and expenses of contesting the validity or amount of real estate taxes; service payments in lieu of real estate taxes; insurance premiums; association dues; management or administrative fees; utilities; snow removal; janitorial services and any other expenses which Landlord shall determine within its reasonable discretion to be uncontrollable expenses ("Uncontrollable Expenses"), without regard to the level of increase in any or all of the above in any year or other period of time. (ii) Controllable Expenses. Tenant's obligation to pay all other Building Operating Expenses which are not Uncontrollable Expenses (herein "Controllable Expenses") shall be limited to five percent (5%) per annum increase over the amount the Controllable Expenses for the immediately preceding calendar year would have been had the Controllable Expenses increased at the rate of five percent (5%) in all previous calendar years beginning with the actual Controllable Expenses for the year ending December 31 of the second full calendar year of the Lease Term. G. Tax Abatement. Tenant desires to obtain and maintain tax abatement deductions for the Leased Premises, and shall make the payment of any and all application and other fees associated therewith. Tenant assumes and accepts the risk that its tax abatement application will not be successful. In the event Tenant proceeds with the filing of such application, Tenant shall prepare and file any required applications, forms, resolutions, agreements or other materials, whether for or on behalf of Tenant or Landlord. To permit Tenant to take the actions necessary to obtain and maintain property tax abatement deductions on the Leased Premises, Landlord shall (i) upon reasonable notice from Tenant, execute such tax abatement applications, forms, resolutions, agreements, and other materials; (ii) upon reasonable notice from Tenant, provide Tenant with information in its possession with respect to the Leased Premises necessary to prepare such applications, from, resolutions, agreements, and other materials; (iii) upon reasonable notice from Tenant, authorize Tenant to appear on behalf of Landlord at any public hearing related to obtaining or maintaining property tax abatement on the Leased Premises; and (iv) shall forward to Tenant promptly upon receipt any notice of assessment or change in assessment relating to the Leased Premises. Tenant further understands that it is responsible for any and all real property taxes accruing during the Lease Term with regard to the Leased Premises and agrees to indemnify and hold harmless Landlord from and against any and all losses, claims or damages resulting from Tenant's failure to comply with its obligations under this Section or under any agreement between Landlord and Tenant and the City of Indianapolis, Indiana with respect to tax abatement. Notwithstanding anything contained herein to the contrary, in the event Tenant is successful in obtaining a real estate tax abatement for the Leased Premises as a concession from the City of Indianapolis, Landlord hereby agrees to pass along the amount which is abated to Tenant as a credit against Tenant's Proportionate Share of Operating Expenses (as defined herein) or, to the extent such credit exceeds Tenant's Proportionate Share of Operating Expenses, as a credit against Tenant's Minimum Annual Rent. H. Tenant Audit Rights. Tenant shall have the right, at Tenant's sole cost and expense, to inspect, at reasonable times and in a reasonable manner, during the one hundred eighty (180) day period following the delivery of Landlord's statement of the actual amount of the Annual Rental Adjustment, such of Landlord's books of account and records as pertain to and contain information concerning such costs and expenses in order to verify the amounts thereof. Tenant's failure to exercise its rights hereunder within said one hundred eighty (180) day period shall be deemed a waiver of its right to inspect or contest the method, accuracy or amount of the Annual Rental Adjustment. Section 3.03. Payment of Additional Rent. In addition to the Minimum Annual Rent specified in this Lease, Tenant shall pay to Landlord as "Additional Rent" for the Leased Premises, commencing January 1, 2001 and continuing in each subsequent calendar year or partial calendar year, during the term of this Lease, an amount equal to the Annual Rental Adjustment for such calendar year. The Annual Rental Adjustment shall be estimated annually by Landlord, and written notice thereof shall be given to Tenant prior to the beginning of each calendar year. Tenant shall pay to Landlord each month, at the same time the Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the estimated Annual Rental Adjustment. Within a reasonable time after the end of each calendar year, Landlord shall prepare and deliver to Tenant a statement showing the actual Annual Rental Adjustment. Page 6 of 19 7 Within thirty (30) days after receipt of the aforementioned statement, Tenant shall pay to Landlord, or Landlord shall credit against the next rent payment or payments due from Tenant, as the case may be, the difference between the actual Annual Rental Adjustment for the preceding calendar year and the estimated amount paid by Tenant during such year. Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur certain additional unanticipated administrative and legal costs and expenses if Tenant fails to timely pay any payment required hereunder. Therefore, in addition to the other remedies available to Landlord hereunder, if any payment required to be paid by Tenant to Landlord hereunder shall become overdue, such unpaid amount shall bear interest from the due date thereof to the date of payment at the prime rate (as defined by Citibank, N.A. or, if no longer in existence, such other nationally chartered bank or financial institution reasonably designated by Landlord) of interest ("Prime Rate") plus six percent (6%) per annum. Notwithstanding the foregoing, in the event Tenant fails to timely pay any payment required herein, Landlord shall provide Tenant with written notice of such failure two (2) times during each successive twelve (12) month period of the Lease Term and Tenant shall have an additional five (5) days to cure such failure before Landlord shall assess any late charges described herein. ARTICLE 4 - SECURITY DEPOSIT Upon execution of this Lease, Tenant shall deposit with Landlord the Security Deposit as security for the performance by Tenant of all of Tenant's obligations contained in this Lease. In the event of a default by Tenant, Landlord may apply all or any part of the Security Deposit to cure all or any part of such default; and Tenant agrees to promptly, upon demand, deposit such additional sum with Landlord as may be required to maintain the full amount of the Security Deposit. All sums held by Landlord pursuant to this section shall be with interest and may be commingled by Landlord. Notwithstanding the foregoing, Landlord agrees to pay Tenant interest on the Security Deposit at a rate of four percent (4%) per annum, which shall be paid to Tenant annually as a credit to Minimum Annual Rent. At the end of the Lease Term or the earlier termination thereof, provided that there is then no uncured default, Landlord shall return the Security Deposit to Tenant within thirty (30) days of Tenant vacating the Leased Premises. ARTICLE 5 - OCCUPANCY AND USE Section 5.01. Use. The Leased Premises shall be used by Tenant for the Permitted Use and for no other purposes without the prior written consent of Landlord. Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and maintain the Leased Premises and conduct its business thereon in a safe, careful, reputable and lawful manner, (ii) comply with the Covenants and all laws, rules, regulations, orders, ordinances, directions and requirements of any governmental authority or agency, now in force or which may hereafter be in force, including without limitation those which shall impose upon Landlord or Tenant any duty with respect to or triggered by a change in the use or occupation of, or any improvement or alteration to, the Leased Premises, (iii) comply with and obey all reasonable directions of Landlord, including the Building Rules and Regulations attached hereto as Exhibit C and as may be modified from time to time by Landlord on reasonable notice to Tenant. Tenant shall not do or permit anything to be done in or about the Leased Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any of the Building Rules and Regulations, but agrees to take reasonable measures to assure such other tenant's compliance. Tenant shall not use the Leased Premises, or allow the Leased Premises to be used, for any purpose or in any manner which would invalidate any policy of insurance now or hereafter carried on the Building or increase the rate of premiums payable on any such insurance policy unless Tenant reimburses Landlord for any increase in premium charged. Section 5.03. Landlord's Rights Regarding Use. In addition to the rights specified elsewhere in this Lease, Landlord shall have the following rights regarding the use of the Leased Premises or the Common Areas, each of which may be exercised without notice or liability to Tenant: (a) Landlord may install such signs, advertisements or notices or tenant identification information on the directory board or tenant access doors as it shall deem necessary or proper; (b) Landlord shall have the right at any time to control, change or otherwise alter the Common Areas in such manner as it deems necessary or proper; (c) Landlord, its employees and agents and any mortgagee of the Building shall have the right to enter any part of the Leased Premises at reasonable times and upon reasonable prior notice (except in the case of emergency when no notice shall be required) for the purposes of examining or Page 7 of 19 8 inspecting the same, showing the same to prospective purchasers, mortgagees or tenants and making such repairs, alterations or improvements to the Leased Premises or the Building as Landlord may deem necessary or desirable, provided, however, that any repairs made by Landlord shall be at Tenant's expense except as provided in Sections 7.01 and 7.02 hereof. Landlord shall incur no liability to Tenant for such entry, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to any abatement of rent therefor. ARTICLE 6 - UTILITIES AND OTHER BUILDING SERVICES Section 6.01. Services to be Provided. Provided Tenant is not in default, Landlord shall furnish to Tenant, except as noted below, the following utilities and other building services to the extent reasonably necessary for Tenant's comfortable use and occupancy of the Leased Premises for the Permitted Use or as may be required by law or directed by governmental authority: (a) Heating, ventilation and air-conditioning between the hours of 7:00 a.m. and 6:00 p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday of each week except on legal holidays; (b) Electrical current not to exceed seven (7) watts per rentable square foot (exclusive of HVAC); (c) Water in the Common Areas for lavatory and drinking purposes; (d) Automatic elevator service; (e) Cleaning and janitorial service in the Leased Premises and Common Areas on Monday through Friday of each week except legal holidays; provided, however, Tenant shall be responsible for carpet cleaning other than routine vacuuming. Attached hereto as Exhibit D is Landlord's anticipated cleaning and janitorial specifications for the Building which are subject to change from time to time based upon Landlord's sole and absolute discretion; (f) Washing of windows at intervals reasonably established by Landlord; (g) Replacement of all lamps, bulbs, starters and ballasts in Building standard lighting (Landlord's standard tenant finish improvements being described in Exhibit B) as required from time to time as a result of normal usage; (h) Cleaning and maintenance of the Common Areas, including the removal of rubbish, ice and snow; and (i) Repair and maintenance to the extent specified elsewhere in this Lease. In the event of utility deregulation, Landlord shall choose the utility service provider. All utilities and services provided by Landlord shall be charged by Landlord to Tenant at rates that would have been payable if such utilities and services had been directly billed by the utilities or service providers. Section 6.02. Additional Services. If Tenant requests any other utilities or building services in addition to those identified above or any of the above utilities or building services in frequency, scope, quality or quantity substantially greater than those which Landlord reasonably determines are normally required by other tenants in the Building for the Permitted Use, then Landlord shall use reasonable efforts to attempt to furnish Tenant with such additional utilities or building services. In the event Landlord is able to and does furnish such additional utilities or building services, the costs thereof shall be borne by Tenant, who shall reimburse Landlord monthly for the same as additional rent at the same time Monthly Rental Installments and other additional rent is due. If any lights, density of staff, machines or equipment used by Tenant in the Leased Premises materially affect the temperature otherwise maintained by the Building's air-conditioning system or generate substantially more heat in the Leased Premises than that which would normally be generated by that typically used by other tenants in the Building or by tenants in comparable office buildings, then Landlord shall have the right to install any machinery or equipment which Landlord considers reasonably necessary in order to restore the temperature balance between the Leased Premises and the rest of the Building, including equipment which modifies the Building's air-conditioning system. All reasonable costs expended by Landlord to install any such machinery and equipment and any additional costs of operation and maintenance occasioned thereby shall be borne by Tenant, who shall reimburse Landlord for the same as provided in this Section 6.02. Section 6.03. Interruption of Services. Page 8 of 19 9 Tenant understands, acknowledges and agrees that any one or more of the utilities or other building services identified in Section 6.01 may be interrupted by reason of accident, emergency or other causes beyond Landlord's control, or may be discontinued or diminished temporarily by Landlord or other persons until certain repairs, alterations or improvements can be made. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service and no such failure or interruption shall entitle Tenant to terminate this Lease or withhold sums due hereunder. Notwithstanding anything in this Lease to the contrary, Landlord shall use commercially reasonable efforts to promptly restore utility service and in the event restoration of service is within Landlord's control and Landlord negligently fails to restore such service within a reasonable time, thereby causing the Leased Premises to be rendered untenantable (meaning that Tenant is unable to use such space in the normal course of its business) by Tenant for the use permitted under this Lease for more than five (5) consecutive days after notice from Tenant to Landlord that such service has been interrupted and a reasonable opportunity for Landlord to restore such service, Minimum Annual Rent and Annual Rental Adjustment shall abate on a per diem basis for each day after such five (5) day period during which the Leased Premises remain untenantable. Notwithstanding the foregoing, Tenant shall also be entitled to exercise its remedies against Landlord in accordance with Section 13.03 of this Lease. ARTICLE 7 - REPAIRS, MAINTENANCE AND ALTERATIONS Section 7.01. Repair and Maintenance of Building. Subject to Section 7.02 and except for any repairs made necessary by the negligence, misuse, or default of Tenant, its employees, agents, customers and invitees, Landlord shall make all necessary repairs to the exterior walls, exterior doors, windows, corridors and other Common Areas, and Landlord shall keep the Building in a safe, clean and neat condition and use reasonable efforts to keep all equipment used in common with other tenants in good condition and repair. Section 7.02. Repair and Maintenance of Leased Premises. Landlord shall keep and maintain the Leased Premises in good order, condition and repair. Except for ordinary wear and tear and damage which Tenant is not obligated to repair as provided elsewhere in this Lease, the cost of all reasonable repairs and maintenance to the Leased Premises shall be borne by Tenant, who shall be separately billed and shall reimburse Landlord for the same as additional rent, or as a part of Operating Expenses. Section 7.03. Alterations. Tenant shall not permit alterations in or to the Leased Premises unless and until the plans have been approved by Landlord in writing, which approval shall not be unreasonably withheld with respect to non-structural and non-mechanical alterations only. All alterations or improvements shall remain for the benefit of Landlord, provided, however, that Landlord may elect as a condition of granting its consent to any such alteration or addition subsequent to completion of Tenant's initial improvements set forth in Exhibit B-2, to require that Tenant, at Tenant's sole cost and expense, remove at the expiration or earlier termination of this Lease all or a portion of any such alteration or addition in the Leased Premises which are inconsistent with the initial construction performed by Landlord in accordance with Exhibit B-2 and repair any damage caused by the removal thereof. Tenant shall ensure that all alterations shall be made in accordance with all applicable laws, regulations and building codes, in a good and workmanlike manner and of quality equal to or better than the original construction of the Building. No person shall be entitled to any lien derived through or under Tenant for any labor or material furnished to the Leased Premises, and nothing in this Lease shall be construed to constitute a consent by Landlord to the creation of any lien. If any lien is filed against the Leased Premises for work claimed to have been done for or material claimed to have been furnished to Tenant, Tenant shall cause such lien to be discharged of record within thirty (30) days after filing. Tenant shall indemnify Landlord from all costs, losses, expenses and attorneys' fees in connection with any construction or alteration and any related lien. Page 9 of 19 10 ARTICLE 8 - CASUALTY Section 8.01. Casualty. In the event of total or partial destruction of the Building or the Leased Premises by fire or other casualty, Landlord agrees to promptly restore and repair the Leased Premises; provided, however, Landlord's obligation hereunder shall be limited to the reconstruction of such of the tenant finish improvements as were originally required to be made by Landlord, if any. Rent shall proportionately abate during the time that the Leased Premises or part thereof are unusable because of any such damage. Notwithstanding the foregoing, if the Leased Premises are (i) so destroyed that they cannot be repaired or rebuilt within one hundred eighty (180) days from the casualty date; or (ii) destroyed by a casualty which is not covered by the insurance required hereunder or, if covered, such insurance proceeds are not released by any mortgagee entitled thereto or are insufficient to rebuild the Building and the Leased Premises; then, in case of a clause (i) casualty, either Landlord or Tenant may, or, in the case of a clause (ii) casualty, then Landlord may, upon thirty (30) days' written notice to the other party, terminate this Lease with respect to matters thereafter accruing. Section 8.02. Fire and Extended Coverage Insurance. During the Lease Term, Landlord shall maintain all risk coverage insurance on the Building, but shall not protect Tenant's personal property on the Leased Premises; and, notwithstanding the provisions of Section 9.01 and Section 9.03, neither party shall be liable for any damage to the other's property, regardless of cause, including the negligence of either party and its employees, agents and invitees. Tenant hereby expressly waives any right of recovery against Landlord for damage to any property of Tenant located in or about the Leased Premises, however caused, including the negligence of Landlord and its employees, agents and invitees. Notwithstanding the provisions of Section 9.01 below, Landlord hereby expressly waives any rights of recovery against Tenant for damage to the Leased Premises or the Building which is insured against under Landlord's all risk coverage insurance. All insurance policies maintained by Landlord or Tenant as provided in this Lease shall contain an agreement by the insurer waiving the insurer's right of subrogation against the other party to this Lease. ARTICLE 9 - LIABILITY INSURANCE Section 9.01. Tenant's Responsibility. Tenant shall assume the risk of, be responsible for, have the obligation to insure against, and indemnify Landlord and hold it harmless from any and all liability for any loss of or damage or injury to any person (including death resulting therefrom) or property occurring in the Leased Premises, regardless of cause, except for any loss or damage from fire or other casualty as provided in Section 8.03 and except for that caused directly by the sole negligence of Landlord or its employees, agents, customers and invitees; and Tenant hereby releases Landlord from any and all liability for the same. Tenant's obligation to indemnify Landlord hereunder shall include the duty to defend against any claims asserted by reason of such loss, damage or injury and to pay any judgments, settlements, costs, fees and expenses, including reasonable attorneys' fees, incurred in connection therewith. This provision shall survive the expiration or earlier termination of this Lease. Section 9.02. Tenant's Insurance. Tenant shall carry general public liability and property damage insurance, issued by one or more insurance companies reasonably acceptable to Landlord, with the following minimum coverages: (a) Worker's Compensation: minimum statutory amount. (b) Commercial General Liability Insurance, including blanket, contractual liability, broad form property damage, personal injury, completed operations, products liability, and fire damage: Not less than $3,000,000 Combined Single Limit for both bodily injury and property damage. (c) All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage insurance, if applicable, for the full cost of replacement of Tenant's property. (d) Business interruption insurance. The insurance policies shall protect Tenant and Landlord as their interests may appear, naming Landlord and Landlord's managing agent and mortgagee as additional insureds, and shall provide that they may not be canceled on less than thirty (30) days' prior written notice to Landlord. Tenant shall furnish Landlord with Certificates of Insurance evidencing all required coverages on or before the Commencement Date. If Tenant fails to carry such insurance and furnish Landlord with such Page 10 of 19 11 Certificates of Insurance after a request to do so, Landlord may obtain such insurance and collect the reasonable cost thereof from Tenant. Section 9.03. Landlord's Responsibility. Landlord shall assume the risk of, be responsible for, have the obligation to insure against, and indemnify Tenant and hold it harmless from, any and all liability for any loss of or damage or injury to person (including death resulting therefrom) or property (other than Tenant's property as provided in Section 8.02) occurring in, on or about the Common Areas, regardless of cause, except for that caused by the sole negligence of Tenant and its employees, agents, customers and invitees; and Landlord hereby releases Tenant from any and all liability for the same. Landlord's obligation to indemnify Tenant hereunder shall include the duty to defend against any claims asserted by reason of such loss, damage or injury and to pay any judgments, settlements, costs, fees and expenses, including reasonable attorneys' fees, incurred in connection therewith. This provision shall survive the expiration or earlier termination of this Lease. ARTICLE 10 - EMINENT DOMAIN If all or any substantial part of the Building or Common Areas shall be acquired by the exercise of eminent domain, Landlord may terminate this Lease by giving written notice to Tenant within forty-five (45) days after possession thereof is so taken. If all or any part of the Leased Premises shall be acquired by the exercise of eminent domain so that the Leased Premises shall become unusable by Tenant for the Permitted Use, Tenant may terminate this Lease by giving written notice to Landlord within fifteen (15) days after possession thereof is so taken. All damages awarded shall belong to Landlord; provided, however, that Tenant shall have the right to recover from such authority, but not from Landlord, such compensation as may be awarded to Tenant on account of moving and relocation expenses and depreciation to and removal of Tenant's property. ARTICLE 11 - ASSIGNMENT AND SUBLEASE Tenant shall not assign this Lease or sublet the Leased Premises in whole or in part without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or denied. In the event of any permitted assignment or subletting, Tenant shall remain primarily liable hereunder. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or to be a consent to the assignment of this Lease or the subletting of the Leased Premises. Without in any way limiting Landlord's right to refuse to consent to any assignment or subletting of this Lease, Landlord reserves the right to refuse to give such consent if in Landlord's opinion (i) the Leased Premises are or may be in any way adversely affected; (ii) the business reputation as such is perceived in the general market place of the proposed assignee or subtenant is unacceptable; or (iii) the financial worth of the proposed assignee or subtenant is insufficient to meet the obligations hereunder. Landlord further expressly reserves the right to refuse to give its consent to any subletting if the proposed rent is to be less than the then current rent for similar premises in the Building. If Landlord refuses to give its consent to any proposed assignment or subletting, Landlord may, at its option, within thirty (30) days after receiving notice of the proposal, terminate this Lease by giving Tenant thirty (30) days' prior written notice of such termination, whereupon each party shall be released from all further obligations and liability hereunder. Tenant agrees to reimburse Landlord for reasonable accounting and attorneys' fees incurred in conjunction with the processing and documentation of any such requested assignment, subletting or any other hypothecation of this Lease or Tenant's interest in and to the Leased Premises. In addition, Tenant agrees to pay to Landlord an amount equal to two percent (2%) of the gross rental value of any sublease entered into by Tenant and approved by Landlord. Notwithstanding the foregoing and provided the Financial Guaranty executed by Primedia, Inc. remains in full force and effect, Tenant may assign this Lease or sublease all or part of the Leased Premises, without Landlord's consent, to any entity which acquires all or part of Tenant, or which is acquired in whole or in part by Tenant, or is an affiliate, subsidiary or parent of Tenant, provided that the business reputation of the proposed assignee or subtenant are equal to or exceed those of Tenant and further provided that Tenant gives Landlord thirty (30) days prior written notice of such assignment or sublease. Tenant shall nevertheless at all times remain fully responsible and liable for the payment of rent and the performance and observance of all of Tenant's other obligations under the terms, conditions and covenants of this Lease. Page 11 of 19 12 ARTICLE 12 - TRANSFERS BY LANDLORD Section 12.01. Sale of the Building. Landlord shall have the right to sell the Building at any time during the Lease Term, subject only to the rights of Tenant hereunder; and such sale shall operate to release Landlord from liability hereunder after the date of such conveyance. Section 12.02. Subordination and Estoppel Certificate. Landlord shall have the right to subordinate this Lease to any mortgage presently existing or hereafter placed upon the Building by so declaring in such mortgage. Within ten (10) days following receipt of a written request from Landlord, Tenant shall execute and deliver to Landlord, without cost, any instrument which Landlord deems reasonably necessary or desirable to confirm the subordination of this Lease and an estoppel certificate in such form as Landlord may reasonably request certifying (i) that this Lease is in full force and effect and unmodified or stating the nature of any modification, (ii) the date to which rent has been paid, (iii) that there are not, to Tenant's knowledge, any uncured defaults or specifying such defaults if any are claimed, and (iv) any other matters or state of facts reasonably required respecting the Lease. Such estoppel may be relied upon by Landlord and by any purchaser or mortgagee of the Building. Notwithstanding the foregoing, if the mortgagee shall take title to the Leased Premises through foreclosure or deed in lieu of foreclosure, Tenant shall be allowed to continue in possession of the Leased Premises as provided for in this Lease so long as Tenant shall not be in default. Section 12.03. Notice. If act or omission of Landlord would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right until it has given written notice of such act or omission to each mortgagee and any superior lessor whose name and address previously shall have been furnished by Landlord to Tenant. Section 12.04. Attornment and Non-Disturbance. If any superior lessor or superior mortgagee shall succeed to the rights of Landlord under this Lease, whether by reason of foreclosure or enforcement of any mortgage or note, or by a conveyance in lieu thereof, or as a result of any other means (herein referred to as "Successor Landlord"), Tenant agrees to be bound to such Successor Landlord under all of the terms, covenants, and conditions of the Lease for the balance of the Lease Term thereof, including any extensions thereof permitted to Tenant, with the same force and effect as if Successor Landlord was Tenant's Landlord under the Lease, and Tenant does hereby attorn to and recognize Successor Landlord as Tenant's Landlord under the Lease and such attornment shall be self-operative and no further instrument of attornment shall be required. In confirmation of such attornment, Tenant shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Successor Landlord further agrees that if it obtains possession or title to the Building during the Lease Term, Successor Landlord shall be bound to Tenant under all of the terms, covenants, and conditions of the Lease and Tenant shall, from and after the occurrence of the events set forth above, have the same remedies that Tenant might have had under the Lease against Landlord; provided; however, that Successor Landlord shall not be: a. liable to Tenant for damages for any act or omissions of Landlord under the Lease; or b. subject to any offsets, claims or defenses which Tenant might have against Landlord or against any prior landlord which arise prior to, or out of any events that occurred prior to, the date Successor Landlord obtains possession or title to the Building (except any offset or deduction expressly provided for in the Lease which amount is a sum certain expressly set forth in the Lease); or c. bound by any rent or additional rent or deposit, rental security or any other sums which Tenant may have paid to Landlord or any other landlord; or d. bound by any amendment or modification of the Lease made from and after the date of this Lease without Successor Landlord's prior written consent; or e. bound to the Tenant subsequent to the date upon which the Successor Landlord transfers its interest in the Building to any third party; or Page 12 of 19 13 f. obligated or liable to Tenant with respect to the construction and completion of any improvements in the Building for Tenant's use, enjoyment or occupancy, except for the Shell Work and Finish Work identified in Exhibit B-1 and Exhibit B-2; or g. obligated or liable to Tenant for any moving, relocation or refurbishment allowance or any payment or allowance for improvements to the Building or any part thereof; or h. liable for the payment of any leasing commissions or other expenses for which Landlord or any prior landlord incurred the obligation to pay; or i. bound or liable to Tenant under any notice given by Tenant to Landlord or any prior landlord unless notice is also given simultaneously to Successor Landlord as required by the terms of this Lease; or j. personally liable for any obligations of Landlord under the Lease to which Successor Landlord succeeds; k. obligated to repair, replace, or restore the Leased Premises, the Building or any part thereof, beyond such repair, replacement, rebuilding, or restoration as can reasonably be accomplished from the net proceeds of insurance or any award actually received from any insurance carrier or governmental entity through a condemnation proceeding and made available to Successor Landlord. Notwithstanding the foregoing, Tenant hereby agrees that any Successor Landlord which at any time hereafter becomes landlord under the Lease, shall be liable only for the performance of the obligations a landlord under the Lease which arise and accrue during the period of such Successor Landlord's ownership of the Building. ARTICLE 13 - DEFAULT AND REMEDY Section 13.01. Default. The occurrence of any of the following shall be a "Default": (a) Tenant fails to pay any Monthly Rental Installment or Additional Rent within five (5) days after the same is due, or Tenant fails to pay any other amounts due Landlord from Tenant within ten (10) days after the same is due. In the event of a default under subparagraph (a) above, Landlord shall provide Tenant with written notice of such default two (2) times during each successive twelve (12) month period of the Lease Term and Tenant shall have an additional five (5) days to cure such default before Landlord shall declare a default or exercise its remedies herein. (b) Tenant fails to perform or observe any other term, condition, covenant or obligation required under this Lease for a period of thirty (30) days after notice thereof from Landlord; provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required to cure, then such default shall be deemed to have been cured if Tenant commences such performance within said thirty (30) day period and thereafter diligently completes the required action within a reasonable time. (c) Tenant shall fail to provide written notice to Landlord of its intent to vacate or abandon the Leased Premises or any substantial portion thereof, at least thirty (30) days prior to such vacation or abandonment for any period. Vacation or abandonment shall mean Tenant's absence from and failure to occupy the Leased Premises or any substantial portion thereof for a period of thirty (30) days. (d) Tenant shall assign or sublet all or a portion of the Leased Premises in contravention of the provisions of Article 11 of this Lease. (e) All or substantially all of Tenant's assets in the Leased Premises or Tenant's interest in this Lease are attached or levied under execution (and Tenant does not discharge the same within sixty (60) days thereafter); a petition in bankruptcy, insolvency or for reorganization or arrangement is filed by or against Tenant (and Tenant fails to secure a stay or discharge thereof within sixty (60) days thereafter); Tenant is insolvent and unable to pay its debts as they become due; Tenant makes a general assignment for the benefit of creditors; Tenant takes the benefit of any insolvency action or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its assets if such receivership has not been vacated or set aside within thirty (30) days thereafter; or, dissolution or other termination of Tenant's corporate charter if Tenant is a corporation. Page 13 of 19 14 Section 13.02. Remedies. Upon the occurrence of any Default, Landlord shall have the following rights and remedies, in addition to those allowed by law or in equity, any one or more of which may be exercised without further notice to Tenant: (a) Landlord may apply the Security Deposit or re-enter the Leased Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as additional rent for any costs and expenses which Landlord thereby incurs; and Landlord shall not be liable to Tenant for any loss or damage which Tenant may sustain by reason of Landlord's action. (b) Landlord may terminate this Lease or, without terminating this Lease, terminate Tenant's right to possession of the Leased Premises as of the date of such default, and thereafter (i) neither Tenant nor any person claiming under or through Tenant shall be entitled to possession of the Leased Premises, and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii) Landlord may re-enter the Leased Premises and dispossess Tenant and any other occupants of the Leased Premises by any lawful means and may remove their effects, without prejudice to any other remedy which Landlord may have. Upon the termination of this Lease, Landlord may declare the present value discounted at the Prime Rate then reported by Citibank, N.A. or, if no longer in existence, such other nationally chartered bank or financial institution reasonably designated by Landlord, of all rent which would have been due under this Lease for the balance of the Lease Term to be immediately due and payable, whereupon Tenant shall be obligated to pay the same to Landlord, along with supporting documentation, together with all loss or damage which Landlord may sustain by reason of Tenant's default ("Default Damages"), which shall include without limitation expenses of preparing the Leased Premises for re-letting, demolition, repairs, tenant finish improvements and brokers' and attorneys' fees, it being expressly understood and agreed that the liabilities and remedies specified in this subsection (b) shall survive the termination of this Lease. (c) Landlord may, without terminating this Lease, re-enter the Leased Premises and re-let all or any part thereof for a term different from that which would otherwise have constituted the balance of the Lease Term and for rent and on terms and conditions different from those contained herein, whereupon Tenant shall be immediately obligated to pay to Landlord as liquidated damages the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the Leased Premises, for the period which would otherwise have constituted the balance of the Lease Term, together with all of Landlord's Default Damages. (d) Landlord may sue for injunctive relief or to recover damages for any loss resulting from the breach. Section 13.03. Landlord's Default and Tenant's Remedies. Landlord shall be in default if it fails to perform any term, condition, covenant or obligation required under this Lease for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided, however, that if the term, condition, covenant or obligation to be performed by Landlord is such that it cannot reasonably be performed within thirty days, such default shall be deemed to have been cured if Landlord commences such performance within said thirty-day period and thereafter diligently undertakes to complete the same. Upon the occurrence of any such default, Tenant may sue for injunctive relief or to recover damages for any loss directly resulting from the breach, but Tenant shall not be entitled to terminate this Lease or withhold, offset or abate any sums due hereunder. Section 13.04. Limitation of Landlord's Liability. If Landlord shall fail to perform any term, condition, covenant or obligation required to be performed by it under this Lease and if Tenant shall, as a consequence thereof, recover a money judgment against Landlord, Tenant agrees that it shall look solely to Landlord's right, title and interest in and to the Building for the collection of such judgment; and Tenant further agrees that no other assets of Landlord shall be subject to levy, execution or other process for the satisfaction of Tenant's judgment. Section 13.05. Nonwaiver of Defaults. Neither party's failure or delay in exercising any of its rights or remedies or other provisions of this Lease shall constitute a waiver thereof or affect its right thereafter to exercise or enforce such right or remedy or other provision. No waiver of any default shall be deemed to be a waiver of any other default. Landlord's receipt of less than the full rent due shall not be construed to be other than a payment on account of rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction. No act or omission by Landlord or its employees or agents during the term of this Lease shall be deemed an acceptance of a surrender of Page 14 of 19 15 the Leased Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord. Section 13.06. Attorneys' Fees. If either party defaults in the performance or observance of any of the terms, conditions, covenants or obligations contained in this Lease and the non-defaulting party obtains a judgment against the defaulting party, then the defaulting party agrees to reimburse the non-defaulting party for the attorneys' fees incurred thereby. ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT [Intentionally Omitted.] ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES. Section 15.01. Environmental Definitions. A. "Environmental Laws" - All present or future federal, state and municipal laws, ordinances, rules and regulations applicable to the environmental and ecological condition of the Leased Premises, the rules and regulations of the Federal Environmental Protection Agency or any other federal, state or municipal agency or governmental board or entity having jurisdiction over the Leased Premises. B. "Hazardous Substances" - Those substances included within the definitions of "hazardous substances," "hazardous materials," "toxic substances" "solid waste" or "infectious waste" under Environmental Laws. Section 15.02. Compliance. Tenant, at its sole cost and expense, shall promptly comply with the Environmental Laws including any notice from any source issued pursuant to the Environmental Laws or issued by any insurance company which shall impose any duty upon Tenant with respect to the use, occupancy, maintenance or alteration of the Leased Premises whether such notice shall be served upon Landlord or Tenant. Section 15.03. Restrictions on Tenant. Tenant shall operate its business and maintain the Leased Premises in compliance with all Environmental Laws. Tenant shall not cause or permit the use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Substances on, under or about the Leased Premises, or the transportation to or from the Leased Premises of any Hazardous Substances, except as necessary and appropriate for its Permitted Use in which case the use, storage or disposal of such Hazardous Substances shall be performed in compliance with the Environmental Laws and the highest standards prevailing in the industry. Section 15.04. Notices, Affidavits, Etc. Tenant shall immediately notify Landlord of (i) any violation by Tenant, its employees, agents, representatives, customers, invitees or contractors of the Environmental Laws on, under or about the Leased Premises, or (ii) the presence or suspected presence of any Hazardous Substances on, under or about the Leased Premises and shall immediately deliver to Landlord any notice received by Tenant relating to (i) and (ii) above from any source. Tenant shall execute affidavits, representations and the like within five (5) days of Landlord's request therefor concerning Tenant's best knowledge and belief regarding the presence of any Hazardous Substances on, under or about the Leased Premises. Section 15.05. Landlord's Rights. Landlord and its agents shall have the right, but not the duty, upon advance notice (except in the case of emergency when no notice shall be required) to inspect the Leased Premises and conduct tests thereon to determine whether or the extent to which there has been a violation of Environmental Laws by Tenant or whether there are Hazardous Substances on, under or about the Leased Premises. In exercising its rights herein, Landlord shall use reasonable efforts to minimize interference with Tenant's business but such entry shall not constitute an eviction of Tenant, in whole or in part, and Landlord shall not be liable for any interference, loss, or damage to Tenant's property or business caused thereby. Page 15 of 19 16 Section 15.06. Tenant's Indemnification. Tenant shall indemnify Landlord and Landlord's managing agent from any and all claims, losses, liabilities, costs, expenses and damages, including reasonable attorneys' fees, costs of testing and remediation costs, incurred by Landlord in connection with any breach by Tenant of its obligations under this Article 15. The covenants and obligations under this Article 15 shall survive the expiration or earlier termination of this Lease. Section 15.07. Existing Conditions. Notwithstanding anything contained in this Article 15 to the contrary, Tenant shall not have any liability to Landlord under this Article 15 resulting from any conditions existing, or events occurring, or any Hazardous Substances existing or generated, at, in, on, under or in connection with the Leased Premises prior to the Commencement Date of this Lease except to the extent Tenant exacerbates the same. ARTICLE 16 - MISCELLANEOUS Section 16.01. Benefit of Landlord and Tenant. This Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective successors and assigns. Section 16.02. Governing Law. This Lease shall be governed in accordance with the laws of the State where the Building is located. Section 16.03. Guaranty. In consideration of Landlord's leasing the Leased Premises to Tenant, Tenant shall provide Landlord with a Financial Guaranty of Lease executed by Primedia, Inc., a Delaware corporation, dated contemporaneously with this Lease. Section 16.04. Force Majeure. Landlord and Tenant (except with respect to any rent payment obligation) shall be excused for the period of any delay in the performance of any obligation hereunder when such delay is occasioned by causes beyond its control, including but not limited to work stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment, labor or energy; abnormal weather conditions; or acts or omissions of governmental or political bodies. Section 16.05. Examination of Lease. Submission of this instrument for examination or signature to Tenant does not constitute a reservation of or option for Lease, and it is not effective as a Lease or otherwise until execution by and delivery to both Landlord and Tenant. Section 16.06. Indemnification for Leasing Commissions. The parties hereby represent and warrant that the only real estate brokers involved in the negotiation and execution of this Lease are the Brokers. Landlord also acknowledges and agrees that Landlord is responsible for payment of certain leasing commissions to the Brokers identified in Section 1.01I pursuant to a separate written leasing agreement. Each party shall indemnify the other from any and all liability for the breach of this representation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto. Section 16.07. Notices. Any notice required or permitted to be given under this Lease or by law shall be deemed to have been given if it is written and delivered in person or by overnight courier or mailed by certified mail, postage prepaid, to the party who is to receive such notice at the address specified in Article 1. When so mailed, the notice shall be deemed to have been given as of the date it was mailed. Either party may change its address by giving written notice thereof to the other party. Page 16 of 19 17 Section 16.08. Partial Invalidity; Complete Agreement. If any provision of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions shall remain in full force and effect.. This Lease represents the entire agreement between Landlord and Tenant covering everything agreed upon or understood in this transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof or in effect between the parties. No change or addition shall be made to this Lease except by a written agreement executed by Landlord and Tenant. Section 16.09. Financial Statements. During the Lease Term and any extensions thereof, Tenant shall provide to Landlord on an annual basis, within ninety (90) days following the end of Tenant's fiscal year, a copy of Tenant's most recent certified and audited financial statements prepared as of the end of Tenant's fiscal year. Notwithstanding the foregoing, Landlord agrees to accept the annual report containing a consolidated financial statement from Tenant's Guarantor, Primedia, Inc., so long as Primedia, Inc. remains Tenant's Guarantor under this Lease and that such consolidated financial statement shall satisfy Tenant's obligations under Section 16.09. Such financial statements shall be prepared in conformity with generally accepted accounting principles, consistently applied. Section 16.10. Representations and Warranties. The undersigned represent and warrant that (i) such party is duly organized, validly existing and in good standing (if applicable) in accordance with the laws of the state under which it was organized; and (ii) the individual executing and delivering this Lease has been properly authorized to do so, and such execution and delivery shall bind such party. Section 16.11. Moving Allowance. Landlord shall provide Tenant with an allowance in an amount equal to Ninety-eight Thousand Dollars ($98,000.00) to be used by Tenant for costs associated with its moving and relocation to the Leased Premises ("Moving Allowance"). Landlord shall reimburse Tenant for such costs within thirty (30) days after receipt of a paid invoice from Tenant. Any unused portion of the Moving Allowance shall be remitted to Tenant within thirty (30) days of Tenant's request therefor. Section 16.12. Right of First Offer. Provided that (i) Tenant has not been in default hereunder at any time during the Lease Term, (ii) the creditworthiness of Tenant and Guarantor have not materially diminished since the date of execution of this Lease is then acceptable to Landlord, (iii) Tenant originally named herein remains in possession of and has been continuously operating in the entire Leased Premises throughout the Lease Term, and (iv) the current use of the Leased Premises is the same use identified in Section 1.01 of this Lease, Tenant shall have a continuous right of first offer to lease additional space located on the second floor of the Building consisting of approximately 16,125 rentable square feet and more specifically described in Exhibit A-1 ("Offer Space") as such space becomes available for leasing during the Lease Term. Before entering into a lease with a third party for any portion of the Offer Space, Landlord shall notify Tenant in writing of the availability of such space for leasing ("Landlord's Notice"). Tenant shall have seven (7) days from its receipt of Landlord's Notice to deliver to Landlord a written notice agreeing to lease such space on the terms and conditions contained in Landlord's Notice. In the event Tenant fails to notify Landlord of its agreement within said seven (7) day period, such failure shall be conclusively deemed a rejection of the offered portion of the Offer Space, whereupon Landlord shall be free to lease the offered portion of the Offer Space to a third party. The term for any portion of the Offer Space shall be coterminous with the term for the original Leased Premises; provided, however, that the minimum term for any portion of the Offer Space shall be three (3) years and the term for the original Leased Premises shall be extended, if necessary, to be coterminous with the term for any portion of the Offer Space. The Minimum Annual Rent for any portion of the Offer Space shall be equal to the rate which is then being quoted by Landlord to prospective new tenants for the offered portion of the Offer Space, excluding free rent and other concessions, provided, however, that in no event shall Tenant's Minimum Annual Rent per square foot for the offered portion of the Offer Space be less than the highest Minimum Annual Rent per square foot payable during the original Lease Term for the original Leased Premises. The Minimum Annual Rent for the original Leased Premises during any such extended term shall be an amount equal to the Minimum Annual Rent then being quoted by Landlord to prospective new tenants of the Building for space of comparable size and quality and with similar or equivalent improvements as are found in the Building, and if none, then in similar buildings owned by Landlord in the vicinity, provided, however, that in no event shall the Minimum Annual Rent during such extended term be less than the highest Minimum Annual Rent payable during the original Lease Term for the original Leased Premises. In the event any portion of the Offer Space is leased to a third party in accordance herewith and subsequently becomes available for lease again, then this Right of First Offer shall remain in effect and the Offer Page 17 of 19 18 Space shall again be offered to Tenant in accordance herewith. It is understood and agreed that this Right of First Offer shall not be construed to prevent any tenant in the Building from extending or renewing its Lease. Section 16.13. Option to Extend. A. Grant and Exercise of Option. Provided (i) Tenant has not been in default hereunder at any time during the Lease Term (the "Original Term"), (ii) the creditworthiness of Tenant and Guarantor have not materially diminished since the date of execution of this Lease, (iii) Tenant originally named herein remains in possession of and has been continuously operating in the entire Leased Premises for the term immediately preceding the Extension Term (defined below), and (iv) the current use of the Leased Premises is the same use identified in Section 1.01J of this Lease, Tenant shall have the option to extend the Original Term for two (2) successive periods of five (5) years each (the "Extension Term(s)"). The Extension Term shall be upon the same terms and conditions contained in the Lease for the Original Term except (i) this provision giving two (2) extension options shall be amended to reflect the remaining options to extend, if any and (ii) the Minimum Annual Rent shall be adjusted as set forth below (the "Rent Adjustment"). Tenant shall exercise such option by delivering to Landlord, no later than twelve (12) months prior to the expiration of the Original Term or, if applicable, the Extension Term, written notice of Tenant's desire to extend the Original Term or, if applicable, the Extension Term. Tenant's failure to timely exercise such option shall waive it and any succeeding option. Landlord shall notify Tenant of the amount of the Rent Adjustment no later than ninety (90) days prior to the commencement of the applicable Extension Term. Tenant shall be deemed to have accepted the Rent Adjustment if it fails to deliver to Landlord a written objection thereto within five (5) business days after receipt thereof. If Tenant properly exercises its option to extend, Landlord and Tenant shall execute an amendment to the Lease (or, at Landlord's option, a new lease on the form then in use by Landlord) reflecting the terms and conditions of the Extension Term within thirty (30) days after Tenant's acceptance of the Rent Adjustment. B. Market Rent Adjustment. The Minimum Annual Rent for the applicable Extension Term shall be an amount equal to the Minimum Annual Rent then being quoted by Landlord to prospective tenants of the Building for space of comparable size and quality and with similar or equivalent improvements as are found in the Building, and if none, then in similar buildings owned by Landlord in the vicinity, provided, however, that in no event shall the Minimum Annual Rent per square foot during any Extension Term be less than the highest Minimum Annual Rent per square foot payable during the immediately preceding term. The Minimum Monthly Rent shall be an amount equal to one-twelfth (1/12) of the Minimum Annual Rent for the Extension Term and shall be paid at the same time and in the same manner as provided in the Lease. Section 16.14. Signage. Provided (i) Tenant is not in default hereunder; (ii) Tenant originally named herein remains in possession of and has been continuously operating in the entire Leased Premises for the Lease Term, and (iii) Tenant complies with all zoning and other municipal and county regulations, and (iv) subject to the continued availability of such Signs by the applicable zoning and other municipal and county governmental authorities, Tenant shall have the non-exclusive rights to erect, at Tenant's sole cost and expense, a sign identifying Tenant's business upon the exterior of the Building consistent with Exhibit B-4 attached hereto ("Exterior Sign" or "Signs") and a placard identifying Tenant's business consistent with Exhibit B-5 ("Placard" or "Signs") upon the Building's monument sign. Landlord and Tenant acknowledge and agree that the Building's monument sign shall be located in proximity of the front entrance of the Building and that the exact location of the monument sign shall be subject to Landlord's reasonable discretion ("Monument Sign"). The location, style and size of the Exterior Sign shall be subject to Landlord's prior written approval which approval shall not be unreasonably withheld or delayed. Tenant agrees to maintain, at Tenant's sole cost and expense, such Signs in first-class condition and in compliance with all zoning and building codes throughout the Lease Term. Upon expiration or early termination of the Lease Term, Tenant shall remove the Signs and repair all damage to the Building or Monument Sign caused thereby. Any language in the Lease notwithstanding, Tenant shall indemnify and hold harmless Landlord from any and all liability for any loss of or damage or injury to any person (including death resulting therefrom) or property connected with or arising from the Signs or the rights granted herein. Section 16.15. Contingency. Landlord and Tenant hereby acknowledge and agree that this Lease shall be and is contingent upon Landlord successfully completing the acquisition of the Land described in Exhibit A-1 attached hereto. Landlord shall notify Tenant when this contingency has been satisfied. Page 18 of 19 19 Section 16.16. Parking. Tenant shall have the right to use the surface parking lot located on the south-side of the Building during the Term of this Lease, and at no additional cost or expense to Tenant, consistent with the ratio of six and one half (6-1/2) unreserved parking spaces per each 1,000 rentable square feet of office space leased by Tenant and a total of thirty (30) additional unreserved parking spaces for Tenant's warehouse space . Tenant shall also have the right to use, at no additional cost, three (3) reserved parking spaces in a location to be reasonably determined by Landlord. Tenant's usage of said parking spaces shall not exceed the ratio or quantity defined above. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. LANDLORD: DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership By: Duke Realty Investments, Inc., its General Partner By:___________________________________ Chris Seger Vice President & General Manager Indiana Office Group TENANT: PICTORIAL, INC., an Indiana corporation By:_________________________________________ Domenic Maggio Vice President, Real Estate STATE OF _________________) ) SS: COUNTY OF ________________) Before me, a Notary Public in and for said County and State, personally appeared Domenic Maggio, by me known to be the Vice President, Real Estate, of Pictorial, Inc., an Indiana corporation, who acknowledged the execution of the foregoing "Office Lease" on behalf of said corporation. WITNESS my hand and Notarial Seal this _____ day of ______________________, 1999. _____________________________ Notary Public ______________________________ (Printed Signature) My Commission Expires: ______________________ My County of Residence: _____________________ Page 19 of 19 20 FIRST LEASE AMENDMENT THIS FIRST LEASE AMENDMENT (the "Amendment") is executed this 8th day of December, 2000, by and between DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership ("Landlord"), and PICTORIAL INC., an Indiana corporation ("Tenant"). W I T N E S S E T H : WHEREAS, Duke Realty Limited Partnership, as predecessor in interest to Landlord, and Tenant entered into a certain lease dated May 27, 1999 (the "Lease"), whereby Tenant leased from Landlord's predecessor in interest certain premises consisting of approximately 49,000 rentable square feet of space (the "Original Premises") located in an office building commonly known as Woodland Corporate Park III, 7835 Woodland Drive, Suite 100, Indianapolis, IN 46278; and WHEREAS, to the best of Landlord's knowledge, no default exists on the part of Tenant under the Lease as of the date hereof; and WHEREAS, to the best of Tenant's knowledge, no default exists on the part of Landlord under the Lease as of the date hereof; and WHEREAS, Landlord and Tenant desire to expand the Original Premises by approximately 534 rentable square feet (the "Additional Space"). Collectively, the Original Premises and Additional Space shall hereinafter be referred to as the "Leased Premises"; and WHEREAS, Landlord and Tenant desire to amend certain provisions of the Lease to reflect such expansion and any other changes to the Lease; NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants herein contained and each act performed hereunder by the parties, Landlord and Tenant hereby enter into this Amendment. 1. Incorporation of Recitals. The above recitals are hereby incorporated into this Amendment as if fully set forth herein. 2. Amendment of Article 1. Lease of Premises. Commencing on the Addition Space Commencement Date, as defined in Section 1.01.P, below, Section 1.01 of Article 1 of the Lease is hereby amended as follows: A. Leased Premises (shown cross-hatched on Amended Exhibit A attached hereto): Suite 100; Floors: 1st and 2nd ; Building Address: Woodland Corporate Park III, 7835 Woodland Drive, Indianapolis, IN 46278 B. Rentable Area: approximately 49,534 rentable square feet; Landlord shall use commercially reasonable standards, consistently applied, in determining the Rentable Area and the rentable area of the Building. The Rentable Area shall include the area within the Leased Premises plus a pro rata portion of the area covered by the common areas within the Building, as reasonably determined by Landlord from time to time. Landlord's determination of Rentable Area made in good faith shall conclusively be deemed correct for all purposes hereunder, including without limitation the calculation of Tenant's Building Expense Percentage and Tenant's Minimum Annual Rent. 21 C. Building Expense Percentage: 75.62%; D. Minimum Annual Rent: Original Premises Rent: 04/20/00 - 04/19/05 $840,350.04 per year 04/20/05 - 04/19/10 $913,850.04 per year Additional Space Rent: 02/01/01 - 1/31/04 $ 9,158.16 per year 02/01/05 - 03/31/05 $ 1,526.36 (2 months) 04/01/05 - 04/19/05 $ 483.36 (19 days) 04/20/05 - 04/19/10 $ 9,959.16 per year Collectively, the Original Premises Rent and the Additional Space Rent shall be deemed the "Minimum Annual Rent". E. Monthly Rental Installments: Original Premises monthly rental installments: 04/20/00 - 04/19/05 $ 70,029.17 per month 04/20/05 - 04/19/10 $ 76,154.17 per month Additional Space monthly rental installments: 02/01/01 - 03/31/05 $ 763.18 per month 04/01/05 - 04/19/05 $ 483.36 (19 days) 04/20/05 - 04/19/10 $ 829.93 per month Collectively, the Original Premises monthly rental installments and the Additional Space monthly rental installments shall be deemed the "Monthly Rental Installments". I. Brokers: Duke-Weeks Realty Limited Partnership representing Landlord and CB Richard Ellis representing Tenant; L. Addresses for payments and notices: Landlord: Duke-Weeks Realty Limited Partnership Attn: Property Management 600 East 96th Street, Suite 100 Indianapolis, IN 46240 With Payments to: Duke-Weeks Realty Limited Partnership P.O. Box 66259 Indianapolis, IN 46266 -2- 22 Tenant: Pictorial Inc. c/o Bisys Fund Services, Inc. Attn: Mr. Todd Deavers 3435 Stelzer Road Columbus, OH 43219-8026 With a copy to: The Bisys Group, Inc. Attn: General Counsel 150 Clove Road Little Falls, NJ 07242 O. Target Additional Space Commencement Date: February 1, 2001 P. Additional Space Commencement Date: The "Additional Space Commencement Date" shall commence on the later of (i) February 1, 2001 or (ii) the earlier of (a) the date Tenant takes possession or commences use of the Additional Space for Tenant's business or (b) when the Additional Space is Substantially Complete (as hereinafter defined), provided, however, the Additional Space Commencement Date shall not be extended as a result of any Tenant Caused Delays (as hereinafter defined). Upon the Additional Space Commencement Date, Tenant shall execute a letter of understanding acknowledging (i) the Additional Space Commencement Date, and (ii) that Tenant has accepted the Additional Space. If Tenant takes possession of and occupies the Additional Space, Tenant shall be deemed to have accepted the Additional Space and that the condition of the Additional Space and the Building was at the time satisfactory and in conformity with the provisions of this Lease in all respects. "Substantially Complete" shall mean the date on which (i) the Tenant Finish Improvements as defined in Section 2.02, below, have been completed in accordance with AMENDED EXHIBIT B-2, subject only to punchlist items, and (ii) Landlord has received a temporary or permanent certificate of occupancy for the Additional Space if a certificate of occupancy is required by the local governmental entity having jurisdiction over the Building. "Tenant Caused Delays" shall mean any delay caused by or resulting from the following or any combination of the following: (1) failure of Tenant to comply with the project schedule established by Landlord and agreed to by Tenant; (2) any change orders requested by Tenant for which Landlord, prior to the initiation of the same, indicates will cause a delay in the Substantial Completion Date; (3) failure of Tenant to timely or properly arrange to be present for any scheduled walk-through of the Additional Space; (4) failure of Tenant to cooperate with Landlord and respond promptly to any reasonable request of Landlord relative to the timely completion of the Tenant Finish Work; (5) Tenant's fixturing of the Additional Space prior to Landlord's turnover of possession of the Additional Space to Tenant which fixturing substantially interferes with Landlord's work provided that Landlord shall timely inform Tenant that said fixturing is interfering with Landlord's work; or (6) Tenant's failure to deposit with Landlord the Security Deposit, as set forth in Article 4 of the Lease. 3. Amendment of Section 2.02. Construction. Tenant has personally inspected the Additional Space and accepts the same "AS IS" without representation or warranty by Landlord of any kind and with the understanding that Landlord shall have no responsibility except to perform and -3- 23 complete on or before January 31, 2001, the work on the tenant finish improvements in the Additional Space in accordance with Tenant's construction documents prepared by CSO Architects dated October 24, 2000, including the cover page and sheets 2A201 and 2A202, which have been mutually agreed upon by both Landlord and Tenant ("Tenant Finish Improvements") and, upon completion, attached hereto as AMENDED EXHIBIT B-2, subject to events and delays due to causes beyond its reasonable control. Landlord represents that the total cost of the Tenant Finish Improvements is Thirty Thousand Five Hundred Dollars ($30,500.00). Landlord agrees to provide an allowance for the direct costs of the Tenant Finish Improvements in the amount of Nine Thousand Six Hundred Twelve Dollars ($9,612.00) (the "Tenant Finish Allowance"). The Tenant Finish Allowance shall be used exclusively to construct and pay for the Tenant Finish Improvements in the Leased Premises and must be used prior to August 1, 2001. Tenant's failure to use any portion of the Tenant Finish Allowance prior to August 1, 2001 shall be deemed a forfeiture of such unused portion. Upon completion of the Tenant Finish Improvements, Tenant shall reimburse Landlord in the amount of Twenty Thousand Eight Hundred Eighty-eight Dollars ($20,888.00) (i.e., the difference between the total cost of the Tenant Finish Improvements and the Tenant Finish Allowance) within thirty (30) days of Landlord's written request therefor. In addition, Tenant shall be responsible for payment of the cost and expense of any improvements to the Leased Premises which exceed the scope of the Tenant Finish Improvements and shall pay the same to Landlord within thirty (30) days of Landlord's written request thereof. Upon written notice from Landlord, Tenant shall have the right and privilege of going onto the Additional Space to complete interior decoration work and to prepare the Additional Space for its occupancy, provided, however, that its schedule in so doing shall be communicated to Landlord and the approval of Landlord secured so as not to interfere with other work of Landlord being carried on at the time; and provided further that Landlord shall have no responsibility or liability whatsoever for any loss or damage to any of Tenant's leasehold improvements, fixtures, equipment or any other materials installed or left in the Additional Space except such loss or damage resulting directly from Landlord's gross negligence or willful misconduct. Tenant agrees that all work on the initial and any subsequent tenant finish improvements shall be performed by Duke Construction Limited Partnership or a subsidiary or affiliate of Landlord which shall receive a fee as Landlord's construction manager or general contractor. 4. Tenant's and Landlord's Representations and Warranties. The undersigned represent and warrant to each other that (i) each representing organization is duly organized, validly existing and in good standing in accordance with the laws of the state under which it was organized; (ii) all action necessary to authorize the execution of this Amendment has been taken by each representing organization; and (iii) the individual executing and delivering this Amendment on behalf of each representing organization has been authorized to do so, and such execution and delivery shall bind such party. Each party, at the other party's request, shall provide the requesting party with evidence of such authority. 5. Examination of Amendment. Submission of this instrument for examination or signature to Tenant does not constitute a reservation or option, and it is not effective until execution by and delivery to both Landlord and Tenant. 6. Definitions. Except as otherwise provided herein, the capitalized terms used in this Amendment shall have the definitions set forth in the Lease. 7. Incorporation. This Amendment shall be incorporated into and made a part of the Lease, and all provisions of the Lease not expressly modified or amended hereby shall remain in full force and effect. -4- 24 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed on the day and year first written above. LANDLORD: DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership By: Duke-Weeks Realty Corporation, its general partner By:____________________________ Christopher Seger Senior Vice President Indiana Office TENANT: PICTORIAL INC., an Indiana corporation By:_________________________________ Printed:____________________________ Title:______________________________ STATE OF _________________ ) ) SS: COUNTY OF ________________ ) Before me, a Notary Public in and for said County and State, personally appeared ______________________, by me known and by me known to be the _________________________ of Pictorial Inc., an Indiana corporation, who acknowledged the execution of the foregoing "First Lease Amendment" on behalf of said corporation. WITNESS my hand and Notarial Seal this ______ of ___________________, 2000. ____________________________________ Notary Public ____________________________________ (Printed Signature) My Commission Expires: __________________ My County of Residence: _________________ -5- EX-10.24 8 y53439ex10-24.txt LEASE 1 Exhibit 10.24 LEASE PARTIES THIS LEASE, dated as of the 14th day of July, 1998, between Brad Davis DBA Paragon Properties (hereinafter called "Landlord"), and Universal Pensions, Inc., a Minnesota corporation (hereinafter called "Tenant"). WITNESSETH DEMISED PREMISES 1. The Landlord does as of the Commencement Date lease unto the Tenant the building and adjacent land, including a parking lot, located at Highway 18 & 25, Brainerd, Minnesota, as legally described on EXHIBIT A attached hereto and incorporated herein (hereinafter called the "Demised Premises") together with all rights, privileges, easements and appurtenances thereto. PROPERTY RENOVATION 2. This Lease contemplates renovation of the Demised Premises. Promptly after the execution of this Lease, Tenant, with the assistance of Tenant's interior designer or architect, shall proceed expeditiously to prepare plans and specifications for renovation of the Demised Premises. Subject to Landlord's obligations as set forth in the next paragraph, Landlord will turn the Demised Premises over to Tenant in an "as-is" condition. The plans and specifications shall be submitted to Landlord for approval, which approval will not be unreasonably withheld and will be deemed granted if Landlord does not object in writing within thirty (30) days of receipt of the plans and specifications from Tenant. All plans and specifications shall conform to all applicable building codes and regulations. Tenant shall at its sole cost and expense renovate the Demised Premises according to and to the extent provided in the plans and specifications. Based on an assessment obtained by Landlord, Landlord has identified the roof to be in need of extreme repair or replacement. Tenant shall arrange for a new roof to be installed as part of its renovation of the Demised Premises and upon completion, Landlord shall reimburse Tenant for 50% of the cost thereof not to exceed $60,000. The choice of roofing companies and quote for services shall be approved by both Landlord and Tenant prior to commencement of the roof repair or replacement. This reimbursement will be made over the first 12 months of Tenant's occupancy. 1/2 of the total amount may be deducted from Tenant's monthly rent payment until paid in full. TERM 3. The term hereof shall commence on the Commencement Date and continue thereafter for a period of five (5) years, with two (2) five year options; provided that if the term hereof commences on a day other than the first day of a calendar month, the term hereof shall be extended for a period of time equal to the number of remaining days in such calendar month. Tenant will notify Landlord in writing of its intent to exercise the two (2) five year options. Tenant will use reasonable efforts to provide such notice 365 days in advance of each optional term. In no event will notice be given less than 270 days prior to the expiration of the then current term. 2 COMMENCEMENT DATE 4. The Commencement Date shall be on the first day on which Landlord delivers possession of the Demised Premises to Tenant for renovation. Landlord shall use his best efforts to deliver possession of the Demised Premises on February 1, 1999. In the event Landlord is unable to deliver possession of the Demised Premises by March 1, 1999, Tenant shall have the right to terminate this Lease by written notice to Landlord no later than 30 days thereafter and pursue such other remedies available to Tenant at law or equity. BASE RENT 5. The Tenant agrees to pay the Landlord for each year of the lease term a base rent payable in equal monthly installments in advance, on the first of each month, with no penalty if paid by the 5th of the month during the term hereof as set forth on EXHIBIT B attached hereto and incorporated herein. The base rent figures are based on the assumption that the Demised Premises will contain 38,400 square feet. If the lease term commences on a day other than the first day of the calendar month, the minimum rent for the first fractional month shall be apportioned. LEASE YEAR 6. The term "Lease Year" as used herein shall mean a period of twelve consecutive calendar months, the first of which shall commence on the first day of the calendar month next succeeding the date the term hereof commences; provided that, if said term shall commence on the first day of a calendar month, then the first Lease Year shall commence on the date said term commences. The other Lease Years shall be the several successive, consecutive twelve (12) month periods of said term, each such Lease Year commencing on the anniversary date of the commencement of the first Lease Year. SIGNS, FIXTURES AND EQUIPMENT 7. Subject to the Landlord's written approval, which approval will not be unreasonably withheld, Tenant will use its sign package to the maximum size allowed by the local governing authority. The Tenant shall have the right to install signs, fixtures and other equipment in or on the Demised Premises after the commencement of the lease term, the title thereto remaining in the Tenant whether or not the same are annexed to the Demised Premises. Accordingly, the Tenant may at any time remove the same from the Demised Premises, but the Tenant agrees to repair any damage to the Demised Premises occasioned by such removal. Landlord or its existing renter Pamida, and not Tenant, is responsible for removing all existing signage and repairing any damage from such signage. REPAIRS AND MAINTENANCE OF THE DEMISED PREMISES 8. The Tenant shall, at its expense during the term hereof, keep and maintain the entire Leased Premises in good order, condition and repair. Upon the termination of this lease, Tenant shall surrender the Leased Premises in good order, condition and repair, reasonable wear and tear resulting from Tenant's use thereof expected. ALTERATIONS 9. Tenant may, from time to time as it deems necessary, alter, remodel or redecorate the Demised Premises, provided that the size of the Demised Premises shall not be reduced nor the structure weakened thereby. 3 Subject to the right of Tenant to contest liens in good faith, Tenant shall not create or permit others to create any lien or obligation against Landlord or the Leased Premises by reason of making repairs or installing material, fixtures or equipment, and further agrees to hold the Landlord harmless from all claims and demands by any third party in any manner connected with such repairs, maintenance or installations initiated by Tenant with Tenant's occupancy of the Leased Premises. UTILITIES 10. The Tenant agrees to pay all charges for utilities used in the Demised Premises, which charges shall be determined by separate meters for the utilities used in the Demised Premises. TAXES 11. The Tenant shall pay as and when the same shall become due and payable and before any fine, penalty, interest or cost shall be added thereto for nonpayment thereof all general real estate taxes and installments of special assessments due and payable with respect to the Demised Premises during the term hereof (the "Impositions"); provided that: (a) The Tenant's share of the Impositions due and payable in the first and last years of the lease term shall be apportioned as of the date the term hereof commences and of the date of the expiration or sooner termination of this Lease. (b) The Tenant shall have the right to contest or review by legal proceedings, or in such other manner as it may deem suitable, any Imposition. The Landlord shall cooperate with the Tenant in any such contest or review and shall execute any and all petitions, pleadings or other instruments or documents that may be required in connection therewith, but such contest or review shall be at the sole cost and expense of the Tenant and the Tenant shall hold the Landlord harmless from all such cost and expense. This right shall in no way be construed as a limitation of the Landlord's right to contest or review said Impositions at its own expense. INSURANCE/INDEMNITY 12. The Tenant shall maintain at its expense, during the term hereof all risk casualty insurance on the Demised Premises in an amount equal to the replacement cost thereof. The Tenant agrees to include Landlord as an additional insured on such policy. Such policy shall provide that it shall not be cancelled without thirty (30) days prior written notice to the Landlord. The Tenant shall furnish to the Landlord a certificate of such insurance. The Tenant shall maintain at its expense during the term hereof general liability insurance for injuries to and death of persons and damage to property occurring in the Demised Premises arising out of the negligence of the Tenant, its officers, employees and agents, such insurance at all times to be in an amount of not less than $1,000,000 for injuries to or death of any one person, $1,000,000 for injuries to or death of persons in one accident and $100,000 for damage to property. The Tenant shall furnish to the Landlord a certificate of such insurance. Landlord shall be named as an additional insured under this policy. Tenant shall maintain at its own cost and expense, all risk casualty insurance in an amount adequate to cover the cost of replacement of all alterations, changes, wall coverings, floors, furnishings, decorations, additions, fixtures and improvements in the Demised Premises in the event of a loss. The insurance which Tenant agrees to carry in this section shall insure the full insurable value of the improvements and betterments installed by the Tenant in the Demised Premises, whether the same have been paid for entirely or partially by Tenant. Tenant will further deposit a certificate or certificates of insurance with Landlord. 4 Landlord, its partners and representatives, shall not be liable to Tenant, or Tenant's agents, servants, employees, customers, or invitees for any damage to person or property caused by an act, omission or neglect of Tenant, and Tenant hereby agrees to indemnify and hold Landlord harmless from all claims for any such damage. Tenant shall not be liable to Landlord, or to Landlord's agents, servantas, employees, or invitees for any damage to person or property caused by any act, omission or neglect of Landlord and Landlord hereby agrees to indemnify and hold Tenant harmless from all claims for such damage. WAIVER OF SUBROGATION 13. Anything in this lease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action or cause-of-action against the other, its agents, officers, directors, partners, shareholders or employees, for any loss or damage that may occur to the Demised Premises, or any improvements thereto, or any property of such party therein, by reason of fire, the elements or any other cause which could be insured against under the terms of all-risk casualty standard fire and extended coverage insurance policies, regardless of cause or origin, including negligence of the other party hereto, its agents, officers or employees, and covenants that no insurer shall hold any right of subrogation against such other party. DAMAGE TO THE DEMISED PREMISES 14. If the Demised Premises shall be damaged or destroyed by fire or other casualty to such extent that Tenant cannot use more than 60% of the building for more than 90 days, the Tenant shall have the right, at Tenant's option, to either terminate this Lease or re-enter the Lease after restoration of such Demised Premises. Tenant must inform Landlord in writing within thirty (30) days after fire or casualty whether Tenant desires to permanently terminate the Lease or re-enter the Lease after the nine (9) month restoration period. In the case Landlord and Tenant agree to continue the Lease and repair and if the Landlord shall fail to complete such repair and restoration within nine (9) months of the date of such casualty, then the Tenant may at its election terminate this Lease by notice to the Landlord, whereupon this Lease shall become void and of no further force or effect, or perform such repair and restoration. The Tenant covenants and agrees that if the Landlord elects to perform such repair and restoration, the insurance proceeds shall be made available to the Landlord upon presentment of labor and material bills for work completed in connection with such repair and restoration. If the insurance proceeds made available to the Landlord are insufficient, the Tenant will make up the deficiency, together with interest at the rate of the then current prime rate per annum on the unrecovered amount of such deficiency. The Tenant shall be entitled to an equitable abatement of the minimum rent corresponding to the time during and the extent to which the Demised Premises are rendered untenantable for the Tenant's use and occupancy in its normal manner of operation. EMINENT DOMAIN 15. If the whole of the Demised Premises shall be taken by any public authority under the powers of eminent domain, then the term of this lease shall cease as of the day possession shall be taken by such public authority, and the rent shall be paid up to that date with a proportionate refund by landlord of such rent as shall have been paid in advance 5 DEFAULT 16. If the Tenant shall default hereunder and such default shall continue for a period of sixty (60) days after written notice from the Landlord of such default, then it shall be lawful for the Landlord to terminate this Lease and enter into and take possession of the Demised Premises and remove all persons and their property therefrom; provided that if the default be of such a nature so as to require more than sixty (60) days to cure, the Tenant shall not be deemed to be in default hereunder if, after the receipt of the aforesaid notice, the Tenant shall cure such default with due diligence. The Landlord covenants and agrees to use all reasonable efforts to mitigate any and all damages that may or shall be caused by or result from the Tenant's default hereunder. In the event of a monetary default by Tenant, interest shall accrue at the then current prime rate per annum on unpaid amounts from the due date thereof. If Landlord shall default hereunder and such default shall not be cured within sixty (60) days after notice thereof by the Tenant, then it shall be lawful for the Tenant to cure such default and, if such default involves the expenditure of money, deduct the cost thereof from the rent due or accruing hereunder without liability for forfeiture of the lease term or for default hereunder. All rights and remedies enumerated in this Lease shall be cumulative and none shall exclude any other right or remedy allowed by law or in equity. SUBLET CLAUSE 17. The Tenant shall have the right to assign this Lease or sublet the Demised Premises, with the prior written consent of Landlord, which consent will not be unreasonably withheld. TITLE AND POSSESSION 18. The Landlord represents, warrants and agrees that as of the Commencement Date: (a) It has full right and authority to enter into this Lease for the full term and all options herein granted; (b) it has not entered into nor will not enter in any other lease, the provisions of which are in any way in conflict with the provisions hereof, (c) it is lawfully seized in fee of the premises described on EXHIBIT A free and clear of all liens, charges and encumbrances, except for an existing mortgage; (d) it will deliver the Demised Premises to the Tenant free and clear of all tenancies and occupancies. Landlord agrees that the Tenant, upon paying the rent provided for herein and upon performing the covenants and agreements hereof to be kept and performed by the Tenant, will have, hold and enjoy quiet possession of the Demised Premises. SURRENDER OF THE DEMISED PREMISES 19. Upon termination of this Lease by lapse of time or otherwise, the Tenant will surrender the Demised Premises to the Landlord in good order, condition and repair. If Tenant makes any alterations, additions or improvements to the Demised Premises, the Tenant may surrender the Demised Premises in such altered or improved condition without liability for restoring the same to the condition existing when the Tenant took possession thereof. Tenant may, however, elect to remove any or all such alterations, additions or improvements so long as Tenant repairs any damage caused by such removal, provided that Tenant shall not be entitled to remove any HVAC equipment, plumbing, utility or permanent light fixtures. 6 COMPLIANCE WITH LAWS 20. The Tenant shall comply with all laws, regulations and orders of governmental authorities pertaining to the conduct of the Tenant's business in the Demised Premises. As to those portions of the Demised Premises for which Tenant has repair and maintenance responsibility under the terms of this Lease, the Tenant shall comply with all such laws, regulations and orders affecting the Demised Premises and, in that connection, shall make any alterations, additions, replacements and repairs required. SUBORDINATION 21. At the Landlord's option, the Tenant's rights under this Lease shall be subordinate to the lien of any mortgage or trust deed placed upon the Demised Premises, provided that notwithstanding the Default of the Landlord under such mortgage or trust deed or the foreclosure of the lien thereof, this Lease shall continue in full force and effect upon the teems, conditions, covenants and agreements herein contained so long as the Tenant shall not be in default hereunder. HOLDING OVER THE PREMISES 22. If the Tenant continues to occupy the Demised Premises after the last extended term hereof, or after the then current term after having given notice of its intention not to extend the term hereof, then, and in any such event, such occupancy shall be deemed to be a tenancy from month to month only at 150% of the monthly rent, at the monthly rent and upon the other terms and conditions (except for the lease term) herein set forth. Either party may terminate such tenancy by giving to the other thirty (30) days' notice. NOTICES 23. All notices given hereunder shall be in writing, sent by registered mail, postage prepaid, and if to the Landlord at 2215 Sixth Street South, Brainerd, MN 56401 and if to the Tenant at P.O. Box 979, Brainerd, MN 56401 or at such other place as either party shall designate in writing. SHORT FORM LEASE 24. Upon request therefor by either party, the other party shall execute and deliver a short form of this Lease containing a summary of this Lease. The Landlord shall also provide such certificates of title and other documents as shall be required to file the short form lease. When the term hereof has commenced, the parties hereto shall promptly execute a memorandum setting forth the date the term hereof commences and expires. AUTHORITY - ENTIRE AGREEMENT MODIFICATION 25. Employees and agents of the Tenant other than the President have no authority to make or agree to make a lease or make any representations or commitments with respect thereto. This Lease contains the entire agreement between the parties hereto and shall merge all express or implied representations, agreements and conditions heretofore made by either party. This Lease shall not be binding upon either party until it has been executed and delivered by each of the parties hereto. No act or omission of any employee or agent of the Tenant shall alter, change or modify any of the provisions of this Lease. Any alterations, changes or modifications of this Lease shall be effective only when made in writing and executed and delivered by each of the parties hereto. 7 WAIVER 26. One or more waivers of any covenant, term or condition of this Lease by either party shall not be construed by the other party as a waiver of a subsequent breach of the same covenant, term or condition. The consent or approval of either parry to or of any act by the other party of a nature requiring consent or approval shall not be deemed to waive or render unnecessary consent to or approval of any subsequent similar act. RELATIONSHIP OF PARTIES 27. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent or of partnership or of joint venture or of any association whatsoever between the Landlord and the Tenant, it being expressly understood and agreed that neither the method of computation of rent nor any other provisions contained in this Lease nor any act or acts of the parties hereto shall be deemed to create any relationship between the Landlord and the Tenant other than the relationship of Landlord and Tenant. GENERAL 28. Nothing herein contained shall be deemed or construed to require the Tenant to conduct its business in the Demised Premises nor to limit or restrict the Tenant from conducting its business in any manner it deems in its best interest, whether in the Demised Premises or elsewhere. In the event that Tenant ceases to do business and vacates the Demised Premises for a period in excess of three (3) months, for reasons other than casualty or condemnation, Landlord shall have the right to retake possession of the Demised Premises and any rents or other payments received by Landlord as a result of a reletting shall be credited against amounts owing by Tenant hereunder. GOVERNING LAW 29. The laws of the state in which the Demised Premises is located shall govern the validity, performance and enforcement of this Lease. SAVING CLAUSE 30. The invalidity or unenforceability of any provision of this Lease shall not affect or impair the validity of any other provision. MARGINAL HEADINGS 31. The paragraph titles herein are for convenience only and do not define, limit or construe the contents of such paragraphs. COVENANTS TO BIND SUCCESSORS 32. The terms, conditions, covenants and agreements herein contained shall run with the land and shall inure to the benefit of and be binding upon the respective legal representatives, successors and assigns of the parties hereto. REASONABLE CONSENT 33. Whenever under the terms of this Lease, the Landlord's consent is required, such consent shall not be unreasonably withheld or delayed. 8 ESTOPPEL CERTIFICATES 34. At any time and from time to time, Tenant agrees, upon fifteen (15) days written notice from Landlord or any mortgagee or trustee under any trust deed, to execute and deliver to Landlord, for the benefit of such persons as Landlord names in such request, a statement in writing and in form and substance satisfactory to Landlord certifying to such of the following information as Landlord shall request (a) that this Lease constitutes the entire agreement between Landlord and Tenant and is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); (b) the date to which the Base Rent and other charges hereunder have been paid; (c) that all conditions precedent to the Lease taking effect have been carried out; (d) that Tenant has accepted possession, that the Lease has commenced, that Tenant is occupying the Premises, that Tenant knows of no default under the Lease by Landlord and that Tenant knows of no defaults or offsets which Tenant has against enforcement of this Lease by Landlord (or stating the nature of such defaults or offsets); and; (e) the actual commencement date of the Lease and the expiration date of the Lease. CONTINGENCIES 35. Landlord's and Tenant's obligations under this Lease are contingent upon Landlord completing the purchase of the existing lease with Pamida, Inc. on the Demised Premises. This contingency to be removed in writing no later than August 1, 1998. 9 IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written. -------------------------------------------------------------------------------- Brad Davis Universal Pensions, Inc. By:_ President STATE OF MINNESOTA ) )ss COUNTY OF CROW WING ) The foregoing Lease was subscribed and sworn to this 14th day of July 1998, before me, a notary public, by Bradley D. Davis who acknowledged that he executed the foregoing Lease on behalf of himself. [Notarial Seal] THOMAS M. RUTSKE THOMAS M. RUTSKE NOTARY PUBLIC-MINNESOTA Notary Public CROW WING COUNTY MY COMMISSION EXPIRES DEC. 31, 2000 STATE OF MINNESOTA ) )ss COUNTY OF CROW WING ) The foregoing Lease was subscribed and sworn to this 14th day of July, 1998, before me, a notary public, by Thomas G. Anderson, the President of Universal Pensions, Inc., who acknowledged that he executed the foregoing Lease on behalf of Universal Pensions, Inc. [Notarial Seal] THOMAS M. RUTSKE THOMAS M. RUTSKE NOTARY PUBLIC-MINNESOTA Notary Public CROW WING COUNTY MY COMMISSION EXPIRES DEC. 31, 2000 EX-13 9 y53439ex13.txt PAGES OF THE 2001 ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13 Selected Financial Data (in thousands, except per share data) The following data should be read in conjunction with the consolidated financial statements and related notes thereto and management's discussion and analysis of results of operations and financial condition included elsewhere in this annual report. STATEMENT OF OPERATIONS DATA:
FOR YEARS ENDED JUNE 30, 2001 2000 1999 1998 1997 Revenues $ 701,757 $ 571,401 $ 472,676 $ 386,344 $ 318,988 ----------- ----------- ----------- ----------- ----------- Operating costs and expenses: Service and operating 398,411 326,315 266,800 221,767 170,717 Selling, general and administrative 132,001 118,172 103,728 86,856 77,456 Amortization of goodwill 11,486 7,540 5,398 2,654 2,603 Amortization of intangibles 9,018 3,904 2,358 1,165 1,010 Business divestitures, merger expenses and other charges, net 4,245 (520) 400 11,998 1,500 Acquired in-process research and development -- -- 19,000 -- -- ----------- ----------- ----------- ----------- ----------- Operating earnings 146,596 115,990 74,992 61,904 65,702 Interest income (expense), net (5,902) 49 1,200 4,849 2,216 ----------- ----------- ----------- ----------- ----------- Income before income tax provision 140,694 116,039 76,192 66,753 67,918 Income tax provision 55,574 45,835 38,076 26,729 27,167 ----------- ----------- ----------- ----------- ----------- Net income $ 85,120 $ 70,204 $ 38,116 $ 40,024 $ 40,751 =========== =========== =========== =========== =========== Basic earnings per share (1) $ 1.48 $ 1.28 $ 0.71 $ 0.76 $ 0.81 Diluted earnings per share (1) $ 1.41 $ 1.23 $ 0.68 $ 0.73 $ 0.77 =========== =========== =========== =========== =========== BALANCE SHEET DATA: JUNE 30, Working capital $ 194,103 $ (15,402) $ 22,084 $ 97,822 $ 87,641 Total assets 1,003,201 601,051 459,661 334,101 265,085 Short-term borrowings -- 115,000 52,000 -- -- Long-term debt, including current maturities 300,578 -- -- 1,702 1,668 Stockholders' equity 527,950 361,537 288,506 238,290 191,919 =========== =========== =========== =========== ===========
(1) Restated for September 2000 two-for-one stock split 20 2 THE BISYS GROUP, INC. and Subsidiaries Management's Discussion and Analysis of Results of Operations and Financial Condition The BISYS Group, Inc. and subsidiaries (the "Company") provides outsourcing solutions to and through financial organizations. The following table presents the percentage of revenues represented by each item in the Company's consolidated statement of operations for the periods indicated:
FOR YEARS ENDED JUNE 30, 2001 2000 1999 Revenues 100.0% 100.0% 100.0% ----- ----- ----- Operating costs and expenses: Service and operating 56.8 57.1 56.4 Selling, general and administrative 18.8 20.7 22.0 Amortization of goodwill 1.6 1.3 1.1 Amortization of intangibles 1.3 0.7 0.5 Business divestitures, merger expenses and other charges, net 0.6 (0.1) 0.1 Acquired in-process research and development -- -- 4.0 ----- ----- ----- Operating earnings 20.9 20.3 15.9 Interest income (expense), net (0.9) -- 0.3 ----- ----- ----- Income before income tax provision 20.0 20.3 16.2 Income tax provision 7.9 8.0 8.1 ----- ----- ----- Net income 12.1% 12.3% 8.1% ===== ===== =====
Revenues increased $130.4 million in fiscal 2001 and $98.7 million in fiscal 2000, representing increases of 22.8% and 20.9%, respectively. Growth in fiscal 2001 and 2000 was derived from sales to new clients, existing client growth, cross-sales to existing clients and revenues from acquired businesses, partially offset by lost business and divestitures. Revenue growth from acquired businesses, net of divestitures, approximated $38.4 million in fiscal 2001 and $20.0 million in fiscal 2000. Service and operating expenses increased $72.1 million in fiscal 2001 and $59.5 million in fiscal 2000, representing increases of 22.1% and 22.3%, respectively. Service and operating expenses decreased as a percentage of revenues in fiscal 2001 by 0.3% to 56.8%, and increased by 0.7% to 57.1% in fiscal 2000. The dollar increases resulted from additional costs associated with greater revenues. Selling, general and administrative expenses increased $13.8 million, or 11.7%, and decreased as a percentage of revenues by 1.9% to 18.8% in fiscal 2001 and increased $14.4 million, or 13.9%, and decreased as a percentage of revenues by 1.3% to 20.7% in fiscal 2000. The dollar increase in fiscal 2001 and 2000 resulted from additional costs associated with greater revenues. The decrease as a percentage of revenues resulted from further utilization of existing general and administrative support resources. Amortization of goodwill was $11.5 million in fiscal 2001, compared to $7.5 million in fiscal 2000 and $5.4 million in fiscal 1999. The increases in fiscal 2001 and fiscal 2000 were due to the higher level of goodwill associated with recently acquired businesses. The Company will adopt the provisions of FAS 142 as of July 1, 2001 (see Note 1, New Accounting Standards). The Company anticipates that the effect of adopting FAS 142 will reduce amortization expense associated with goodwill on the balance sheet as of June 30, 2001 by approximately $16 million in fiscal year 2002. Amortization of intangible assets was $9.0 million in fiscal 2001, compared to $3.9 million in fiscal 2000 and $2.4 million in fiscal 1999. The increases in fiscal 2001 and fiscal 2000 were due to the higher level of intangible assets associated with recently acquired businesses. As a result of the acquisitions of Pictorial and Ascensus in the fiscal first quarter of 2001, the Company recorded a pretax restructuring charge of $4.2 million. The charge relates to restructuring activities in the existing businesses within the Insurance and Education Services segment and includes a provision of $2.1 million for severance-related costs for approximately 150 employees, $1.0 million for facility closure and related costs, and $1.1 million for impairments relating to the abandonment of certain software and product development efforts. As of June 30, 2001, all restructuring activities have been completed and amounts expended. During the fourth quarter of fiscal 2000, the Company recorded a pretax gain of $0.5 million for business divestitures, merger expenses and other charges, net. Included in this amount is (1) a $4.3 million pretax gain for the divestiture of two of its divisions, Research Services and Networking Services, and from the sale of the retail third party marketing component of its Brokerage Services division and (2) a one-time charge of $3.8 million for losses in connection with an overseas client of the Fund Services division whose fund accounting contract was terminated. In fiscal 1999, the Company wrote off $19.0 million of acquired in-process research and development associated with the acquisition of Greenway and incurred $0.4 million of merger-related expenses. 21 3 Management's Discussion and Analysis of Results of Operations and Financial Condition Operating earnings increased by $30.6 million to $146.6 million in fiscal 2001 and increased as a percentage of revenues from 20.3% to 20.9%. The increase was primarily due to revenue gains, and the synergies realized from consolidation of acquired businesses. Operating earnings increased by $41.0 million to $116.0 million in fiscal 2000, and increased as a percentage of revenues from 15.9% to 20.3%. The dollar increases were primarily due to revenue gains, and reduction in acquired in-process research and development. Operating results, before amortization of goodwill and intangibles, business divestitures, merger expenses and other charges, and acquired in-process research and development, resulted in margins of 24.4%, 22.2%, and 21.6% for fiscal 2001, 2000, and 1999, respectively. The margin increases in each of the last two fiscal years are attributable to strong internal growth combined with efficient integration of acquired businesses. Interest income decreased $6.0 million to an expense of $5.9 million in fiscal 2001 and decreased $1.2 million in fiscal 2000. In fiscal 2001, the decrease was primarily due to the interest cost associated with additional borrowings for acquisitions, including the convertible debt offering in March 2001. In fiscal 2000, the decrease was due to lower levels of invested cash and higher interest expense associated with short-term borrowings for acquisitions. The provision for income taxes increased to $55.6 million in fiscal 2001 from $45.8 million in fiscal 2000 and increased from $38.1 million in fiscal 1999. The provision for fiscal 2001 and 2000 reflects an effective tax rate of 39.5% due to recently completed tax planning initiatives. Exclusive of the nonrecurring, nondeductible charge in fiscal 1999 of $19.0 million related to acquired in-process research and development, the fiscal 1999 provision for income taxes reflects an effective tax rate of 40%. It is anticipated that the Company's effective tax rate in fiscal 2002 will decrease to 38.75%, primarily as a result of the adoption of FAS 142. SEGMENT INFORMATION The following table sets forth operating revenue and operating income by business segment and for corporate operations for the years ended June 30, 2001, 2000, and 1999. Business divestitures, merger expenses and other charges and acquired in-process research and development are excluded from the operating results of the segment for a better understanding of the underlying performance of each segment.
(in thousands) 2001 2000 1999 ---- ---- ---- Operating revenue: Investment Services $ 359,300 $ 303,106 $ 237,909 Insurance and Education Services 164,737 89,841 56,471 Information Services 177,720 178,454 178,296 --------- --------- --------- Total operating revenue $ 701,757 $ 571,401 $ 472,676 ========= ========= ========= Operating income (loss): Investment Services $ 59,421 $ 53,212 $ 42,499 Insurance and Education Services 62,289 31,436 19,353 Information Services 45,844 44,816 44,389 Corporate (16,713) (13,994) (11,849) --------- --------- --------- Total operating income $ 150,841 $ 115,470 $ 94,392 ========= ========= =========
Revenue in the Investment Services business segment increased $56.2 million in fiscal 2001 and $65.2 million in fiscal 2000, representing increases of 18.5% and 27.4%, respectively. The revenue increase in fiscal 2001 was due to strong internal growth, including the acquisition of several new clients in the 401(k) plan recordkeeping business, and the recent acquisitions of Boston Institutional Group and Universal Pensions, Inc. The revenue increase in fiscal 2000 was due to strong internal growth, including the acquisition of several new clients. Operating income in the Investment Services business segment increased $6.2 million in fiscal 2001 and increased $10.7 million in fiscal 2000, resulting in margins of 16.5%, 17.6%, and 17.9% in fiscal 2001, 2000, and 1999, respectively. Margins declined in fiscal 2001 primarily as a result of continued investments in the international mutual fund businesses. Revenue in the Insurance and Education Services business segment increased $74.9 million in fiscal 2001 and $33.4 million in fiscal 2000, representing increases of 83.4% and 59.1%, respectively. Revenue growth in fiscal 2001 and fiscal 2000 was attributable to strong internal growth and several acquisitions. Operating income in the Insurance and Education Services business segment increased $30.9 million in fiscal 2001 and $12.1 million in fiscal 2000, resulting in margins of 37.8%, 35.0%, and 34.3% in fiscal 2001, 2000, and 1999, respectively. Margins increased in fiscal 2001 and 2000 due to strong internal growth combined with efficient integration of acquired businesses. 22 4 THE BISYS GROUP, INC. and Subsidiaries Revenue in the Information Services business segment decreased $0.7 million in fiscal 2001 and increased $0.2 million in fiscal 2000, representing a decrease of 0.4% and an increase of 0.1%, respectively. The decrease in fiscal year 2001 revenue and the below normal revenue increase in fiscal 2000 were primarily due to the sale of Research Services and Networking Services in the fiscal 2000 fourth quarter, the June 1999 sale of the Marketing Solutions business and weakness in Document Solutions software sales. Operating income in the Information Services business segment increased $1.0 million in fiscal 2001 and $0.4 million in fiscal 2000, resulting in operating margins of 25.8%, 25.1%, and 24.9% for fiscal 2001, 2000, and 1999, respectively. Corporate operations represent charges for the Company's executive, human resources, legal, accounting and finance functions, and various other unallocated overhead charges. Increased expenses of $2.7 million and $2.1 million in fiscal 2001 and 2000, respectively, were in line with the Company's overall growth. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2001, the Company had cash and cash equivalents of $159.4 million and working capital of approximately $194.1 million. At June 30, 2000, other assets included a $115 million deposit toward the purchase of Pictorial, Inc. that closed on July 1, 2000 (see Note 2). At June 30, 2001, the Company had no outstanding borrowings against its revolving credit facility. The credit facility bears interest at LIBOR plus a margin not to exceed 1.325%. At June 30, 2001, the Company had $0.8 million outstanding in the form of letters of credit and $300 million of outstanding 4% convertible subordinated notes due March 2006. For the year ended June 30, 2001, operating activities provided cash of $113.8 million, primarily as a result of net income of $85.1 million plus several non-cash items including depreciation and amortization of $42.8 million, deferred income taxes of $11.3 million, and restructuring charges of $4.2 million, offset by changes in net operating assets and liabilities, net of effects from acquisitions, of $29.6 million. These changes are primarily a result of increases in accounts receivable due to revenue growth. Investing activities used cash of $231.5 million, primarily for the acquisition of businesses of $192.9 million, and capital expenditures of $28.5 million. Financing activities provided cash of $206.9 million primarily from net proceeds from the convertible debt offering of $292.0 million and $26.5 million of proceeds from the exercise of stock options, and $3.1 million from the issuance of common stock in connection with the Company's annual employee stock purchase plan, offset by a net repayment of $115.0 million on short-term borrowings. For the years ended June 30, 2000 and 1999, operating activities provided cash of $90.0 million and $52.3 million, respectively. Investing activities used cash of $130.8 million and $91.1 million in fiscal 2000 and 1999, respectively. Financing activities provided cash of $61.4 million in fiscal 2000 and used cash of $5.0 million in fiscal 1999. The Company's strategy includes the acquisition of complementary businesses financed by a combination of internally generated funds, borrowings from the revolving credit facility, long-term debt and common stock. The Company's policy is to retain earnings to support future business opportunities, rather than to pay dividends. In January 1999, the Company's Board of Directors authorized a stock buy-back program of up to $100 million of its outstanding common stock. Purchases will occur from time to time in the open market to offset the possible dilutive effect of shares to be issued under employee benefit plans, for possible use in future acquisitions, and for general and other corporate purposes. In fiscal 2000, the Company purchased 388,500 shares of its common stock for approximately $19.7 million to effect the acquisition of Credit Lyonnais International Fund Services (CLIFS) and for issuance of stock in connection with the exercise of stock options. Since January 1999, the Company has purchased 746,500 shares of its common stock under the stock buy-back program for approximately $39.1 million, leaving $60.9 million available for future purchases. On September 21, 2000, the Board of Directors of the Company approved a two-for-one stock split effected in the form of a dividend, payable to shareholders of record on October 6, 2000. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT In September 1998, the Company acquired Greenway through the issuance of common stock valued at approximately $43.8 million. Of the total purchase price, $19.0 million was allocated to acquired in-process research and development, which was charged to operations at the time of acquisition. The amount allocated to acquired in-process research and development was based on an independent appraisal, employing a discounted cash flow approach, and relates to the development of enhanced check imaging software. At the acquisition date, the products were estimated to be between 50% and 75% complete, and were determined to have no future alternative uses. 23 5 Management's Discussion and Analysis of Results of Operations and Financial Condition Significant assumptions used in the valuation of the acquired in-process research and development were as follows: Estimated costs to complete $2.1 million Anticipated completion date January 2000 Projected annual revenues $30 million Discount rate 20% Discount period 9 years
Technological feasibility was attained in the third quarter of fiscal 1999. Development efforts were substantially completed in the first quarter of fiscal 2000, and sales of the enhanced check imaging software began in the second quarter of fiscal 2000. Research and development expenditures related to this product development effort, prior to attaining technological feasibility, approximated $500,000 for the year ended June 30, 1999, and are included in the consolidated statement of operations. LEGISLATION The adoption of the Financial Services Modernization Act of 1999 lifts many restrictions limiting banks from underwriting and distributing securities. The Company expects that some of its bank customers with proprietary mutual funds may, over time, internalize certain distribution functions currently provided by the Company. At the same time, the Company believes this change may result in additional demand for its outsourcing services as financial institutions provide new services to their customers. The near-term and long-term impact of this legislative change on the Company's business and results of operations are uncertain. Although there can be no assurance, at this time, the Company does not expect a material adverse impact on its business or results of operations. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, services and related products, prices, and other factors discussed in the Company's prior filings with the Securities and Exchange Commission. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included in this annual report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 24 6 MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of the Company assumes responsibility for the integrity and objectivity of the information in the fiscal 2001 Annual Report. The information was prepared in conformity with generally accepted accounting principles and reflects the best judgment of management. To provide reasonable assurance that transactions authorized by management are recorded and reported properly and that assets are safeguarded, the Company maintains a system of internal controls. The concept of reasonable assurance implies that the cost of such a system is weighed against the benefits to be derived therefrom. PricewaterhouseCoopers LLP, independent accountants, audits the financial statements of the Company in accordance with generally accepted auditing standards. Such audit considers the Company's internal control structure and includes a communication of recommendations for improvements in the Company's internal control structure. The Audit Committee of the Board of Directors ensures that management is properly discharging its financial reporting responsibilities. In performing this function, the Committee meets with management and the independent accountants throughout the year. Additional access to the Committee is provided to the independent accountants on an unrestricted basis, allowing discussion of audit results, internal accounting controls, and financial reporting. /s/ Lynn J. Mangum LYNN J. MANGUM Chairman and Chief Executive Officer REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE BISYS GROUP, INC.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of The BISYS Group, Inc. and its subsidiaries at June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP July 30, 2001 25 7 Consolidated Statement of Operations (in thousands, except per share data)
FOR YEARS ENDED JUNE 30, 2001 2000 1999 Revenues $ 701,757 $ 571,401 $ 472,676 --------- --------- --------- Operating costs and expenses: Service and operating 398,411 326,315 266,800 Selling, general and administrative 132,001 118,172 103,728 Amortization of goodwill 11,486 7,540 5,398 Amortization of intangibles 9,018 3,904 2,358 Business divestitures, merger expenses and other charges, net 4,245 (520) 400 Acquired in-process research and development -- -- 19,000 --------- --------- --------- Operating earnings 146,596 115,990 74,992 Interest income (expense), net (5,902) 49 1,200 --------- --------- --------- Income before income tax provision 140,694 116,039 76,192 Income tax provision 55,574 45,835 38,076 --------- --------- --------- Net income $ 85,120 $ 70,204 $ 38,116 ========= ========= ========= Basic earnings per share $ 1.48 $ 1.28 $ 0.71 Diluted earnings per share $ 1.41 $ 1.23 $ 0.68 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 26 8 THE BISYS GROUP, INC. and Subsidiaries Consolidated Balance Sheet (in thousands, except share data)
JUNE 30, 2001 2000 ASSETS Current assets: Cash and cash equivalents $ 159,399 $ 70,177 Accounts receivable, net 148,068 108,579 Deferred tax asset 13,530 8,808 Other current assets 26,794 16,734 ----------- ----------- Total current assets 347,791 204,298 Property and equipment, net 76,831 61,211 Goodwill, net 404,223 147,258 Intangible assets, net 123,002 41,091 Other assets 51,354 147,193 ----------- ----------- Total assets $ 1,003,201 $ 601,051 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 145 $ -- Short-term borrowings -- 115,000 Accounts payable 13,354 15,110 Accrued liabilities 140,189 89,590 ----------- ----------- Total current liabilities 153,688 219,700 Long-term debt 300,433 -- Deferred tax liability 12,205 13,452 Other liabilities 8,925 6,362 ----------- ----------- Total liabilities 475,251 239,514 ----------- ----------- Commitments and contingencies (Note 6) STOCKHOLDERS' EQUITY Common stock, $0.02 par value, 160,000,000 and 80,000,000 shares authorized, 58,422,269 and 27,807,047 shares issued and outstanding at June 30, 2001 and 2000, respectively 1,168 556 Additional paid-in capital 318,958 220,558 Retained earnings 219,406 151,874 Less notes receivable from stockholders (10,776) (11,347) Accumulated other comprehensive income (loss) (806) (104) ----------- ----------- Total stockholders' equity 527,950 361,537 ----------- ----------- Total liabilities and stockholders' equity $ 1,003,201 $ 601,051 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 27 9 Consolidated Statement of Cash Flows (in thousands)
FOR YEARS ENDED JUNE 30, 2001 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 85,120 $ 70,204 $ 38,116 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,803 30,695 23,558 Restructuring charge 4,245 -- -- Write-off of acquired in-process research and development -- -- 19,000 Net gain from divestitures -- (4,320) -- Deferred income tax provision 11,284 2,695 3,673 Change in assets and liabilities, net of effects from acquisitions: Accounts receivable, net (24,906) (6,487) (26,457) Other current assets (5,738) (2,894) (2,799) Other assets (963) (583) (6,800) Accounts payable (3,676) (5,318) 5,140 Accrued liabilities and other 5,635 6,026 (1,131) --------- --------- --------- Net cash provided by operating activities 113,804 90,018 52,300 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired (192,886) (117,812) (59,273) Proceeds from dispositions, net of expenses paid (1,560) 17,578 3,925 Capital expenditures, net (28,509) (27,963) (27,740) Change in other investments (4,259) 2,834 (6,871) Purchase of intangible assets (4,255) (5,465) (1,183) --------- --------- --------- Net cash used by investing activities (231,469) (130,828) (91,142) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings, net (115,000) 63,000 52,000 Proceeds from convertible debt offering, net of expenses paid 292,050 -- -- Repayment of debt -- -- (1,093) Exercise of stock options, net of taxes paid 26,480 15,838 12,843 Issuance of common stock 3,065 2,235 1,691 Repurchases of common stock -- (19,675) (70,413) Other 292 -- -- --------- --------- --------- Net cash provided (used) by financing activities 206,887 61,398 (4,972) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 89,222 20,588 (43,814) Cash and cash equivalents at beginning of year 70,177 49,589 93,403 --------- --------- --------- Cash and cash equivalents at end of year $ 159,399 $ 70,177 $ 49,589 ========= ========= ========= SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for: Interest $ 7,209 $ 2,137 $ 1,158 Income taxes $ 16,758 $ 38,843 $ 27,172 ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 28 10 THE BISYS GROUP, INC. and Subsidiaries Consolidated Statement of Stockholders' Equity (in thousands)
NOTES ACCUMULATED ADDITIONAL RECEIVABLE OTHER FOR YEARS ENDED JUNE 30, 1999, COMMON STOCK PAID-IN RETAINED FROM COMPREHENSIVE TREASURY STOCK ------------ -------------- 2000 AND 2001 SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS INCOME (LOSS) SHARES AMOUNT BALANCE, JUNE 30, 1998 26,670 $ 533 $ 173,683 $ 66,229 $ -- $ -- 58 $ (2,155) ====== ====== ========= ======== ========= ========= ====== ======== Exercise of stock options 361 8 7,255 (7,135) -- -- (297) 12,787 Tax benefit of stock options exercised -- -- 5,458 -- -- -- -- -- Issuance of common stock 60 1 1,690 -- -- -- -- -- Common stock issued in acquisitions -- -- 5,414 (2,660) -- -- (1,314) 59,695 Repurchases of common stock -- -- -- -- -- -- 1,555 (70,413) Net income -- -- -- 38,116 -- -- -- -- ------ ------ --------- -------- --------- --------- ------ -------- BALANCE, JUNE 30, 1999 27,091 542 193,500 94,550 -- -- 2 (86) ====== ====== ========= ======== ========= ========= ====== ======== Exercise of stock options 665 13 16,252 (12,890) (11,347) -- (375) 18,864 Tax benefit of stock options exercised -- -- 8,572 -- -- -- -- -- Issuance of common stock 51 1 2,234 -- -- -- -- -- Common stock issued in acquisitions -- -- -- 10 -- -- (15) 897 Repurchases of common stock -- -- -- -- -- -- 388 (19,675) Foreign currency translation adjustment -- -- -- -- -- (104) -- -- Net income -- -- -- 70,204 -- -- -- -- ------ ------ --------- -------- --------- --------- ------ -------- BALANCE, JUNE 30, 2000 27,807 556 220,558 151,874 (11,347) (104) -- -- ====== ====== ========= ======== ========= ========= ====== ======== Exercise of stock options 1,748 35 39,304 (17,588) 571 -- -- -- Tax benefit of stock options exercised -- -- 20,460 -- -- -- -- -- Issuance of common stock 111 2 3,063 -- -- -- -- -- Common stock and options issued in acquisitions 472 10 36,138 -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- (702) -- -- Two-for-one stock split 28,284 565 (565) -- -- -- -- -- Net income -- -- -- 85,120 -- -- -- -- ------ ------ --------- -------- --------- --------- ------ -------- BALANCE JUNE 30, 2001 58,422 $1,168 $ 318,958 $219,406 $ (10,776) $ (806) -- $ -- ====== ====== ========= ======== ========= ========= ====== ========
The accompanying notes are an integral part of the consolidated financial statements. 29 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY The BISYS Group, Inc. and subsidiaries ("BISYS" or the "Company") is a leading national provider of outsourcing solutions to and through financial organizations. BASIS OF PRESENTATION The consolidated financial statements include the accounts of The BISYS Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts reported in fiscal 1999 and 2000 have been reclassified to conform to the fiscal 2001 presentation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid debt instruments purchased with original maturities of three months or less, including $22.5 million and $16.3 million of overnight repurchase agreements at June 30, 2001 and 2000, respectively. The Company maintains cash deposits in banks which from time to time exceed the amount of deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any potential credit loss is minimal. SHORT-TERM INVESTMENTS Management determines the appropriate classification of investments in debt and equity securities at the time of purchase. Marketable debt and equity securities available for sale are carried at market based upon quoted market prices. Unrealized gains or losses on available for sale securities are accumulated as an adjustment to stockholders' equity, net of related deferred income taxes. Realized gains or losses are computed based on specific identification of the securities sold. Realized and gross unrealized gains and losses on short-term investments were not significant for the years ended June 30, 2001, 2000 and 1999. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are computed using the straight line method over the estimated useful lives of the assets as follows:
ESTIMATED USEFUL LIVES (YEARS) Buildings and leasehold improvements 4 - 25 Data processing equipment and systems 3 - 10 Furniture and fixtures 3 - 12 Software development costs 2 - 5
Depreciation expense for the years ended June 30, 2001, 2000 and 1999 was $22,299,000, $19,198,000 and $15,804,000, respectively. Expenditures for major renewals and improvements are capitalized, while minor replacements, maintenance and repairs which do not improve or extend the life of such assets are charged to expense as incurred. Disposals are removed at cost less accumulated depreciation with the resulting gain or loss being reflected in operations. GOODWILL AND INTANGIBLE ASSETS Goodwill and intangible assets are amortized on a straight line basis over the estimated useful lives as follows:
ESTIMATED USEFUL LIVES (YEARS) Goodwill 10 - 40 Intangible Assets: Customer related 5 - 30 Noncompete agreements 4 - 10 Other 5 - 23
The Company evaluates, for impairment, the carrying value of goodwill and intangible assets by comparing the carrying value to the anticipated future undiscounted cash flows from the businesses whose acquisition gave rise to the asset. If goodwill or an intangible asset is impaired, the asset is written down to fair value. Intangible assets resulting from acquired customer relationships are evaluated in light of actual customer attrition rates to ensure that the carrying value of these intangible assets is recoverable. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses the likelihood of recovering the cost of long-lived assets based on its expectations of future profitability and undiscounted cash flows of the related business operations. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, equipment and purchased intangibles. SOFTWARE COSTS The Company capitalizes certain costs incurred to develop new software or enhance existing software which is marketed externally or utilized by the Company to process customer transactions. The Company charges to operations routine maintenance of software, design costs and development costs incurred prior to the establishment of a product's technological feasibility. Costs incurred subsequent to the establishment of a product's technological feasibility are capitalized and amortized over the expected useful life of the related product. REVENUE RECOGNITION The Company records revenue as earned as evidenced by contracts or invoices for its services at prices established by contract, price list and/or fee schedule less applicable discounts. The Company's principal sources of service 30 12 THE BISYS GROUP, INC. and Subsidiaries revenues include information processing and software services, administration and distribution of mutual funds, brokerage and consulting services, administration and recordkeeping of retirement plans, and training. Revenues from these services are recognized in the periods in which the services are performed. Cash received by the Company in advance of the performance of services is deferred and recognized as revenue when earned. Commission revenue from insurance distribution operations is recognized when substantially all placement services have been provided, protection is afforded under the insurance policy, and the premium is known or can be reasonably estimated and is billable. Revenue from software sales is recognized in accordance with the AICPA's Statement of Position (SOP) 97-2, "Software Revenue Recognition." Under the SOP, revenue is recognized at the time of sale, or licensing if the Company has no continuing obligation. When the Company has a continuing obligation, revenue is generally recognized over the period of continuing obligation. Maintenance fee revenue is recognized ratably over the term of the related support period, generally twelve months. The Company adopted the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) in the fourth quarter of fiscal 2001. SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The adoption of SAB 101 had no material impact on the Company's financial statements. ACCOUNTS RECEIVABLE A majority of the Company's receivables are from banks, investment firms and insurance companies which approximated $45.6 million, $24.5 million, and $52.6 million, respectively, at June 30, 2001. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. Bad debt expense for the years ended June 30, 2001, 2000 and 1999 approximated $4,838,000, $1,705,000 and $2,331,000, respectively. At June 30, 2001 and 2000, the Company's allowance for doubtful accounts was approximately $6,660,000 and $2,468,000, respectively. PER SHARE DATA Basic earnings per share is computed using the weighted average number of common shares outstanding during each year presented. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each year presented. Common equivalent shares consist of stock options and are computed using the treasury stock method. The effect of the assumed conversion of the convertible notes into common stock would be anti-dilutive and therefore is excluded from the computation of diluted earnings per share. Amounts utilized in per share computations are as follows (in thousands):
YEAR ENDED JUNE 30 2001 2000 1999 Weighted average common shares outstanding 57,347 54,916 53,392 Assumed conversion of common shares issuable under stock option plan 2,978 2,070 2,480 ------ ------ ------ Weighted average common and common equivalent shares outstanding 60,325 56,986 55,872 ====== ====== ======
On September 21, 2000, the Board of Directors of the Company approved a two-for-one stock split effected in the form of a dividend, payable to shareholders of record on October 6, 2000. Accordingly, all historical weighted average shares and per share amounts have been restated to reflect the stock split. Options to purchase 854,462 shares of common stock at various prices ranging from $46.58 to $56.97 were outstanding at June 30, 2001, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of common shares. FOREIGN CURRENCY TRANSLATION The U.S. dollar is the functional currency for all company businesses except operations in the United Kingdom, Guernsey, Ireland and Luxembourg. Foreign currency denominated assets and liabilities for these units are translated into U.S. dollars based on exchange rates prevailing at the end of each year, and revenues, expenses and cash flows are translated at average exchange rates during the year. Translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders' equity. STOCK-BASED COMPENSATION The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans. INCOME TAXES The liability method is used in accounting for income taxes whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws. 31 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates are related to the allowance for doubtful accounts, goodwill and intangible assets, business divestitures, merger expenses and other charges, acquired in-process research and development, income taxes and contingencies. It is reasonably possible that actual results could differ from these estimates in the near term. DISCLOSURE REGARDING FINANCIAL INSTRUMENTS For all financial instruments, including cash and cash equivalents, receivables, accounts payable, short-term borrowings and long-term debt, the carrying value is considered to approximate fair value. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued FAS 141, "Business Combinations" and FAS 142, "Goodwill and Other Intangible Assets." FAS 141 addresses the financial accounting and reporting for business combinations. This new standard requires that all business combinations be accounted for by the purchase method and intangible assets be recognized as assets apart from goodwill. The provisions of FAS 141 are effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. FAS 142 addresses financial accounting for goodwill and other intangible assets subsequent to their acquisition. FAS 142 requires that a recognized intangible asset be amortized over its useful life unless that life is determined to be indefinite. FAS 142 also requires that good will not be amortized but tested for impairment on an annual basis and between annual tests in certain circumstances. The provisions of FAS 142 are effective for fiscal years beginning after December 15, 2001. Earlier application is permitted for entities with fiscal years beginning after March 15, 2001. The Company will adopt both FAS 141 and 142 as of July 1, 2001, the beginning of its new fiscal year. The Company anticipates that the effect of adopting FAS 142 will increase net income by approximately $10 million in fiscal year 2002, due to reduced annual amortization expense and related tax effects associated with existing goodwill and intangibles that are reflected on the accompanying balance sheet at June 30, 2001. 2. BUSINESS COMBINATIONS On June 1, 2001, the Company completed its acquisition of Universal Pensions, Inc. (UPI) in a cash for stock transaction valued at approximately $81.5 million. UPI, headquartered in Minnesota, is a leading provider of retirement plan services. On July 31, 2000, the Company completed its acquisition of Ascensus Insurance Services, Inc. (Ascensus) by the exchange of cash consideration and stock options totaling approximately $43 million for all the outstanding shares and stock options of Ascensus. Ascensus, headquartered in Salt Lake City, is a leading distributor of life insurance products. On July 1, 2000, the Company completed its acquisition of Pictorial, Inc. (Pictorial) in a cash for stock transaction valued at approximately $129 million. Pictorial, headquartered in Indianapolis, is a provider of pre-licensing and continuing education training materials and licensing solutions for insurance carriers, agencies and agents. The Company provided a cash deposit of $115 million to the seller on June 30, 2000 toward the purchase of Pictorial in accordance with the terms of the merger agreement. The above transactions have been accounted for by the purchase method of accounting, and, accordingly, the operations of the acquired companies are included in the consolidated financial statements since the dates of acquisition. 32 14 THE BISYS GROUP, INC. and Subsidiaries The excess purchase price over fair value of the net tangible assets acquired for the above transactions approximated $252.1 million and was allocated to goodwill and other intangible assets based upon estimates of fair values and is being amortized on a straight line basis. The following unaudited pro forma consolidated results of operations has been prepared as if the acquisitions of Pictorial, Ascensus, and UPI had occurred at the beginning of fiscal 2001 and 2000 (in thousands):
Year ended June 30, 2001 2000 Revenues $733,154 $644,787 Net income $ 81,718 $ 60,215 Diluted earnings per share $ 1.35 $ 1.05 ======== ========
In addition to the above transactions, the Company also completed the following purchase acquisitions of businesses and assets in fiscal 2001, 2000, and 1999. The acquisitions set forth below have been accounted for as purchases, and, accordingly, the operations of the acquired companies are included in the consolidated financial statements since the dates of acquisition. Pro forma information has not been presented due to lack of materiality.
Business Date Acquired Nature of Business Consideration -------- ------------- ------------------ ------------- Fiscal 2001 The TONER Organization (TONER) June 2001 Life insurance distribution Cash for stock The Insurance Exchange of America, Inc. (IXA) May 2001 Life insurance distribution Cash for stock Boston Institutional Group, Inc. (BIG) April 2001 Fund administration Cash and stock for stock The Advanced Markets, LLC (TAM) February 2001 Life insurance distribution Cash and stock for stock --------------------------------------------- ------------- --------------------------- ------------------------ Fiscal 2000 Credit Lyonnais International Fund Services (CLIFS) May 2000 Fund administration Cash and stock for assets --------------------------------------------- ------------- --------------------------- ------------------------ Fiscal 1999 Retained Asset Account Services (RAA) June 1999 Financial processing services Cash for assets Dover International (Dover) May 1999 Education and support services Cash and stock for stock Poage Insurance Services (Poage) April 1999 Life insurance distribution Cash for stock EXAMCO, Inc. (EXAMCO) April 1999 Education services Cash and stock for stock Greenway Corporation (Greenway) September 1998 Document imaging Stock for stock Potomac Insurance Marketing Group, Inc. (Potomac) August 1998 Life insurance distribution Cash for stock CoreLink Resources, Inc. (CoreLink) July 1998 Brokerage services Cash for stock ============================================= ============= =========================== ========================
The cash and stock portions of the purchase price for fiscal 2001 acquisitions, including fees and expenses, were as follows (in thousands):
Pictorial Ascensus UPI All Others Total --------- -------- --- ---------- ----- Estimated fair value of assets acquired $141,700 $50,769 $ 103,846 $118,524 $414,839 Liabilities assumed (11,648) (11,500) (18,304) (29,353) (70,805) Common stock options issued -- (4,684) -- (31,464) (36,148) -------- ------- --------- -------- -------- Net cash paid $130,052 $34,585 $ 85,542 $ 57,707 $307,886 ======== ======= ========= ======== ========
33 15 Notes to Consolidated Financial Statements 3. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS (IN THOUSANDS):
2001 2000 Other current assets: Prepaids $ 19,383 $ 12,006 Other 7,411 4,728 --------- --------- $ 26,794 $ 16,734 ========= ========= Property and equipment, net: Land $ 186 $ -- Buildings and leasehold improvements 12,716 8,257 Data processing equipment and systems 56,617 41,953 Furniture and fixtures 27,321 20,088 Software development costs 59,535 45,063 --------- --------- 156,375 115,361 Less accumulated depreciation and amortization (79,544) (54,150) --------- --------- $ 76,831 $ 61,211 ========= ========= Goodwill, net: Goodwill $ 440,883 $ 172,477 Less accumulated amortization (36,660) (25,219) --------- --------- $ 404,223 $ 147,258 ========= ========= Intangible assets, net: Customer related $ 84,965 $ 35,418 Noncompete agreements 34,720 7,020 Other 22,070 8,400 --------- --------- 141,755 50,838 Less accumulated amortization (18,753) (9,747) --------- --------- $ 123,002 $ 41,091 ========= ========= Other assets: Deposit on business acquisition $ -- $ 115,000 Other 51,354 32,193 --------- --------- $ 51,354 $ 147,193 ========= ========= Accrued liabilities: Compensation $ 32,794 $ 19,511 Deferred income 29,240 9,510 Income taxes 6,806 2 Marketing 19,498 22,752 Other 51,851 37,815 --------- --------- $ 140,189 $ 89,590 ========= =========
4. BORROWINGS The Company has a $300 million senior unsecured revolving credit facility (including a $20 million letter of credit subfacility) with its banks to support working capital requirements and fund the Company's future acquisitions. The facility expires June 30, 2004. In September 2000, the Company amended its senior unsecured revolving credit facility to increase the facility from $200 million to $300 million. All other significant terms under the credit facility remain substantially unchanged. At June 30, 2001, the Company had no outstanding borrowings under the facility. Outstanding borrowings under the credit facility bear interest at prime or, at the company's option, LIBOR plus a margin not to exceed 1.325% based upon the ratio of the Company's consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (the "Pricing Formula"). The credit agreement requires the Company to pay an agent fee of $25,000 per year and an annual facility fee not to exceed 0.30%, or $600,000. The facility is guaranteed by certain significant subsidiaries of The BISYS Group, Inc. The credit agreement requires, among other things, the Company to maintain certain financial covenants and limits the Company's ability to incur additional indebtedness and to pay dividends. As of June 30, 2001, no amounts were permitted for the payment of cash dividends. The Company can borrow under the facility through June 2004 up to $300 million, reduced by any outstanding letters of credit ($759,000 at June 30, 2001). Interest is payable quarterly for prime rate borrowings or at maturity for LIBOR borrowings, which range from 30 to 180 days. Long-term debt consists of the following at June 30, 2001 (in thousands): Convertible subordinated notes $300,000 Subordinated note payable 578 Less current maturities (145) -------- $300,433 ========
In March 2001, the Company issued $300 million of convertible subordinated notes (the "Notes") due March 2006. The Notes bear interest at 4% and require semiannual interest payments. The Notes are convertible at any time at the option of the holder into shares of the Company's common stock at a conversion price of $66.79 per share, subject to adjustment under certain conditions. At the Company's option, subject to the terms of its existing revolving credit facility agreement, the Notes are redeemable on or after March 2004 at a premium price of 101% declining to par in March 2005 and thereafter. In connection with the acquisition of the Boston Institutional Group, Inc., the Company assumed a subordinated note payable to an employee. Interest on the note is calculated at the prime rate and is paid semiannually. The note calls for five equal annual principal payments begin- 34 16 THE BISYS GROUP, INC. and Subsidiaries ning on December 31, 2000 and ending on December 31, 2004. Maturities of the subordinated note payable are $144,600 in each of the fiscal years 2002, 2003, 2004 and 2005. Interest expense on long-term debt amounted to $3.6 million in fiscal 2001. 5. INCOME TAXES The significant components of the Company's net deferred tax asset (liability) as of June 30, 2001 and 2000 are as follows (in thousands):
2001 2000 Deferred tax assets related to: Accrued liabilities $ 15,080 $ 9,058 Accounts receivable 1,836 2,179 Tax carryforwards 12,192 1,246 Other 146 175 -------- -------- Deferred tax assets 29,254 12,658 Less valuation allowance (603) (608) -------- -------- Net deferred tax assets 28,651 12,050 -------- -------- Deferred tax liabilities related to: Property and equipment (9,369) (6,853) Intangible assets (17,957) (9,841) -------- -------- Deferred tax liabilities (27,326) (16,694) -------- -------- Net deferred tax asset (liability) $ 1,325 $ (4,644) ======== ========
At June 30, 2001 the Company had $24,849,000 of federal net operating loss carryforwards and $33,236,000 of state and foreign net operating loss carryforwards available, expiring in fiscal years after 2005. The Company periodically evaluates the deferred tax asset and adjusts the related valuation allowance on the deferred tax asset to an amount which is more likely than not to be realized through future taxable income. The components of the income tax provision for the years ended June 30, 2001, 2000 and 1999 are as follows (in thousands):
2001 2000 1999 Deferred federal tax expense $ 10,666 $ 1,849 $ 3,156 Current federal tax expense 37,551 38,208 29,044 Deferred state tax expense 815 831 517 Current state tax expense 5,575 6,320 4,926 Current foreign tax expense 1,164 15 433 Deferred foreign tax (benefit) expense (197) (1,388) -- -------- -------- -------- $ 55,574 $ 45,835 $ 38,076 ======== ======== ========
Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries as such earnings will continue to be reinvested in the forseeable future. A reconciliation of the Company's income tax provision and the amount computed by applying the statutory federal income tax rate to income before income tax provision for the years ended June 30, 2001, 2000 and 1999 is as follows (in thousands):
2001 2000 1999 Federal income tax at statutory rate $ 49,243 $ 40,614 $ 26,667 Amortization and charge-off of non-deductible goodwill 2,660 2,327 8,620 Change in valuation allowance (5) 396 (209) State taxes 4,052 4,189 2,985 Other, net (376) (1,691) 13 -------- -------- -------- $ 55,574 $ 45,835 $ 38,076 ======== ======== ========
6. COMMITMENTS AND CONTINGENCIES The Company leases office space under noncancellable operating leases with remaining terms of up to sixteen years. The Company also leases certain office and computer equipment and software under operating leases expiring through 2006. Rental expense associated with these operating leases for the years ended June 30, 2001, 2000 and 1999 were $24,641,000, $20,466,000 and $20,164,000, respectively. The future minimum rental payments under noncancellable operating leases for the years ending after June 30, 2001 are as follows (in thousands):
OPERATING FISCAL YEAR LEASES 2002 $ 25,831 2003 24,518 2004 20,393 2005 16,527 2006 14,788 Thereafter 103,702 -------- $205,759 ========
The Company's broker/dealer subsidiaries are subject to the Uniform Net Capital Rule of the Securities and Exchange Commission. At June 30, 2001, the aggregate net capital of such subsidiaries was $16,224,000, exceeding the net capital requirement by $13,564,000. The Company is involved in litigation arising in the ordinary course of business. Management believes that the Company has adequate defenses and/or insurance coverage against litigation and that the outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect upon the Company's financial position, results of operations, or cash flows. 35 17 Notes to Consolidated Financial Statements 7. SUPPLEMENTAL CASH FLOW INFORMATION In fiscal 2001, 2000 and 1999, the Company recorded a reduction to taxes currently payable related to tax benefits associated with stock options of approximately $20,460,000, $8,572,000 and $5,458,000, respectively, with a corresponding increase to additional paid-in capital. During the years ended June 30, 2001, 2000 and 1999, the Company received proceeds relating to the exercise of stock options of $26,480,000, $15,838,000 and $12,843,000, respectively, and recorded a deduction to deferred compensation of $44,000, $233,000 and $72,000, respectively, with offsetting increases in additional paid-in capital. Net cash paid for acquisition of businesses was comprised of the following for the years ended June 30, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 Fair value of assets acquired, net of cash $ 414,839 $ 4,419 $146,450 Deposit on business acquisition (115,000) 115,000 -- Less: issuance of common stock and stock options pursuant to acquisitions (36,148) (907) (62,449) Liabilities assumed (70,805) (700) (24,728) --------- -------- -------- Net cash paid $ 192,886 $117,812 $ 59,273 ========= ======== ========
8. RETIREMENT SAVINGS PLAN The Company has a contributory retirement and savings plan which covers all employees and meets the requirements of Section 401(k) of the Internal Revenue Code. Employees may contribute up to 15% of their compensation to the plan which is matched 50% by the Company up to 6% of the employee's compensation not to exceed $5,250. The Company may, at the discretion of the Board of Directors, make additional contributions to the plan. The Company's matching contribution vests 40% with the employee after two years and 20% per year thereafter. The Company's expense to match employee contributions for the years ended June 30, 2001, 2000 and 1999, was approximately $3,233,000, $2,613,000 and $2,496,000, respectively. 9. BUSINESS DIVESTITURES, MERGER EXPENSES AND OTHER CHARGES As a result of the acquisitions of Pictorial and Ascensus in fiscal 2001, the Company recorded a pre-tax restructuring charge of $4.2 million. The charge relates to restructuring activities in the existing businesses within the Insurance and Education Services segment and includes a provision of $2.1 million for severance-related costs for approximately 150 employees, $1.0 million for facility closure and related costs, and $1.1 million for impairments relating to the abandonment of certain software and product development efforts. At June 30, 2001, all restructuring activities had been completed and amounts expended. During fiscal 2000, the Company sold two of its divisions, Research Services and Networking Services, and sold the retail third-party bank marketing component of its Brokerage Services division for combined net cash proceeds of approximately $17.4 million. As a result of these divestitures, a pre-tax gain of $4.3 million was recognized in fiscal 2000. In fiscal 2000, the Company also recorded a pre-tax charge of $3.8 million for losses in connection with an overseas client of the Fund Services division whose fund accounting contract was terminated in the fourth quarter of fiscal 2000. During fiscal 1999, the Company wrote off $19.0 million of acquired in-process research and development associated with the acquisition of Greenway and incurred $0.4 million of merger-related expenses. Total business divestitures, merger expenses and other charges recorded for the years ended June 30, 2001, 2000 and 1999 consisted of the following (in thousands):
2001 2000 1999 Net gain from divestitures $ -- $(4,320) $ -- Costs to combine or realign operations: Compensation related 2,104 -- 400 Facilities or systems related 2,141 -- -- Loss on contract -- 3,800 -- ------- ------- ------- $ 4,245 $ (520) $ 400 ======= ======= =======
36 18 THE BISYS GROUP, INC. and Subsidiaries During the years ended June 30, 2001 and 2000, the following costs were paid or charged against the merger related accruals and the liability for loss on the administrative services contract (in thousands):
2001 2000 Compensation related costs $ 2,104 $ -- Facilities or systems related costs 2,141 83 Loss on contract 2,300 1,500 ------- ------ $ 6,545 $1,583 ======= ======
10. SHAREHOLDER RIGHTS PLAN On May 7, 1997, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution at the rate of one Right for each share of common stock held of record as of the close of business on May 16, 1997 and for each share of common stock issued thereafter up to the Distribution Date (defined below). Each Right entitles holders of common stock to buy one share of common stock of the Company at an exercise price of $87.50. The Rights would be exercisable, and would detach from the common stock (the "Distribution Date") only if a person or group (i) were to acquire 15 percent or more of the outstanding shares of common stock of the Company; (ii) were to announce a tender or exchange offer that, if consummated, would result in a person or group beneficially owning 15 percent or more of the outstanding shares of common stock of the Company; or (iii) were declared by the Board to be an Adverse Person (as defined in the Plan) if such person or group beneficially owns 10 percent or more of the outstanding shares of common stock in the Company. In the event of any occurrence triggering the Distribution Date, each Right would entitle the holder (other than such an acquiring person or group) to purchase the outstanding shares of common stock of the Company (or, in certain circumstances, common stock of the acquiring person) with a value of twice the exercise price of the Rights upon payment of the exercise price. The Company will be entitled to redeem the Rights at $0.00125 per Right at any time. The Rights will expire at the close of business on May 16, 2007. 11. NOTES RECEIVABLE FROM STOCKHOLDERS The Board of Directors has approved and the Company has made loans to certain executive officers to assist them in exercising non-qualified stock options, retaining the underlying shares and paying the applicable taxes resulting from such exercises. These loans bear interest at rates ranging from 5.98% to 6.25%, are full recourse, and are secured by shares of the Company's Common Stock acquired pursuant to the exercise of the options representing up to 120% of the principal amount of the loan. The principal is repayable the later of five years from the date of the loan or the expiration date of the options exercised using such loan proceeds. The principal is also repayable within one year of the employee's death or termination of employment due to disability and within 30 days of voluntary resignation. Interest is payable annually on the anniversary date of each loan. The notes receivable of $10.8 million and $11.3 million at June 30, 2001 and 2000, respectively are reflected on the accompanying consolidated balance sheet as a reduction in stockholders' equity. 12. STOCK BASED COMPENSATION PLANS The Company has stock option and restricted stock purchase plans which provide for granting of options and/or restricted stock to certain employees and outside directors. The options vest primarily over a five-year period at each anniversary date of the grant. These options expire following termination of employment or within ten years of the date of the grant, whichever comes first. Pro forma disclosures are provided for fiscal 2001, 2000 and 1999 as if the Company had adopted the cost recognition requirements of FAS 123 "Accounting for Stock-based Compensation." At June 30, 2001, options to purchase 4,367,808 shares are available for grant under the plans. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions for grants in fiscal 2001, 2000 and 1999: 1) expected dividend yields of 0%, 2) risk-free interest rates ranging from 4.72% to 6.78%, 3) expected volatility of 35% in fiscal years 2001, 2000 and 1999, and 4) an expected option life of 4.5 years, 5 years and 5 years in fiscal 2001, 2000 and 1999, respectively. For the purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period of 5 years for employees. Using these assumptions, the weighted average fair value per option at date of grant for options granted during fiscal 2001, 2000 and 1999 was $15.61, $10.38 and $8.51, respectively. Had compensation expense been recognized for the Company's stock-based compensation plans in accordance with FAS 123, the pro forma net income and earnings per share for the years ended June 30, 2001, 2000 and 1999 would have been as follows (in thousands, except per share data):
2001 2000 1999 Pro Forma Pro Forma Pro Forma Net income $ 62,295 $ 57,169 $30,364 Basic earnings per share $ 1.10 $ 1.06 $ 0.58 Diluted earnings per share $ 1.05 $ 1.02 $ 0.55
37 19 Notes to Consolidated Financial Statements The following is a summary of stock option activity for the years ended June 30, 2001, 2000 and 1999:
2001 2000 1999 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 7,516,374 $ 20.68 8,409,042 $ 16.98 7,471,434 $ 14.00 Options assumed in acquisitions 204,645 $ 12.93 -- -- 329,140 $ 2.29 Options granted-original 2,473,220 $ 33.67 2,032,344 $ 26.10 2,623,228 $ 23.70 Options granted-reload 984,050 $ 44.97 417,722 $ 23.76 -- _ Options exercised (3,209,825) $ 20.40 (2,497,812) $ 12.78 (1,316,998) $ 9.60 Options cancelled (829,295) $ 24.35 (844,922) $ 21.68 (697,762) $ 17.38 --------- ---------- --------- ---------- --------- ---------- Outstanding at end of year 7,139,169 $ 27.88 7,516,374 $ 20.68 8,409,042 $ 16.98 ========= ========== ========= ========== ========= ========== Exercisable at end of year 1,683,161 $ 18.22 2,415,236 $ 16.77 2,935,422 $ 11.64 ========= ========== ========= ========== ========= ==========
The following summarizes information about the Company's stock options outstanding at June 30, 2001:
Weighted Weighted Weighted Average Average Average Exercise Remaining Life Exercise Price Range of Exercise Prices Options Outstanding Price (in years) Exercisable of Exercisable $ 0.01-$10.00 232,005 $ 6.65 2.4 229,720 $ 6.70 $10.01-$20.00 1,766,688 $16.90 6.0 972,201 $16.46 $20.01-$30.00 2,266,619 $24.75 7.7 372,590 $25.16 $30.01-$40.00 1,917,782 $32.26 8.9 108,650 $34.50 $40.01-$60.00 956,075 $52.40 8.0 -- -- ============= ========= ====== === ======= ======
13. BUSINESS SEGMENT INFORMATION The Company is a leading provider of growth-enabling outsourcing solutions to financial institutions and other financial organizations. The Company's operations have been classified into three business segments: Investment Services, Insurance and Education Services, and Information Services. The Company's reportable segments are separately managed strategic business units that offer different products and services, and are based on the Company's method of internal reporting. The Investment Services segment provides business process outsourcing services, including administration, distribution, and investment consulting services, to domestic and offshore mutual fund complexes, and retirement plan services to small to mid-size 401(k) plans. The Insurance and Education Services segment provides distribution solutions for annuities and life, long-term care, disability and special risk insurance products; offers certification and continuing education training for insurance and investment professionals; and provides licensing-related software products and services. The Information Services segment provides information processing and check imaging solutions to financial services companies. 38 20 THE BISYS GROUP, INC. and Subsidiaries Summarized financial information by business segment and for corporate operations for the years ended June 30, 2001, 2000 and 1999 is as follows (in thousands):
2001 2000 1999 Revenues: Investment Services $ 359,300 $ 303,106 $ 237,909 Insurance and Education Services 164,737 89,841 56,471 Information Services 177,720 178,454 178,296 ----------- ----------- ----------- Total $ 701,757 $ 571,401 $ 472,676 =========== =========== =========== Operating earnings (loss): Investment Services $ 59,421 $ 53,212 $ 42,499 Insurance and Education Services 62,289 31,436 19,353 Information Services 45,844 44,816 44,389 Corporate (16,713) (13,994) (11,849) ----------- ----------- ----------- Total $ 150,841 $ 115,470 $ 94,392 =========== =========== =========== Assets: Investment Services $ 369,042 $ 200,111 $ 179,084 Insurance and Education Services 368,800 235,585 110,092 Information Services 122,685 111,868 132,271 Corporate 142,674 53,487 38,214 ----------- ----------- ----------- Total $ 1,003,201 $ 601,051 $ 459,661 =========== =========== =========== Depreciation and amortization expense: Investment Services $ 14,844 $ 11,335 $ 7,930 Insurance and Education Services 15,896 6,649 3,702 Information Services 11,253 12,004 11,404 Corporate 810 707 522 ----------- ----------- ----------- Total $ 42,803 $ 30,695 $ 23,558 =========== =========== =========== Capital expenditures: Investment Services $ 11,591 $ 12,196 $ 14,006 Insurance and Education Services 4,979 5,600 3,444 Information Services 12,088 10,190 10,063 Corporate 946 1,151 1,784 ----------- ----------- ----------- Total $ 29,604 $ 29,137 $ 29,297 =========== =========== ===========
The following is a reconciliation of operating earnings to the Company's consolidated total (in thousands):
2001 2000 1999 Total operating earnings for reportable segments $ 150,841 $ 115,470 $ 94,392 Business divestitures, merger expenses and other charges, net (4,245) 520 (400) Acquired in-process research and development -- -- (19,000) --------- --------- --------- Total operating earnings $ 146,596 $ 115,990 $ 74,992 ========= ========= =========
The net revenues of each segment are principally domestic, and no single customer accounted for 10% or more of the consolidated revenues for the years ended June 30, 2001, 2000 and 1999. 39 21 Market Price Information (unaudited) The following information relates to the Company's $0.02 par value common stock which trades in the over-the-counter market and is quoted in the NASDAQ National Market System under the symbol BSYS. Price information on the Company's common stock is presented below and has been adjusted to reflect the two-for-one stock split in October 2000.
FISCAL 2001 QUARTER ENDED HIGH LOW September 30, 2000 $41.00 $28.44 December 31, 2000 53.69 37.69 March 31, 2001 56.63 44.13 June 30, 2001 59.91 44.61 ====== ======
FISCAL 2000 QUARTER ENDED HIGH LOW September 30, 1999 $30.00 $22.53 December 31, 1999 32.63 20.98 March 31, 2000 34.31 24.13 June 30, 2000 33.69 29.06 ====== ======
At June 30, 2001, the Company's common stock was held by 1,486 stockholders of record. It is estimated that an additional 13,500 stockholders own the Company's common stock through nominee or street name accounts with brokers. Consolidated Quarterly Results (unaudited, in thousands, except per share data)
FISCAL 2001 QUARTER ENDED SEP 30 DEC 31 MAR 31 JUN 30 Revenues $161,441 $168,303 $177,359 $194,654 Operating earnings 23,106 33,109 41,886 48,495 Income before income tax provision 21,344 31,241 40,753 47,356 Net income 12,912 18,902 24,655 28,651 ======== ======== ======== ======== Basic earnings per share $ 0.23 $ 0.33 $ 0.43 $ 0.49 Diluted earnings per share $ 0.22 $ 0.32 $ 0.41 $ 0.47 ======== ======== ======== ========
FISCAL 2000 QUARTER ENDED SEP 30 DEC 31 MAR 31 JUN 30 Revenues $132,313 $138,044 $145,657 $155,387 Operating earnings 20,721 25,002 32,848 37,419 Income before income tax provision 20,471 24,505 33,033 38,030 Net income 12,283 14,926 19,987 23,008 ======== ======== ======== ======== Basic earnings per share $ 0.23 $ 0.27 $ 0.36 $ 0.41 Diluted earnings per share $ 0.22 $ 0.26 $ 0.35 $ 0.40 ======== ======== ======== ========
40 EX-21 10 y53439ex21.txt LIST OF SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 21 EXHIBIT 21 - LIST OF SIGNIFICANT SUBSIDIARIES OF THE BISYS GROUP, INC. AS OF JUNE 30, 2001
1. BIS LP Inc., a Delaware corporation 2. BISYS, Inc., a Delaware corporation 3. BISYS Information Solutions L.P., a Delaware limited partnership 4. BISYS Retirement Services, L.P., a Pennsylvania limited partnership 5. BISYS Fund Services Ohio, Inc., an Ohio corporation 6. BISYS Fund Services, LP, an Ohio limited partnership 7. BISYS Management Company, a Delaware corporation 8. BISYS Fund Services, Inc., a Delaware corporation 9. BISYS Brokerage Resources, Inc., a California corporation 10. BISYS Document Solutions L.P., a Delaware limited partnership 11. Concord Holding Corporation, a Delaware corporation 12. BISYS Insurance Services, Inc., a Pennsylvania corporation 13. BISYS Education Services, Inc., an Indiana corporation 14. DSI LP Inc., a Delaware corporation 15. BISYS Plan Services, Inc., a Delaware corporation 16. BPS (LP), Inc., a Delaware corporation 17. Potomac Insurance Marketing Group, Inc., a Maryland corporation 18. Boston Institutional Services, Inc., a Massachusetts corporation 19. Ascensus Insurance Services, Inc., a Utah corporation 20. Pictorial Holdings, Inc., a Texas corporation 21. BISYS Regulatory Services, Inc., a Georgia corporation 22. Financial Research Corporation, a Massachusetts corporation 23. Universal Pensions, Inc., a Minnesota corporation 24. The TONER Organization, Inc., a Pennsylvania corporation 25. The Insurance Exchange of America, Inc., a New Jersey corporation 26. FDI Distribution Services, Inc., a Massachusetts corporation 27. The Advanced Markets, LLC, a Tennessee limited liability company 28. Funds Distributor, Inc., a Massachusetts corporation 29. Ascensus Financial Distributors, Inc., a Wisconsin corporation
EX-23 11 y53439ex23.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP. 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of The BISYS Group, Inc., on Forms S-8 (File Nos. 33-91666, 33-91676, 333-02966, 333-39229, 333-39601, 333-40584, 333-43347, 333-43349, 333-43351, 333-65185 and 333-81683) and in the Registration Statements of The BISYS Group, Inc. on Form S-3 (File Nos. 333-56860 and 333-62154) of our report dated July 30, 2001 on our audits of the consolidated financial statements of The BISYS Group, Inc. and subsidiaries as of June 30, 2001 and 2000, and for each of the three years in the period ended June 30, 2001, which report is incorporated by reference in this Annual Report. /S/ PricewaterhouseCoopers LLP New York, New York September 28, 2001 This schedule contains summary financial information extracted from the Consolidated Financial Statements of The BISYS Group, Inc. and Subsidiaries for the year ended June 30, 2001 and is qualified in its entirety by reference to such financial statements.