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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from April 1, 1998 to December 31, 1998
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Commission file number 0-15946
DELPHI INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0021975
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
3501 Algonquin Road
Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (847) 506-3100
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class
-------------------
Common Stock, par value $0.10 per share
Preferred Share Purchase Rights
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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
As of March 31, 1999, the number of shares of Common Stock outstanding was
8,119,089. As of such date, the aggregate market value of Common Stock held
by nonaffiliates, based upon the last sale price of the shares as reported on
the NASDAQ SmallCap Market System on such date, was approximately $50,866,000.
Documents Incorporated by Reference:
Portions of the registrant's definitive proxy statement relating to its 1999
Annual Meeting of Stockholders are incorporated by reference into Part III.
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DELPHI INFORMATION SYSTEMS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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Page Reference
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PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial
Owners and Management 41
Item 13. Certain Relationships and Related Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 42
</TABLE>
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PART I
ITEM 1. BUSINESS
Delphi Information Systems, Inc. ("the Company") was founded in 1976 as
Delphi Systems, Inc., a California corporation. In 1983, Delphi Information
Systems, Inc., a Delaware corporation, was formed and acquired all of the
outstanding shares of Delphi Systems, Inc. in an exchange offer. In June,
1987, Delphi Systems, Inc. was merged into and with Delphi Information
Systems, Inc. On July 23, 1996, the Company acquired Complete Broking Systems
("CBS") of Auckland, New Zealand.
Delphi is an international provider of software and Internet-based solutions
for the insurance industry. The Company's revenue is derived primarily from
the licensing and sale of software comprised of internally developed and
third-party software and from professional services, maintenance, and support
services. Professional services include consulting, implementation, training,
and project management provided to the Company's customers with installed
systems and those in the process of installing systems.
The Company's customer list includes a majority of the largest 100 brokerages
and top 200 agencies in the United States and Canada, and many of the largest
global brokers. The Company's software operates on approximately 75,000
workstations and terminals at more than 3,000 customer sites.
PRODUCTS - The Company's current product strategy is centered on a new
generation of products, collectively referred to as the "cd" product line
which is comprised of "cd.global", a modular, state of the art, agency
management solution providing flexibility and the ability to handle
unstructured data and complex risk; "EBIX.COM", an internet browser based
product providing electronic transmission between carriers and brokers; and
"cd.one", a structured system utilizing many features of the Company's
previous products. The Company also has six "legacy" products including
INfinity, INSIGHT, PC-ELITE, Insurnet, SMART, and Vista. The legacy products
provide basic functions such as policy administration, claims handling,
accounting, and financial reporting. Legacy products will be maintained and
supported as long as there is adequate economic and strategic justification.
Customers utilizing legacy products will continue to be encouraged to migrate
to newer products.
During the second quarter of fiscal 1997, the Company discontinued the sale
and marketing of computer hardware in order to focus the Company's resources
on the development and sale of software and professional services. Subsequent
to the Company's exit from the hardware sector, the Company continues to
receive commissions from hardware vendors for product referrals although this
is not a material source of revenue for the Company.
The software products offered by the Company range in price from $2,000 to
$2,200 on a per license basis, but the total contract value for certain
multiple-site global brokers is over $1,000,000. In the fiscal year ended
March 31, 1998, one domestic customer (including its foreign subsidiaries)
accounted for approximately 12.7% of consolidated revenue. The customer is a
publicly traded multi-national insurance company listed on the New York Stock
Exchange. In the nine-month period ended December 31, 1998 and fiscal 1997,
no customer represented more than 10% of total revenue. The decrease in the
percentage of revenue attributed to this customer in the nine months ended
December 31, 1998 was due to an overall increase in Company revenue.
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SYSTEM DESIGN AND ARCHITECTURE - The Company's new product offerings utilize
the latest technology. "cd.global" is a client/server based system, which
supports Oracle relational database software technology. ebix.COM-TM- is an
Internet browser-based product, while "cd.one" is operational on Btrieve.
PRODUCT DEVELOPMENT - At December 31, 1998, the Company employed 43 full-time
employees engaged in product development activities. These activities include
research and development of software enhancements such as adding
functionality, improving usefulness, adaptation to newer software and
hardware technologies, and increasing responsiveness.
Product development expenditures including amounts capitalized were
$3,716,000, $6,089,000, and $6,016,000 in the nine-month period ended
December 31, 1998 and fiscal 1998 and 1997, respectively. Management believes
maintenance and enhancement of product technology is critical and expects to
continue to invest substantial amounts in product development. The decrease
in expenditures in the nine month period ended December 31, 1998 from prior
periods results from the Company's efforts to streamline its product
development activities to be more efficient.
COMPETITION - Management believes its principal competition is represented by
two companies which provide software systems that are comparable to those
offered by the Company. Both of these companies are larger than the Company
and may have greater financial resources. In addition, one of the companies
is partially owned by a large insurance carrier.
The Company believes that most insurance carriers are in the process of
reducing or eliminating their in-house agency and brokerage automation
efforts. Nevertheless, some insurance carriers continue to operate
subsidiaries which actively compete with the Company. These carriers have
much greater financial resources than the Company and have in the past
subsidized the automation of independent agencies through various incentives
offered to promote the sale of the carriers' insurance products. Accordingly,
there can be no assurances that insurance carriers will continue to withdraw
from competition with the Company.
The Company is not aware of any large hardware company that offers software
which specifically addresses the independent agency marketplace. However,
certain large hardware suppliers do sell systems and systems' components to
independent agencies. The Company, to a much lesser extent, also experiences
competition from small, independent or freelance developers and suppliers of
software who sometimes work in concert with hardware companies to supply
systems to independent agencies.
Key competitive factors in the Company's market are product technology,
features and functions, ease of use, price, reputation, reliability, and
quality of customer support and training. Management believes that overall
the Company competes favorably with respect to these factors.
PROPRIETARY RIGHTS - The Company regards its applications software as
proprietary and attempts to protect it with copyrights, trade secret laws and
restrictions on disclosure and transferring title. Despite these precautions,
it may be possible for third parties to copy aspects of the Company's
products or, without authorization, to obtain and use information which the
Company regards as trade secrets. Existing copyright law affords only limited
practical protection and the Company's software is unpatented.
BACKLOG AND DEFERRED REVENUE - The Company traditionally invoices software
maintenance and support on a quarterly and annual basis in advance of
providing the service. The prepaid software maintenance fees are recorded as
deferred revenue and recognized ratably over the term of the respective
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software maintenance agreement. As of December 31, 1998 and March 31, 1998,
the backlog of contracted professional services fees sales was not
significant. As of December 31, 1998 and March 31, 1998, the backlog of
contracted software license fees totaled approximately $1.8 million and zero,
respectively.
EMPLOYEES - At December 31, 1998, the Company had 191 employees, including 16
employees in sales and marketing, 43 employees in product development, 101
employees in customer service and operations, and 31 employees in general
management, administration and finance. None of the Company's employees are
presently covered by a collective bargaining agreement. Management believes
that employee relations are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is in Rolling Meadows (Chicago),
Illinois, where it leases approximately 20,000 square feet of office space.
Substantially all corporate executive and administrative functions are
located in Rolling Meadows. The Rolling Meadows lease expires in October
2003. The Company leases additional office space of approximately 6,800
square feet in Atlanta, Georgia; approximately 12,000 square feet in
Billerica, Massachusetts; approximately 15,000 square feet in Walnut Creek
(San Francisco), California; approximately 17,500 square feet in Pittsburgh,
Pennsylvania; approximately 6,000 square feet in Scarborough, (Toronto)
Canada; approximately 1,500 square feet in Auckland, New Zealand;
approximately 1,500 square feet in Sydney, Australia; approximately 1,000
square feet in London, England; and approximately 1,500 square feet in
Singapore. Management believes its facilities are adequate for its current
needs and that suitable additional or substitute space will be available as
needed. See Note 9 to the financial statements included in Part II, Item 8,
for further information regarding obligations under property leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party, and none of its property is subject to, any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The principal market for the Company's Common Stock is the Nasdaq SmallCap
Market. The Company's Common Stock trades under the symbol "DLPH". As of
March 31, 1999, there were 164 shareholders of record.
The Company has not paid dividends on its Common Stock to date. There are no
plans in the near future to do so.
The following tables set forth the high and low closing bid prices for the
Company's Common Stock for each calendar quarter in the nine-month period
ended December 31, 1998 and the fiscal year ending March 31, 1998 as restated
to reflect the one-for-five reverse stock split effective May 8, 1998.
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NINE MONTHS ENDED
DECEMBER 31, 1998 HIGH LOW
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April-June $ 5.19 $ 3.60
July - September 5.56 2.91
October - December 8.75 2.94
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FISCAL 1998 HIGH LOW
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First quarter $ 7.50 $ 5.15
Second quarter 9.05 4.70
Third quarter 7.05 4.40
Fourth quarter 4.85 3.15
</TABLE>
As of March 31, 1999 there were 8,119,089 shares of Common Stock outstanding
and 221 shares of Series D Preferred Stock, par value $.10 per share
outstanding.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
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NINE MONTHS
ENDED
DECEMBER 31, FISCAL YEARS ENDED MARCH 31,
1998 1998 1997 1996 1995
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RESULTS OF OPERATIONS:
Revenue $ 19,221 $ 22,465 $ 27,714 $ 44,081 $ 53,040
Operating income (loss) 835 (3,186) (5,880) (11,120) (597)
Net income (loss) $ 501 $ (3,406) $ (5,884) $(11,833) $ (1,681)
NET INCOME (LOSS) PER SHARE: (1)
Basic EPS $ 0.07 $ (0.46) $ (0.97) $ (6.86) $ (1.15)
Diluted EPS $ 0.07 $ (0.46) $ (0.97) $ (6.86) $ (1.15)
SHARES USED IN COMPUTING PER
SHARE DATA: (1)
Basic EPS 7,395 7,347 6,093 1,724 1,461
Diluted EPS 7,419 7,347 6,093 1,724 1,461
FINANCIAL POSITION:
Assets $ 16,545 $ 14,782 $ 22,577 $ 20,389 $ 27,547
Short-term debt 4,032 1,923 1,600 3,030 2,486
Long-term debt 210 210 -- 1,500 4,250
Stockholders' equity (deficit) $ 6,067 $ 5,591 $ 8,448 $ (3,346) $ 4,553
</TABLE>
(1) Net income (loss) per share and share data restated to reflect the
one-for-five reverse stock split effective May 8, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The insurance industry has undergone significant consolidation over the past
several years driven by the need for, and benefits from, economies of scale
and scope in providing low-cost insurance. Consolidation has involved both
insurance brokerages, the Company's primary customers, and insurance
companies, and is directly impacting the manner in which insurance products
are distributed. Management believes the insurance industry will continue to
experience significant changes in the next several years to meet the changing
distribution model. Changes in the insurance industry may create
opportunities and challenges for the Company.
Management believes consolidation will force brokerages to decrease
distribution costs and eliminate labor-intensive tasks via automation.
Competition will force brokerages to increase service levels via improved
automated processes such as quoting and claims processing. Management
believes that the Company can partner with customers to provide integrated
information management solutions, and fully leverage information technology
and services.
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The consolidation of the industry will create a marketplace of fewer yet more
sophisticated customers. In such an environment, the Company could be subject
to heightened effects of competition, particularly with respect to product
functionality, service and price.
RECENT DEVELOPMENTS - On March 23, 1998, the Board of Directors adopted a
resolution to change the Company's fiscal year end to December 31 effective
in 1998. The Company has filed Form 10-K for the twelve months ended March
31, 1998, Form 10-Q for each of the three-month periods ended June 30, 1998
and September 30, 1998, and is filing this Form 10-K for the nine months
ended December 31, 1998.
This report encompasses the "1998 transition period", the nine months ended
December 31, 1998, "fiscal 1998", the twelve months ended March 31, 1998, and
"fiscal 1997", the twelve months ended March 31, 1997.
On May 6, 1998, the Company's stockholders adopted and approved a proposal to
amend the Company's Certificate of Incorporation to effect the reverse stock
split and the authorized shares reduction. The reverse stock split and
authorized shares reduction was effective as of the open of the Nasdaq
SmallCap Market on May 8, 1998 (the "Effective Time").
At the Effective Time, each share of Common Stock issued and outstanding was
automatically reclassified and converted into one-fifth share of Common
Stock. Fractional shares of Common Stock resulting from the reverse stock
split were not issued and instead holders thereof received cash in lieu of
fractional shares. All shares and per share information presented gives
effect to the one-for-five reverse stock split and authorized shares
reduction.
The principal reason for the one-for-five reverse stock split was to increase
the trading price per share of the Common Stock in order to comply with the
revised standards for continued listing on the Nasdaq SmallCap Market, which
went into effect on February 23, 1998. The new Nasdaq listing criteria
require, among other things, that the minimum bid price per share of a listed
company be $1.00. There is no assurance, however, that the Common Stock will
continue to trade above the $1.00 minimum bid price or that the Company will
otherwise be able to maintain its listing on the Nasdaq SmallCap Market.
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RESULTS OF OPERATIONS
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
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NINE MONTHS ENDED DECEMBER 31,
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1997
1998 (UNAUDITED)
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REVENUE:
Software $ 6,375 $ 2,497
Services and other 12,846 14,139
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TOTAL REVENUE 19,221 16,636
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COST OF REVENUE:
Software 2,337 2,044
Services and other 7,352 7,136
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TOTAL COST OF REVENUE 9,689 9,180
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GROSS MARGIN 9,532 7,456
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OPERATING EXPENSES:
Product development 2,160 3,021
Sales and marketing 2,167 2,682
General and administrative 4,370 3,126
Write-off of software, goodwill
and customer lists -- 2,189
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TOTAL OPERATING EXPENSES 8,697 11,018
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OPERATING INCOME (LOSS) 835 (3,562)
Other expense 312 187
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Income (loss) before income taxes 523 (3,749)
Income tax provision (benefit) 22 (41)
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Net income (loss) $ 501 $ (3,708)
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</TABLE>
TOTAL REVENUE - The Company's revenue is derived from the licensing and sale
of internally-developed and third party software ("Software") and from
professional services, maintenance services, and support services
("Services"). Professional services include consulting, implementation,
training and project management provided to the Company's customers with
installed systems and those in the process of installing systems. Total
revenue is comprised of software revenue and service revenue. Total revenue
for the 1998 transition period increased $2,585,000 or 15.5% from the
comparable period in the prior year. Total fiscal 1998 revenue decreased
18.9% from the fiscal 1997 level.
SOFTWARE REVENUE - The Company's current product strategy is centered on a
new generation of products, collectively referred to as the "cd" product line
and are comprised of "cd.global", a modular, state of the art, agency
management solution providing flexibility and the ability to handle
unstructured
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data and complex risk; "EBIX.COM-TM-" an internet browser-based product,
providing electronic transmission between carriers and brokers; and "cd.one",
a structured system utilizing many features of the Company's previous
products. The Company also has six "legacy" products including INfinity,
INSIGHT, PC-ELITE, Insurnet, SMART, and Vista. The legacy products provide
basic functions such as policy administration, claims handling, accounting,
and financial reporting. Current legacy products will be maintained and
supported as long as there is adequate economic and strategic justification.
Customers utilizing legacy products will continue to be encouraged to migrate
to newer products.
Software revenue is comprised of revenue from the sale of "cd" products,
current legacy products, hardware, and other software. During the second
quarter of fiscal 1997 the Company discontinued the sale and marketing of
computer hardware. The sale of hardware was ceased in order to focus the
Company's resources on the development and sale of software and services.
Subsequent to the Company's exit from the hardware sector, the Company
continues to receive commissions from hardware vendors for product referrals
although this is not a material source of revenue for the Company.
Accordingly, during the first quarter of fiscal 1997, software revenue
includes revenue from the sale of computer hardware; subsequently software
revenue includes hardware commissions.
1998 transition period software revenue of $6,375,000 was $3,878,000 or 155%
greater than software revenue of $2,497,000 for the same period in the prior
year due primarily to the introduction of "cd.global" during the period.
Fiscal 1998 Software revenue of $3,509,000 was $2,580,000 or 42.4% less than
fiscal 1997 revenue of $6,089,000. Although sales of "cd" products in fiscal
1998 were $545,000 greater than fiscal 1997, this increase was offset
primarily by a $1.0 million decrease in discontinued legacy products and a
$1.9 million decrease in hardware revenue and commissions.
SERVICES REVENUE - The 1998 transition period Services revenue was
$12,846,000 compared to $14,139,000 in the similar period in 1997, a decrease
of 9.1% due primarily to a lower customer support base. Fiscal 1998 Services
revenues of $18,956,000 were $2,669,000 or 12.3% less than fiscal 1997
Services revenue of $21,625,000. The revenue decrease in fiscal 1998 from
fiscal 1997 is primarily attributable to decreased support revenue associated
with the Company's exit from the hardware business and declining legacy
support revenue partially offset by support price increases and new support
contracts associated with "cd" products.
COST OF SOFTWARE REVENUE - Cost of Software revenue includes the cost of
third party software and computer hardware and the amortization of
capitalized software development cost. Cost of Software revenue, as a
percentage of Software revenue, was 36.7%, 81.9%, 69.5%, and 87.4% in the
1998 transition period, the nine months ended December 31, 1997 and fiscal
1998 and 1997, respectively. The downward trend of cost of Software revenue
as a percentage of Software revenue from fiscal 1997 to the 1998 transition
period is due to higher software sales and also the write-off of intangible
assets in prior periods.
COST OF SERVICES REVENUE - Cost of Services revenue includes costs associated
with support, consulting and training services, and provisions for doubtful
accounts. Cost of Services revenue as a percentage of Services revenue was
57.2%, 50.5%, 50.2%, and 62.3% in the 1998 transition period, the nine months
ended December 31, 1997 and fiscal 1998 and 1997, respectively. The decrease
from fiscal 1997 to fiscal 1998 is primarily due to direct labor efficiencies
gained through headcount reductions. The increase from the nine months ended
December 31, 1997 and fiscal 1998 to the 1998 transition period is due to
higher personnel levels to support "cd.global" sales.
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PRODUCT DEVELOPMENT EXPENSES - Product development expenses, net of
capitalized software cost were $2,160,000 in the 1998 transition period
compared to $3,021,000 in the same period in 1997. Product development
expenses, net of capitalized software costs, were $3,510,000 and $4,255,000
in fiscal 1998 and 1997, respectively. Product development expenditures,
including those which were capitalized, were $3,716,000 in the 1998
transition period compared to $4,399,000 in the same period in 1997. Product
development expenditures, including those which were capitalized, were
$6,089,000 and $6,016,000, respectively, in fiscal years 1998 and 1997. The
decrease in the transition period expenditures from prior periods results
from the Company's efforts to streamline its product development activities
to be more efficient. Management believes maintenance and enhancement of
product technology is critical and expects to continue to invest substantial
amounts in product development. Product development activities generally may
be accelerated or deferred based on resource availability.
SALES AND MARKETING EXPENSES - Sales and marketing expenses as a percent of
total revenue were 11.3% in the 1998 transition period and approximately 16%
in the same period in 1997, fiscal 1998 and fiscal 1997. The decrease in the
transition period is due to lower average personnel levels in the transition
period.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses
increased 39.8% in the 1998 transition period from the same period in 1997.
General and administrative expenses as a percentage of total revenue were
22.7%, 18.8%, 19.6% and 15.7% for the 1998 transition period, the nine months
ended December 31, 1997 and fiscal 1998 and fiscal 1997, respectively. The
increase in the transition period from prior periods primarily relates to
higher expenditures for personnel, facilities and information technology.
General and administrative expenses increased 1.4% in fiscal 1998 from fiscal
1997.
AMORTIZATION OF GOODWILL, CUSTOMER LISTS AND NONCOMPETE AGREEMENTS -
Amortization of goodwill, customer lists, and noncompete agreements was
$136,000 and $496,000 in fiscal 1998 and 1997, respectively. As further
discussed in Note 3 to the financial statements included in Part II, Item 8,
during fiscal 1998, all unamortized goodwill and customer lists of $770,000
were written off to reflect impairment.
OTHER INCOME/EXPENSE - Other income/expense consists of minority interest,
interest income and interest expense. Minority interest is relatively
insignificant. The Company had net interest expense of $359,000 in the 1998
transition period compared to $143,000 for the same period in 1997. The
Company had net interest expense of $272,000 in fiscal 1998, compared to net
interest income of $23,000 in fiscal 1997. As further detailed in Note 6 to
the financial statements included in Part II, Item 8, the increase in net
interest in the 1998 transition period and fiscal 1998 was due to higher
average borrowings.
RESTRUCTURING CHARGES - The Company's product strategy is centered on a new
generation of products, collectively referred to as the "cd" product line.
Consistent with the Company's product strategy, the development of enhanced
versions of legacy products has been limited. As new products are introduced
to the market, existing customers utilizing legacy products are encouraged to
migrate to the Company's new generation of products. During the first two
quarters of fiscal 1998 the Company experienced some customer attrition
related to certain legacy support price increases effective in April 1997.
During the second quarter of fiscal 1998, in response to changes in the
Company's markets and technology trends, the product strategy was altered
requiring modification of a portion of the underlying technology of "cd"
products.
As a result of the decrease in legacy maintenance revenue and the requirement
to modify a portion of the underlying technology of "cd" products, the
recoverability of a portion of intangible assets was deemed
11
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impaired. Accordingly, during the second quarter of fiscal 1998, the carrying
value of capitalized and purchased software was reduced $1,283,000 and
goodwill and customer lists of $770,000 were written off.
During the first two quarters of fiscal 1997 the Company generated
significant operating losses. In response to the losses, the Company was
restructured resulting in significant reductions in payroll expense and other
operating expenses. In addition, as the Company transitioned out of the
hardware business, a portion of the inventory on hand was deemed obsolete. As
a result, the Company incurred a restructuring charge in fiscal 1997 of
$1,297,000.
LIQUIDITY AND CAPITAL RESOURCES
During the 1998 transition period the Company achieved positive operating
cash flow of $190,000, due principally to profitable operations, which were
partially offset by an increase in accounts receivable of $1,571,000 and a
decrease in deferred revenue of $878,000. The Company funded investments in
capital expenditures of $537,000 and capitalized software of $1,556,000
primarily through line of credit borrowings of $2,109,000.
Despite the improved financial results during the 1998 transition period, the
Company is currently faced with liquidity concerns. Subsequent to January 1,
1999, the Company received approximately $4.9 million in cash related to
proceeds from the exercise of outstanding stock warrants. These proceeds were
used to fund operations, pay aged accounts payable and reduce borrowings
under the Company's bank line of credit, which was designed to provide up to
$4.0 million, subject to certain borrowing base limits. The amount borrowed
under the line of credit was reduced from approximately $3.7 million at
December 31, 1998 to approximately $1.4 million as of March 31, 1999. As of
April 15, 1999, the total amount that the bank has made available, and that
the Company is borrowing, under the bank line of credit is approximately $1.4
million. The Company believes the amount that should be available under the
terms of the line of credit is substantially higher. Based on the Company's
projections, the borrowing requirements of the business at certain times
during 1999 will exceed $1.4 million but not the higher Company calculated
maximum borrowing capacity under the existing line of credit. The cash
requirements are, in great part, affected by the extended payment terms
offered to customers on new software sales. In order to meet the projected
cash requirements of the business, it will be necessary for the Company to
secure financing sources, beyond those currently available, in order to
continue as a going concern.
Management believes that the required financing sources to operate the
business as a going concern will be secured, although there can be no
assurances that such financing will be available or that it will be available
on terms satisfactory to the Company. As of April 15, 1999, management is
having ongoing discussions with its bank in order to come to an agreement as
to the available borrowing base under its line of credit agreement.
Management believes that the borrowing base will be expanded, however, to
date, no agreement has been reached, and there can be no assurance that such
lender calculated maximum borrowing capacity will be adequate.
Management also believes that there may be additional infusions of cash from
the further exercise of outstanding stock warrants, which would supplement
any cash made available through successful bank negotiations. In late March,
1999, the expiration date of warrants to purchase approximately 1.5 million
shares of common stock at $7.50 per share was extended from April 19, 1999 to
June 18, 1999. Finally, if the Company is unable to successfully renegotiate
its available borrowings under its current line-of-credit agreement,
management will endeavor to secure the necessary financing from other
sources. Such sources could include a different bank, a "mezzanine lender",
or an equity investor. Again, although management believes the Company will
be able to secure financing on terms satisfactory to the Company and on a
timely basis, there can be no assurances that this will happen. Management
intends to aggressively seek the required financing sources that are
necessary in order to continue to operate the business.
DEFERRED REVENUE - The Company traditionally invoices software maintenance
and support in advance of providing the service. The prepaid software
maintenance fees are recorded as deferred revenue and recognized ratably over
the term of the respective software maintenance agreement. A significant
component of the Company's current liabilities at December 31, 1998, consists
of deferred revenues of
12
<PAGE>
$3,418,000. The liability is satisfied through normal ongoing operations of
the Company's service organization and generally does not require payment to
third parties.
PRODUCT DEVELOPMENT - At December 31, 1998, the Company employed 43 full-time
employees engaged in product development and activities. These activities
include research and development of software enhancements, improving
usefulness, adaptation to newer software and hardware technologies, and
increasing responsiveness. Product development expenditures, including
amounts capitalized, were $3,716,000 for the nine-months ended December 31,
1998 and $6,089,000 and $6,016,000 in fiscal 1998, and 1997, respectively.
Management believes maintenance and enhancement of product technology is
critical and expects to continue to invest substantial amounts in product
development. The decrease in the transition period expenditures from prior
periods results from the Company's efforts to streamline its product
development activities to be more efficient. Product development activities
generally may be accelerated or deferred based on resource availability.
BANK LINE-OF-CREDIT - Effective January 1997, the Company established a line
of credit up to $4,000,000 subject to borrowing base limits. The agreement
provides for a minimum monthly interest at the bank's prime lending rate plus
two and one-half percent (2.5%) on the greater of the actual amount
outstanding or $1,600,000. The agreement contains certain covenants including
the maintenance of a minimum net worth of $2,000,000 and restrictions upon
certain activities by the Company without the approval of the bank including
the incurrence of senior debt, certain mergers or acquisitions, and the
payment of dividends. The borrowings under the agreement are secured by
substantially all of the Company's assets.
In December 1997, March 1998, and September 1998, the Company executed
amendments to the line of credit agreement. The amendments extend the
maturity date of the agreement to January 31, 2001, alter the provisions of
the early termination fee, and modify the criteria for determining the amount
available under the line. In accordance with the agreement, as amended, prior
to December 31, 1998 the Company could borrow up to two and one-half times
average monthly collections (as defined); from January 1999 through March
1999, two times average monthly collections; and subsequently the sum of one
times average monthly recurring maintenance collections and seventy-five
percent of eligible non-maintenance receivables (as defined). As of December
31, 1998, borrowings under the line of credit totaled $3,712,000, and $7,000
remained available for borrowing. As of March 31, 1999, borrowings under the
line of credit were $1,408,000 and $29,000 remained available for borrowing.
NONCOMPETE NOTE PAYABLE - The Company entered into various noncompete
agreements in connection with a January 1991 acquisition. The final
installment of $400,000 was due on January 31, 1997, but was subsequently
converted to an 11.75% interest bearing unsecured note. As of December 31,
1998, the remaining balance is due in three equal annual payments of $119,574
(principal and interest) commencing on January 31, 1999. The January, 1999
payment was paid by the Company. Commitments related to the noncompete
agreements were amortized and expensed ratably over the life of each
agreement.
PRIVATE EQUITY PLACEMENTS - The Company completed two private equity
placements in fiscal 1997. In May 1996, the Company issued 2,140,000 units at
a price of $5.00 per unit. In January 1997, the Company issued 1,126,100
units at a price of $5.00 per unit. Each unit consists of one share of common
stock and a redeemable warrant (further described below). The two private
equity placements provided net proceeds of approximately $14,971,000 to the
Company.
In conjunction with the May 1996 equity placement, outstanding promissory
notes of $1,500,000 were converted into 300,000 units. Each unit consists of
one share of common stock and a redeemable
13
<PAGE>
warrant (further described below). In addition, all Series C Preferred Stock,
and 16,135 of the 16,356 outstanding shares of Series D Preferred Stock were
converted into 1,455,307 shares of common stock.
REDEEMABLE WARRANTS - As described above, in conjunction with the May 1996
and January 1997 private equity placements and conversion of a $1,500,000
outstanding promissory note, the Company issued units, each consisting of one
share of common stock and one redeemable warrant to purchase one share of
common stock at an exercise price of $7.50 per share, subject to certain
anti-dilutive adjustments. The shares and redeemable warrants comprising the
units are immediately detachable and separately transferable.
The redeemable warrants may be exercised at any time after the date of
issuance for a period of three years. The Company can redeem the redeemable
warrants at any time subsequent to 180 days after issuance if the closing bid
price for the common stock is at or above $10.00 per share for twenty
consecutive trading days subsequent to when the redeemable warrants first are
redeemable.
Subsequent to January 1, 1999, warrants to acquire approximately 609,000
shares of Common Stock that were due to expire on April 19, 1999 were
exercised generating $4.6 million in cash. On March 31, 1999, the Company
extended the expiration date from April 19, 1999 to June 18, 1999 for the
remaining unexercised warrants originally issued in May 1996 to acquire
approximately 1,531,000 shares of Common Stock. Of these unexercised
warrants, 200,000 warrants are held by the Company's largest shareholder.
In addition, subsequent to January 1, 1999, warrants to acquire 25,000 shares
of common stock that were due to expire January 24, 2000 and warrants to
acquire 5,000 shares of common stock related to the conversion of the
promissory notes were exercised generating approximately $225,000 in cash.
OTHER WARRANTS - In connection with the May 1996 private equity placement
described above, the Company issued a warrant to the placement agent (the
"Agent's Warrant") to purchase 200,000 shares of the Company's common stock
at $5.00 per share. These warrants are not subject to redemption and expire
May 1, 2001. Subsequent to January 1, 1999, warrants to acquire 18,000 shares
of Common Stock were exercised generating $90,000 in cash.
In connection with a renewal of a line-of-credit agreement in December 1994,
the Company issued to a bank a five-year warrant option to purchase 75,000
shares of common stock at $17.50 per share.
TAX CREDIT CARRYFORWARDS - As further described in Note 8 to the financial
statements included herein at Part II, Item 8; as of December 31, 1998, the
Company has investment business tax credit carryforwards and net operating
loss (NOL) carryforwards for federal income tax purposes aggregating
approximately $35,000,000 expiring at various times through the year 2012.
NEW ACCOUNTING STANDARDS - In June 1997, SFAS No. 130, "Reporting
Comprehensive Income," established standards for reporting and displaying
comprehensive income and its components. The Company has chosen to disclose
Comprehensive Income (Loss), which encompasses net income (loss) and foreign
currency translation adjustments, in the Consolidated Statements of
Stockholders' Equity. Prior years have been restated to conform to the
requirements of SFAS No. 130.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" established reporting standards for companies operating in more
than one business segment. Since the Company manages its business as a single
entity that provides application software and related services to a single
industry on a worldwide basis, the Company believes that the segment
disclosure requirements of SFAS
14
<PAGE>
No. 131 are not applicable to its operations. However, the applicable
enterprise-wide disclosures required by SFAS No. 131 are included elsewhere
in Part II, Item 8, Note 1.
As previously reported, in October 1997, the AICPA issued Statement of
Position (SOP) 97-2, "Software Revenue Recognition", which supersedes SOP
91-1. The Company adopted, as required, SOP 97-2 for software transactions
entered into beginning April 1, 1998. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements (i.e., software
products, upgrades/enhancements, postcontract customer support, installation,
training, etc.) to be allocated to each element based on relative fair values
of the elements. The fair value of an element must be based on evidence which
is specific to the vendor. The revenue allocated to software products
(including specified upgrades/enhancements) generally is recognized upon
delivery of the products. The revenue allocated to postcontract customer
support generally is recognized ratably over the term of the support and
revenue allocated to service elements (such as training and installation)
generally is recognized as the services are performed. If the Company does
not have evidence of the fair value of all elements in a multiple-element
arrangement, all revenue from the arrangement is deferred until such evidence
exists or all elements are delivered. Further, the SOP limits the recognition
of revenue for contracts with extended payment terms.
In March 1998, the AICPA issued SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition" and in December 1998,
issued SOP 98-9, "Modification of SOP 97-2, Software Recognition, With
Respect to Certain Transactions". For fiscal years beginning on or before
March 15, 1999, SOP 98-4 and 98-9 defer the application of certain passages
in SOP 97-2 which limit what is considered evidence of fair value of various
elements of multiple element arrangements. Additionally, for transactions
entered into in fiscal years beginning after March 15, 1999, SOP 98-9
provides for revenue recognition for certain software arrangements involving
multiple elements where vendor specific evidence does not exist for delivered
elements. Management is in the process of reviewing SOP 98-9 to determine its
impact, if any, on the Company.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivation
Instruments and Hedging Activities", which addresses the accounting for
derivative instruments. SFAS No. 133 is effective for financial statements
for the Company's fiscal year beginning January 1, 2000. The Company does not
expect that SFAS No. 133 will have a significant effect on its current
financial reporting.
EURO CONVERSION - Effective January 1, 1999, eleven of the fifteen member
countries of the European Union (the "participating countries") have agreed
to adopt a new common legal currency (the "euro"). The participating
countries established fixed conversion rates between their existing sovereign
currencies (the "legacy currencies") and the euro. Following the introduction
of the euro, the legacy currencies are scheduled to remain legal tender in
the participating countries as denominations of the euro between January 1,
1999 and January 1, 2002 (the "transition period"). During the transition
period transactions may be settled using either the euro or the participating
country's legacy currency on a "no compulsion, no prohibition" basis.
Conversion rates will no longer be computed directly from one legacy currency
to another but rather will utilize a "triangulation" method specified by
European Union regulations whereby payments made in a legacy currency are
converted to the euro and subsequently converted to the recipient's desired
legacy currency. Beginning January 1, 2002, the participating countries will
issue new euro-denominated bills and coins for use in cash transactions. No
later than July 1, 2002, the participating countries will withdraw all bills
and coins denominated in legacy currencies such that legacy currencies will
no longer be legal tender for any transactions, completing the euro
conversion.
The Company currently has no bank accounts denominated in any legacy currency
and has not entered into any material transactions denominated in any legacy
currency. The Company has produced enhancements to certain software products
marketed in Europe to accommodate the euro conversion
15
<PAGE>
process (the "euro module"). The cost to develop the euro module was not
material and will be provided at minimal cost to existing customers.
Management believes the euro module allows for the continued marketing and
sale of the Company's products to customers requiring euro conversion
capabilities.
YEAR 2000 COMPLIANCE -The Year 2000 issue is the result of computer programs
being written using two digits rather than four digits to define the
applicable year. Any of the Company's internal use computer programs and its
software products that are date sensitive may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including,
among other things, the inability to process transactions or engage in normal
business activities.
Based on a preliminary and on-going assessment, the Company has determined
that it will be required to replace most of its internal-use financial and
operational systems software and to modify certain existing products that it
markets to customers, so that the software will function properly with
respect to dates in the year 2000 and thereafter. The Company presently
believes that with the conversion to new internal-use software and with the
planned modifications to its products, the Year 2000 issue will not pose
significant operational problems for the Company and/or its customers.
However, if such conversions and modifications are not made, or not made on a
timely basis, the Year 2000 issue could have a material effect on the Company
and customers utilizing certain products. The Company has warranted that
certain products are Year 2000 compliant and that certain products will be
made Year 2000 compliant. The Company has been and is currently providing to
customers upgrade alternatives to non-Year 2000 compliant-versions of the
Company's products to its customers.
The Company has outlined and continues to develop a multi-faceted,
comprehensive plan to address the Year 2000 issue and its potential effect on
the Company's business. This plan considers (a) Company-owned or licensed
software for internal use; (b) third-party- provided software services used
for internal use;(c) Company proprietary software marketed to customers; (d)
third-party software embedded in the Company's proprietary software marketed
to customers; and (e) third-party software marketed to customers.
Additionally, the plan will address alternatives and contingencies to address
the possibility of situations whereby certain aspects of the Company's Year
2000 efforts are delayed or otherwise unsuccessful.
Internal-Use Software - The Company plans to address and resolve the Year
2000 issue with respect to internal financial and operational systems, such
as general ledger, order management, accounts payable, billing, accounts
receivable, fixed assets, time reporting and project management, by replacing
substantially all of such internal-use systems with vendor-certified, Year
2000-compliant software systems that offer enhanced features and
functionality relative to the Company's existing internal-use software
systems. The Company has purchased a Year 2000-compliant system and has
started the initial implementation process in March, 1999 and expects to have
the system operational by the third quarter of 1999. The out-of-pocket
software, hardware and personnel cost estimates associated with this
replacement system and requisite modifications to the Company's network
infrastructure range from $500,000 to $750,000. The Company has a financing
agreement with a third-party leasing company to finance the software cost of
$225,000. Other implementation consulting services of approximately $265,000
will be paid on a monthly basis through the implementation period, starting
in April, 1999.
Approximately 50% of the Company's expenses are payroll-related expenses. The
Company relies on a third party for most of its payroll processing services.
The Company has received written certification from this payroll processing
vendor that the software used in its payroll processing services is Year 2000
compliant. Payroll processing may be further impacted by the preparedness of
various financial institutions and government agencies which receive
information via electronic interface. The Company
16
<PAGE>
further intends to request, but has not yet requested, from certain vendors
of lesser significant products and services to the Company a written
certification regarding Year 2000 compliance.
Software Marketed to Customers - The Company has used and intends to continue
using both internal and external resources to re-program, replace and test
its proprietary software products for Year 2000 compliance. The Company
anticipates completing the Year 2000 project as soon as practical, but in any
event before any anticipated adverse impact. The total cost of this Year 2000
project is estimated to be approximately $150,000 of which approximately
$50,000 has been spent to date. This project has been and will be funded over
the next year through existing cash resources and operating cash flows.
The Company also plans to determine the extent to which the Company's
software products are vulnerable to the failure of third party products to be
Year 2000 compliant. Generally, software products provided by third parties
that are marketed directly or indirectly by the Company to its customers are
developed by leading software suppliers with Year 2000 programs in process.
There can be no guarantee, however, that third-party software products
marketed by the Company will be rendered Year 2000-compliant on a timely
basis. The Company intends to continually monitor and evaluate Year 2000
compliance through internal testing and by obtaining written certification of
Year 2000 compliance from the vendors. If necessary, the Company will
consider alternative vendors to ensure Year 2000 compliance for third-party
software products marketed to its customers.
While the Company is not heavily reliant on non-IT equipment with embedded
technology, the Company will assess and evaluate such equipment as a part of
its Year 2000 efforts.
The requirements and timetable for the correction of Year 2000 issues are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that may
cause material differences include, but are not limited to, the availability
of trained personnel, the ability to locate and collect all relevant computer
codes and similar uncertainties.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995 - This Annual Report on Form 10-K contains various
forward-looking statements and information that are based on management's
beliefs as well as assumptions made by and information currently available to
management, including statements regarding future economic performance and
financial condition, liquidity and capital resources, acceptance of the
Company's products by the market and management's plans and objectives. Such
statements are subject to various risks and uncertainties which could cause
actual results to vary materially from those stated. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, expected or projected. Such risks and uncertainties include the
Company's ability to overcome its recent history of operating losses and
declining revenues, the availability and amount of future sources of capital,
the risks associated with future acquisitions, the willingness of independent
insurance agencies to outsource their computer and other processing needs to
third parties, the Company's ability to continue to develop new products to
effectively address market needs in an industry characterized by rapid
technological change, the Company's dependence on the insurance industry (and
in particular independent agents), the highly competitive and rapidly
changing automation systems market, the Company's ability to effectively
protect its applications software and other proprietary information, the
Company's ability to attract and retain quality management, and software,
technical sales and other personnel. Certain of these as well as other risks
and uncertainties are described in more detail in the Company's Registration
statement on Form S-3 filed under the Securities Act of
17
<PAGE>
1933, Registration No. 333-12781, and the Company's periodic filings pursuant
to the Securities Exchange Act of 1934. The Company undertakes no obligation
to update any such factors or to publicly announce the results of any of the
forward-looking statements contained herein to reflect future events or
developments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Delphi is subject to certain market risks, including foreign currency and
interest rates. The Company has foreign subsidiaries in Australia, Canada,
New Zealand, Singapore and the United Kingdom (UK) that develop and sell
software products and services in those respective countries. The Company is
exposed to potential gains and losses from foreign currency fluctuations
affecting net investments and earnings denominated in foreign currencies. The
Company's primary exposure is to changes in exchange rates for the U.S.
Dollar versus the Australian, Canadian, New Zealand and Singapore Dollars and
the British pound.
In the 1998 transition period, the net change in the cumulative foreign
currency translation adjustments account, which is a component of
stockholder's equity, was an unrealized (loss) of ($25,000). Unrealized
foreign currency translation income (loss) of ($14,000) and $10,000 were
recognized in fiscal 1998 and fiscal 1997, respectively.
Delphi's exposure to interest rate risk relates to its debt obligations,
which are primarily U.S. Dollar denominated. The Company's market risk
therefore is the potential loss arising from adverse changes in interest
rates. As further described in Note 6 to the financial statements included
herein at Part II, Item 8, the Company's debt consists primarily of a
floating-rate bank line-of credit. Market risk is estimated as the potential
decrease in pretax earnings resulting from a hypothetical 10% increase in
interest rates on the Company's debt. If such an increase occurred, the
Company would incur approximately $35,000 per annum in additional interest
expense based on the average debt borrowed during the nine months ended
December 31, 1998. The Company does not feel such additional expense is
significant.
The Company does not currently use any derivative financial instruments
relating to the risk associated with changes in interest rates.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Delphi Information Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Delphi
Information Systems, Inc. (a Delaware Corporation) and subsidiaries as of
December 31 and March 31, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the nine-months ended
December 31, 1998 and each of the two years ended March 31, 1998 and 1997.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delphi Information Systems,
Inc. and subsidiaries as of December 31 and March 31, 1998, and the results
of their operations and their cash flows for the nine months ended December
31, 1998 and each of the two years ended March 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's projections indicate that the
Company's current debt facility will not provide sufficient financing to fund
the cash requirements of the business, which raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to addressing this liquidity issue are also described in Note 1. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not a
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
April 15, 1999
19
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1998 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,053 $ 872
Accounts receivable, less allowances of $1,068
and $860, respectively 6,378 4,807
Other current assets 310 163
---------- ----------
TOTAL CURRENT ASSETS 7,741 5,842
Property and equipment, net 1,899 2,084
Capitalized and purchased software, net 6,561 6,554
Other assets 344 302
---------- ----------
TOTAL ASSETS $ 16,545 $ 14,782
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,032 $ 1,923
Accounts payable and accrued expenses 2,371 2,078
Accrued payroll and related benefits 182 419
Deferred revenue 3,418 4,381
---------- ----------
TOTAL CURRENT LIABILITIES 10,003 8,801
Notes payable-long term 210 210
Other liabilities 265 180
---------- ----------
TOTAL LIABILITIES 10,478 9,191
---------- ----------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 2,000,000 shares authorized,
221 shares of Series D issued and outstanding, respectively 49 49
Common stock, $.10 par value,
Non-designated, 20,000,000 shares authorized,
7,395,414 and 7,395,449 issued and
outstanding, respectively 740 740
Additional paid-in capital 48,717 48,717
Accumulated deficit (43,516) (44,017)
Cumulative foreign currency translation adjustment 77 102
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 6,067 5,591
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,545 $ 14,782
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED MARCH 31,
DECEMBER 31, 1998 1998 1997
----------------- ---- ----
<S> <C> <C> <C>
REVENUE:
Software $ 6,375 $ 3,509 $ 6,089
Services and other 12,846 18,956 21,625
-------- -------- --------
TOTAL REVENUE 19,221 22,465 27,714
COST OF REVENUE:
Software 2,337 2,439 5,323
Services and other 7,352 9,512 13,464
-------- -------- --------
TOTAL COST OF REVENUE 9,689 11,951 18,787
-------- -------- --------
GROSS MARGIN 9,532 10,514 8,927
OPERATING EXPENSES:
Product development 2,160 3,510 4,255
Sales and marketing 2,167 3,587 4,405
General and administrative 4,370 4,414 4,354
Amortization of goodwill, customer lists and
noncompete agreements - 136 496
Restructuring charges - 2,053 1,297
-------- -------- --------
TOTAL OPERATING EXPENSES 8,697 13,700 14,807
-------- -------- --------
OPERATING INCOME (LOSS) 835 (3,186) (5,880)
Minority interest (47) 47 -
Interest income - (120) (131)
Interest expense 359 392 108
-------- -------- --------
Income (loss) before income taxes 523 (3,505) (5,857)
Income tax provision (benefit) 22 (99) 27
-------- -------- --------
Net income (loss) $ 501 ($ 3,406) ($ 5,884)
-------- -------- --------
-------- -------- --------
Basic net income (loss) per common share $ 0.07 ($ 0.46) ($ 0.97)
-------- -------- --------
-------- -------- --------
Diluted net income (loss) per common share $ 0.07 ($ 0.46) ($ 0.97)
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding:
Basic 7,395 7,347 6,093
-------- -------- --------
-------- -------- --------
Diluted 7,419 7,347 6,093
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
Preferred Stock COMMON STOCK ADDITIONAL CURRENCY
--------------------------------------- PAID-IN ACCUMULATED TRANSLATION COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT INCOME (LOSS)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 52,624 $ 7,225 2,061,540 $ 206 $ 23,844 ($ 34,727) $ 106
-----------------------------------------------------------------------------
Net loss -- -- -- -- -- (5,884) -- ($ 5,884)
Translation adjustment -- -- -- -- -- -- 10 10
---------
Comprehensive loss ($ 5,874)
---------
Exercise of stock options -- -- 10,900 1 77 -- --
Shares sold under employee stock
purchase plan -- -- 4,927 -- 27 -- --
Conversion of convertible promissory
notes to common stock -- -- 300,000 30 1,470 -- --
Conversion of Series C Preferred Stock
to common stock (36,268) (3,570) 725,360 73 3,497 -- --
Conversion of Series D Preferred Stock
to common stock (16,135) (3,606) 729,947 73 3,533 -- --
Issuance of common stock in connection
with private equity placements -- -- 3,266,100 327 14,644 -- --
CBS acquisition -- -- 161,460 16 1,026 -- --
Issuance of common stock as
consideration for services
provided -- -- 10,000 1 49
-----------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 221 49 7,270,234 727 48,167 (40,611) 116
-----------------------------------------------------------------------------
Net loss -- -- -- -- -- (3,406) -- ($ 3,406)
Translation adjustment -- -- -- -- -- -- (14) (14)
---------
Comprehensive loss ($ 3,420)
---------
Exercise of stock options -- -- 112,100 12 489 -- --
Shares sold under employee stock
purchase plan -- -- 2,126 -- 11 -- --
Issuance of common stock as
consideration for services
provided -- -- 10,989 1 50 -- --
-----------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 221 49 7,395,449 740 48,717 (44,017) 102
-----------------------------------------------------------------------------
Net income -- -- -- -- -- 501 -- $ 501
Translation adjustment -- -- -- -- -- -- (25) (25)
---------
Comprehensive income $ 476
---------
Purchase of fractional shares due to
reverse stock split -- -- (35) -- -- --
-----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 221 $ 49 7,395,414 $ 740 $ 48,717 ($ 43,516) $ 77
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
22
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED MARCH 31,
DECEMBER 31, 1998 1998 1997
----------------- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 501 ($ 3,406) ($ 5,884)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 722 1,138 1,284
Amortization of capitalized and purchased software 1,549 2,043 2,183
Amortization of goodwill, customer lists and noncompete agreements - 136 496
Write-off of capitalized and purchased software, goodwill and
customer lists and non-compete agreements - 2,053 -
Loss on disposal of fixed assets - - 14
Excess lease cost - - (824)
Issuance of common stock as consideration for services provided - 51 50
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECT OF
ACQUISITION OF BUSINESSES:
Accounts receivable, net (1,571) 434 3,111
Other assets (189) (174) 766
Accounts payable and accrued liabilities 293 (2,589) (2,300)
Accrued payroll and related benefits (237) (201) (826)
Other liabilities and deferred revenue (878) (2,681) (2,988)
---------- --------- ---------
Net cash provided by (used in) operating activities 190 (3,196) (4,918)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (537) (980) (593)
Expenditures for capitalized and purchased software (1,556) (2,579) (1,761)
Cash outlays for acquisitions, net of cash acquired - - (708)
---------- --------- ---------
Net cash used in investing activities (2,093) (3,559) (3,062)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable - - (3,030)
Borrowings on notes payable 2,109 533 1,600
Proceeds from exercise of stock options and
employee stock purchase plan - 512 105
Net proceeds from private equity placement - - 14,971
---------- --------- ---------
Net cash provided by financing activities 2,109 1,045 13,646
---------- --------- ---------
Foreign currency translation adjustment (25) (14) 10
---------- --------- ---------
Net change in cash and cash equivalents 181 (5,724) 5,676
Cash and cash equivalents at the beginning of the period 872 6,596 920
---------- --------- ---------
Cash and cash equivalents at the end of the period 1,053 872 6,596
---------- --------- ---------
---------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 359 $ 206 $ 163
Income taxes paid - - 39
NON-CASH TRANSACTIONS:
Preferred stock and convertible promissory notes converted
to common stock - - 8,675
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
NATURE OF BUSINESS - Delphi Information Systems, Inc. and Subsidiaries, (the
"Company") develops, markets and supports computer software and
Internet-based solutions which automate independent property and casualty
insurance agencies and brokerages including the areas of sales management,
policy administration, accounting and electronic interface with the computers
of insurance carriers.
FINANCING ISSUES - The Company generated increased revenue, net income and
positive operating cash flow in the nine months ended December 31, 1998 (the
"1998 transition period"). The increase in revenue was due primarily to the
higher level of software sales compared to the prior period.
Prior to the nine months ended December 31, 1998 (the "1998 transition period")
the Company had experienced significant operating losses in each fiscal year
since 1993, along with declining revenue. During this period, the Company
financed its operations through bank financing and private placements of equity
capital. To respond to these losses and declining revenue, during fiscal 1998
and continuing during the 1998 transition period, the Company took the following
steps:
1) Changes in the senior executive management;
2) Rationalization and reallocation of the overall cost structure;
3) Implementation of programs to improve customer support;
4) Finalized development and release of the "cd" product line; and
5) Aggressive marketing of new products and services.
Despite the improved financial results during the 1998 transition period, the
Company is currently faced with liquidity concerns. Subsequent to January 1,
1999, the Company received approximately $4.9 million in cash related to
proceeds from the exercise of outstanding stock warrants. These proceeds were
used to fund operations, pay aged accounts payable and reduce borrowings
under the Company's bank line of credit, which was designed to provide up to
$4.0 million, subject to certain borrowing base limits. The amount borrowed
under the line of credit was reduced from approximately $3.7 million at
December 31, 1998 to approximately $1.4 million as of March 31, 1999. As of
April 15, 1999, the total amount that the bank has made available, and that
the Company is borrowing, under the bank line of credit is approximately $1.4
million. The Company believes the amount that should be available under the
terms of the line of credit is substantially higher. Based on the Company's
projections, the borrowing requirements of the business at certain times
during 1999 will exceed $1.4 million but not the higher Company calculated
maximum borrowing capacity under the existing line of credit. The cash
requirements are, in great part, affected by the extended payment terms
offered to customers on new software sales. In order to meet the projected
cash requirements of the business, it will be necessary for the Company to
secure financing sources, beyond those currently available, in order to
continue as a going concern.
Management believes that the required financing sources to operate the
business as a going concern will be secured, although there can be no
assurances that such financing will be available or that it will be available
on terms satisfactory to the Company. As of April 15, 1999, management is
having ongoing discussions with its bank in order to come to an agreement as
to the available borrowing base under its line of credit agreement.
Management believes that the borrowing base will be expanded, however, to
date, no agreement has been reached, and there can be no assurance that such
lender calculated maximum borrowing capacity will be adequate.
Management also believes that there may be additional infusions of cash from the
further exercise of outstanding stock warrants, which would supplement any cash
made available through successful bank negotiations. In late March, 1999, the
expiration date of warrants to purchase approximately 1.5 million shares of
common stock at $7.50 per share was extended from April 19, 1999 to June 18,
1999. Finally, if the Company is unable to successfully renegotiate its
available borrowings under its current line-of-credit agreement, management will
endeavor to secure the necessary financing from other sources. Such sources
could include a different bank, a "mezzanine lender", or an equity investor.
Again, although management believes that the Company will be able to secure
financing on terms satisfactory to the Company and on a timely basis, there can
be no assurances that this will happen.
Management intends to aggressively seek the required financing sources that
are necessary in order to continue to operate the business. Management
continues to believe that the Company is well suited to take advantage of the
current market opportunities. Upon obtaining the necessary financing, the
Company will continue to aggressively market its products and services, fund
development and monitor costs to ensure the Company's products incorporate
state-of-the-art technologies and provide customers with value-added
solutions.
24
<PAGE>
CONSOLIDATION - The consolidated financial statements include the accounts of
Delphi Information Systems, Inc., ("Delphi USA"), its wholly owned
subsidiary, Delphi Information Systems International, Inc., (Delphi
International"), both Delaware corporations and all majority owned
subsidiaries of Delphi International. Wholly owned subsidiaries of Delphi
International are Canadian Insurance Computer Systems, Inc. ("Delphi
Canada"), Delphi Information Systems, (UK) Ltd., Delphi Information Systems,
(NZ) Ltd., Complete Broking Systems (Malaysia), Sdn. Bhd. and Delphi
Information Systems PTE (Singapore) Ltd. Additionally, Delphi International
holds a fifty-four percent interest in Complete Broking Systems Australia
PTY, Ltd. Intercompany transactions and accounts have been eliminated in
consolidation.
Delphi has an insignificant amount of long-lived assets located outside of
the United States in foreign operations as of December 31, 1998. Foreign
operations delivered software and provided related services to external
customers accounting for approximately 17.9% of total revenue for the
nine-month period ended December 31, 1998.
On July 23, 1996, the Company acquired Complete Broking Systems ("CBS") of
Auckland, New Zealand in exchange for $500,000 cash and 161,460 shares of the
Company's common stock. The acquisition has been accounted for as a purchase.
Accordingly, the results of CBS have been recorded in the financial
statements commencing on July 24, 1996.
FISCAL YEAR - Prior to April 1998, the Company's fiscal year consisted of the
twelve months ended March 31st. Effective April 1998, the Company changed its
year-end to December 31st. Condensed statements of operations for the 1998
transition period and the nine months ended December 31, 1997 are noted below
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------
1997
1998 (UNAUDITED)
--------------------------------
<S> <C> <C>
Revenue $19,221 $16,636
Cost of revenue 9,689 9,180
------- -------
Gross margin 9,532 7,456
Operating expenses 8,697 11,018
------- -------
Operating income (loss) $ 835 ($3,562)
------- -------
------- -------
Income (loss) before income taxes $ 523 ($3,749)
------- -------
------- -------
Net income (loss) $ 501 ($3,708)
------- -------
------- -------
</TABLE>
REVENUE RECOGNITION - In October 1997, the AICPA issued Statement of Position
(SOP) 97-2, "Software Revenue Recognition", which supersedes SOP 91-1. The
Company has adopted SOP 97-2 for software transactions subsequent to March 31,
1998. SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements (i.e., software products, upgrades/enhancements,
postcontract
25
<PAGE>
customer support, installation, training, etc.) to be allocated to each
element based on relative fair values of the elements. The fair value of an
element must be based on evidence which is specific to the vendor. The
revenue allocated to software products (including specified
upgrades/enhancements) generally is recognized upon delivery of the products.
The revenue allocated to service elements (such as training and installation)
generally is recognized as the services are performed. Maintenance is
generally billed to customers on a quarterly or annual basis in advance
thereby resulting in deferred revenue, which is recognized as revenue ratably
over the term of the related maintenance contract. If the Company does not
have evidence of the fair value of all elements in a multiple-element
arrangement, all revenue from the arrangement is deferred until such evidence
exists or all elements are delivered. Further, the SOP limits the recognition
of revenue for contracts with extended payment terms.
In March 1998, the AICPA issued SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition" and in December 1998,
issued SOP 98-9, "Modification of SOP 97-2, Software Recognition, With
Respect to Certain Transactions". For fiscal years beginning on or before
March 15, 1999, SOP 98-4 and 98-9 defer the application of certain passages
in SOP 97-2 which limit what is considered evidence of fair value of various
elements of multiple element arrangements. Additionally, for transactions
entered into in fiscal years beginning after March 15, 1999, SOP 98-9
provides for revenue recognition for certain software arrangements involving
multiple elements where vendor specific evidence does not exist for delivered
elements. Management is in the process of reviewing SOP 98-9 to determine its
impact, if any, on the Company.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less at the time of
purchase to be cash equivalents.
SOFTWARE DEVELOPMENT COSTS - The Company capitalizes internally generated
software development costs and purchased software, collectively referred to
as software development costs, in compliance with the Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed." Capitalization of software
development costs begins upon the establishment of technological feasibility
for the product. The establishment of technological feasibility and the
ongoing assessment of the recoverability of these costs consider external
factors including, but not limited to, anticipated future gross product
revenues, estimated economic life and changes in software and hardware
technology. Amortization of capitalized software development costs, through
cost of software revenue, begins when the products are available for general
release to customers. The annual amortization is the straight-line method
over the remaining estimated economic life of the product. The maximum
amortization period is five years. Amortization of software development costs
is included in cost of software revenue.
Software development costs are amortized on a product-by-product basis.
Amortization of software development costs was $1,549,000 in the 1998
transition period and $2,043,000 and $2,183,000 in fiscal 1998 and 1997,
respectively.
Net capitalized and purchased software costs at December 31, 1998 and March 31,
1998 consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
----------------- ---------------
<S> <C> <C>
Total cost $ 13,357 $ 11,801
Less accumulated amortization (6,796) (5,247)
--------- ---------
$ 6,561 $ 6,554
--------- ---------
--------- ---------
</TABLE>
26
<PAGE>
As further discussed in Note 3, during the year ended March 31, 1998, the
Company decreased the carrying value of certain software development costs by
$1,283,000, to reflect impairment.
GOODWILL AND CUSTOMER LISTS - Goodwill consists of the excess of the cost of
acquisitions less the net fair market value of identifiable assets and
liabilities. Customer lists represent the estimated value of acquired
customer lists. Costs are amortized on a straight-line basis over five to ten
years. During fiscal 1998, all unamortized goodwill and customer lists of
$770,000 were written off to reflect impairment. Amortization of goodwill and
customer lists was $136,000 and $496,000 in fiscal 1998, and 1997,
respectively.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to ten years. Leasehold improvements are amortized over
the shorter of the expected life of the improvements or the lease term.
INCOME TAXES - The Company follows the liability method of accounting for
income taxes pursuant to the Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". Deferred income taxes are
recorded to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year-end.
EARNINGS PER SHARE - Basic earnings per share ("EPS") is equal to net income
divided by the weighted average number of shares of common stock outstanding
for the period. Diluted EPS recognizes the dilutive effect of common stock
equivalents and is equal to net income divided by the sum of the weighted
average number of shares outstanding and common stock equivalents. At
December 31, 1998 the Company's common stock equivalents consist of stock
options, common stock warrants, and convertible preferred stock. Consistent
with previous standards, SFAS No. 128 prohibits inclusion of the impact of
common stock equivalents in the calculation of EPS when inclusion results in
antidilution. Accordingly, for each of the years ended March 31, 1998 and
1997, basic and diluted EPS are equal.
A reconciliation of the number of weighted average shares used in calculating
basic and diluted net income (loss) per share is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998 1997
---- --------------------
<S> <C> <C>
Weighted average number of
common shares outstanding - basic 7,395 7,347 6,093
Effect of potentially dilutive stock options
and preferred stock 24 (a) (a)
----- ----- -----
Weighted average number of
Common shares outstanding - diluted 7,419 7,347 6,093
----- ----- -----
----- ----- -----
</TABLE>
(a) Common stock equivalents excluded to prevent anti-dilution.
Share and net income (loss) per share amounts have been adjusted to reflect
the one-for-five reverse stock split effective May 8, 1998.
FOREIGN CURRENCY TRANSACTIONS - The accounts of the Company's foreign
subsidiaries have been translated according to the provisions of the
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation". Gains or losses resulting from translation of the foreign
subsidiaries' financial statements are included in stockholders' equity. Any
gains or losses resulting from foreign
27
<PAGE>
currency transactions are reflected in the consolidated statements of
operations of the period in which they occur.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS - In the 1998 transition period, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income," which established standards
for reporting and displaying comprehensive income and its components. The
Company has chosen to disclose Comprehensive Income (Loss), which encompasses
net income (loss) and foreign currency translation adjustments, in the
Consolidated Statements of Stockholders' Equity. Prior years have been
restated to conform to the requirements of SFAS No. 130.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" established reporting standards for companies operating in more
than one business segment. Since the Company manages its business as a single
entity that provides application software and related services to a single
industry on a worldwide basis, the Company believes that the segment
disclosure requirements of SFAS No. 131 are not applicable to its operations.
The applicable enterprise-wide disclosures required by SFAS No. 131 are
included elsewhere in these notes to consolidated financial statements.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which addresses the accounting for
derivative instruments. SFAS No. 133 is effective for financial statements
for the Company's fiscal year beginning January 1, 2000. The Company does not
expect that SFAS No. 133 will have a significant effect on its current
financial reporting.
CONCENTRATIONS OF CREDIT RISK - In fiscal 1998, one domestic customer
(including its foreign subsidiaries) accounted for approximately 12.7% of
consolidated revenue. At March 31, 1998 accounts receivable from the
significant customer totaled $1,445,000. The customer is a publicly traded
multi-national insurance company listed on the New York Stock Exchange. In
both the 1998 transition period and fiscal 1997, no single customer
represented more than 10% of consolidated revenue.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the 1998 transition period presentation.
NOTE 2: STOCKHOLDERS' EQUITY:
STOCKHOLDER RIGHTS AGREEMENT - On March 23, 1998, the Board of Directors of
the Company adopted a stockholder rights plan (the "Stockholder Rights Plan")
designed to protect the stockholders from certain unfair and coercive tactics.
Pursuant to a Stockholder Rights Agreement (the "Rights Agreement") the
Company declared a dividend of one preferred share purchase right ("Right")
on each outstanding share of the Company's Common Stock, $.10 par value per
share ("Common Shares"), payable to stockholders of record at the close of
business on March 23, 1998. Except as described below, each Right, when
exercisable, entitles the holder thereof to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Shares,
par value $.10 per share (the "Preferred Shares"), of the Company at an
exercise price of $25.00 per one one-hundredth of a Preferred Share (the
"Purchase Price"), subject to adjustment.
28
<PAGE>
Until the date an "Acquiring Person" (as defined) is identified, the Rights
are not detachable and are not exercisable.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to the greater of (1) a
preferential quarterly dividend payment of $100 per share, or (2) an
aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be
entitled to a preferential liquidation payment of $100 per share, plus an
amount equal to 100 times the aggregate amount to be distributed per share of
common stock of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares except as
otherwise required by law. Finally, in the event of any merger, consolidation
or other transaction in which Common Shares are exchanged, each Preferred
Share will be entitled to receive 100 times the amount received per Common
Share. The Rights are protected by customary antidilution provisions.
If any person or group becomes an Acquiring Person, then each holder of a
Right (other than Rights beneficially owned by the Acquiring Person), will
have the right to receive upon exercise of such Right that number of Common
Shares (or, in certain circumstances, cash, property or other securities of
the Company) having a market value of two times the exercise price of the
Right.
If at any time after the time that any person or group becomes an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a Right (other
than Rights beneficially owned by the Acquiring Person), will thereafter have
the right to receive, upon the exercise thereof at the then-current exercise
price of the Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the Purchase Price of the Right.
At any time after the time that any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights beneficially owned by such person or
group, any Associate or Affiliate thereof, and certain transferees thereof,
which will be void), in whole or in part, at an exchange ratio of one Common
Share or one-hundredth of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges) per Right (subject to adjustment).
At any time prior to the time that any person becomes an Acquiring Person,
the Board of Directors of the Company may redeem the Rights in whole, but not
in part, at a price of $.001 per Right, subject to adjustment, which may (at
the option of the Company) be paid in cash, Common Shares or other
consideration deemed appropriate by the Board of Directors. The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish;
provided, however, that no redemption will be permitted or required after the
time that any person becomes an Acquiring Person. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of the Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from
and after such time as any person becomes an Acquiring Person no such
amendment may make the Rights redeemable if the Rights are not then
redeemable in accordance with the terms of the Rights Agreement or may
adversely affect the interests of the holders of the Rights.
29
<PAGE>
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. The Rights will expire on March 23, 2008,
unless the Rights are earlier redeemed or exchanged by the Company, as
described. The Rights are not calculated as weighted shares outstanding until
they are exercised.
REVERSE STOCK SPLIT - On May 6, 1998, the Company's stockholders approved an
amendment to the Company's Certificate of Incorporation to effect a
one-for-five reverse stock split of the Company's outstanding $.10 par value
Common Stock and to reduce the number of authorized shares from 75,000,000 to
20,000,000 effective May 8, 1998. All share and per share information in
these financial statements have been adjusted accordingly.
PRIVATE EQUITY PLACEMENTS - In May 1996, the Company issued 2,140,000 units
at a price of $5.00 per unit. In January 1997, the Company issued 1,126,100
units at a price of $5.00 per unit. Each unit consists of one share of common
stock and a redeemable warrant (further described below). The two private
equity placements provided net proceeds of approximately $14,971,000 to the
Company.
In conjunction with the May 1996 equity placement, outstanding promissory
notes of $1,500,000 were converted into 300,000 units. Each unit consists of
one share of common stock and a redeemable warrant (further described below).
In addition, all Series C Preferred Stock, and 16,135 of the 16,356
outstanding shares of Series D Preferred Stock were converted into 1,455,307
shares of common stock.
REDEEMABLE WARRANTS - As described above, in conjunction with the May 1996
and January 1997 private equity placements and conversion of a $1,500,000
outstanding promissory note, the Company issued units, each consisting of one
share of common stock and one redeemable warrant to purchase one share of
common stock at an exercise price of $7.50 per share, subject to certain
anti-dilutive adjustments. The shares and redeemable warrants comprising the
units are immediately detachable and separately transferable.
The redeemable warrants may be exercised at any time after the date of
issuance for a period of three years. The Company can redeem the redeemable
warrants at any time subsequent to 180 days after issuance if the closing bid
price for the common stock is at or above $10.00 per share for twenty
consecutive trading days subsequent to when the redeemable warrants first are
redeemable.
Subsequent to January 1, 1999, warrants to acquire approximately 609,000
shares of Common Stock that were due to expire on April 19, 1999 were
exercised generating approximately $4.6 million in cash. On March 31, 1999,
the Company extended the expiration date from April 19, 1999 to June 18, 1999
for the remaining unexercised warrants originally issued in May 1996 to
acquire approximately 1,531,000 shares of Common Stock. Of these unexercised
warrants, 200,000 warrants are held by the Company's largest shareholder.
In addition, subsequent to January 1, 1999, warrants to acquire 25,000 shares
of common stock that were due to expire January 24, 2000 and warrants to
acquire 5,000 shares of common stock related to the conversion of the
promissory notes were exercised generating approximately $225,000 in cash.
OTHER WARRANTS - In connection with the May 1996 private equity placement
described above, the Company issued a warrant to the placement agent (the
"Agent's Warrant") to purchase 200,000 shares of the Company's common stock
at $5.00 per share. The Agent's Warrant is not subject to redemption and
expires May 1, 2001. Subsequent to January 1, 1999, warrants to acquire
18,000 shares of Common Stock were exercised generating approximately $90,000
in cash.
30
<PAGE>
In connection with a renewal of a line-of-credit agreement in December 1994,
the Company issued to a bank a five-year warrant option to purchase 75,000
shares of common stock at $17.50 per share.
SERIES D CONVERTIBLE PREFERRED STOCK - At December 31, 1998 the Company had
221 shares of Series D Convertible Preferred Stock issued and outstanding.
Each share is convertible into 45 shares of common stock at the request of
the holder. The Preferred Stock has voting rights equal to the number of
common shares into which the preferred shares is convertible. The Preferred
Stock is not entitled to dividends.
NOTE 3 - RESTRUCTURING CHARGES:
The Company's product strategy is centered on a new generation of products,
collectively referred to as "cd" products. Consistent with the Company's
product strategy, the development of enhanced versions of legacy products has
been limited. As new products are introduced to the market, existing
customers utilizing legacy products are encouraged to migrate to the
Company's new generation of products. During the first two quarters of fiscal
1998 the Company experienced some customer attrition related to certain
legacy product maintenance price increases effective in April 1997.
During the second quarter of fiscal 1998, in response to changes in the
Company's markets and technology trends, the product strategy was altered
requiring modification of a portion of the underlying technology of "cd"
products.
As a result of the decrease in legacy maintenance revenue and the requirement
to modify a portion of the underlying technology of "cd" products, the
recoverability of a portion of intangible assets was deemed impaired.
Accordingly, during the second quarter of fiscal 1998, the carrying value of
capitalized and purchased software was reduced $1,283,000 and goodwill and
customer lists of $770,000 were written off.
The Company generated significant operating losses during the first two
quarters of fiscal 1997. In response to the losses, the Company was
restructured resulting in significant reductions in payroll expense and other
operating expenses. In addition, as the Company transitioned out of the
hardware business, a portion of the inventory on hand was deemed obsolete. As
a result, the Company incurred a restructuring charge in fiscal 1997
summarized as follows (in thousands):
<TABLE>
<S> <C>
Severance cost $ 643
Inventory Obsolescence 400
Other costs 254
-------
$1,297
-------
-------
</TABLE>
As of December 31, 1998, there are no remaining accruals related to these
restructuring charges.
NOTE 4- INVESTMENT IN APT:
The Company owns a 20% interest in the common stock of Alliance for
Productive Technology, Inc. ("APT"), a privately held company formed as an
alliance of agency automation vendors, insurance companies, agents'
associations, and insurance industry organizations. The purpose of APT is to
provide non-proprietary interface products and services to the insurance
industry. The Company has entered into a distribution agreement with APT to
enable it to incorporate certain APT products and features into the Company's
products. The investment of $230,000 has been recorded as a long-term other
asset as of December 31, 1998. As further described in Note 6, a portion of
the Company's investment is held as security for a note payable to APT.
31
<PAGE>
NOTE 5- PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1998 and March 31, 1998 consists of
the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
<S> <C> <C>
Computer equipment and purchased software $ 7,111 $ 6,676
Leasehold improvements 975 984
Furniture, fixtures and other 1,804 1,742
------------ ---------
9,890 9,402
Less accumulated depreciation and amortization (7,991) (7,318)
------------ ---------
$ 1,899 $ 2,084
------------ ---------
------------ ---------
</TABLE>
NOTE 6 - NOTES PAYABLE:
Notes payable at December 31, 1998 and March 31, 1998, are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
<S> <C> <C>
Bank line-of-credit $ 3,712 $ 1,603
Noncompete note payable 300 300
Note payable - APT (Note 4) 230 230
Less current portion (4,032) (1,923)
------------ ---------
$ 210 $ 210
------------ ---------
------------ ---------
</TABLE>
BANK LINE-OF-CREDIT - Effective January 1997, the Company established a line
of credit up to $4,000,000 subject to borrowing base limits. The agreement
provides for minimum monthly interest at the bank's prime lending rate plus
two and one-half percent (2.5%) on the greater of the actual amount
outstanding or $1,600,000. The agreement includes certain covenants including
the maintenance of a minimum net worth of $2,000,000 and restrictions upon
certain activities by the Company without the approval of the bank including
the incurrence of senior debt, certain mergers or acquisitions, and the
payment of dividends. The borrowings under the agreement are secured by
substantially all of the Company's assets.
In December 1997, March 1998, and September 1998 the Company executed
amendments to the line of credit agreement. The amendments extend the
maturity date of the agreement two years to January 31, 2001, alter the
provisions of the early termination fee, and modify the criteria for
determining the amount available under the line. In accordance with the
amendments, prior to December 31, 1998 the Company may borrow up to two and
one-half times average monthly collections (as defined); from January 1999
through March 1999, two times average monthly collections; and subsequently
up to the sum of one times average monthly collections from recurring
maintenance revenue and seventy-five percent of eligible non-maintenance
receivables (as defined). As of December 31, 1998, borrowings under the line
of credit totaled $3,712,000, and $7,000 remained available for borrowing. As
of March 31, 1999, the borrowings under the line of credit totaled $1,408,000
and $29,000 remained available for borrowing.
As discussed above, the line of credit agreement provides for minimum monthly
interest on the greater of the balance outstanding or $1,600,000. In order to
minimize interest expense net of interest income, the Company has
periodically drawn on the line of credit and invested the proceeds in cash
equivalents. The cash equivalents are unrestricted and may be utilized by the
Company at any time. At December 31,
32
<PAGE>
1998 the Company was in technical default under certain provisions of the
line of credit. The Company has obtained waivers for these defaults.
As of April 15, 1999, the total amount that the bank has made available, and
that the Company is borrowing under the bank line of credit is approximately
$1.4 million. The Company believes that the amount that should be available
under the terms of the line of credit is substantially higher. Management is
having ongoing discussions with its bank in order to come to an agreement as
to the available borrowing base under its line-of-credit agreement.
Management believes that the borrowing base will be expanded, however, to
date, no agreement has been reached, and there can be no assurance that such
lender calculated maximum borrowing capacity will be adequate. See Note 1 of
the consolidated financial statements for further discussion of financing
issues and financing alternatives.
Additional information related to line of credit borrowings for the nine
months ended December 31, 1998 and the year ended March 31, 1998, is as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
<S> <C> <C>
Maximum amount borrowed during the period $ 3,926 $ 2,294
Average amount borrowed during the period $ 2,532 $ 1,546
Interest rate at the end of the period 10.25% 11.0%
Weighted average interest rate incurred during
the period 11.7% 11.7%
</TABLE>
Average borrowings were determined based on the amounts outstanding at each
month end. The weighted average interest rate during the period was computed
by dividing actual interest by average borrowings outstanding during each of
the periods.
NONCOMPETE NOTE PAYABLE - The Company entered into various noncompete
agreements in connection with a January, 1991 acquisition. The final
installment of $400,000 was originally due on January 31, 1997, but was
subsequently converted to an 11.75% interest bearing unsecured note. As of
December 31, 1998, the remaining balance is due in three equal annual
payments of $119,574 (principal and interest) commencing on January 31, 1999.
Commitments related to the noncompete agreements were amortized and expensed
ratably over the life of each agreement. The January, 1999 installment was
paid by the Company.
NOTE PAYABLE-APT - In conjunction with the purchase of the common stock of
APT discussed in Note 4, the Company entered into a note payable secured by a
portion of the APT common stock. The note bears
33
<PAGE>
interest at the prime rate, 7.75% at December 31, 1998. Interest is due
semi-annually and the final principal payment of $230,000 is due January 1,
1999. The Company is currently discussing an extension of the January 1, 1999
payment and APT continues to hold a portion of the Company's investment as
security for the note payable. The note may be prepaid without penalty.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued liabilities at December 31, 1998 and March 31,
1998, consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
<S> <C> <C>
Trade accounts payable $1,884 $1,304
Accrued and other liabilities 487 774
------ ------
$2,371 $2,078
------ ------
------ ------
</TABLE>
NOTE 8 - INCOME TAXES:
Income (loss) before income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
December 31, March 31,
------------ ----------
1998 1998 1997
------- ------- --------
<S> <C> <C> <C>
Domestic $ 782 $(3,985) $(5,681)
Foreign (259) 480 (176)
Total $ 523 $(3,505) $(5,857)
</TABLE>
The income tax provision (benefit) consisted of (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
December 31, March 31,
1998 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal $ - $ - $ -
State 22 (48) 27
Foreign -- (51) --
------ ------ ------
Total $ 22 $ (99) $ 27
------ ------ ------
------ ------ ------
</TABLE>
34
<PAGE>
The income tax provision at the federal statutory rate differs from the
effective rate because of the following items:
<TABLE>
<CAPTION>
Nine Months
Ended Years Ended
December 31, March 31,
------------ ---------
1998 1998 1997
------ ------- -------
<S> <C> <C> <C>
Statutory rate 34.0% (34.0)% (34.0)%
State income tax 4.2 (1.4) 0.5
Amortization of intangible assets relating to
acquired businesses _ .3 3.3
Increase in valuation allowances (34.0) 26.2 24.7
Other, net - 6.1 6.0
------ ------- -------
Effective rate 4.2% (2.8)% 0.5%
------ ------- -------
------ ------- -------
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences and carryforwards
which give rise to a significant portion of deferred tax assets and
liabilities for December 31, 1998 and March 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Depreciation $ - $ 144 $ - $ 272
Product enhancements - 2,616 - 2,403
Accruals 103 - 272 -
Bad debts 299 - 332 -
NOL carryforwards 12,395 - 12,417 -
Tax credit carryforwards 870 - 738 -
---------- ------------- ---------- -------------
13,667 2,760 13,759 2,675
Valuation allowance 10,907 - (11,084) -
---------- ------------- ---------- -------------
Total deferred taxes $ 2,760 $ 2,760 $ 2,675 $ 2,675
---------- ------------- ---------- -------------
---------- ------------- ---------- -------------
</TABLE>
Due to the uncertainty of realizing any of the net deferred tax assets, the
Company has provided a valuation allowance against the entire net amount.
As of December 31, 1998, the Company has investment business tax credit
carryforwards and net operating loss (NOL) carryforwards for federal income
tax purposes aggregating approximately $35,000,000 expiring at various times
through the year 2012. The utilization of tax credits and net operating
losses may be limited due to changes in ownership and other restrictions
imposed by the Internal Revenue Code.
35
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Lease Commitments:
The Company leases office space under non-cancelable operating leases with
expiration dates ranging through 2003, with various renewal options. Capital
leases range from three to five years and are primarily for computer
equipment.
The aggregate minimum annual lease payments under leases in effect on
December 31, 1998 are set forth below (in thousands) as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Leases Leases
- ---- ------- ---------
<S> <C> <C>
1999 $ 228 $ 850
2000 173 798
2001 44 668
2002 30 527
2003 -- 393
------- ---------
Total minimum lease
commitments $ 475 $3,236
---------
---------
Less: amount representing
interest (86)
-------
Present value of obligations
under capital leases 389
Less: current portion (175)
-------
Long-term obligations under
capital leases $ 214
-------
-------
</TABLE>
The current portion of the present value of obligations under capital leases
is included in the consolidated balance sheets with accounts payable and
accrued expenses; the long-term portion is included with other liabilities.
Rental expense for office facilities and certain equipment subject to
operating leases for the nine months ended December 31, 1998 and for fiscal
year 1998 and 1997 aggregated $1,392,000, $1,826,000, and $2,421,000,
respectively.
Contingencies:
The Company believes there are no legal contingencies that would have a
material impact on the financial statements.
NOTE 10 - CASH OPTION PROFIT SHARING PLAN AND TRUST:
Effective January 1, 1988, the Company adopted and implemented a 401(k) Cash
Option Profit Sharing Plan which allows employees to contribute part of their
compensation to the Profit Sharing Plan and Trust, on a pre-tax basis. The
Company is under no obligation to contribute to the Plan. For the nine-months
ended December 31, and for the fiscal years ended March 31, 1998 and 1997,
the Company did not make any contributions to the plan.
36
<PAGE>
NOTE 11 - STOCK OPTIONS:
The Company's 1996 Stock Incentive Plan provides for the granting of
1,200,000 stock options and stock appreciation rights to officers, directors
and employees. Options granted under this plan may be incentive stock options
as defined under current tax laws or nonstatutory options. Options are
granted at prices determined by the Board of Directors (not less than 100
percent of the market price of the stock at the time of grant and 110 percent
with respect to incentive stock options granted to optionees who own 10
percent or more of the Company's stock). Stock options under this plan
generally become exercisable in 25 percent increments vesting on each of the
first through fourth anniversaries of the date of grant. All options must be
exercised within ten years of the date of grant (with respect to incentive
stock optionees owning ten percent or more of the Company's stock, the term
may be no longer than five years). No stock appreciation rights are
outstanding.
The Company's 1998 Director Option Plan provides for granting of up to
300,000 stock options to non-employee directors. Only nonstatutory options
may be granted under this plan. Options are granted at prices not less than
100% of the market price of the stock at the time of grant. Stock options
under this plan generally become exercisable over periods ranging from one to
three years. All options must be exercised within ten years of the date of
grant.
The Company has granted nonstatutory options outside the stock incentive plan
to purchase up to an aggregate of 20,000 shares. These options are granted at
prices determined by the Board of Directors (no less than 100 percent of the
market price). The options have various vesting periods and must be exercised
within seven to ten years of the date of the grant.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized for its stock option plans and its stock purchase plan. Had
compensation cost for these stock based compensation plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 123, the Company's net income (loss) and net income
(loss) per share would have been adjusted to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months
Ended
December 31, Years ended March 31,
1998 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Net income (loss) as reported $ 501 ($3,406) ($5,884)
Pro forma net loss ($48) ($4,417) ($6,276)
Net income (loss) per share, as reported $0.07 ($0.46) ($0.97)
Net income (loss) per share, pro forma ($0.01) ($0.60) ($1.03)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
shown above may not be representative.
37
<PAGE>
The per share weighted-average fair values of stock options granted during the
nine-month period ended December 31, 1998 and the years ended March 31, 1998 and
1997 were $2.38, $4.50 and $3.85, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
Nine Months
Ended
December 31, Years ended March 31,
1998 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Expected volatility 44% 64% 64%
Expected dividend yield none none none
Risk-free interest rate 5.30% 6.21% 6.61%
Expected life of stock options 6 years 10 years 10 years
</TABLE>
38
<PAGE>
A summary of the status of the Company's stock options plans at December 31,
1998, and March 31, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
Within Plan Outside Plan
------------------------------------------------ ----------------------------------------------
Weighted Weighted
Shares Average Shares Average
Under Option Exercise Under Option Exercise
Option Prices Price Option Prices Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1996 247,946 $3.90-$33.75 $6.05 20,000 $3.90-$36.90 $20.70
Granted 484,850 3.45-5.95 4.95 -- -- --
Exercised (3,100) 5.00 5.00 -- -- --
Canceled (226,438) 3.90-33.75 5.65 (19,000) 3.90-36.90 20.45
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1997 503,258 $3.45-$33.75 $5.15 1,000 $3.90-$36.90 $26.25
Granted 826,151 3.28-7.50 4.65 -- -- --
Exercised (112,100) 3.44-5.00 4.62 -- -- --
Canceled (370,301) 3.44-7.50 5.20 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1998 847,008 $3.28-$33.75 $4.77 1,000 $26.25 $26.25
Granted 548,400 3.38-5.12 5.07 -- -- --
Exercised -- -- -- -- -- --
Canceled (318,915) 3.28-33.75 $4.59 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1998 1,076,493 $2.93-$7.85 $4.59 1,000 $26.25 $26.25
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable
at December 31, 1998 228,031 $2.91-$7.85 $4.73 1,000 $26.25 $26.25
- ------------------------------------------------------------------------------------------------------------------------------------
Available for Grant
at December 31, 1998 402,562 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average remaining lives for the options outstanding at December
31, 1998 are 9.2 years.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding directors of the Company required by this item
is incorporated by reference to the Company's definitive proxy statement
relating to its 1999 Annual Meeting of Stockholders for the nine months ended
December 31, 1998 under the captions "Election of Directors" and "Compliance
with SEC Filing Requirements" which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1998.
In September 1998, the board of directors of the Company accepted the
resignation of Reid E. Simpson, Senior Vice-President and Chief Financial
Officer. While the Company conducted a search for a successor, the board of
directors named the Company's Controller, David J. Vock, acting Chief
Financial Officer. In November 1998, the Company announced the appointment of
Edward J. O'Connell to the positions of Senior Vice President Finance &
Administration, Chief Financial Officer and Secretary.
The executive officers and senior management of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Max Seybold 38 President, Chief Executive Officer
Robin Raina 32 Executive Vice President, Chief Operating Officer
Edward J. O'Connell 46 Senior Vice President-Finance & Administration,
Chief Financial Officer and Secretary
</TABLE>
The executive officers of the Company are elected annually by the Board.
Max Seybold joined the Company in January 1998 as Senior Vice President -
Professional Services and was named President and Chief Executive Officer in
February 1998. In March 1998, Mr. Seybold was elected to the Board of
Directors. Prior to joining the Company, Mr. Seybold held the position of
President and Chief Executive Officer for Mindware/BPR, Inc. of Waltham,
Massachusetts, an international technology consulting firm. Prior to joining
Mindware/BPR Mr. Seybold founded software/professional services firms based
in Switzerland and Germany. Mr. Seybold holds an Masters of Business
Administration in Strategic Management and Information Technology from
Friedrich-Alexander-University in Nuernberg, Germany.
Robin Raina joined the Company in October, 1997 as Vice President -
Professional Services and was promoted to Senior Vice President - Sales and
Marketing in February 1998. Mr. Raina was promoted to Executive Vice
President, Chief Operating Officer in December, 1998. Prior to joining the
Company, Mr. Raina held senior management positions for Mindware/BPR serving
in Asia and North America.
40
<PAGE>
While employed by Mindware/BPR, an international technology consulting firm,
Mr. Raina was responsible for managing projects for multinational
corporations including setting-up offshore laboratories, building intranets,
managing service bureaus and support centers, providing custom programming,
and year 2000 conversions. Mr. Raina holds an Industrial Engineering degree
from Thapar University in Punjab, India.
Edward J. O'Connell joined the Company in December, 1998 as Senior Vice
President-Finance & Administration, Chief Financial Officer and Secretary.
Prior to joining the Company, Mr. O'Connell was Chief Operating Officer of
Keck, Mahin & Cate, a professional services partnership from 1995 to 1998.
Mr. O'Connell was Senior Vice President, Finance and Chief Financial Officer
of GenDerm Corporation, a pharmaceutical company, from 1991 to 1995 and was
Executive Vice President - Finance and Administration and Chief Financial
Officer of Union Special Corporation, an international manufacturer of
industrial sewing equipment from 1981 to 1991. Mr. O'Connell is a CPA and
spent seven years with a Big Five public accounting firm. Mr. O'Connell
received a BBA in Accounting from the University of Notre Dame in 1974.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under the
caption "Compensation of Directors and Executive Officers" in the Company's
proxy statement for its 1999 Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission within 120 days after
December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is hereby incorporated by reference the information appearing under the
captions "Security Ownership of Management" and "Principal Stockholders of
Delphi" in the Company's proxy statement for its 1999 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under the
captions "Compensation of Directors and Executive Officers" in the Company's
proxy statement for its 1999 Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission within 120 days after
December 31, 1998.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements and supplementary data
of the Company and its subsidiaries, required by Part II, Item 8 are
filed herewith:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of December 31, 1998 and March 31,
1998
- Consolidated Statements of Operations for the nine months ended
December 31, 1998 and for the Years Ended March 31, 1998 and 1997
- Consolidated Statements of Stockholders' Equity for the nine
months ended December 31, 1998 and for the Years Ended March 31,
1998 and 1997
- Consolidated Statements of Cash Flows for the nine months ended
December 31, 1998 and for the Years Ended March 31, 1998 and 1997
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENTS.
The following financial statement schedule is filed herewith:
Schedule II - Valuation and Qualifying Accounts for the nine months
ended December 31, 1998 and for the years ended March 31, 1998 and
1997.
Schedules other than those listed above have been omitted because they
are not applicable or the required information is included in the
financial statements or notes thereto.
EXHIBITS
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-8 (No. 333-23361), and
incorporated herein by reference).
3.2 Bylaws of the Company
3.3 Certificate of Amendment of Certificate of Incorporation (filed as
Exhibit 3.1 to the Company's Form 10Q for the quarter ended June 30,
1998, and incorporated herein by reference).
4.1 Form of Redeemable Warrant to purchase shares of common stock of Delphi
Information Systems, Inc. (filed as Exhibit 4.12 to the Company's Annual
Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
4.2 Form of Unit Investment Agreement to purchase common stock and warrants
of Delphi Information Systems, Inc. (filed as Exhibit 4.13 to the
Company's Annual Report on Form 10K for the fiscal year ended March 31,
1996, and incorporated herein by reference).
4.3 Form of Warrant to purchase shares of common stock of Delphi Information
Systems, Inc. held by R.J. Steichen & Company (filed as Exhibit 4.14 to
the Company's Annual Report on Form 10K for the fiscal year ended March
31, 1996, and incorporated herein by reference).
4.4 Rights Agreement between Delphi Information Systems, Inc. and
ChaseMellon Shareholder Services, LLC, as Rights Agent (filed as
Exhibit 99.1 to the Company's Registration of Certain Classes of
Securities on Form 8-A (No. 000-15946) and incorporated herein by
reference).
<PAGE>
MATERIAL CONTRACTS
10.1 Delphi Information Systems, Inc. 1983 Stock Incentive Plan, as amended
(filed as Exhibit 10.1 to the Company's Registration Statement on Form
S-1 (No. 33-45153) and incorporated herein by reference).
10.2 Delphi Information Systems, Inc. Cash Option Profit Sharing Plan (filed
as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No.
33-19310) and incorporated herein by reference).
10.3 Delphi Information Systems, Inc. 1989 Stock Purchase Plan (included in
the prospectus filed as part of the Company's Registration Statement on
Form S-8 (No. 33-35952) and incorporated herein by reference).
10.4 Delphi Information Systems, Inc. Non-Qualified Stock Option Plan for
Directors (filed as Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1992, and incorporated herein
by reference).
10.5 Delphi Information Systems, Inc. 1996 Stock Incentive Plan (filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-8 (File
No. 33323261), and incorporated herein by reference).
10.6 Stock Purchase Warrant dated June 5, 1992, issued by the Company to
Silicon Valley Bank, and related Registration Rights Agreement (filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No.
33-45153) and incorporated herein by reference).
10.7 Lease between the Company and Westlake Renaissance Court for office
space in Westlake Village, California, as amended (filed as Exhibit 10.5
to the Company's Registration Statement on Form S-1 (No. 33-14501) and
incorporated herein by reference).
10.8 Lease dated April 17, 1986, between Mortimer B. Zuckerman and Edward H.
Linde, as Trustees, as Landlord and McCracken Computer Inc., as Tenant,
relating to premises at 10-20 Burlington Mall Road, Burlington,
Massachusetts, as amended (filed as Exhibit 10.22 to the Company's Form
S-1 Registration Statement (No. 33-45153) and incorporated herein by
reference).
10.9 Employment agreement dated July 7, 1994, between the Company and M.
Denis Connaghan (filed as Exhibit 10.23 to the Company's Annual Report
on Form 10K for the fiscal year ended March 31, 1995, and incorporated
herein by reference).
10.10 Form of Stock Purchase Warrant between the Company and Silicon Valley
Bank (filed as Exhibit 10.26 to the Company's Annual Report on Form 10K
for the fiscal year ended March 31, 1995, and incorporated herein by
reference).
10.11 Loan and Security Agreement as amended between the Company and Coast
Business Credit dated January 1997 and related Schedule and Capex
Promissory Note. (filed as Exhibit 10.11 to the Company's Annual Report
on Form 10K for the fiscal year ended March 31, 1997, and incorporated
herein by reference).
10.12 Second Amendment dated December 18, 1997 to Loan and Security Agreement
between the Company and Coast Business Credit dated January 1997. (filed
as Exhibit 10.12 to the
<PAGE>
Company's Form 10-Q for the quarter ended December 31, 1997, and
incorporated herein by reference.)
10.13 Third Amendment dated March 23, 1998 to Loan and Security Agreement
between the Company and Coast Business Credit dated January 1997. (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 and incorporated herein by reference.)
10.14 Fourth Amendment dated September 30, 1998 to Loan and Security Agreement
between the Company and Coast Business Credit dated January 1997. (filed
as Exhibit 10.14 to the Company's Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by reference.)
10.15* Lease agreement dated September, 1998 between the Company and Crossroads
of Commerce III, relating to premises at 3501 Algonquin Road, Rolling
Meadows, IL.
10.16* Lease agreement effective October, 1998 between the Company and 485
Properties LLC relating to premises at Five Concourse Parkway, Atlanta,
Georgia.
10.17 Delphi Information Systems, Inc. 1998 Non-Employee Directors' Stock
Option Plan (filed as Exhibit A to the Company's proxy statement dated
August 12, 1998, and incorporated herein by reference.)
21.1* The subsidiaries of the Company.
23.1* Consent of Independent Public Accountants
27.1* Financial Data Schedule.
* Filed herewith
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K in the quarter ended December
31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DELPHI INFORMATION SYSTEMS, INC.
(Registrant)
By /s/ Max Seybold
----------------------------------
Max Seybold
President and Chief Executive Officer
Date: April 14, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Yuval Almog Chairman of the Board April 14, 1999
- ---------------------------
(Yuval Almog)
/s/Max Seybold Director, President. and April 14, 1999
- --------------------------- Chief Executive Officer
(Max Seybold)
/s/Edward J. O'Connell Senior Vice President-Finance & April 14, 1999
- --------------------------- Administration, Chief Financial
(Edward J. O'Connell) Officer, and Secretary
/s/William R. Baumel Director April 14, 1999
- ---------------------------
(William R. Baumel)
/s/Larry G.Gerdes Director April 14, 1999
- ---------------------------
(Larry G. Gerdes)
<PAGE>
SCHEDULE II
DELPHI INFORMATION SYSTEMS, INC.
Schedule II - Valuation and Qualifying Accounts
for the Nine Months Ended December 31, 1998 and Fiscal Years Ended March 31,
1998 and 1997
Allowance for doubtful accounts receivable.
<TABLE>
<CAPTION>
Nine Months Fiscal Fiscal
Ended Year Ended Year Ended
December 31, March 31, March 31,
1998 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Beginning Balance $860,000 1,613,000 $ 922,000
Provisions for Allowance 699,000 356,000 1,662,000
Write-off of Accounts Receivable
Against Allowance (491,000) (1,109,000) (971,000)
------------ ---------- ----------
$ 1,068,000 $ 860,000 $1,613,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
<PAGE>
EXHIBIT 10.15 Lease Agreement dated September, 1998, between the Company and
Crossroads of Commerce III, relating to premises at 3501 Algonquin Road, Rolling
Meadows, Illinois.
LEASE
BETWEEN
DELPHI INFORMATION SYSTEMS, INC.
TENANT
AND
LA SALLE NATIONAL BANK, N.A.,
as Trustee under Trust Agreement dated
August 27, 1982 and known as Trust
Number 105272
LANDLORD
CROSSROADS OF COMMERCE III
ROLLING MEADOWS, ILLINOIS
60008
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LEASE SUMMARY SHEET
DATE OF LEASE: September , 1998
TENANT: DELPHI INFORMATION SYSTEMS, INC.BROKER:
For Landlord - Mark C. Smith, CB Richard Ellis
For Tenant - Brian Borkan, BKB CommercialPREMISES
LEASED: Entire 5th Floor
Rentable Square Feet - 20,686 square feet
COMMENCEMENT DATE: October 1, 1998
TERMINATION DATE: September 30, 2003
NET RENT: For Entire Term: $1,344,590.04 payable in 60 monthly
installments as follows:
10/1/98 to 9/30/99 - 12 installments of $20,686.00
10/1/99 to 9/30/00 - 12 installments of $21,547.92
10/1/00 to 9/30/01 - 12 installments of $22,409.83
10/1/01 to 9/30/02 - 12 installments of $23,271.75
10/1/02 to 9/30/03 - 12 installments of $24,133.67
ELECTRICITY: Separately Metered to Tenant
TENANT'S PRO-RATA SHARE
OF ADDITIONAL RENT: Tenant pays 11.12% of all taxes and operating expenses,
in addition to net rent
PERMITTED USES: General office use
SECURITY DEPOSIT: None
CANCELLATION RIGHTS: On 10/1/01 upon payment of $100,000
On 10/1/02 upon payment of $50,000
THE LEASE SUMMARY IS FOR INFORMATIONAL PURPOSES ONLY. IN THE EVENT
ANY INFORMATION ON THE LEASE SUMMARY IS IN CONFLICT WITH ANY PROVISION
IN THE LEASE AGREEMENT, THE LEASE AGREEMENT SHALL PREVAIL.
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LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is made and entered into this day
of September 1998, by and between LA SALLE NATIONAL BANK, N.A., not
individually, but as Trustee under Trust Agreement dated August 27, 1982 and
known as Trust No. 105272, hereinafter referred to as "Landlord," and DELPHI
INFORMATION SYSTEMS, INC., a Delaware Corporation, licensed to do business in
the State of Illinois, hereinafter referred to as "Tenant."
LANDLORD HEREBY LEASES TO TENANT, and Tenant accepts the entire fifth (5th)
floor, hereinafter referred to as "Premises," said Premises consisting of 20,686
rentable square feet (which includes a 13% add-on factor), hereinafter referred
to as "Rentable Square Feet," situated in that certain office building known as
Crossroads of Commerce III, Rolling Meadows, Illinois 60008. Said building is
comprised of a total of 195,779 rentable square feet of office space, which
together with the land upon which it is located, the walkway, driveway, and
parking areas (including those areas conferred by certain easements) are
hereinafter collectively referred to as the "Building."
SECTION 1. TERM The term of this Lease shall be sixty (60) months
commencing on October 1, 1998, hereinafter referred to as the "Commencement
Date," and shall end on September 30, 2003, hereinafter referred to as the
"Termination Date," unless sooner terminated as herein provided, said term of
months hereinafter referred to as the "Term."
SECTION 2. NET RENT
A. Tenant agrees to pay to Landlord a consideration of One Million, Three
Hundred and Forty Four Thousand, Five Hundred and Ninety and 04/100 Dollars
($1,344,590.04), for the entire Term, hereinafter referred to as "Net
Rent", in Sixty (60) monthly installments as hereinafter set forth:
1. For the twelve (12) month period from October 1, 1998 to
September 30, 1999, the Tenant shall pay to the Agent of the Landlord
twelve (12) monthly installments of Twenty Thousand, Six Hundred and
Eighty Six and 00/100 Dollars ($20,686.00) each ($12.00 per square
foot);
2. For the twelve (12) month period from October 1, 1999 to
September 30, 2000, the Tenant shall pay to the Agent of the Landlord
twelve (12) monthly installments of Twenty One Thousand, Five Hundred
and Forty Seven and 92/100 Dollars ($21,547.92) each ($12.50 per
square foot);
3. For the twelve (12) month period from October 1, 2000 to
September 30, 2001, the Tenant shall pay to the Agent of the Landlord
twelve (12) monthly installments of Twenty Two Thousand, Four Hundred
and Nine and 83/100 Dollars ($22,409.83) each ($13.00 per square
foot);
4. For the twelve (12) month period from October 1, 2001 to
September 30, 2002, the Tenant shall pay to the Agent of the Landlord
twelve (12) monthly installments of Twenty Three Thousand, Two Hundred
and Seventy One and 75/100 Dollars ($23,271.75) each ($13.50 per
square foot); and
5. For the twelve (12) month period from October 1, 2002 to
September 30, 2003, the Tenant shall pay to the Agent of the Landlord
twelve (12) monthly installments of
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Twenty Four Thousand, One Hundred and Thirty Three and 67/100 Dollars
($24,133.67) each ($14.00 per square foot).
B. Net Rent and Additional Rent (as hereinafter defined), and other
payments reserved and required under this Lease are collectively referred
to as the "Rental". Tenant is required to pay Rental to Landlord's agent,
Lincoln Atrium Management Company, 59 W. Seegers Road, Arlington Heights,
Illinois 60005 ("Agent"), or to such other agent or at such other place as
Landlord may from time to time hereafter designate in writing. All Rental,
except as otherwise specifically provided or hereafter otherwise
designated, shall be made payable as indicated hereinabove without notice
or demand, and without abatement, deduction, counterclaim or set off of any
kind.
C. All Rental shall be paid in advance on the first day of each and every
calendar month of the Term.
SECTION 3. ADDITIONAL RENT It is mutually understood that the Net Rent
does not include therein the Tenant's share of taxes (as hereinafter defined and
referred to as "Taxes") on the Building and operating expenses (as hereinafter
defined and referred to as "Operating Expenses"). Commencing on the
Commencement Date, the Tenant agrees to pay to Landlord Eleven point Twelve
percent (11.12%) ("Tenant's Pro-rata Share") of Taxes and Operating Expenses,
which sums are hereinafter collectively referred to as "Additional Rent"), in
addition to the Net Rent. The Tenant's Pro-rata Share is calculated by dividing
the Rentable Square Feet by 185,990, which is 95% of 195,779, the rentable
square feet of the Building. In the event the Building is more than 95%
occupied the Tenant's Pro-rata Share shall be recalculated.
A. Taxes are defined as those taxes levied or assessed against the
Building by any lawful authority for each calendar year of the Term,
regardless of whether or not the amount assessed or levied is payable in
that year or in a subsequent year. Specifically, Taxes shall mean all
taxes and assessments, of every kind and nature, special or otherwise,
including without limitation, general real property taxes, personal
property taxes imposed upon fixtures, machinery, apparatus systems and
appurtenances in, upon, or used in connection with the Building or the
operation thereof, sewer rents, water rents, special assessments, transit
taxes, any tax or excise on Rental, or any other tax (however described) on
account of Rental received for use and occupancy of any or all of the
Building, whether such Taxes are imposed by the United States, the State of
Illinois, the County of Cook, the City of Rolling Meadows (hereinafter
referred to as the "City"), or any other governmental authority or agency
or political subdivision. There shall also be included in Taxes all
reasonable fees and costs including, without limitation, attorneys' fees
paid or incurred by Landlord in seeking to obtain a reduction of or a limit
on an increase in Taxes or assessment therefor, and objecting to or
defending against the levy of same. If at any time during the Term the
method of taxation then prevailing shall be altered so that any tax,
assessment, levy, imposition, or charge or any part thereof, shall be
imposed upon Landlord (or upon the beneficiaries of Landlord) in place, or
partly in place, of any such Taxes or increase therein heretofore described
in this subparagraph, and/or the same shall be measured by or be based in
whole or in part upon the Building or the Rental or other income therefrom,
then all such taxes, assessments, impositions, levies, or charges or part
thereof shall be included in Taxes, to the extent that such items would be
payable if the Building were the only property and/or income of Landlord
(or the only property and/or ncome of the beneficiaries of Landlord)
subject thereto. Taxes shall not include any Federal, State, or local
municipal income taxes, capital stock taxes, or estate or inheritance
taxes, other than as specifically provided for above, or penalties or
interest on the late payment of installments of Taxes, or late filing of
any reports. From time to time, the Landlord, in its reasonable
discretion, shall take all reasonable and proper steps and procedures to
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minimize Taxes, including, but not limited to, the contesting of or
objecting to increases of the determination of the fair market value of the
Building by the Cook County Assessor for real estate tax purposes and the
objecting to the tax rate imposed by the taxing authorities. The Landlord
does not warrant that any such steps or procedures will result in the
reduction or minimization of Taxes. In the event of a refund of Taxes is
received, said sum shall be applied to the reduction of Taxes in the year
of receipt.
B. Operating Expenses are defined as those expenses and costs incurred by
or paid on behalf of the Landlord and which, in accordance with generally
accepted accounting practice as applied to the operation, repair,
management and maintenance of first-class office buildings, amenities and
parking areas, are properly charged, expensed or amortized to such
ownership, operation, management and maintenance, including but not limited
to, window washing, utility charges, parking lot and common area cleaning,
office cleaning expenses, elevator repair and maintenance, interior and
exterior plant maintenance and landscaping, maintenance and repair, snow
removal, lease payments of leased equipment, insurance, wages and other
benefits of janitors, security personnel and services, management fees (not
to exceed 5% of total rental collected) and expenses including secretarial,
engineers and other on-site employees (including without limitation, the
amount of any social security taxes, unemployment insurance contributions
and fringe benefits), professional fees, and fuel costs. Operating
Expenses shall not include: (a) interest and principal payments on
mortgages and other debt service and ground lease payments, if any; (b)
franchise or income taxes imposed upon Landlord; (c) the cost or fees for
any lease, work or service performed in any instance for an individual
tenant and not for all tenants in common; (d) capital improvements and
replacements as a result of defects in construction or equipment or caused
as a result of fire, casualties or the exercise of the right of eminent
domain; (e) leasing commissions and costs, (f) attorneys' fees, costs and
disbursements and other expenses connected with ownership, organization,
partnership or corporate legal expenses incurred for matters not related to
the operation of the Building; (g) costs of Landlord for services sold to
tenants and for which Landlord is entitled or would ordinarily be entitled
to be reimbursed directly by tenants and not chargeable to all tenants as
Operating Expenses; (h) depreciation and amortization, except as allowed
pursuant to this sub section; (i) fees or other compensation paid to
subsidiaries or affiliates of Landlord for services on or to the Building,
but only to the extent that the costs of such services exceed competitive
costs of services of equal quality and quantity were they not so rendered
by a subsidiary or affiliate; (j) any compensation paid to clerks,
attendants or other persons in commercial for profit concessions operated
by Landlord in the Building; (k) advertising and promotion expenses; (l)
wages, salaries or other compensation paid to any executive employees above
the grade of Building manager; (m) brokerage commissions, legal costs
(including attorneys fees and disbursements) and other costs incurred in
connection with the sale of the Building; (n) all capital improvements
except to the extent they reduce Operatng Expenses; (o) any expenses for
which Landlord is reimbursed by insurance, third parties or otherwise; (p)
costs of acquiring or maintaining works of art; and (q) costs, fines,
penalties, legal fees or costs of litigation incurred due to late payments
of Taxes, utility bills and other costs incurred as a result of Landlord's
failure to make such payments when lawfully and rightly due.
C. The Tenant is required to pay its share of Additional Rent on a
monthly basis in installments equal to 1/12th of the Landlord's estimate of
the amount due from the Tenant in each calendar year of the Term. As soon
as practicable in each year during the Term and in the calendar year next
following the year in which this Lease expires, Landlord shall deliver to
Tenant a statement, hereinafter referred to as the "Annual Statement,"
certified by Landlord's chief financial officer to be true and correct,
setting forth the amount of Taxes and Operating Expenses paid or incurred
by Landlord during the immediately preceding year. The Landlord
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will endeavor to supply the Annual Statement to the Tenant by October 1st
of each calendar year, but failure to supply the Annual Statement by said
date shall not affect the rights of the Landlord to receive Additional
Rent, or any other sums, due from the Tenant, nor shall the Landlord be
prejudiced in any way. Within thirty (30) days after the delivery of the
Annual Statement, Tenant shall pay to Landlord in one lump sum, Tenant's
Pro-rata Share of any increase in Taxes and Operating Expenses for the
immediately preceding calendar year in excess of the previous year's
estimate of Taxes and Operating Expenses paid by the Tenant. If the Taxes
and Operating Expenses for the immediately preceding calendar year are less
than the previous year's estimate paid by Tenant, Landlord shall refund
Tenant's Pro-rata Share of such excess within thirty (30) days after the
delivery of the Annual Statement. Tenant shall pay, additionally, a lump
sum equal to one-twelfth (1/12) of Tenant's annual share of the estimate
for then current calendar year's Taxes and Operating Expenses in excess of
the previous year's estimate, multiplied by the number of months then
elapsed between January 1 of the then current calendar year and the month
in which the Annual Statement is delivered to the Tenant. After delivery
of the Annual Statement, the monthly installments of Additional Rent due
thereafter shall be appropriately increased or decreased to 1/12th of the
said current calendar year's estimate. If the Term of this Lease ends on
other than the last day of a calendar year, Tenant's share shown on the
Annual Statement delivered after the end of the Term shall be prorated and
paid as aforesaid.
D. The Tenant, or its representative, shall have the right to examine and
audit the Landlord's books and records with respect only to the items
relating to Additional Rent, after providing the Landlord with a prior
written notice requesting such examination ("First Exception Notice"),
within ninety (90) days following the date of the mailing of the Annual
Statement to the Tenant. Such examination or audit shall be made at the
Landlord's place of business during normal business hours. Within thirty
(30) days after the completion of the audit, which must begin within ninety
(90) days of the First Exception Notice, the Tenant must deliver to the
Landlord a written statement setting forth any alleged exceptions to any
items or calculations specified in the Annual Statement, stating in
particularity the grounds for said exception ("Second Exception Notice").
Failure on the part of the Tenant to serve on the Landlord the First
Exception Notice and/or the Second Exception Notice, as provided for
hereinabove, all within the time periods specified, shall result in the
binding and conclusive presumption of an approval by the Tenant of the
computations and charges set forth in the Annual Statement, and such
Additional Rent charges shall be considered as final and accepted and
binding upon and by the Tenant and may not be contested at any time
thereafter. If the audit by the Tenant reveals an overstatement of an
amount chargeable to the Tenant as provided in the Annual Statement and the
Landlord agrees to such overstatement, the overstatement shall be applied
to the succeeding month's Rental, or if the Lease has expired, then such
amount shall be paid by the Landlord to the Tenant assuming there are no
sums due from the Tenant to the Landlord, or if there are any sums due from
the Tenant to the Landlord, then such amount shall be applied to the
payment of such sums. In the event the Landlord disagrees as to whether or
not there has been an overcharge in Additional Rent, the Tenant can elect
to submit the controversy to bining arbitration before the American
Arbitration Association, in accordance with the rules then prevailing,
within one year after the date of the Annual Statement. Failure to do so
will result in a conclusive and final waiver of the Tenant's right to
contest the charges set forth in the Annual Statement or in the Second
Exception Notice, and such Additional Rent charges shall be considered as
final and accepted and binding upon and by the Tenant. Regardless of the
provisions set forth in this subparagraph and whether or not the Tenant
properly contests any Additional Rent charges in any Annual Statement, the
Tenant must pay, when due, all Rental and/or contested Additional Rent
charges, subject to its right to secure a refund or credit therefor should
the Tenant prevail successfully in any of the procedures set forth herein.
In the event the Landlord agrees to an alleged overstatement, or if the
court determines there is in fact an overstatement, the Landlord shall pay
the Tenant's reasonable legal costs and
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audit fees; however should the Landlord agreed overstatement be less than
three percent (3%) of the total amount due from the Tenant for Additional
Rent for the year in question, or should the court determine that there was
no overstatement, reasonable legal and audit fees incurred by the Landlord
shall be paid by the Tenant to the Landlord.
E. The provisions of this Section 3. shall survive the termination of
this Lease.
SECTION 4. SERVICES
A. Landlord shall furnish the following services, without any additional
charges to the Tenant:
1. Janitorial and Cleaning Services - In and about the Premises and
the common areas of the Building on a daily basis, Saturdays, Sundays,
and major holidays excepted.
2. Heating and Air Conditioning - To provide a temperature required,
in Landlord's reasonable judgment and consistent with the operation of
a first class office building, for comfortable occupancy of the
Premises under normal business operations, from 8:00 A. M. to 6:00 P.
M. Monday through Friday, Saturdays 8:00 A. M. to 2:00 P.M., Sundays
and major holidays excepted. If the use of excessive heat-generating
equipment by the Tenant in the Premises affects the temperatures
otherwise maintained by the air conditioning system for normal
business operations, and thereby requires in the reasonable judgment
of Landlord the modification of the air conditioning system, including
installation of supplementary air conditioning units or diffusers in
the Premises, Landlord reserves the right to perform such
modification; and all of the cost thereof shall be paid by Tenant to
Landlord at the time of completion of such modification.
3. Water - Water for drinking, lavatory, and toilet purposes in the
common areas.
4. Elevator Service - Twenty-four (24) hour automatic passenger
elevator service in common with other tenants. All freight elevator
service shall be subject to reasonable scheduling by the Landlord
after prior notice to Landlord by Tenant.
5. Window Washing - Window washing of all windows in the Premises
both inside and out, weather permitting, at intervals to be reasonably
determined by Landlord.
6. Parking - Reasonable, safe and adequate outdoor parking
facilities for the joint use of all tenants, on a first-come,
first-serve basis.
7. Landscaping - Landscaping of common areas and interior plantings.
8. Lighting - Lighting of the parking lot and common areas during
appropriate hours depending upon seasons of the year.
9. Security Services - A card access security system for after-hours
security, and a security guard stationed in the first floor lobby area
from 6:00 P.M. to 12:00 A.M. on Monday to Friday and from 7:00 A.M. to
3:00 P.M. on Saturday, holidays excepted.
10. Keys and access cards - Landlord will supply 25 Premises entry
keys and access cards on or before the Commencement Date.
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B. Landlord will perform additional services on such terms and conditions
as may be mutually agreed upon by Landlord and Tenant. All charges for
such additional services shall be due and payable at the same time as the
installment of Rental with which they are billed, or if billed separately,
shall be payable within thirty (30) days after such billing. In case
Tenant fails to pay for any such additional services, Landlord may, without
notice to Tenant, discontinue any or all of such additional services.
C. Unless due to Landlord's negligence, Tenant agrees that Landlord shall
not be liable in damages, by abatement of Rental or otherwise, for failure
to furnish or delay in furnishing any services itemized above, when such
failure or delay in furnishing same is occasioned, in whole or part, by
repairs, renewals, replacements, or improvements; or by any strike, lockout
or other labor trouble; or by inability to secure electricity, gas, water
or other utility; or by any accident or casualty whatsoever; or by the act
or default of tenants or other parties; or by any law, order, ordinance, or
regulation of any municipal, local, state, or federal government, agency,
or authority; and/or by any other causes beyond the reasonable control of
Landlord. Nor shall any such discontinuance or such failure or delay of
services be deemed to give rise to an eviction, constructive or actual, of
Tenant, or give rise to any right on the part of the Tenant to terminate
this Lease.
SECTION 5. CONSTRUCTION AND ACCEPTANCE OF PREMISES
A. Within six (6) months from the Commencement Date, the Tenant will
submit to the Landlord a detailed plan of the changes and modifications to
the Premises it may desire. The Landlord will then retain the architectural
firm of Tsolinas/Moreno & Associates, to prepare detailed architectural,
engineering, electrical, and mechanical working drawing plans, hereinafter
referred to as the "Tenant Plans", for all work requested by the Tenant,
said work hereinafter referred to as "Tenant Improvements". The Tenant
Plans are subject to the written approval of the Landlord and the Tenant,
which both parties agree shall not be unreasonably withheld or delayed.
When the Tenant Plans have been fully approved by the Landlord and the
Tenant, they will be attached to this Lease, labeled Exhibit A, and made a
part hereof as if they were part of this Lease at the time of the execution
hereof.
B. The Landlord agrees to construct the Tenant Improvements and any
Additional Tenant Improvements (as defined hereinafter), in accordance with
the Tenant Plans and Change Orders (as defined hereinafter), at the sole
cost and expense of the Landlord, provided the cost and expense of
constructing same does not exceed the sum of One Hundred Thirty Four
Thousand Dollars ($134,000), which is based upon Six and 50/100 Dollars
($6.50) per Rentable Square Feet. The fees and costs of Tsolinas/Moreno &
Associates shall be considered part of the costs of the Tenant
Improvements. The general contractor constructing the Tenant Improvements
will be CFM Construction Company. The Landlord agrees that the aggregate
of all fees charged by the general contractor for profit, overhead and
supervision shall not exceed Fifteen Percent (15%) of the total cost of the
Tenant Improvements or the Additional Tenant Improvements.
C. Any additional work or changes requested by the Tenant and not a part
of the originally approved Tenant Plans, shall be set forth in written
orders (herein referred to as "Change Orders"), detailing the additional
work or changes and the cost and expense (and/or credits, if any) thereof.
All approved additional work and changes shall be referred to herein as
"Additional Tenant Improvements". All Change Orders must be signed and
approved by both the Tenant and Landlord.
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D. In the event the total costs of the Tenant Improvements and Additional
Tenant Improvements are in excess of One Hundred Thirty Four Thousand
Dollars ($134,000), said excess shall hereinafter be referred to "Tenant's
Share of Tenant Improvements", and shall be paid to the Landlord by the
Tenant upon the determination of the actual aggregate costs. In the event
the costs of the Tenant Improvements and the Additional Tenant Improvements
do not exceed One Hundred Thirty Four Thousand Dollars ($134,000), the
Tenant shall not be entitled to the said savings in an abatement of Rental
nor in any other payment or compensation.
E. When the Tenant Improvements and/or Additional Tenant Improvements are
Substantially Complete, the Landlord shall so notify the Tenant in writing.
Not later than five (5) business days thereafter, the Tenant agrees to
inspect the Premises with the Landlord. Should the inspection reveal that
certain items of Tenant Improvements have not been completed or are not in
compliance with the Tenant Plans, a written statement will jointly be
prepared, and agreed to by both Landlord and Tenant, setting forth such
items, which statement is hereinafter referred to as the "Punch List". The
Landlord agrees to promptly complete and remedy the Punch List items. By
occupying the Premises, the Tenant formally accepts and acknowledges that
the Premises are in a condition complying with all of Landlord's covenants
hereunder, with the exception of those items, if any, on the Punch List and
any latent defects.
F. No promise of the Landlord to alter, remodel or improve the Premises
or the Building, and no representation respecting the condition of the
Premises or the Building has been made by the Landlord to the Tenant unless
the same is contained herein or made a part hereof.
G. The construction and installation of all Tenant Improvements and
Additional Tenant Improvements shall be subject to the approval of the
Village of Rolling Meadows, and any other governmental authority having
jurisdiction thereof.
H. The Landlord warrants that its contractors have not nor will they use
asbestos materials in the construction of the Building or the Tenant
Improvements.
I. All work by Landlord and its contractors in constructing the Tenant
Improvements shall conform to all applicable building codes and shall be of
first class quality and workmanship.
J. In the event the Tenant fails to submit detailed plans to the Landlord
for its desired Tenant Improvements within six (6) months from the
Commencement Date, the requirement on the part of the Landlord to pay for
the Tenant Improvements shall cease and no longer be of any force and
effect.
SECTION 6. USE Tenant shall use and occupy the Premises only for general
office use and for no other purpose without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed. Tenant's use of
the Premises shall at all times be in a high grade and reputable manner and
conform to all applicable laws, ordinances, regulations, and codes promulgated
by any and all governmental bodies and to the requirements of any applicable
fire rating bureau or other body exercising similar functions.
SECTION 7. REPAIRS Tenant will, at its own expense, keep the Premises in
good order, repair and tenantable condition at all times during the Term of this
Lease. Except for repairs and restorations that may be required to be made by
Landlord pursuant to the provisions of this Lease or for repairs and
replacements covered by Landlord's insurance, Tenant shall promptly and
adequately repair all damages to the Premises and replace or repair all damaged
or broken glass, fixtures, and appurtenances. If the Tenant does not do so,
Landlord may, after giving Tenant written notice, but need not, make such
repairs
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and replacements, and Tenant shall pay Landlord the cost thereof plus ten
percent (10%) within thirty (30) days thereafter. Landlord may enter the
Premises at all reasonable times to make such repairs and replacements after
giving the Tenant reasonable notice. Landlord agrees to keep and maintain the
Building in a first-class operating condition and in compliance with all
applicable laws, ordinances, rules and regulations.
SECTION 8. TENANT ALTERATIONS After the Commencement Date and occupancy
of the Premises, Tenant shall not make installations, alterations or additions
in or to the Premises without submitting plans and specifications therefor to
Landlord and securing the prior written consent of Landlord in each instance,
which consent shall not be unreasonably withheld. In the event the costs of the
installations, alterations or additions do not exceed Ten Thousand Dollars
($10,000), and does not involve the Building's structure or systems, the Tenant
does not have to obtain the prior written consent of the Landlord, however it
must notify the Landlord of its intentions, submit to the Landlord its plans and
specifications, and follow all other requirements and procedures provided for
the Section 8. All such installations, alterations or additions shall shall be
done at the sole cost, risk and responsibility of Tenant. Prior to letting of
contracts, Tenant shall submit to Landlord copies of contracts and necessary
permits, building permits, certificates of appropriate insurance, names of
Tenant's contractors, amounts of the contracts with each of Tenant's
contractors, and adequate guarantees (in the sole discretion of the Landlord)
which will insure the payment of Tenant's contractors and/or subcontractors upon
completion of their work, and comply with such other requirements related to the
work as Landlord may impose. All installations, alterations and additions shall
be constructed in a good and workmanlike manner with only good grades of
materials equivalent to or better than Building standards, and shall comply with
all insurance requirements and with all ordinances and regulations of the City
and all other applicable governmental bodies having jurisdiction thereof. The
Tenant agrees to hold Landlord harmless from all claims, costs, damages,
liabilities, and expenses which may arise or be connected in any way with the
work. All alterations, improvements, and additions made by Tenant in or upon
the Premises shall, unlss Landlord requests their removal at the time of
approval, become Landlord's property and shall remain upon the Premises at the
termination of this Lease by lapse of time or otherwise, without compensation to
Tenant, unless such improvements are by their nature removable such as removable
cubicles. Nothing herein shall give Landlord any interest in Tenant's office
furniture and equipment, which shall remain the property of the Tenant subject
to the provisions of Section 23. hereinafter. Tenant is permitted to install a
security alarm system in the Premises, and to remove same upon the end of the
Term.
SECTION 9. COVENANT AGAINST LIENS Tenant covenants and agrees not to
permit any lien of mechanics or materialmen to be placed against the Building or
any part thereof, and, in case of any such lien attaching, to immediately pay
off and remove the same. Tenant has no authority or power to cause or permit
any lien or encumbrance of any kind whatsoever, whether created by act of
Tenant, operation of law, or otherwise, to attach to or be placed upon the
Building or any part thereof. In the event of a lien being placed against the
Building, Tenant shall have the right to contest such lien provided it gives the
Landlord security, adequate in Landlord's sole discretion, to insure payment
thereof. Adequate security is defined as a deposit of monies by the Tenant with
the Landlord equal to one hundred and fifty percent (150%) of the amount of said
lien, to be held by the Landlord without obligation for payment of interest
thereon to Tenant, or in lieu of a deposit of monies, a bond or letter of credit
equal to one hundred and fifty percent (150%) of the amount of said lien, the
terms of which shall be satisfactory to the Landlord. The deposit, the bond or
letter of credit ("Security") will be returned to the Tenant, less reasonable
attorneys fees and other costs incurred by the Landlord and less any Rental due
from the Tenant, if any, when the Landlord receives satisfactory evidence that
the Building has been fully and completely released from the lien. The Landlord
shall have the right to apply the Security to the payment and release of the
lien at any time it determines or finds, in its sole and exclusive discretion,
that (i) the Tenant is not diligently contesting the claim, or (ii) a court or
arbitrator determines the lien is valid, even though the Tenant may have
appealed, or intends to appeal, such court order or award, (iii) the lien holder
<PAGE>
initiates foreclosure proceedings against the Building, or (iv) a period of
three hundred and sixty-five (365) days have expired since the date of said lien
without release or adjudication thereof. Any funds remaining from the Security
after payment of the lien, shall first be applied to the payment of Landlord's
attorneys fees and other costs incurred as a result of this matter, then to the
payment of any Rental due from the Tenant to the Landlord, if any, and the
balance, if any, shall be paid to the Tenant within thirty (30) days after the
date of the release of the lien.
SECTION 10. WAIVER OF CLAIMS To the extent not expressly prohibited by
law, Tenant hereby waives all rights to recover from Landlord, Landlord's
Beneficiaries, and their officers, agents, servants, employees, and mortgagees,
for any damage or injury either to person or property sustained by Tenant or by
other persons, due to the Building or the Premises becoming out of repair, or
due to the happening of any accident or occurrence in or about the Building or
the Premises or any part thereof, unless such damage or injury was caused by the
negligence or wrongful intentional acts of the Landlord, its employees or
agents. This provision shall apply particularly (but not exclusively) to damage
caused by fire, water, snow, frost, steam, sewage, gas, sewer gas or odors, or
by the bursting or leaking of pipes (including the sprinkler systems), faucets
and plumbing fixtures. Tenant further agrees that all of its personal property
and fixtures installed upon the Premises shall be there at the risk of Tenant
only and that Landlord shall not be liable for any damage thereto or theft
thereof, unless the Landlord caused the damage or loss on account of its
negligent or intentional acts.
SECTION 11. PARKING AREA Tenant and its officers, employees, agents,
customers, and invitees shall have the nonexclusive right in common with
Landlord and all others to whom Landlord has or may hereafter grant rights to
use the parking areas of the Building; subject to such rules and regulations,
including reserved parking, as Landlord may from time to time impose; however,
in no event shall the Tenant be charged any sums of money for the privilege and
right to use the said parking facilities. Tenant agrees to abide by all rules
and regulations and to use its best efforts to cause its officers, employees,
agents, customers, and invitees to conform thereto. Landlord may at any time
close temporarily any part of the parking area to make repairs or changes to
prevent the acquisition of public rights in such area or to discourage
non-customers' parking, and may do such other acts in and to the parking area as
in its judgment may be desirable to improve the convenience thereof, so long as
Tenant will still have adequate parking available for its use. Tenant shall not
at any time interfere with the rights of Landlord and other tenants, their
concessionaires, officers, employees, agents, customers, and invitees to use any
part of the parking areas.
SECTION 12. RIGHTS RESERVED BY LANDLORD Landlord shall have the
following rights, exercisable with reasonable notice (except said rights may be
exercised without notice in emergency situations) and without liability to
Tenant for damage or injury to property, person, or business, and without
effecting an eviction, constructive or actual, or giving rise to claim for
set-off or abatement of Rental; however in exercising all such rights, the
Landlord shall use reasonable efforts to minimize interference with the Tenant's
conduct of business at the Premises:
A. To change the Building's name, provided thirty (30) days prior written
notice is given to Tenant, however the new name will not be a software
company that is a direct competitor of the Tenant;
B. To install, affix, and maintain any and all signs on the exterior
and/or interior of the Building and in the parking areas;
C. To show the Premises to prospective tenants at reasonable hours during
the last three (3) months of the Term;
<PAGE>
D. To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building,
or any part thereof, which Landlord may deem necessary or which may be
required by the City or by any other governmental agency having
jurisdiction over the Building; and for such purposes to enter upon the
Premises and, during the continuance of any said work, to temporarily close
doors, entryways, public space, and corridors in the Building and to
interrupt or temporarily suspend Building services and facilities, provided
that Landlord will at all times use its best efforts to maintain reasonable
accessibility to the Premises, and to minimize any disruption of Tenant's
business. The Landlord shall give the Tenant reasonable advance notice (at
least 24 hours, which notice may be oral) of any required entry; however in
the event of a serious emergency, in the Landlord's discretion, advance
notice shall not have to be given;
E. To grant to anyone the exclusive right and privilege to conduct any
business in the Building, and such exclusive right and privilege will be
binding upon Tenant, provided such exclusive right shall not operate to
exclude Tenant from the use expressly permitted in Section 6 above;
F. To approve the weight, size, and location of safes, printing
machinery, computers, and other heavy equipment and articles in and about
the Premises and the Building and to require all such items and furniture
and similar items to be moved into and/or out of the Building and Premises
only at such times and in such manner as Landlord shall direct in writing.
Movements of Tenant's property into or out of the Building and within the
Building are entirely at the risk and responsibility of Tenant, and
Landlord reserves the right to require permits before allowing any such
property to be moved into or out of the Building;
G. To close the Building after the regular working hours and on
Saturdays, Sundays, and legal holidays, subject however, to Tenant's right
to admittance under such regulations as Landlord may prescribe from time to
time, which may include by way of example but not of limitation, that
persons entering or leaving the Building identify themselves to a watchman,
by registration or otherwise, and that said persons establish their right
to enter or leave the Building;
H. To have pass keys to the Premises; and
I. To establish reasonable controls and rules for the movement of
packages, supplies, and all property in and out of the Building to insure
the proper maintenance, management, and security of the Building.
SECTION 13. TENANT COVENANTS Tenant agrees to observe the following
covenants and to comply with all existing rules and regulations and those
reasonable rules and regulations that Landlord may hereafter from time to time
make for the Building; however, it is agreed by the Tenant that the Landlord
shall not be liable in any way for any damage caused to it or its invitees or
employees, by the nonobservance by any of the other tenants of such similar
covenants in their leases or of rules and regulations provided for herein or in
other leases:
A. Tenant shall occupy and use the Premises during the Term hereof for
the purpose specified in Section 6. above and none other, and shall not
conduct itself, or permit its agents, employees or invitees to conduct
themselves, in the Premises or in the Building, in a manner inconsistent
with the character of the Building as an office building of the highest
class, or interfere with the comfort or convenience of other tenants;
<PAGE>
B. Tenant shall not, without the prior written consent of Landlord,
exhibit, sell, or offer for sale on the Premises or in the Building any
article or thing except those articles and things essentially connected
with the stated use of the Premises by Tenant as set forth in Section 6
above;
C. Tenant will not make or permit to be made any use of the Premises
which, directly or indirectly, is forbidden by public law, ordinance, or
governmental regulation;
D. Tenant shall not sell or offer to sell or permit to be sold or offered
for sale in the Premises any alcoholic or other intoxicating beverage;
E. Tenant shall not display, inscribe, print, paint, maintain, or affix
on any place in or about the Building (or the parking lot or landscaped
area of the Building) any sign, notice, legend, direction, figure, or
advertisement, except on the doors of the Premises and on the Directory
Boards, and then only such name or names and matter, and in such color,
size, style, place, and materials, as shall first have been approved in
writing by Landlord; however this provision shall not restrict the Tenant
from including its name on any directory or suite signage, and does not
apply to signs within the Premises;
F. Tenant shall not advertise the business, profession, or activities of
Tenant conducted in the Building in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession, or activities, and
shall not use the name of the Building for any purposes other than that of
the business address of Tenant, and Tenant shall never use any picture or
likeness of the Building in any circulars, notices, advertisements, or
correspondence without Landlord's prior written consent;
G. Tenant shall not obstruct or use for storage or for any purpose other
than ingress and egress, the common and/or public areas of the Building;
H. No additional locks or similar devices shall be attached to any door
in the Premises or the Building without Landlord's prior written consent
and only upon the condition that Landlord shall have the keys to or
combination of such additional locks or devices;
I. No keys for any door other than those provided by Landlord shall be
made by Tenant; if more than twenty five keys for the entry door are
desired, Landlord will provide the same to the Tenant at the Tenant's cost;
J. Upon termination of this Lease or of Tenant's possession of the
Premises, Tenant shall surrender all keys and entry cards to the Premises
and the Building;
K. Tenant shall not install or operate any steam or internal combustion
engine, boiler, pressure vessel, machinery, refrigerating, or heating
device (except for kitchen appliances customarily used in offices), or air
conditioning apparatus in or about the Premises, or carry on any mechanical
business therein, or use the Premises for housing accommodations or lodging
or sleeping purposes, or do any cooking therein, or use any illumination
other than electric light, or use or permit to be brought into the Building
any flammable oils or fluids such as gasoline, kerosene, naphtha and
benzine, or any explosive, radioactive materials, or other articles
hazardous to life, limb, or property;
L. Tenant shall not do or permit anything to be done, or keep or permit
anything to be kept, in the Premises which would increase the fire or other
casualty insurance rate on the Building, or
<PAGE>
which would result in the Landlord's insurance companies refusing to insure
the Building in amounts reasonably satisfactory to Landlord;
M. In the event that any use of the Premises by Tenant increases the cost
of insurance, Tenant shall pay such increased cost to Landlord on demand,
but such demand or acceptance of such payment shall not be construed as a
consent by Landlord to Tenant's such use, or limit Landlord's further
remedies under this Lease;
N. Tenant shall cooperate fully with Landlord to assure the effective
operation of the Building's air conditioning, heating, and ventilating
systems;
O. Landlord reserves the right to require that any alterations or
additions done by the Tenant be done using Landlord's designated
contractors or contractors approved by Landlord, provided such contractors
are market competitive;
P. Tenant shall not use lamps in the ceiling light fixtures or window
coverings of a color or style other than that approved in advance in
writing by Landlord or managing agent;
Q. The color of all paint and other decorating materials used by Tenant
on those portions of the Premises which are visible to the exterior shall
be approved in writing in advance by Landlord;
R. Tenant will not install on the windows facing the exterior or the
interior lobby any window coverings without the prior written consent of
Landlord;
S. Tenant shall keep the doors to the corridors closed except when in use
for ingress and egress, and Tenant shall not place or allow anything to be
placed against or near the doors to the corridors which may diminish the
light in or be unsightly from the corridors;
T. Tenant shall not hang drapes, blinds, or other window treatments
except in a color, style, and manner approved by Landlord;
U. Tenant shall not bring or permit to be in the Building any bicycle or
other vehicle, or dog (except in the company of a blind person), or other
animal or bird;
V. Tenant shall not make or permit any noise, vibration, or odor to
emanate from the Premises;
W. Tenant shall not do anything therein tending to create or maintain a
nuisance;
X. Tenant shall not disturb, solicit, or canvass any occupant of the
Building;
Y. Tenant shall not do any act tending to injure the reputation of the
Building; and/or
Z. Tenant represents, warrants, and covenants to Landlord that Tenant
shall at no time (a) use or permit the use of the Premises and/or the
Building for the generation, manufacture, production, storage, release,
discharge, or disposal of Hazardous Materials (as hereinafter defined)
except in accordance with Environmental Regulations (as hereinafter
defined); or (b) to transport Hazardous Materials to or from the Premises,
except in accordance with Environmental Regulations; or (c) perform any act
or action whatsoever which violates any Environmental Regulations; and/or
(d) allow or permit any other person or entity to do any of the above:
<PAGE>
1. The term "Hazardous Materials" is defined as and includes,
without limitation, any flammable explosives, radioactive materials,
asbestos and asbestos containing materials, hazardous wastes,
hazardous or toxic substances, or related materials defined in the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous
Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et
seq.), the Resource Conservation and Recovery Act of 1976, as amended
(42 U.S.C. Sections 6901, et seq.), and in the regulations adopted and
publications promulgated pursuant thereto, or any other federal,
state, or local environmental laws, ordinances, rules, or regulations
dealing with hazardous materials, excluding customary general office
and cleaning supplies.
2. The term "Environmental Regulations" is defined as all federal,
state, and local laws, including all zoning laws or ordinances, and
all regulations, codes, requirements, public and private land use
restrictions, rules and orders which relate to or govern Hazardous
Materials, and/or the environmental conditions in, on, under, or about
the Premises or the Building, in force at the time of the execution of
the Lease and at any time during the Term.
SECTION 14. UTILITY SERVICES AND MAINTENANCE
A. The Tenant shall be responsible for and shall pay for utility costs
incurred in connection with lighting, telephone and data, machinery, office
machines and equipment, and all other devices used by Tenant in the
operation of the Premises and the business of the Tenant (other than for
heating and air-conditioning which is paid by the Landlord). Such utility
costs shall be separately metered to the Tenant, and Tenant agrees to pay
such cost promptly.
B. Tenant shall make arrangements directly with the telephone company
servicing the Building for such telephone and data service to the Premises
as may be desired by Tenant, and Tenant shall pay the entire cost thereof.
C. If Tenant desires telegraphic, fiber optic, computer data, fax,
telephonic, burglar alarm, or signal service (which services shall be at
Tenant's sole expense), Landlord shall, upon request, and within ten (10)
working days of such request, direct where and how all connections and
wiring for such service shall be introduced and run. In the absence of
such directions, Tenant shall make no borings, cuttings, or install any
wires or cables in or about the Premises.
D. Unless due to Landlord's negligence, Tenant covenants and agrees that
Landlord shall in no event be liable or responsible to Tenant for any loss,
damage, or expense which Tenant may sustain or incur if either the quality
or character of electrical service is changed or if it is no longer
suitable for Tenant's requirements. Tenant covenants and agrees that at
all times its use of electric current shall never exceed its allocable
portion of the capacity of existing feeders to the Building or the Premises
or wiring or installation; and also that it shall make no alterations or
additions to the electric service or wiring to the Premises without the
prior written consent of the Landlord in each instance, which consent shall
not be unreasonably withheld.
SECTION 15. QUIET ENJOYMENT Landlord represents that it has full power
and authority to enter into this Lease. Provided Tenant performs and observes
all terms, conditions and agreements herein contained, Tenant shall have the
quiet possession of the Premises during the full Term of this Lease, including
any extension thereof.
<PAGE>
SECTION 16. INDEMNITY
A. Tenant agrees to protect, indemnify, and save harmless the Landlord,
the Landlord's beneficiaries, their mortgagees, agents, tenants, servants,
contractors and employees, from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs, or expenses (including
without limitation reasonable attorneys' fees and expenses) imposed upon or
incurred by or asserted against Landlord by reason of (a) any accident,
bodily injury to or death of persons or loss of or damage to property
occurring on or about the Building and the Premises or any part thereof,
and alleged to be due to any act or failure to act or any negligence or
default under this Lease by Tenant, its contractors, agents, servants, and
employees; (b) any failure on the part of Tenant to perform or comply with
any of the terms of this Lease; and/or (c) any performance by or for the
Tenant of any labor or services or the furnishing by or for the Tenant of
any materials or any property in respect to the Building and/or the
Premises or any part thereof. Excluded from this indemnity are any claims
resulting from the negligent or intentional acts of the Landlord, the
Landlord's beneficiaries, their mortgagees, agents, tenants, servants,
contractors or employees. In case any action, suit, or proceeding is
brought against the Landlord, the Landlord's beneficiaries, their
mortgagees, agents, tenants, servants, contractors or employees by reason
of any such occurrences, Tenant will, at Tenant's sole expense, resist and
defend such action, suit, or proceeding, by legal counsel, the choice of
whom shall be subject to the Landlord's reasonable written approval.
B. Landlord agrees to protect, indemnify, and save harmless the Tenant,
its agents, employees and contractors, from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs, or
expenses (including without limitation reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against Tenant by reason
of (a) any accident, bodily injury to or death of persons or loss of or
damage to property occurring on or about the Building and the Premises or
any part thereof, and alleged to be due to any act or failure to act or any
negligence or default under this Lease by Landlord, its contractors,
agents, servants, and employees; (b) any failure on the part of Landlord to
perform or comply with any of the terms of this Lease; and/or (c) any
performance by or for the Landlord of any labor or services or the
furnishing by or for the Landlord of any materials or any property in
respect to the Building and/or the Premises or any part thereof. Excluded
from this indemnity are any claims resulting from the negligent or
intentional acts of the Tenant, its agents, employees and contractors. In
case any action, suit, or proceeding is brought against the Tenant, its
agents, employees and contractors by reason of any such occurrences,
Landlord will, at Landlord's sole expense, resist and defend such action,
suit, or proceeding, by legal counsel, the choice of whom shall be subject
to the Tenant's reasonable written approval.
SECTION 17. INSURANCE
A. Tenant shall procure and maintain at its own cost policies of
commercial general liability insurance insuring Landlord, the Landlord's
beneficiaries, the Agent, their mortgagees, agents, servants, and employees
from the following:
1. From all claims, demands, liabilities, lawsuits or actions for
bodily injury or death to any persons in an amount of not less than
Two Million Dollars ($2,000,000), and for damage to property in an
amount of not less than One Million Dollars ($1,000,000), made by or
on behalf of any person or persons, firm, entity, or corporation,
arising from, related to, or connected with the Tenant, its
operations, and/or the Premises; and
<PAGE>
2. Said insurance shall also fully insure for the claims covered by
the indemnity provided for in Section 16. herein above.
The insurance shall be placed with companies, and in form and substance,
reasonably satisfactory to Landlord and the mortgagees of Landlord. Said
insurance shall not be subject to cancellation except after at least thirty
(30) days prior written notice to Landlord and/or the Landlord's
mortgagees. Certificates of insurance reasonably satisfactory to Landlord,
together with satisfactory evidence of payment of the premiums therefor,
must be delivered to Landlord prior to the Commencement Date, and thirty
(30) days prior to the end of the term of each such coverage.
B. Landlord will obtain insurance policies covering the Building for
public liability and fire, sprinkler leakage, malicious mischief,
vandalism, and other extended coverage perils, for the full insurable
replacement value of the Premises, the cost of which is an Operating
Expense, in accordance with Section 3. hereinabove.
SECTION 18. ASSIGNMENT AND SUBLETTING Tenant shall not assign nor in any
other way transfer this Lease or any interest therein, nor sublet the Premises
or any part or parts thereof, nor permit occupancy by anyone other than the
Tenant, without the previous written consent of the Landlord, which consent
shall not be unreasonably withheld or delayed. The Landlord may grant its
consent, provided the Landlord determines the proposed assignee or
sublessee is reasonably reputable and in the case of an assignee only is as
financially responsible as the Tenant. In order for Landlord to consider said
assignment or sublease, the Tenant shall provide the following:
A. The Tenant shall give the Landlord a notice of its intention to assign
or sublet ("Notice to Sublease"), which notice shall include reliable
information, including, but not limited to, the name of the proposed
assignee or sublessee, its financial responsibility evidenced by financial
statements and credit reports, its reputation, a description of its
business activities, and specific terms as to the assignment or sublease
agreement, including rental, term, and the date when the assignment or
sublease is to take effect. The Tenant shall comply with all reasonable
requests of the Landlord for additional information.
B. Within ten (10) business days from the date of the receipt by the
Landlord of the Notice to Sublease, or the additional information requested
by Landlord, if any, whichever date is later, the Landlord shall give its
consent or denial, in writing. Provided the Landlord consented to the
assignment or sublet, such consent shall be conditioned upon the delivery
to the Landlord, within ten (10) business days after such consent, of the
following documents:
1. Four executed copies of the assignment which shall include an
assumption by the assignee, from and after the effective date of the
assignment, of the performance and observance of those covenants and
conditions contained in this Lease to be performed and observed by the
Tenant. The substance and form of the assignment agreement shall be
subject to the Landlord's reasonable approval.
2. Should a sublease be involved, four executed copies of the
sublease agreement, which shall include an agreement on the part of
the subtenant to be obligated, from and after the effective date of
the sublease, to the performance and observance of the covenants and
conditions contained in this Lease to be performed and observed by the
Tenant. The substance and form of such sublease agreement shall be
subject to the Landlord's reasonable approval.
<PAGE>
C. Consent by the Landlord to one or more assignments or subletting of
this Lease shall not operate as a waiver of Landlord's rights as to any
subsequent assignments or subletting.
D. Any consented assignment or sublease shall in no way release the
Tenant of any of its obligations and covenants under this Lease, nor should
said assignment or sublease be construed or taken as a waiver of any of the
Landlord's rights or remedies hereunder against or as relating to the
Tenant.
E. In the event the terms of the assignment or sublease provide for an
increase in rental in excess of the Rental provided for herein, or in the
event the Tenant receives a bonus or other considerations from the assignee
or subtenant in consideration of said assignment or sublease, after
deducting the reasonable costs of both the Landlord and the Tenant of the
assignment or sublease, including but not limited to tenant improvements,
leasing commissions, free rent, advertising expenses and legal expenses,
such increased Rental, bonus, or other considerations shall be paid to the
Landlord.
F. To the extent allowed by law, the Tenant's interest in this Lease
shall not pass to any trustee or receiver in bankruptcy, or any assignee
for the benefit of creditors or any other third party by operation of law.
G. Tenant shall pay to Landlord a reasonable fee for processing and
review of all sublease and/or assignment documents, whether or not said
sublease and/or assignment is actually executed by all parties, however
such fee shall not exceed five hundred dollars ($500) for each sublease
and/or assignment.
H. Notwithstanding any provisions in this Section to the contrary, Tenant
may assign this Lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any recapture or
termination option to Landlord and without losing any other option or right
granted to Tenant under this Lease, to any corporation which controls, or
is controlled by or is under common control with the Tenant, or to any
person or entity which acquires all the assets of the Tenant's business as
a going concern, or to an entity into which the Tenant merges or with which
it is consolidated, provided (i) the assignee or sublessee assumes, in
full, the obligations of Tenant under this Lease, (ii) Tenant remains fully
liable under this Lease, (iii) the use of the Premises remains unchanged,
and (iv) the Tenant gives written notice to the Landlord of the assignment
or sublease.
SECTION 19. FIRE AND CASUALTY If the Premises and/or the Building shall
be damaged or destroyed by fire or other casualty, and if it appears that the
Premises and/or the Building may be repaired or restored within one hundred
eighty (180) days after such damage, and provided the Landlord's mortgagees
allow sufficient insurance proceeds for the cost of said repair or restoration,
the Landlord shall commence to repair or restore the Premises and/or the
Building as soon as reasonably possible and diligently complete said repairs and
restoration with reasonable promptness. Notwithstanding anything to the
contrary herein contained, Landlord shall have no duty pursuant to this Section
19. to repair or restore any portion of the alterations, additions, or
improvements in the Premises or the decorations thereto, except to the extent
that same were provided by Landlord at Landlord's cost, i.e., the Tenant
Improvements. If Tenant wants any other or additional repairs, restorations,
additions, or alterations, and if Landlord consents thereto, the same shall be
done by Landlord at the Tenant's expense. If the damage renders the Premises
untenantable in whole or in part and it cannot reasonably be repaired or
restored within one hundred eighty (180) days after the damage, or if Landlord
elects to demolish the Building or cease its operation, then Landlord shall have
the right to cancel and terminate this Lease as of the date of such damage by
giving written notice to Tenant at any time within sixty (60) days after such
damage shall
<PAGE>
have occurred. If the damage had not been caused by the intentional act or
neglect of the Tenant, and if this Lease was not cancelled or terminated in
accordance with the provisions in this Section 19., then Rental shall abate
during the period beginning with the date of such damage and ending with the
date when the Premises and/or the Building are again rendered tenantable;
however such abatement shall be limited to the ratio that the untenantable
portion of the Premises bears to the entirePremises, should only a portion of
the Premises be untenantable. In the event the Premises is not restored or
repaired within one hundred and eighty (180) days, the Tenant shall have the
right to terminate the Lease upon notice to the Landlord. Should the damage be
caused by the intentional or wilful acts of the Tenant or its agents or
employees, Rental shall not abate nor shall the Tenant have a right to cancel
this Lease, and the Tenant shall continue to be liable therefor regardless that
the Premises may not be habitable.
SECTION 20. MUTUAL WAIVER OF SUBROGATION RIGHTS Whenever any loss, cost,
damage or expense resulting from fire, explosion, or any other casualty or
occurrence is incurred by either of the parties to this Lease in connection with
the Premises, and such party is then covered in whole or in part by valid and
collectible fire and extended coverage insurance with respect to such loss,
cost, damage, or expense, then the parties so insured hereby release the other
party from any liability it may have on account of such loss, cost, damage or
expense to the extent of any amount recovered by reason of such insurance and
waives any right to subrogation which might otherwise exist in or accrue to any
person on account thereof, provided that such release of liability and waiver of
the right of subrogation shall not be operative in any case where the effect
thereof is to invalidate such insurance coverage or increase the cost thereof
(provided that in the case of increased cost, the other party shall have the
right, within thirty (30) days following written notice from the other, to pay
such increased cost, thereupon keeping this release and waiver in full force and
effect).
SECTION 21. EMINENT DOMAIN
A. In the event that the entire or a substantial part of the Premises
shall be condemned or taken in any manner for any public or quasi-public
use, and as a result thereof the Premises cannot be used for the same
purpose as prior to such taking, this Lease and the Term shall cease and
terminate as of the date possession is taken. For purposes of this
Section, the phrase "substantial part of the Premises" is defined as and is
understood to mean "more than twenty-five percent (25%) of the Premises."
B. If less than a substantial part of the Premises shall be so condemned
or taken, and after such taking the Premises can be used for the same
purpose as prior thereto, the Term shall cease only on the part so taken,
as of the date possession shall be taken by such public authority, and
Tenant shall pay full Rental up to that date (with appropriate refund by
Landlord of such Rental as may have been paid in advance for any period
subsequent to the date possession is taken) and thereafter the Rental shall
be equitably adjusted. Landlord shall, at its expense, make all necessary
repairs or alterations to the Building and/or the Premises so as to
constitute the remaining Building and/or Premises a complete architectural
unit, provided that Landlord shall not be obligated to undertake any such
repairs and alterations if the cost thereof exceeds the award resulting
from such taking.
C. If part of the Building or any adjacent property or street shall be
condemned by a public or quasi-public authority, and in the reasonable
opinion of the Landlord, the Building should be demolished or restored in
such a way as to alter the Premises materially, Landlord may terminate this
Lease and the Term shall expire on the date specified in the notice of
termination as fully and
<PAGE>
completely as if such date was the Termination Date, and the Rental
hereunder shall be apportioned as of such date.
D. All damages awarded for any taking by a public authority under the
power of eminent domain, whether for the whole or a part of the Premises
and/or the Building, shall be the property of Landlord, whether such
damages shall be awarded as compensation for diminution in value of the
leasehold or to the fee of the Building, provided however the Tenant shall
be entitled to an award and reimbursement for relocation expenses and
business interruption, provided the award to the Landlord is not diminished
or reduced in any way.
SECTION 22. DEFAULTS
A. Any one (1) or more of the following events shall be considered an
event of default, hereinafter referred to as "Event of Default":
1. Tenant shall be adjudged an involuntary bankrupt, or a decree or
order is entered approving a reorganization of Tenant, under the
Federal bankruptcy or insolvency laws, or under the laws of any State,
or any laws relating to the relief of debtors, readjustment of
indebtedness, reorganization, arrangements, composition, or extension,
and any such adjudication, decree, judgment or order shall not have
been vacated or stayed or set aside within ninety (90) days from the
date of the entry or granting thereof; or
2. A involuntary decree or order appointing a receiver of the
property of Tenant shall be entered by a court of competent
jurisdiction, and such decree or order shall not have been vacated or
set aside within ninety (90) days from the date of entry or granting
thereof; or
3. Tenant shall file a petition in bankruptcy, or Tenant shall
institute any proceedings or shall give its consent to the institution
of any proceedings for any relief of Tenant under any Federal
bankruptcy or insolvency laws, or under the laws of any state, or any
laws relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangements, composition, or extension; or
4. Tenant shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver for Tenant
or any of the property of Tenant; or
5. The Premises are levied upon by any federal, state or municipal
revenue officer or similar officer, and such levy shall not have been
vacated or stayed or set aside within ninety (90) days from the date
of the entry or granting thereof; or
6. Tenant shall fail to pay any installment of Rental or other sums
required to be paid by Tenant hereunder when due as herein provided,
and such default shall continue for ten (10) business days after
notice thereof in writing by Landlord to Tenant; or
7. A lien is filed or served on or against the Building and/or the
Premises, which lien allegedly arose as a result of actions or actions
of the Tenant, and such lien is not released to the sole satisfaction
of the Landlord, within ninety (90) days from the date of the said
lien; or if the Tenant seeks to contest the lien, it does not, within
the sole discretion and judgement of the Landlord, fully comply with
the provisions of Section 9 hereinabove; or
<PAGE>
8. Tenant shall fail to keep, observe, or perform any of the other
covenants and agreements herein contained to be kept, observed, and
performed by Tenant, and such failure shall continue for thirty (30)
days after notice thereof in writing to Tenant; provided, however,
should remedial activity on the part of the Tenant reasonably require
a period in excess of the said thirty (30) days, the Tenant shall not
be considered to have committed an Event of Default provided it
diligently pursues said remedial activity for a reasonable period of
time as may be required, however, in no event shall said reasonable
period of time exceed sixty (60) days.
B. Upon the occurrence of any one (1) or more of the above Events of
Default and after the expiration of any cure period provided, then upon
written notice from Landlord to Tenant, the Landlord may elect to either
(a) terminate the Lease, or (b) terminate the rights of the Tenant to
possession of the Premises only without terminating the Lease. Upon either
termination of the Lease or upon termination of the Tenant's right to
possession of the Premises without termination of the Lease, Tenant shall
surrender possession and vacate the Premises immediately and deliver
possession thereof to Landlord, and Tenant hereby grants to Landlord the
full and free right, without further demand or notice of any kind to
Tenant, to enter into and upon the Premises, with due process of law if
necessary, and to repossess the Premises as Landlord's former estate and to
expel or remove Tenant and any others who may be occupying the Premises,
and remove Tenant's personal property, signs, and other evidences of
tenancy, without being deemed in any manner guilty of trespass, eviction,
or forcible entry or detainer, without incurring any liability for any
damage resulting therefrom, and without relinquishing Landlord's rights to
Rental for the entire balance of the Term, or from any other obligations
under this Lease, or any other right given to Landlord by operation of law.
C. Upon termination of the Lease, Landlord shall be entitled to receive
as damages (a) all Rental and other sums due and payable by Tenant on the
date of the termination, plus (b) the present value of the Rental and other
sums provided herein to be paid by Tenant for the rest of the Term based
upon a discount rate of the then current prime rate of interest from time
to time charged by the First National Bank of Chicago per annum less the
present value of the fair market rental for the rest of the Term based upon
the same discount rate, plus (c) the cost of performing any other covenants
to be performed by Tenant and plus (d) the cost of attorneys' fees and
court costs incurred by the Landlord, if any, in enforcing the rights of
the Landlord.
D. If Landlord elects to terminate the Tenant's right to possession of
the Premises only without terminating the Lease, Landlord shall be entitled
to receive as damages (a) all Rental and other sums due and payable by
Tenant on the date of the termination, plus (b) all Rental and other sums
as such becomes due and payable thereafter for the rest of the Term, plus
(c) the cost of performing any other covenants to be performed by Tenant
and plus (d) the cost of attorneys' fees and court costs incurred by the
Landlord, if any, in enforcing the rights of the Landlord.
E. If the Landlord elects to terminate the Tenant's right to possession
of the Premises and not terminate the Lease, the Landlord shall have the
obligation to use reasonable efforts to relet the Premises. Landlord may
relet all or any part of the Premises for such rental and upon such terms
as shall be reasonably satisfactory to Landlord, including the right to
relet the Premises for a term greater or lesser than that remaining on the
Term of this Lease, and the right to relet the Premises as a part of a
larger area or a smaller area, and the right to change the character or use
made of the Premises. For the purpose of such reletting, Landlord may
decorate or make any repairs, changes, cleaning, painting, alterations, or
additions in or to the Premises, and may further pay customary leasing
brokers' commissions, market rent concessions to a new tenant or tenants,
and reasonable attorneys' fees that may be necessary to induce or procure
the replacement
<PAGE>
tenant. If the Premises are relet and a sufficient sum shall not be
realized from the collection of the rental of such reletting, after paying
all the expenses of such reletting referred to hereinabove to satisfy the
remaining Rental and other charges due from the Tenant for the remainder of
the Term, Tenant shall pay to the Landlord on demand any such deficiency
within ten (10) days after demand.
F. Landlord shall use all reasonable efforts to secure a substitute
tenant for the Premises to mitigate its damages arising out of Tenant's
Events of Default; however, Landlord shall not be deemed to have failed to
use such reasonable efforts by reason of the fact that Landlord has leased
or sought to lease other vacant premises owned by Landlord (or Landlord's
Beneficiaries), whether in the Building or in other properties, in
preference to reletting the Premises.
G. In the event of any incurred Event of Default hereunder by Tenant,
including but not limited to, Tenant's failure to obtain insurance, make
repairs, or satisfy lien claims, Landlord may immediately or at any time
thereafter, with notice to the Tenant, cure the Event of Default for the
account and at the expense of Tenant. If Landlord at any time, by reason
of any Event of Default, is compelled to pay or elects to pay any sum of
money or do any act which will require the payment of any sum of money, the
sum or sums so paid by Landlord, with interest thereon at the rate of four
percent (4%) in excess of the then current prime rate of interest from time
to time charged by the First National Bank of Chicago per annum, or twelve
percent (12%) per annum, whichever is greater, commencing on the date of
payment thereof, shall be due and payable by the Tenant to the Landlord.
H. If either the Landlord or Tenant are compelled to incur any expense in
instituting or prosecuting any action or proceeding in law or in equity to
enforce any of their rights and obligations hereunder, the expenses
incurred, including but not limited to reasonable attorneys' fees and court
costs, with interest thereon at the rate of four percent (4%) in excess of
the then current prime rate of interest from time to time charged by the
First National Bank of Chicago per annum, or twelve percent (12%) per annum
whichever is greater, shall be due and payable from the losing party to the
prevailing party. The Landlord and the Tenant each waive the right to a
trial by jury in the event of any such action or proceeding in law or in
equity.
I. No remedy herein or otherwise conferred upon or reserved to Landlord
shall be considered to exclude or suspend any other remedy, but the same
shall be cumulative and shall be in addition to every other remedy given
hereunder now or hereafter existing at law or in equity or by statute, and
every power and remedy given by this Lease to Landlord may be exercised
from time to time and as often as occasion may arise or as may be deemed
expedient. No delay or omission of Landlord to exercise any right or power
arising from any Event of Default shall impair any such right or power or
shall be construed to be a waiver of any such Event of Default or any
acquiescence therein. No receipt of monies by Landlord from Tenant after
the termination of this Lease, or the termination of Tenant's right of
possession of the Premises, or after the giving of any notice, shall
reinstate, continue or extend the Term or affect any notice given to Tenant
prior to the receipt of such monies, it being agreed that after the service
of any notices provided in this Section 22, or the commencement of a
lawsuit or after final judgment for possession of the Premises, Landlord
may receive and collect any Rental due, and the payment of said Rental
shall not waive or affect said notice, suit, judgment or Landlord's rights
hereunder. No remedy herein or otherwise conferred upon or reserved to
Landlord shall be considered to exclude or suspend any other remedy, but
the same shall be cumulative and shall be in addition to every other remedy
given hereunder now or hereafter existing at law, or in equity, or by
statute, and every power and remedy given by this Lease to Landlord may be
exercised from time to time and as often as occasion may arise or as may be
deemed expedient.
<PAGE>
J. The monthly installments of Rental are due on the 1st day of each
month. Any other charges are due within ten (10) days of written notice
thereof. All Rental and/or other sums due from Tenant to Landlord which
are unpaid when due shall be assessed interest thereon at the rate of Four
Percent (4%) in excess of the then current prime rate of interest from time
to time charged by the First National Bank of Chicago per annum, or twelve
percent (12%) per annum, whichever is greater, and said sum shall be due
and payable by Tenant to Landlord.
K. The provisions of this Section 22. shall survive the termination of
this Lease.
SECTION 23. SURRENDER OF POSSESSION Upon the termination of this Lease
and/or the Term for any reason whatsoever, or in the event of the Tenant
vacating the Premises and stops paying Rental without approval by the Landlord,
Tenant shall surrender possession of the Premises to Landlord in good condition
and repair, reasonable wear and tear, and damage by fire or other casualty,
excepted, and remove all its personal property and effects therefrom. If
possession of the Premises is not immediately surrendered on the Termination
Date, Landlord may forthwith re-enter the Premises and repossess itself thereof
as of its former estate and remove all persons and effects therefrom, using such
force as may be necessary, with due process of law, if necessary, without being
deemed guilty of any manner of trespass or forcible entry or detainer. Without
limiting the generality of the foregoing, Tenant agrees to remove on or before
the Termination Date, the items of property, title to which is to remain in
Tenant under the terms of Section 8. of this Lease. If Tenant shall fail or
refuse to remove all such property from the Premises, Tenant shall be
conclusively presumed to have abandoned the same, and title thereto shall
thereupon pass to Landlord without any cost to Landlord either by set-off,
credit, allowance, or otherwise, and Landlord shall be entitled to be reimbursed
by Tenant for the cost of any removal or other expenses incurred by Landlord
plus ten percent (10%).
SECTION 24. HOLDING OVER If Tenants shall retain possession of the
Premises or any part thereof after the termination of this Lease, whether by
lapse of time or otherwise, Tenants shall pay to Landlord one hundred and fifty
percent (150%) of the amount of all forms of Rental then applicable for each
month or portion thereof the Tenants remain in possession. Tenants shall also
pay all consequential damages sustained by Landlord on account thereof
including, but not limited to, loss of rental from prospective tenants for the
Premises. The provisions of this Section 24. shall not operate as a waiver by
Landlord of any right of re-entry hereinabove provided.
SECTION 25. BROKERAGE The Tenant and Landlord warrant to each other that
the only brokers or agents they have dealt with, or had any contact with, in
connection with this Lease are as follows:
BKB Commercial, and its agent, Brian Borkan
CB Richard Ellis, and its agent, Mark C. Smith.
The Landlord agrees to pay leasing commission arising out of this Lease and due
to these two brokers. Both the Landlord and the Tenant agree to hold harmless
and indemnify the other from and against any and all cost (including reasonable
attorneys' fees), expense, or liability for any compensation, commissions, and
charges claimed against them by any other undisclosed brokers or agents with
respect to this Lease or the negotiation thereof.
SECTION 26. SUBORDINATION From time to time before or after the
execution of this Lease, the Landlord may execute a mortgage, or trust deed in
the nature of a mortgage, of Landlord's interest in the Building. In such event:
<PAGE>
A. This Lease and all rights of Tenant hereunder are subject and
subordinate to any and all such mortgages or trust deeds, blanket or
otherwise, which do now or may hereafter affect the Building, and to any
and all renewals, modifications, consolidations, replacements and
extensions thereof. It is the intention of the parties that this provision
be self-operative and that no further instrument shall be required to
effect such subordination of this Lease or the rights of the Tenant.
Tenant shall, however, upon demand at any time or times, execute,
acknowledge, and deliver to Landlord, without expense to Landlord, any and
all instruments that may be necessary or proper, in the reasonable judgment
of the Landlord, to subordinate this Lease, and all rights of Tenant
hereunder to any such mortgage or trust deed or to confirm or evidence such
subordination. Provided the Tenant is not in default of the terms of this
Lease, said subordination shall not disturb the quiet enjoyment of the
Leased Premises by the Tenant for the balance of the Term.
B. Should such mortgage or trust deed be foreclosed, the liability of the
Landlord, mortgagee, trustee or purchaser from such foreclosure sale, or
the liability of a subsequent owner designated as Landlord under this
Lease, shall exist only so long as such Landlord, trustee, mortgagee,
purchaser or owner is the owner of the Building, and such liability shall
not continue or survive as to liabilities arising after transfer of
ownership.
C. Landlord agrees promptly to notify Tenant of the placing of any
mortgage or trust deed against the Building (said notice shall contain the
name and address of the mortgagee), and Tenant agrees in the event of any
act or omission by Landlord which would give Tenant the right to terminate
this Lease, or to claim a partial or total eviction, Tenant shall not
exercise any such rights until it has notified in writing the holder of any
mortgage or trust deed which at the time shall be a lien on the Leased
Premises, of such act or omission, and such holder shall be provided with a
reasonable time to cure any such act or omission.
D. Tenant covenants and agrees, in the event any proceedings are brought
for the foreclosure of any such mortgage or trust deed, to attorn, without
any deductions or set-offs whatsoever, to the purchaser upon any such
foreclosure sale, if so requested to do, by such purchaser, and to
recognize such purchaser as the Landlord under this Lease. Tenant agrees
to execute and deliver, at any time and from time to time, upon the request
of Landlord or any holder of such mortgage, or trust deed or such
purchaser, any instrument which, in the reasonable judgment of such
requesting party, may be necessary or appropriate in any such foreclosure
proceeding or otherwise to evidence such attornment. However, in the event
of such foreclosure the Tenant's right to possession and quiet enjoyment
shall not be disturbed provided it is in full compliance with all the terms
and conditions of this Lease and it has not committed an incurred Event of
Default.
E. Any reference herein to the words "foreclosure, foreclosure sale
and/or foreclosure proceeding" shall be interpreted to include a conveyance
by deed in lieu of foreclosure.
SECTION 27. ESTOPPEL CERTIFICATES Tenant shall at any time and from time
to time, upon fifteen (15) days prior written notice from Landlord, execute,
acknowledge, and deliver to Landlord, in the form attached hereto as Exhibit B,
a written statement certifying (if true) that Tenant has accepted the Premises,
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), that the Landlord is not in default hereunder, the
date to which Rental and other charges have been paid in advance, if any, and
such other accurate certifications as may reasonably be required by Landlord or
Landlord's mortgagee. It is intended that any such statement delivered pursuant
to this Section 27. may be relied upon by any prospective purchaser or mortgagee
of the Building, and their respective successors
<PAGE>
and assigns. The failure or refusal of Tenant to execute any such statement
within fifteen (15) days after written notice by Landlord shall constitute a
material Event of Default of this Lease in accordance with the provisions of
Section 22.
SECTION 28. NOTICES AND CONSENTS
A. Whenever under this Lease a provision is made for notice of any kind
(hereinafter referred to as "Notice"), the Notice shall be in writing, and
signed by or on behalf of the party giving or making the Notice, and shall
be given to the party at its address and/or fax number set forth below or
such other address and/or fax number as the party may later specify for
that purpose by Notice to the other party. Each Notice shall, for all
purposes, be deemed given and received:
1. If given by fax, when the fax is transmitted to the party's fax
number specified below and confirmation of complete receipt is
received by that transmitting party during normal business hours or on
the next business day if not confirmed during normal business hours;
2. If hand delivered to a party, when the copy of the Notice is
receipted;
3. If given by a nationally recognized and reputable overnight
delivery service, the day on which the Notice is actually received by
the party;
4. If given by certified mail, return receipt requested, postage
prepaid, two (2) business days after it is posted with the United
States Postal Service, to the address of the party specified below.
B. If any Notice is sent by fax, the transmitting party shall send a
duplicate copy of the Notice to the other party by regular mail. In all
events, however, any Notice sent by fax transmission shall govern all
matters dealing with delivery of the Notice, including the date on which
the Notice is deemed to have been received by the other party.
C. The provisions above governing the date on which a Notice is deemed to
have been received by a party to this Lease shall mean and refer to the
date on which a party to this Lease, and not its counsel or other recipient
to which a copy of the Notice may be sent, is deemed to have received the
Notice.
D. If Notice is tendered under the provisions of this Lease and is
refused by the intended recipient of the Notice, the Notice shall
nonetheless be considered to have been given and shall be effective as of
the date of the refusal. The contrary notwithstanding, any Notice given to
a party in a manner other than that provided in this Lease, that is
actually received by that party, shall be effective with respect to said
party on receipt of the Notice.
E. Notices shall be sent to the following addresses:
To the Landlord:
Lincoln Atrium Management Company
59 West Seegers Road
Arlington Heights, Illinois 60005
Fax Number - 847-364-7772
To the Tenant:
<PAGE>
Delphi Information Systems, Inc.
3501 Algonquin Road
Rolling Meadows, IL 60008
Fax Number - 847-590-8280
Attention: President
and copy to: Attention: Chief Financial Officer
at the same address
SECTION 29. AMERICANS WITH DISABILITIES ACT Notwithstanding anything to
the contrary contained in this Lease, Landlord is and shall be solely
responsible for ensuring that at the time of the Commencement Date, the Premises
and the Building are in full compliance with Title III of the Americans With
Disabilities Act (42 U.S.C. SS. 12101 et seq. - hereinafter referred to as
"ADA"), and all regulations pursuant thereto (the "Regulations"). Landlord
hereby indemnifies, saves, and holds harmless Tenant from and against any and
all claims, demands, causes of action, suits, losses, costs, and expenses
(including, without limitation, attorneys' fees and litigation costs), damages,
penalties and fines asserted against, suffered or incurred by, Tenant in any way
relating to or arising from, in whole or in part, an actual or asserted claim
that the Premises or the Building (or any portion thereof), were in violation of
the ADA or the Regulations as of the Commencement Date.
SECTION 30. CANCELLATION OPTION
A. If the Tenant has not committed an uncured Event of Default
beyond any applicable cure period on the date it exercises its option, the
Tenant shall have the right to cancel and terminate this Lease effective on
September 30, 2001, provided the Tenant pays to the Landlord in the amount
of One Hundred Thousand Dollars ($100,000) ("First Cancellation Fee"). To
exercise the rights provided for in this Section 30, the Tenant shall serve
a written notice upon the Landlord on or before January 1, 2001; included
with such written notice shall be a cashiers check in the full amount of
the First Cancellation Fee. The exercise of this right of cancellation,
shall not excuse the Tenant from the continued performance of all of its
covenants and obligations provided for in this Lease until September 30,
2001. Provided the Tenant has not committed an incurred Event of Default
and has timely paid the First Cancellation Fee, the Term of this Lease
shall terminate on September 30, 2001, as if such date was the end of the
Term as set forth in Section 1.
B. Provided the Tenant has not exercised its option to cancel this
Lease as of September 30, 2001, and provided the Tenant has not committed
an uncured Event of Default beyond any applicable cure period on the date
it exercises its option, the Tenant shall have the right to cancel and
terminate this Lease effective on September 30, 2002, provided the Tenant
pays to the Landlord in the amount of Fifty Thousand Dollars ($50,000)
("Second Cancellation Fee"). To exercise the rights provided for in this
Section 30, the Tenant shall serve a written notice upon the Landlord on or
before January 1, 2002; included with such written notice shall be a
cashiers check in the full amount of the Second Cancellation Fee. The
exercise of this right of cancellation, shall not excuse the Tenant from
the continued performance of all of its covenants and obligations provided
for in this Lease until September 30, 2002. Provided the Tenant has not
committed an incurred Event of Default and has timely paid the First
Cancellation Fee, the Term of this Lease shall terminate on September 30,
2002, as if such date was the end of the Term as set forth in Section 1.
SECTION 31. MISCELLANEOUS
<PAGE>
A. The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean
and include only the Trustee owner at the time in question of the fee of
Building, and in the event of any transfer or transfers of the title to
such fee, provided such grantee assumes liability for the grantor's
obligations under this Lease, Landlord herein named (and in case of any
subsequent transfer or conveyances, the then grantor) shall be
automatically freed and relieved, from and after the date of such transfer
or conveyance, of all liability regarding the performance of any covenants
or obligations on the part of Landlord contained in this Lease thereafter
to be performed; provided that any funds in the hands of such Landlord or
the then grantor at the time of such transfer, in which Tenant has an
interest, shall be turned over to the grantee.
B. The Tenant may not record this Lease or a memorandum thereof with the
Recorder of Deeds of Cook County, without the written consent of the
Landlord.
C. Time is of the essence of this Lease, and all provisions herein
relating thereto shall be strictly construed.
D. Nothing contained herein shall be deemed or construed by the parties
hereto nor by any third party as creating the relationship of principal or
agent or of partnership, or of joint venture by the parties hereto, it
being understood and agreed that no provisions contained in this Lease nor
any act of the parties hereto shall be deemed to create any relationship
other than the relationship of Landlord and Tenant.
E. The captions of this Lease are for convenience only and are not to be
construed as part of this Lease nor as defining or limiting in any way the
scope or intent of the provisions hereof.
F. If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease
shall not be affected thereby, but each term and provision of this Lease
shall be valid and enforced to the fullest extent permitted by law.
G. All of the covenants, agreements, conditions, and undertakings
contained in this Lease shall extend and inure to and be binding upon the
representatives, successors, and assigns of the respective parties hereto,
the same as if they were in every case specifically named, and whenever in
this Lease reference is made to either of the parties hereto, it shall be
held to include and apply, wherever applicable, to the representatives,
successors, and assigns of such party. Nothing herein contained shall be
construed to grant or confer upon any person or persons, firm, corporation,
or governmental authority, other than the parties hereto, their
representatives, successors, and assigns, any right, claim, or privilege by
virtue of any covenant, agreement, condition, or undertaking in this Lease
contained.
H. Submission of this Lease for examination or signature by Tenant does
not constitute a reservation of or option for this Lease; it shall become
effective as a Lease only upon execution and delivery by both Landlord and
Tenant.
I. No rights to light or air over any real estate, whether belonging to
Landlord or any other party, are granted to Tenant by this Lease.
J. This Lease shall be governed by and construed in accordance with the
laws of the State of Illinois.
<PAGE>
K. Landlord shall have the right to apply payments received from Tenant
pursuant to this Lease (regardless of Tenant's designation of such
payments) to satisfy any obligations of Tenant hereunder, in such order and
amounts as Landlord in its sole discretion may elect.
L. This Lease and the Exhibits, attached hereto and forming a part
hereof, set forth all the covenants, promises, agreements, conditions, and
understandings between Landlord and Tenant concerning the Premises, and
there are no covenants, promises, agreements, conditions, or
understandings, either oral or written, between them other than as are
herein set forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change, or addition to this Lease shall be binding
upon Landlord or Tenant unless reduced to writing and signed by them. This
Lease consists of the following:
Lease of 28 Pages
Exhibit A - Tenant Plans
Exhibit B - Estoppel Certificate
M. Notwithstanding anything contained herein to the contrary, Landlord
shall remain responsible for, and shall indemnify and save Tenant harmless
from and against any and all liability, damages, losses, claims, suits, and
other costs (including reasonable attorneys' fees) arising out of, or
connected with the presence on, in, or under the Building or the Premises,
of any Hazardous Materials existing prior to the Commencement Date, or
thereafter, resulting from any cause other than the Tenant, its agents,
invitees, contractors, and/or employees, and/or its occupancy in, or use
of, the Premises.
O. The Tenant has been occupying the Premises since September 22, 1993
under a Lease Agreement with the Landlord dated April 7, 1993, and amended
July 27, 1993 and June 15, 1995 (the "Old Lease"). The Tenant shall not be
obligated under the terms and provisions of the Old Lease on and after the
Commencement Date, however the Tenant shall remain obligated and liable
under the Old Lease for any Rental and other amounts due or other
obligations and liabilities which were due or accrued prior to the
Commencement Date.
SECTION 32. EXCULPATORY CLAUSE This Lease is executed by Landlord, not
personally, but as trustee (hereinafter "Trustee") pursuant to a certain Trust
Agreement dated August 27, 1982 and known as Trust Number 105272 (hereinafter
"Trust Agreement"), in the exercise of the power and authority conferred upon
and vested in it as Trustee, under the express direction of the Landlord's
Beneficiaries, and subject to all provisions of the Trust Agreement, to which
the Lease is expressly made subject. It is expressly understood and agreed that
nothing in this Lease contained shall be construed as creating any liability
whatsoever against the Trustee or Landlord's Beneficiaries, and in particular,
without limiting the generality of the foregoing, there shall be no personal
liability to pay any indebtedness accruing hereunder or to perform any covenant,
either express or implied, herein contained, to keep, preserve, or sequester any
property of the Trust, and that all personal liability of the Trustee, and the
Landlord's Beneficiaries, of every sort, if any, is hereby expressly waived by
Tenant, and by every person now or hereafter claiming any right or security
hereunder; and that so far as the parties hereto are concerned, the owner of any
indebtedness or liability accruing hereunder shall look solely to the Trust
Estate, which is the Building, subject to the provisions of the Trust Agreement,
for the payment thereof. It is further understood and agreed that the Trustee
has no agents or employees and merely holds a leasehold interest to the Building
and has no control over the management thereof or the income therefrom and has
no knowledge respecting rentals, leases, or other factual matter with respect to
the Building, except as represented to it by the Landlord's Beneficiaries.
<PAGE>
THE BALANCE OF THIS PAGE IS INTENTIONALLY OMITTED
THE SIGNATURE PAGE IS THE NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed and entered into three (3)
duplicate originals of this Lease of twenty-eight (28) pages, this page
included, the day and year above first written.
LANDLORD:
LA SALLE NATIONAL BANK, N.A., not individually
but as Trustee aforesaid,
-----------------------------------------
TENANT:
DELPHI INFORMATION SYSTEMS, INC., a Delaware Corporation
ATTEST:
- --------------- -----------------------------------------
Secretary President
<PAGE>
LANDLORD'S ACKNOWLEDGMENT
STATE OF ILLINOIS
COUNTY OF COOK
I, , a Notary Public in and for said Country, in the State
aforesaid, DO HEREBY CERTIFY THAT , personally known to me to
be a Vice President of LA SALLE NATIONAL BANK, N.A., and personally known to me
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person and acknowledged that he/she signed and
delivered the said instrument as Vice President, and caused the corporate seal
of said corporation to be affixed thereto, pursuant to authority given by the
Trust Agreement, dated August 27, 1982 and known as Trust No. 105272, all by the
direction of the beneficiaries thereof, for the uses and purposes therein set
forth.
Given under my hand and notarial seal this day of September 1998.
Notary Public
My commission expires .
TENANT'S ACKNOWLEDGMENT
STATE OF ILLINOIS
COUNTY OF COOK
I, , a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY THAT personally known to me
to be that President of DELPHI INFORMATION SYSTEMS, INC., a
Delaware Corporation, duly licensed to transact business in the State of
Illinois, and personally known to me to be the Secretary
of said Corporation, and personally known to me to be the same persons whose
names are subscribed to the foregoing instrument, appeared before me this day in
person and severally acknowledged that they signed and delivered the said
instrument as President and Secretary of said Corporation, and caused the
Corporate Seal to be affixed thereto, pursuant to authority given by the Board
of Directors of said Corporation, as their free and voluntary act and as the
free and voluntary act and deed of said Corporation, for the uses and purposes
therein set forth.
Given under my hand and notarial seal this day of September 1998.
Notary Public
My Commission expires: .
<PAGE>
ESTOPPEL CERTIFICATE
The undersigned, DELPHI INFORMATION SYSTEMS, INC., a Delaware Corporation,
hereby certifies that it is the Tenant under a certain Lease Agreement dated the
day of September, 1998 with La Salle National Bank, N.A., as Trustee under
Trust Agreement dated August 27, 1982, and known as Trust No. 105272, as the
Landlord, which Lease Agreement leases to Tenant 20,686 square feet on the 5th
floor (hereinafter referred to as Premises) at 3501 Algonquin Road, Rolling
Meadows, Illinois 60008, in an office building known as Crossroads of Commerce
III.
The Tenant hereby further certifies as to the following:
1. That the Lease is in full force and effect and has not been modified,
altered or amended;
2. That possession of the Premises has been accepted by the Tenant;
3. That the Term of the Lease commenced on October 1, 1998 and terminates
on September 30, 2003;
4. That the Rentable Square Feet of the Premises is 20,686;
5. That the Base Rent payable by the Tenant for the entire Term is
$1,344,590.04 payable as follows:
10/1/98 to 9/30/99 - 12 installments of $20,686.00
10/1/99 to 9/30/00 - 12 installments of $21,547.92
10/1/00 to 9/30/01 - 12 installments of $22,409.83
10/1/01 to 9/30/02 - 12 installments of $23,271.75
10/1/02 to 9/30/03 - 12 installments of $24,133.67
6. That the Tenant has accepted, and is in possession, of the Premises;
that any Tenant Improvements to the Premises, required by the terms of the Lease
to be made by the Landlord, have been completed to the satisfaction of the
Tenant;
7. That there are no payments, credits or concessions required to be made
or granted by Landlord to Tenant in connection with the Lease, so that the
Landlord has no obligations or liabilities with respect thereto;
8. That no Rental due under the Lease has been paid more than thirty (30)
days in advance of the date hereof;
9. That the Lease, the Premises or any portion thereof, have not been
assigned or sublet, by operation of law or otherwise;
10. That there has been no default under the Lease, by either the Tenant
or the Landlord, and that no event has occurred which, with the giving of
notices, or the passage of time, or both, could result in a default under the
Lease;
11. That the Tenant, as of the date hereof, does not have any charge,
claim, lien, or right of set-off, under the Lease and/or against the Landlord;
<PAGE>
12. That there are no agreements between the Landlord and the Tenant other
than is stated and provided in the Lease and its Exhibits;
13. That the Tenant has no claim or right with respect to the Premises
and/or Crossroads of Commerce III other than those rights set forth in the
Lease;
14. That exceptions to the above statements are set forth hereinafter:
(If none, state none) __________________________________________ and
15. That this Certificate is being made to _________________________
_________________________________________________________________________and
said party may rely on the truthfulness of the statements set forth herein.
This Certificate of Tenant is dated this day of .
TENANT:
DELPHI INFORMATION SYSTEMS, INC., a Delaware Corporation
ATTEST:
- --------------- -----------------------------------------
Secretary President
<PAGE>
Exhibit 10.16 Lease agreement effective October, 1998 between the Company
and 485 Properties LLC, relating to premises at Five Concourse Parkway,
Atlanta, Georgia.
LEASE AGREEMENT
CONCOURSE
ATLANTA, GEORGIA
LANDLORD: 485 PROPERTIES, LLC
TENANT: DELPHI INFORMATION SYSTEMS
BUILDING: CORPORATE CENTER V
SUITE: 3200
SQ. FT.: 6,694 RENTABLE SQUARE FEET
TERM: FIVE (5) YEARS
<PAGE>
LEASE AGREEMENT
CONCOURSE
THIS LEASE AGREEMENT (the "Lease"), made this _____ day of October, 1998,
by and between 485 PROPERTIES, LLC ("Landlord"), a Delaware limited liability
company, which has as its address for all purposes hereunder as follows:
485 Properties, LLC
c/o TC Atlanta, Inc.
Five Concourse Parkway
Suite 2000
Atlanta, Georgia 30328-6111
and DELPHI INFORMATION SYSTEMS ("Tenant"), a corporation of the State of
Delaware, which has as its address:
Five Concourse Parkway
Suite 3200
Atlanta, Georgia 30328
WITNESSETH:
1. PREMISES AND TERM
(a) Landlord hereby rents and leases to Tenant, and Tenant hereby
rents and leases from Landlord, the following described space (the "Premises"):
Floor: 32nd
Suite: 3200
Rentable Square Feet: 6,694
Usable Square Feet: 5,820
located at the herein called "Building":
Building: Corporate Center V
Address: Five Concourse Parkway
Fulton County, Georgia
Total Building Rentable Area: 687,107
(b) The Premises are more particularly shown and outlined on the
space plans attached hereto as EXHIBIT "A", and made a part hereof, and are
located in that portion of the Building shown on EXHIBIT "B", attached hereto
and by this reference incorporated herein. The term of this Lease (the "Term")
shall commence on the 30th day after the date that the Lease has been executed
by both the parties hereto (the "Commencement Date"), and end at midnight on the
day immediately prior to the fifth (5th) anniversary of the Commencement Date,
unless sooner terminated as herein provided. This
<PAGE>
Lease shall be effective and enforceable upon its execution and delivery,
whether such execution and delivery occurs on, prior to, or after the
Commencement Date.
(c) "Lease Year" as used herein shall mean (i) each and every twelve
(12) month period during the Term of this Lease, or (ii) in the event of Lease
expiration or termination, the period between the last twelve (12) month period
and said expiration or termination. The first such twelve (12) month period
shall commence on the Commencement Date.
(d) The Building and the land upon which said Building is located
(which includes certain parking facilities serving the Building), more
particularly described on EXHIBIT "C", attached hereto and by this reference
incorporated herein, is herein referred to as the "Property".
(e) The Premises shall include the appurtenant right to use, in
common with others, public lobbies, entrances, stairs, corridors, elevators, and
other public portions of the Building. All the windows and outside walls of the
Premises, and any space in the Premises used for shafts, pipes, conduits, ducts,
telephone ducts and equipment, electric or other utilities, sinks or other
Building facilities, and the use thereof and access thereto through the Premises
for the purposes of operation, maintenance, inspection, display and repairs are
hereby reserved to Landlord. No easement for light, air or view is granted or
implied hereunder, and the reduction or elimination of Tenant's light, air or
view will not affect this Lease.
2. RENT
(a) Tenant shall pay to Landlord at P.O. Box 102353, Atlanta, Georgia
30368-0353 or at such other place Landlord designates, without demand, deduction
or setoff, an annual rental for each year of the Term, due and payable in equal
monthly installments (the "Monthly Rental") in advance on the first (1st) day of
each calendar month during the Term as follows:
<TABLE>
<CAPTION>
LEASE BASE RENTAL RATE (PER RENTABLE
YEAR SQUARE FOOT PER ANNUM) ANNUAL RENTAL MONTHLY RENTAL
----- ------------------------------- ------------- --------------
<S> <C> <C> <C>
1 $31.00 $207,514.00 $17,292.83
2 $31.93 $213,739.42 $17,811.62
3 $32.89 $220,165.66 $18,347.14
4 $33.88 $226,792.72 $18,899.39
5 $34.90 $233,620.60 $19,468.38
</TABLE>
Tenant shall pay the first month of the Monthly Rental for Lease Year 1 upon the
execution and delivery of this Lease (with said amount to be applied against the
Monthly Rental first due under the Lease).
(b) If the Term commences at any time other than the first day of a
month or terminates at any time other than the last day of a month, the amount
of Rent due from Tenant shall be proportionately adjusted based on that portion
of the month that this Lease is in effect.
(c) The term "Rent", as used herein, shall mean Monthly Rental,
"Tenant's Share" of "Operating Costs" (as those terms are defined herein) and
any other amounts due of Tenant hereunder.
<PAGE>
(d) At all times that Landlord shall direct Tenant to pay Rent to a
"lockbox" or other depository whereby checks issued in payment of Rent are
initially cashed or deposited by a person or entity other than Landlord (albeit
on Landlord's authority), then, for any and all purposes under this Lease:
(i) Landlord shall not be deemed to have accepted such payment until ten (10)
days after the date on which Landlord shall have actually received such funds
(provided that Tenant shall not be in default of Tenant's obligation to pay Rent
so long as Tenant shall pay Rent in the manner provided in Paragraph 2(a)
hereinabove), and (ii) Landlord shall be deemed to have accepted such payment if
(and only if) within said ten (10) day period, Landlord shall not have refunded
(or attempted to refund) such payment to Tenant.
3. OPERATING COSTS
(a) Tenant hereby covenants and agrees and shall be obligated to pay
to Landlord, in addition to and not in lieu of the other amounts specified
herein, the "Operating Costs," as hereinafter defined, of repairing,
maintaining, owning and operating the Building and Property, in excess of the
"Initial Operating Costs" (as that term is herein defined). These payments
shall be in addition to and not in lieu of any other payments due from Tenant
hereunder. The "Initial Operating Costs" shall be, for the purposes of this
Lease, the actual Operating Costs for calendar year 1999, adjusted pursuant to
the terms of this Lease.
(b) The term "Operating Costs", as adjusted pursuant to the terms of
this Lease, shall mean any and all operating expenses of the Property, Building
and related areas (such as, by way of illustration but not limitation, the
parking areas), computed on an accrual basis and including all expenses, costs,
and disbursements of every kind and nature, which Landlord (i) shall pay; and/or
(ii) become obligated to pay, including, but not limited to, the following:
(i) Costs, wages and salaries of all persons engaged in the
management, operation, repair, security or maintenance of the
Property and Building, including, but not limited to, fringe
benefits, taxes, insurance and any other benefits relating
thereto;
(ii) All supplies and materials used in the operation and maintenance
of the Property and Building;
(iii) Cost of water, sewage, electricity and other utilities furnished
in connection with the operation of the Building;
(iv) Cost of all service agreements and maintenance for the Property
and Building and the equipment therein, including, but not
limited to, trash removal, security services, alarm services,
window cleaning, janitorial service, HVAC maintenance, elevator
maintenance, and grounds maintenance;
(v) Cost of all insurance relating to the Property and Building
including, but not limited to, the cost of casualty and liability
insurance applicable to the Property and Building and Landlord's
personal property used in connection therewith;
(vi) All taxes (ad valorem and otherwise), assessments, and
governmental charges whether federal, state, county, or
municipal, and whether by taxing districts or authorities
presently taxing the Property and Building or by others,
subsequently
<PAGE>
created or otherwise, and any other taxes (other than federal and
state income taxes), and assessments attributable to the Property
and Building or its operation and any reasonable consultants fees
incurred with respect to issues or concerns involving the taxes
or the Building, the Property, or both;
(vii) Cost of repairs and general maintenance of the interior and
exterior of the Property and Building (including, but not limited
to, light bulbs and glass breakage; the redecorating, repainting,
recarpeting and other such work of any common areas; heating,
ventilation and air conditioning equipment; plumbing and
electrical equipment; and elevators), parking areas, and
landscaping;
(viii) A management fee and other expenses incurred for the general
operation and management of the Property and Building;
(ix) An amortization cost due to any capital expenditures incurred (i)
which have the effect of reducing or limiting Operating Costs of
the Property and Building, if such reduction or limitation inures
to Tenant's benefit (but only to the extent and in the amount
that such Operating Costs of the Property and Building are
reduced); (ii) which may be required by governmental authority or
by Landlord's insurance carrier; or (iii) which are designed to
protect or enhance the health, safety or welfare of the tenants
in the Building or their invitees.
(x) all assessments made, charged, levied, assessed or accrued
against Landlord by The Concourse Office Park Association, Inc.;
(xi) legal and accounting fees and expenses;
(xi) anything which could be classified as an Operating Cost under
generally accepted accounting principles, consistently applied,
but not specified or expressly set forth hereunder.
Excluded from "Operating Costs" are:
(i) Capital items (except those expenditures referred to above);
(ii) Leasing commissions;
(iii) Specific costs billed to and paid by specific tenants or other
third parties;
(iv) Depreciation;
(v) Principal, interest, and other costs directly related to
financing the Building;
(vi) The cost of any repairs or general maintenance paid by the
proceeds of insurance policies carried by Landlord on the
Property and Building;
(vii) Costs of advertising and public relations and promotional costs
(but not including the cost of newsletters for the Building;
<PAGE>
(viii) Attorney's fees associated with leasing of the Building;
(ix) Any fines or penalties incurred due to the intentional violation
by Landlord of any governmental authority;
(x) Costs of management fees in excess of customary fees charged by
managers of similar quality and reputation in similar sized first
class office buildings in the Atlanta Northeast perimeter area;
(xi) Costs, fines, interest, penalties, legal fees or costs of
litigation incurred due to late payment of taxes, utility bills
and other costs incurred as a result of Landlord's failure to
make such payments when due; and
(xii) Salaries and wages and other benefits paid by or on behalf of
employees above the level of the Director of the Property
Managers of the Building.
(c) The term "Tenant's Share" shall mean the proportion that the
Square Feet in the Premises bears to ninety-five percent (95%) of the Total
Building Rentable Area, or the average percentage of the Total Building Rentable
Area actually leased in the Building for any calendar year, if such average is
greater than ninety-five percent (95%) of the Total Building Rentable Area. The
average shall be determined by adding together the total leased space on the
last day of each month during the calendar year in question and dividing by
twelve (12). Tenant's Share is used in this Lease to determine the portion of
Operating Costs payable by Tenant, on a per square foot per annum basis.
Notwithstanding anything to the contrary contained herein, if the Building is
not fully occupied during any calendar year, appropriate adjustments shall be
made to determine Operating Costs as though the Building had been fully occupied
in such calendar year for the entire calendar year.
(d) On January 15 of each calendar year after the calendar year in
which this Lease is executed (or as soon thereafter as practical), Landlord
shall provide Tenant with the projected Operating Costs for such current
calendar year, and Tenant shall thereafter pay Tenant's Share of projected
Operating Costs for operating the Property and Building in excess of the Initial
Operating Costs. Such projected Operating Costs in excess of the Initial
Operating Costs shall be payable in advance on a monthly basis by paying
one-twelfth (1/12th) of such amount during each month of such respective
calendar year. If Landlord has not furnished Tenant such comparison by January
15, Tenant shall continue to pay on the basis of the prior year's estimate until
the month after such comparison is given. Landlord shall, within one hundred
twenty (120) days (or as soon thereafter as practical) after each calendar year
during the Term provide Tenant an unaudited statement of such year's actual
Operating Costs. If actual Operating Costs are greater than projected Operating
Costs, Tenant shall pay Landlord, within thirty (30) days of such statement's
receipt, Tenant's Share of the difference thereof. If such year's projected
Operating Costs are greater than the actual Operating Costs, Landlord shall
credit Tenant, within thirty (30) days of such statement issuance, Tenant's
Share of the difference between projected Operating Costs and actual Operating
Costs.
(e) Tenant or its representative (which shall be an accounting firm
among the top 10 nationally in gross revenues) shall have the right to examine
Landlord's books and records showing Operating Costs upon reasonable prior
notice and during normal business hours at any time within sixty (60) days
following the furnishing by Landlord to Tenant of any final invoice or
reconciliation statement for any given year. Any information obtained by Tenant
and its auditors and examiners from such examination will be treated as
confidential unless and until such information
<PAGE>
has been publicly disclosed by Landlord, and Tenant shall execute and cause its
outside auditor or examiner to execute such confidentiality agreement as
Landlord shall request, to reflect and effectuate the confidentiality provisions
of this Paragraph. However, nothing herein contained shall limit or impair the
right or obligation of Tenant to disclose such information when required by law
or to appropriate regulatory authorities having jurisdiction over its affairs,
or to use the same in connection with the enforcement of the terms and
conditions of this Lease. Unless Tenant takes written exception to any item
within sixty (60) days after the furnishing of Landlord's invoice or statements,
then such invoices or statements shall be considered as final and accepted by
Tenant. Tenant shall furnish Landlord with a copy of all information and
material generated for or on behalf of Tenant with respect to such audit,
whether or not Tenant disputes the calculations or charges from Landlord. If
Tenant does dispute such charges, then Tenant shall submit to Landlord, as a
part of the notice of such dispute, a precise and detailed narrative account of
the exact nature of the dispute, with specific reference to the differences
found by Tenant. Such statement shall be certified as true, correct and
accurate by the auditor or examiner making such findings. If Tenant's audit
reveals an underpayment of Operating Costs by Tenant, then Tenant shall pay the
same within thity (30) days after receipt of the audit results. If the total
Operating Costs as disclosed by such audit are finally determined to have been
overstated by five percent (5%) or more, Landlord shall promptly reimburse or
credit Tenant for the reasonable, actual costs of such audit (based upon the
hourly charges of the personnel involved in the audit, and not any contingency
payment), in addition to refunding all overpayments previously made by Tenant.
(f) If this Lease commences at any time other than the first day of a
calendar year or terminates at any time other than the last day of a calendar
year the amount of Operating Costs due from Tenant shall be proportionately
adjusted based on that portion of the year that this Lease was in effect.
(g) Tenant's payments of Operating Costs shall not be deemed payments
of base rental under any governmental wage and price controls or analogous
governmental actions affecting the amount of Rent which Landlord may charge
Tenant for the Premises.
4. DELIVERY OF THE PREMISES
(a) Landlord shall deliver possession of the Premises to Tenant "as
is, where is." Certain work may take place in the Premises in accordance with
EXHIBIT "D", attached hereto and by this reference incorporated herein, while
Tenant is in occupancy of the Premises. Landlord shall use its reasonable
efforts to cause such work to be conducted in a manner that causes the least
amount of disruption to and interference with Tenant's operations in the
Premises. However, Tenant shall have no claim or cause of action whatsoever for
interference or nuisance related to or arising out of such work in the Premises.
Tenant shall cooperate with Landlord in the completion of such work in the
Premises.
(b) If within nine (9) months of the Commencement Date Tenant shall
discover any latent defects in the Premises, Tenant shall provide Landlord with
notice of such latent defect prior to the expiration of such nine (9) month
period. Landlord shall promptly repair or restore any such latent defects of
which it receives timely notice. Landlord shall not have any obligation to
repair latent defects of which Tenant has given Landlord notice after this nine
month period.
5. ACCEPTANCE OF THE PREMISES
<PAGE>
The taking of possession of the Premises by Tenant shall be conclusive
evidence that Tenant accepts the same "as is" and that said Premises and the
Building were in good and satisfactory condition for the use intended at the
time such possession was taken, except for latent defects as described in
Section 4 hereof.
6. USE
Tenant shall use the Premises only for professional, executive office
purposes, generally in accordance with the manner of use by other tenants in the
Building. The occupancy rate of the Premises shall in no event be more than one
(1) person per 200 rentable square feet within said Premises. Tenant's use of
the Premises shall not violate any ordinance, law or regulation of any
governmental body or the "Rules and Regulations" of Landlord (the "Rules") as
set forth in EXHIBIT "F" attached hereto and made a part hereof, or cause an
unreasonable amount of use of any of the services provided in the Building.
Tenant shall conduct its business in the manner and according to the generally
accepted business principles of the business or profession in which Tenant is
engaged.
7. TENANT'S CARE OF THE PREMISES
(a) Tenant will maintain the Premises and the fixtures and
appurtenances therein in a first-class condition, and will not commit or permit
waste therein. Any repair work, maintenance and any alterations permitted by
Landlord in the Premises (i) shall be done at Tenant's sole cost and expense;
(ii) shall be done by Landlord's employees or agents or, with Landlord's
consent, by persons requested by Tenant; and (iii) shall first be consented to
by Landlord, such consent not to be unreasonably withheld. Tenant shall, at
Tenant's expense, but under the direction of Landlord and performed by
Landlord's employees or agents, or with Landlord's consent, by persons requested
by Tenant and consented to by Landlord, promptly repair any injury or damage to
the Premises or Building caused by the misuse or neglect thereof by Tenant, by
Tenant's contractors, sub-contractors, customers, employees, licensees, agents,
or invitees.
(b) Tenant will not, without Landlord's prior consent, make
alterations, additions or improvements (including, but not limited to,
structural alterations, additions or improvements) in or about the Premises and
will not do anything to or on the Premises which will increase the rate of
insurance on the Building or the Property. All alterations, additions or
improvements of a permanent nature made or installed by Tenant to the Premises
shall become the property of Landlord at the expiration or early termination of
this Lease. Landlord reserves the right to require Tenant to remove any
improvements or additions made to the Premises by Tenant and to repair and
restore the Premises to their condition prior to such alteration, addition or
improvement, reasonable wear and tear, unrepaired casualty and condemnation
excepted, unless Landlord has agreed at or prior to the time Tenant requests the
right to make such alteration, addition or improvement that such item need not
be removed by Tenant at the expiration or early termination of the Term.
(c) No later than the last day of the Term, Tenant will remove
Tenant's personal property and repair injury done by or in connection with
installation or removal of said property and surrender the Premises (together
with all keys, access cards or entrance passes to the Premises and/or the
Building) in as good a condition at the beginning of the Term, reasonable wear
and tear, unrepaired casualty and condemnation excepted. All property of Tenant
remaining in the Premises after expiration or early termination of the Term
shall be deemed conclusively abandoned and may be removed by Landlord, and
Tenant shall reimburse Landlord for the cost of removing the same, subject
however, to
<PAGE>
Landlord's right to require Tenant to remove any improvements or additions made
to the Premises by Tenant pursuant to the preceding Paragraph.
(d) In doing any work on the installation of Tenant's furnishings,
fixtures, or equipment in the Premises, Tenant will use only contractors or
workers consented to by Landlord prior to the time such work is commenced.
Landlord may condition its consent upon its receipt from such contractors or
workers of acceptable (i) lien waivers; and (ii) evidence of liability and
personal property insurance coverage in amounts and with insurance carriers
satisfactory to Landlord. Tenant shall promptly remove any lien or claim of
lien for material or labor claimed against the Premises or Building, or both, by
such contractors or workers if such claim should arise, and hereby indemnifies
and holds Landlord harmless from and against any and all loss, cost, damage,
expense or liabilities including, but not limited to, attorney's fees, incurred
by Landlord, as a result of or in any way related to such claims or liens.
(e) All personal property brought into the Premises by Tenant, its
employees, licensees and invitees shall be at the sole risk of Tenant, and
Landlord shall not be liable for theft thereof or of money deposited therein or
for any damages thereto, such theft or damage being the sole responsibility of
Tenant.
8. SERVICES
(a) Provided Tenant is in compliance with the terms and conditions of
this Lease, Landlord shall cause to be furnished the following services at
levels consistent with the level of other first class office buildings in the
area of the Building (the cost of which services shall be reimbursed to Landlord
in accordance with Paragraph 3 herein):
(i) Elevator service for passenger and delivery needs.
(ii) Air conditioning during summer operations and heat during winter
operations at temperature levels similar to other first class
office buildings in the Atlanta area, but consistent with and
subject to all Federal and local energy conservation regulations.
(iii) Public restrooms, including the furnishing of soap, paper towels,
and toilet tissue.
(iv) Either hot and cold or tempered running water for all restrooms
and lavatories.
(v) Janitorial service, including sanitizing, dusting, cleaning,
mopping, vacuuming, and trash removal, each Monday through
Friday, and floor waxing and polishing, window washing, smudge
removal and venetian blind cleaning as appropriate.
(vi) The replacement of building standard fluorescent lamps and
ballasts as needed.
(vii) Repairs and maintenance, for maintaining in good order at all
times the exterior walls, exterior windows, exterior doors and
roof of the Building, public corridors, stairs, elevators,
storage rooms, restrooms, the heating, ventilating and air
conditioning systems, electrical and plumbing systems of the
Building, and the walks, paving and landscaping surrounding the
Building.
(viii) General grounds care.
<PAGE>
(ix) General management, including supervision, inspections and
management functions.
(x) Electricity for the Premises, Building and Property.
(b) The services provided in Paragraph 8(a) are predicated on and are
in anticipation of the use of the Premises as follows:
(i) Services shall be provided for the Building during normal
business hours as described in the Rules.
(ii) HVAC design is based on sustained outside temperatures being no
higher than 95 degrees Fahrenheit and no lower than 14 degrees
Fahrenheit with sustained occupancy of the Premises by no more
than one person per 150 square feet of floor area and heat
generated by electrical lighting and fixtures not to exceed 3.0
watts per square foot.
(iii) Electric power usage and consumption for the Premises shall be
based on lighting of the Premises during normal business hours on
a level suitable for normal office use and power for small
desk-top machines and devices using no more than 110 volt, 20 amp
circuits (allowable load of 15 amps). Heavier use items shall
not be used or installed, unless expressly permitted elsewhere
herein or by consent of Landlord.
(iv) Should Tenant's total rated electrical design load per square
foot in the Premises exceed the Building standard rated
electrical design load, on a per square foot basis, as determined
by Landlord from time to time, for either low or high voltage
electrical consumption, or if Tenant's electrical design requires
low voltage or high voltage circuits in excess of Tenant's share
of the Building standard circuits, as such share is determined by
Landlord in Landlord's reasonable judgment, Landlord may (at
Tenant's expense), if reasonably possible, install within the
Building one (1) additional high voltage panel and/or one (1)
additional low voltage panel with associated transformer (the
"Additional Electrical Equipment") as necessary to accommodate
the aforesaid requirements. If the Additional Electrical
Equipment is installed because Tenant's low or high voltage rated
electrical design load exceeds the applicable Building standard
rated electrical design load (on a per square foot basis), then a
meter may also be added by Landlord (at Tenant's expense) to
measure the electricity provided through the Additional
Electrical Equipment.
(c) If Tenant uses any services in an amount or for a period in
excess of that provided for herein, Landlord also reserves the right to charge
Tenant reimbursement for the cost of such added services. Landlord reserves the
right to install separate metering devices to determine such excessive periods
and/or amounts, at Tenant's sole cost and expense. If there is disagreement as
to such additional charge, the opinion of the appropriate local utility company
or an independent professional engineering firm shall prevail.
<PAGE>
(d) Landlord shall not be liable for any damages directly or
indirectly, and Tenant shall have no right of set-off or reduction in Rent,
resulting from the installation, use, malfunction, or interruption of use of any
equipment in connection with the furnishing of services referred to herein,
including, but not limited to, any interruption in services by any cause beyond
the immediate control of the Landlord, except as expressly set forth in
Paragraph 8(e) below; provided however, Landlord shall exercise due care in
furnishing adequate and uninterrupted services. Without limitation on the
foregoing, under no circumstances shall Landlord incur liability for damages
caused directly or indirectly by any malfunction of Tenant's computer systems
resulting from or arising out of the failure or malfunction of any electrical,
air conditioning or other system serving the Building, and Tenant hereby
expressly waives the right to make any such claim against Landlord.
(e) If for any reason services to the Premises provided by, through
or under Landlord are interrupted, such interruption of services is of a nature
that it materially interferes with Tenant's use, occupancy and enjoyment of the
Premises, and the provision of such service (and the interruption thereof) is
within the reasonable control of Landlord, then Tenant shall hand-deliver notice
of such interruption to Landlord. If such interruption lasts in excess of five
(5) consecutive business days after Landlord has received notice of such
interruption, Tenant may abate payments of its Monthly Rental after said fifth
(5th) consecutive business day after Landlord has received notice of such
interruption until such service is once again provided to the Premises in a
manner which permits Tenant to use the Premises or a material portion thereof.
(f) There may be available in the Building a shared communications
systems service (the "Shared Service"), upon terms, conditions and fees to be
agreed upon by Tenant and the party providing such Shared Service. Neither
Landlord nor any manager of the Building shall be liable to Tenant for damages
if the furnishing of any such Shared Service is disrupted, terminated or
diminished in any manner, nor shall any disruption, diminution, or cessation
relieve Tenant from the performance of any of Tenant's covenants, conditions and
agreements under this Lease, nor shall any disruption, diminution or cessation
constitute constructive eviction or entitle Tenant to an abatement of Rent.
Tenant holds Landlord and any such manager harmless from any claims Tenant may
have arising out of or connected with such cessation or interruption. If Tenant
elects not to use the Shared Service, and Tenant has telephone or other such
equipment installed at Tenant's own direction, such system shall not (i) cause
the Building to violate any municipal safety codes or ordinances, including, but
not limited to, fire safety codes; (ii) cause damage to the Building;
(iii) require an amount of electrical or other services unreasonably in excess
of the requirements for customary business-telephone systems; or (iv) impact
upon the normal use, function and operation of the Shared Service. If Tenant
elects not to use or be a part of the Shared Service, Tenant shall not use any
wiring or other equipment which is a part of the Shared Service without the
prior, written consent of the provider of such Shared Service. If Tenant uses
any such wiring or equipment without such consent, Tenant shall be liable for,
and shall pay to the provider of such services on demand, (i) the cost of such
use; (ii) the cost of repairing or replacing any wiring or equipment damaged or
altered by such use; and (iii) any other damages caused by such use.
9. DESTRUCTION OR DAMAGE TO PREMISES
(a) If the Premises or the Building are totally destroyed (or so
substantially damaged as to be untenantable in the reasonable determination of
the Architect of the Building) by storm, fire, earthquake or other casualty,
Landlord shall have the option to:
<PAGE>
(i) Terminate this Lease as of the date of the occurrence of the
storm, earthquake, fire or other casualty by giving notice to
Tenant within sixty (60) days from the date of such damage or
destruction; or
(ii) Commence the process of restoration of the Premises to a
tenantable condition within sixty (60) days from the date of
receipt by Landlord of all of the insurance proceeds paid with
respect to such casualty, and proceed with due diligence to
complete said restoration of the Premises. If Landlord chooses
to restore the Premises, Rent shall abate with respect to the
untenantable portion of the Premises from the date of such
casualty until the date of substantial restoration thereof.
If Landlord fails to complete such restoration within one hundred eighty (180)
days of the date of the casualty, this Lease may be terminated as of the date of
the casualty upon notice from either party to the other, given not more than ten
(10) days following the expiration of said one hundred eighty (180) day period.
If such notice is not given, this Lease shall remain in force and effect and
Rent shall commence upon delivery of the Premises to Tenant in a tenantable
condition (evidenced by notice to Tenant that the Premises are substantially
completed). If damage or destruction of a material nature occurs to the
Premises within twelve (12) months of the expiration of the Term, Tenant may, at
its option upon written notice to Landlord within thirty (30) days after such
damage or destruction, terminate this Lease as of the date of the damage or
destruction.
(b) If the Premises are damaged but not rendered wholly untenantable
by any event set forth in Paragraph 9(a) above, Rent shall abate in the
proportion the Premises have been made untenantable. Landlord shall restore the
Premises expeditiously, and upon the date of restoration, full Rent shall
commence.
(c) Rent shall not abate if the damage or destruction of the
Premises, whether total or partial, is the result of the negligence of Tenant,
its contractors, subcontractors, agents, employees, guests or invitees.
10. DEFAULT BY TENANT; LANDLORD'S REMEDIES
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder by Tenant:
(i) The Rent or any other sum of money due of Tenant hereunder is not
paid within five (5) days of the date notice of such late payment
is received by Tenant; provided, however, if more than two (2)
payments due of Tenant hereunder in any one (1) calendar year are
not made until after notice of such late payment is received by
Tenant, then it shall be an event of default hereunder by Tenant
if any subsequent payment due of Tenant hereunder in the same
calendar year is not made within ten (10) days of the date when
due.
(ii) The Premises are abandoned or vacated;
(iii) Any petition is filed by or against Tenant under any section or
chapter of the National or Federal Bankruptcy Act or any other
applicable Federal or State bankruptcy, insolvency or other
similar law, and, in the case of a petition filed against Tenant,
such petition is not dismissed within sixty (60) days after the
date of such filing; if Tenant shall become insolvent or transfer
property to defraud
<PAGE>
creditors; if Tenant shall make an assignment for the benefit
of creditors; or if receiver is appointed for any of Tenant's
assets;
(iv) Tenant fails to bond off or otherwise remove any lien filed
against the Premises or the Building by reason of Tenant's
actions, within thirty (30) days after Tenant has notice of the
filing of such lien;
(v) Tenant fails to observe, perform and keep the covenants,
agreements, provisions, stipulations, conditions and Rules herein
contained to be observed, performed and kept by Tenant (other
than the failure to pay when due any Rent or any other sum of
money becoming due Landlord hereunder, which under all
circumstances is governed by and subject to Paragraph 10(a)(i)
herein), and persists in such failure after fifteen (15) days
written notice by Landlord requiring that Tenant remedy, correct,
desist or comply (or if any such failure to comply on the part of
Tenant would reasonably require more than fifteen (15) days to
rectify, unless Tenant commences rectification within the fifteen
(15) day notice period and thereafter promptly, effectively and
continuously proceeds with the rectification of the failure to
comply on the part of Tenant and, in all such events, cures such
failure to comply on the part of Tenant no later than thirty (30)
days after such notice).
(b) Upon the occurrence of an Event of Default, Landlord shall have
the option to do and perform any one or more of the following:
(i) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord. If Tenant shall fail to do
so, Landlord may, without further notice and without prejudice to
any other remedy Landlord may have, enter upon the Premises
without the requirement of resorting to the dispossessory
procedures set forth in O.C.G.A. Sections 44-7-50 ET SEQ. and
expel or remove Tenant and Tenant's effects without being liable
for any claim for trespass or damages therefor. Upon any such
termination, Tenant shall remain liable to Landlord for damages,
due and payable monthly on the day Rent would have been payable
hereunder, in an amount equal to the Rent and any other amounts
which would have been owing by Tenant for the balance of the
Term, had this Lease not been terminated, less the net proceeds,
if any, of any reletting of the Premises by Landlord, after
deducting all of Landlord's reasonable costs and expenses
(including, without limitation, advertising expenses and
professional fees) actually incurred in connection with or in any
way related to the termination of this Lease, eviction of Tenant
and such reletting; and/or
(ii) Declare the entire amount of Rent calculated on the current rate
being paid by Tenant, and other sums which in Landlord's
reasonable determination would become due and payable during the
remainder of the Term (including, but not limited to, increases
in Rent pursuant to Paragraph 2(a) and 3(d) herein), discounted
to present value by using a reasonable discount rate selected by
Landlord, to be due and payable immediately. Upon such
acceleration of such amounts, Tenant agrees to pay the same at
once, together with all Rent and other amounts theretofore due,
at Landlord's address as provided herein; provided however, that
such payment shall not constitute a penalty or forfeiture but
shall constitute liquidated damages for Tenant's failure to
comply with the terms and
<PAGE>
provisions of this Lease (Landlord and Tenant agreeing that
Landlord's actual damages in such event are impossible to
ascertain and that the amount set forth above is a reasonable
estimate thereof). Upon making such payment, Tenant shall
receive from Landlord all rents received by Landlord from other
tenants renting the Premises during the Term, provided that the
monies to which Tenant shall so become entitled shall in no event
exceed the entire amount actually paid by Tenant to Landlord
pursuant to the preceding sentence, less all of Landlord's
reasonable costs and expenses (including, without limitation,
advertising expenses and professional fees) actually incurred in
connection with or in any way related to the reletting of the
Premises. The acceptance of such payment by Landlord shall not
constitute a waiver of rights or remedies to Landlord for any
failure of Tenant thereafter occurring to comply with any term,
provision, condition or covenant of this Lease; and/or
(iii) Enter the Premises as the agent of Tenant without the requirement
of resorting to the dispossessory procedures set forth in
O.C.G.A. Sections 44-7-50 ET SEQ. and without being liable for
any claim for trespass or damages therefor, and, in connection
therewith, rekey the Premises, remove Tenant's effects therefrom
and store the same at Tenant's expense, without being liable for
any damage thereto, and relet the Premises as the agent of
Tenant, without advertisement, by private negotiations, for any
term Landlord deems proper, and receive the rent therefor.
Tenant shall pay Landlord on demand any deficiency that may arise
by reason of such reletting, but Tenant shall not be entitled to
any surplus so arising. Tenant shall reimburse Landlord for all
reasonable costs and expenses (including, without limitation,
advertising expenses and professional fees) actually incurred in
connection with or in any way related to the eviction of Tenant
and reletting the Premises, and for the amount of any other Rent
which would have been due of Tenant to Landlord hereunder if not
for certain concessions granted by Landlord to Tenant. Landlord,
in addition to but not in lieu of or in limitation of any other
right or remedy provided to Landlord under the terms of this
Lease or otherwise (but only to the extent such sum is not
reimbursed to Landlord in conjunction with any other payment made
by Tenant to Landlord), shall have the right to be immediately
repaid by Tenant the amount of all sums expended by Landlord and
not repaid by Tenant in connection with preparing or improving
the Premises to Tenant's specifications and any and all costs and
expenses incurred in renovating or altering the Premises to make
it suitable for reletting; and/or
(iv) As agent of Tenant, do whatever Tenant is obligated to do under
this Lease, including, but not limited to, entering the Premises,
without being liable to prosecution or any claims for damages, in
order to accomplish this purpose. Tenant agrees to reimburse
Landlord immediately upon demand for any expenses which Landlord
may incur in thus effecting compliance with this Lease on behalf
of Tenant. Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by the
negligence of Landlord or otherwise.
(c) Pursuit by Landlord of any of the foregoing remedies shall not
preclude the pursuit of general or special damages incurred, or of any of the
other remedies provided herein, at law or in equity.
<PAGE>
(d) No act or thing done by Landlord or Landlord's employees or
agents during the Term shall be deemed an acceptance of a surrender of the
Premises. Neither the mention in this Lease of any particular remedy, nor the
exercise by Landlord of any particular remedy hereunder, at law or in equity,
shall preclude Landlord from any other remedy Landlord might have under this
Lease, at law or in equity. Any waiver of or redress for any violation of any
covenant or condition contained in this Lease or any of the Rules now or
hereafter adopted by Landlord, shall not prevent a subsequent act, which would
have originally constituted a violation, from having all the force and effect of
an original violation. The receipt by Landlord of Rent with knowledge of the
breach of any covenant in this Lease shall not be deemed a waiver of such
breach.
11. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not sublet any part of the Premises, nor assign this
Lease or any interest herein, nor, once any such sublet or assignment is
consented to by Landlord, amend or modify the terms of such sublet or
assignment, without the prior consent of Landlord, which consent may be granted
or withheld, in all such instances, in Landlord's reasonable discretion. In no
event shall Tenant be permitted to sublease space or assign its interest in the
Lease to any existing occupant of the Building (whether as a tenant under a
lease or otherwise), or to any subsidiary or affiliate thereof or related party
thereto. In any event, no assignee or sublessee (or Tenant, on behalf or for
the benefit of an assignee or sublessee) shall have the right to exercise any
extension or renewal of Term, or any right to expand or otherwise increase the
size of the Premises. Landlord may deny consent to an assignment or sublease
if, by way of illustration but not limitation, the rate of compensation,
including, but not limited to, all rent, requested by Tenant for the portion of
the Premises to be subleased or for the assignment of the Lease would impact
upon or impair Landlord's ability to rent space in the Building at the then
market rate as offered by Landlord or if the financial statements of the
proposed assignee or sublessee are unsatisfactory. Additionally, neither Tenant
nor any other person having an interest in the possession, use, occupancy or
utilization of the Premises shall enter into any lease, sublease, license,
concession, assignment or other agreement for use, occupancy or utilization of
space in the Premises which provides for rental or other payment for such use,
occupancy or utilization based, in whole or in part, on the net income or
profits derived by any person or entity from the Premises leased, used, occupied
or utilized. Any such purported lease, sublease, license, concession,
assignment or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession use, occupancy or
utilization of any part of the Premises. If such a sublease is entered into,
neither the rental payable thereunder nor the amount thereof passed on to any
person or entity shall have deducted therefrom any expenses or costs related in
any way to the subleasing of such space.
(b) Consent by Landlord to one assignment or sublease shall not
destroy or waive this provision, and all later assignments and subleases shall
likewise be made only upon prior consent of Landlord, such consent of Landlord
not to be unreasonably withheld or delayed. If a sublease or assignment is
consented to by Landlord, any sublessees or assignees shall become liable
directly to Landlord for all obligations of Tenant hereunder without relieving
or in any way modifying Tenant's liability hereunder. If Tenant notifies
Landlord of Tenant's intent to sublease or assign this Lease, Landlord shall
within thirty (30) days from such notice (a) consent to such proposed
subletting; (b) deny such consent, giving reasons for denying such consent at
the time of the denial; (c) elect to cancel this Lease, or to reduce the
Premises by the area requested to be subleased or assigned if the area is less
than the entire Premises; or (d) elect to sublease the space, or take the
assignment, as applicable, on the same terms and conditions as offered by the
third-party. If Landlord elects to cancel or to reduce the area of the
Premises, Tenant shall have ten (10) days from such notice to notify Landlord of
Tenant's acceptance of such cancellation or reduction or Tenant's desire to
remain in possession of Premises for the Term. If
<PAGE>
Tenant fails to so notify Landlord of Tenant's election to accept termination or
reduction or to continue as Tenant hereunder, such failure shall be deemed an
election to terminate or have the area of Premises reduced, as the case may be,
and such termination or reduction shall be effective as of the end of the ten
(10) day period provided for in Landlord's notice as hereinabove provided. If
Landlord gives its consent to any such assignment or sublease, any rent or other
cost to the assignee or subtenant for all or any portion of the Premises over
and above the Rent payable by Tenant for such space shall be due and payable,
and shall be paid, to Landlord. If this Lease is cancelled, the area of
Premises is reduced or a sublease or assignment is made as herein provided,
Tenant shall pay Landlord a charge equal to the actual costs incurred by
Landlord, in Landlord's reasonable judgment (including, but not limited to, the
use and time of Landlord's personnel), for all of the necessary legal and
accounting services required to accomplish such cancellation, reduction of area
of the Premises, assignment or subletting, as the case may be.
(c) Tenant shall have the right to assign the Lease or sublet the
Premises, or any part thereof, without Landlord's consent, but subject to
Landlord's rights to notice and prohibition contained herein, to any parent,
subsidiary, affiliate or controlled corporation or to a corporation into which
Tenant may be converted or with which Tenant may merge ("Affiliate") if the
Affiliate has a net worth greater than or equal to Tenant at the time of the
proposed assignment or sublease. Tenant shall in any event have the obligation
to notify Landlord of its intent of any such arrangement, and if Landlord
reasonably determines that the proposed assignee or sublessee is engaged in a
business which would materially interfere with the operation of the Property or
that permitting the assignment or subletting would cause a violation by Landlord
of its obligations under any lease covering a portion of the Property, Landlord
shall have the right to prohibit such arrangement based upon the aforesaid
factors.
12. CONDEMNATION
If the Premises, or a part of such Premises such that the Premises in
the reasonable judgment of the Architect for the Building are untenantable, are
taken by eminent domain or other similar proceeding or are conveyed in lieu of
such taking, this Lease shall expire on the date when title or right of
possession vests, and Rent paid for any period beyond said date shall be repaid
to Tenant. If there is a partial taking where this Lease is not terminated, the
Rent shall be adjusted in proportion to the square feet of Premises taken, which
square footage shall be determined by the Architect for the Building. In either
event, Landlord shall be entitled, and Tenant shall not have any right, to claim
any award made in any condemnation proceeding, action or ruling relating to the
Building or the Property; provided, however, Tenant shall be entitled to make a
claim in any condemnation proceeding, action or ruling relating to the Building
for Tenant's moving expenses and the unamortized value of leasehold improvements
in the Premises actually paid for by Tenant, to the extent such claim does not
in any manner impact upon or reduce Landlord's claim or award in such
condemnation proceeding, action or ruling. Landlord shall have, in Landlord's
sole discretion, the option of terminating this Lease upon sixty (60) days prior
notice to Tenant if any such condemnation, action, ruling or conveyance in lieu
thereof makes continuation of Landlord's use of the Building economically
unfeasible.
13. INSPECTIONS
Landlord, its agents or employees may enter the Premises at reasonable
hours and upon reasonable prior notice (except in an emergency for which no
notice shall be required) to (a) exhibit the Premises to prospective purchasers
or tenants of the Premises or the Building; (b) inspect the Premises to see that
Tenant is complying with its obligations hereunder; and (c) make repairs (i)
required of
<PAGE>
Landlord under the terms hereof; (ii) to any adjoining space in the Building; or
(iii) to any systems serving the Building which run through the Premises.
14. SUBORDINATION
(a) This Lease shall be subject and subordinate to any underlying
land leases or deeds to secure debt which may now or hereafter affect this
Lease, the Building or the Property and also to all renewals, modifications,
extensions, consolidations, and replacements of such underlying land leases and
deeds to secure debt. In confirmation of the subordination set forth in this
Paragraph 14, Tenant shall, at Landlord's request, execute and deliver such
further instruments desired by the holder of the deed to secure debt (a
"Mortgagee") or by any lessor under any such underlying land leases.
Notwithstanding the foregoing, Landlord or such Mortgagee shall have the right
to subordinate or cause to be subordinated, in whole or in part, any such
underlying land leases or deeds to secure debt to this Lease (but not in respect
to priority of entitlement of insurance or condemnation proceeds). If any such
underlying land leases or deeds to secure debt terminate for any reason or any
such deeds to secure debt are foreclosed or a conveyance in lieu of foreclosure
is made for any reason, Tenant shall, notwithstanding any subordination, deliver
to Mortgagee within ten (10) days of written request an attornment agreement,
providing that such Tenant shall continue to abide by and comply with the terms
and conditions of this Lease.
(b) If any proceedings are brought for the foreclosure of, or in the
event of exercise of the power of sale or conveyance in lieu of foreclosure
under any deed to secure debt, Tenant shall at the option of the purchaser at
such foreclosure or other sale, attorn to such purchaser and recognize such
person as Landlord under this Lease. The institution of any suit, action or
other proceeding by a Mortgagee or a sale of the Property pursuant to the powers
granted to a Mortgagee under its deed to secure debt, shall not, by operation of
law or otherwise, result in the cancellation or the termination of this Lease or
of the obligations of Tenant hereunder.
(c) If such purchaser requests and accepts such attornment, from and
after such attornment, Tenant shall have the same remedies against such
purchaser for the breach of an agreement contained in this Lease that Tenant
might have had against Landlord if the deed to secure debt had not been
terminated or foreclosed, except such purchaser shall not be (i) liable for any
act or omission of the prior Landlord; (ii) subject to any offsets or defenses
which Tenant might have against the prior Landlord; or (iii) bound by any Rent
or security deposit which Tenant might have paid in advance to the prior
Landlord.
15. INDEMNIFICATION AND HOLD HARMLESS
(a) Tenant hereby indemnifies and holds Landlord harmless from and
against any injury, expense, damage, liability or claim, imposed on Landlord by
any person whomsoever, whether due to damage to the Premises, claims for
injuries to the person or property of any other tenant of the Building or of any
other person in or about the Building for any purpose whatsoever, or
administrative or criminal action by a governmental authority, whether such
injury, expense, damage, liability or claim results either directly or
indirectly from the act, omission, negligence, misconduct or breach of any
provisions of this Lease by Tenant, the agents, servants, or employees of
Tenant, or any other person entering upon the Premises under express or implied
invitation or consent of Tenant. Tenant further agrees to reimburse Landlord
for any costs or expenses, including, but not limited to, court costs and
reasonable attorney's fees, which Landlord may incur in investigating, handling
or litigating any such claim or any action by a governmental authority.
<PAGE>
(b) Landlord hereby agrees to indemnify and hold Tenant harmless from
and against any and all loss, cost or damage, or claim thereof, suffered or
incurred by Tenant arising out of or resulting from the willful misconduct or
gross negligence of Landlord, its agents, employees or contractors.
(c) Tenant shall give notice to Landlord of any defective condition
in or about the Premises known to Tenant, and further agrees to attempt to
contact Landlord by telephone immediately in such instance.
16. TENANT'S INSURANCE
Tenant shall carry (at its sole expense during the Term) (i) fire and
extended coverage insurance insuring Tenant's interest in its improvements to
the Premises and any and all furniture, equipment, supplies, contents and other
property owned, leased, held or possessed by Tenant and contained therein, such
insurance coverage to be in an amount equal to the full insurable value of such
improvements and property, as such may increase from time to time, (ii) worker's
compensation insurance as required by applicable law, and (iii) comprehensive
liability coverage for injury to or death of a person or persons and for damage
to property occasioned by or arising out of any construction work being done on
the Premises, or arising out of the condition, use, or occupancy of the
Premises, or other portions of the Building or Property, the limits of such
policy or policies to be in amounts not less than One Million Five Hundred
Thousand Dollars ($1,500,000) with respect to injuries to or death of any one
person, Five Million Dollars ($5,000,000) with respect to any one casualty or
occurrence and Three Hundred Thousand Dollars ($300,000) with respect to
property damage. Landlord and Tenant shall each have included in all policies
of insurance respectively obtained by them with respect to the Building or
Premises a waiver by the insurer of all right of subrogation against the other
in connection with any loss or damage insured against. To the full extent
permitted by law, Landlord and Tenant each waives all right of recovery against
the other, and agrees to release the other from liability for loss or damage to
the extent such loss or damage is covered by valid and collectible insurance in
effect at the time of such loss or damage; provided, however, that the foregoing
release by each party is conditioned upon the other party's carrying insurance
with the above described waiver of subrogation, and if such coverage is not
obtained or maintained by either party, then the other party's foregoing release
shall be deemed to be rescinded until such waiver is either obtained or
reinstated. All said insurance policies shall be carried with companies
licensed to do business in the State of Georgia reasonably satisfactory to
Landlord and shall be noncancellable except after twenty (20) days' written
notice to Landlord. Each policy shall name Landlord, Landlord's Property
Manager and any other person designated by Landlord as additional insureds and
provide that it is primary to, and ot contributing with, any policy carried by
Landlord, Landlord's Property Manager, or other designated person covering the
same loss. At Landlord's request, duly executed certificates of such insurance
shall be delivered to Landlord prior to the Commencement Date and at least
thirty (30) days prior to the expiration of each respective policy term.
17. REMEDIES CUMULATIVE
The rights given to Landlord and Tenant herein are in addition to any
rights that may be given to Landlord or Tenant by any statute or under law.
<PAGE>
18. ENTIRE AGREEMENT - NO WAIVER
This Lease contains the entire agreement of the parties hereto and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties not embodied herein shall be of any force and effect. The failure
of either party to insist in any instance on strict performance of any covenant
or condition hereof, or to exercise any option herein contained, shall not be
construed as a waiver of such covenant, condition or option in any other
instance. This Lease cannot be changed or terminated orally, and can be
modified only in writing, executed by each party hereto.
19. HOLDING OVER
If Tenant remains in possession of the Premises after expiration of
the Term, or after any termination of the Lease by Landlord, with Landlord's
acquiescence and without any written agreement between the parties, Tenant shall
be a tenant at sufferance and such tenancy shall be subject to all the
provisions hereof, except that the Monthly Rental for said holdover period shall
be one hundred fifty percent (150%) of the amount of Rent due in the last month
of the Term, for the first three (3) months of any such hold-over, and then
double the amount of Rent thereafter. There shall be no renewal of this Lease
by operation of law. Nothing in this Paragraph shall be construed as a consent
by Landlord to the possession of the Premises by Tenant after the expiration of
the Term or any termination of the Lease by Landlord, or as an exclusive remedy
in the event of a holdover.
20. HEADINGS
The headings in this Lease are included for convenience only and shall
not be taken into consideration in any construction or interpretation of any
part of this Lease.
21. NOTICES
(a) Any notice, request or consent by either party to the other
hereunder shall be valid only if in writing and shall be deemed to be duly given
only if hand-delivered, or sent by certified mail or by a recognized national
overnight delivery service which has a receipt of notice as a part of its
delivery function. Such notices shall be addressed (i) if to Tenant, at the
Premises and (ii) if to Landlord, at Landlord's address set forth above, or at
such other address for either party as that party may designate by notice to the
other. Notice shall be deemed given, if delivered personally, upon delivery
thereof, and if mailed, upon the mailing thereof.
(b) Tenant hereby appoints as its agent to receive service of all
dispossessory or distraint proceedings, an employee in the Premises at the time
of any such service.
22. HEIRS, SUCCESSORS, AND ASSIGNS - PARTIES
(a) This Lease shall bind and inure to the benefit of Landlord and
Tenant, and their respective successors, heirs, legal representatives and
assigns. The term "Landlord" as used in this Lease means only the owner (or the
ground lessee) for the time being of the Property and Building of which the
Premises are a part, so that in the event of any sale or sales of said Property
(or of any lease thereof), Landlord named herein shall be and hereby is entirely
released of all covenants and obligations of Landlord hereunder accruing
thereafter, and it shall be deemed without further agreement that the purchaser,
or the lessee, as the case may be, has assumed and agreed to carry out any and
all covenants and obligations of Landlord hereunder during the period such party
has possession of the Property and
<PAGE>
Building. If the Property and Building are severed as to ownership by sale
and/or lease, the owner of the entire Building or lessee of the entire Building
that has the right to lease space in the Building to tenants shall be deemed
"Landlord". Tenant shall be bound to any such succeeding party for performance
by Tenant of all the terms, covenants, and conditions of this Lease and agrees
to execute any attornment agreement not in conflict with the terms and
provisions of this Lease at the request of any such party.
(b) The parties "Landlord" and "Tenant" and pronouns relating
thereto, as used herein, shall include male, female, singular and plural,
corporation, partnership or individual, as may fit the particular parties.
23. ATTORNEY'S FEES
If Landlord has to engage or consult with an attorney as a result of
or in connection with a failure by Tenant to pay any Rent as and when due under
the Lease, then Tenant shall owe to Landlord, in addition to and not in lieu of
any other amounts due hereunder, and shall pay within ten (10) days after demand
for payment therefor is made, all such attorneys fees incurred by Landlord.
Also, if any law suit or court action between Landlord and Tenant arises out of
or under this Lease, the prevailing party in such law suit or court action shall
be entitled to and shall collect from the non-prevailing party the reasonable
attorney's fees and court costs actually incurred by the prevailing party with
respect to said lawsuit or court action.
24. TIME OF ESSENCE
TIME IS OF THE ESSENCE OF THIS LEASE.
25. NO ESTATE IN LAND
Tenant has only a usufruct under this Lease, not subject to levy or
sale. No estate shall pass out of Landlord by this Lease.
26. LETTER OF CREDIT
Tenant shall deliver to Landlord an irrevocable, unconditional letter
of credit in favor of Landlord in the amount of $ 30,000.00, in a form
acceptable to Landlord and issued by a bank in the Atlanta, Georgia metropolitan
area. If Tenant defaults or otherwise fails to comply with the terms of the
Lease for any reason, Landlord may immediately draw upon and receive payment
under said letter of credit, it being the express intent of Landlord and Tenant
that the letter of credit be used as a security deposit, securing the full and
complete performance by Tenant of Tenant obligations under the Lease. Such
letter of credit shall permit transfers of the payee thereunder if Landlord
transfers its interest in the Building. The letter of credit shall be open and
may be drawn upon for a period which expires eighteen months after the
Commencement Date; provided however, that such letter of credit may be of a
duration shorter than said period, so long as Tenant replaces said letter of
credit with a new letter of credit, on the same terms and conditions, and in the
same amount, as the prior letter of credit, at least one (1) month prior to the
expiration of the prior letter of credit.
27. COMPLETION OF THE PREMISES
Landlord shall supervise completion of the work described in
EXHIBIT "D" subject to payments which may be required of Tenant thereunder. Any
work required by Tenant as provided for in
<PAGE>
said EXHIBIT "D" shall be performed within the provisions and according to all
standards of said EXHIBIT "D".
28. PARKING ARRANGEMENTS
Landlord shall maintain unreserved parking spaces for use by Tenant
and Tenant's invitees and employees, in such amount or ratio as is in compliance
with the zoning for the Property, as may be modified from time to time, and
Tenant (and Tenant's guests and employees) shall only be entitled to use that
amount of parking spaces (determined on a parking space per square foot leased
basis). Such parking shall be available subject to the limitations and
conditions from time to time imposed by Landlord. Said parking shall be
maintained on the Property or on areas located in the vicinity of the Property.
29. RULES AND REGULATIONS
The Rules on EXHIBIT "F" are a part of this Lease. Landlord may from
time to time amend, modify, delete or add additional Rules for the use,
operation, safety, cleanliness and care of the Premises and the Building. Such
new or modified Rules shall be effective upon written notice to Tenant. Tenant
will cause its employees and agents, or any others permitted by Tenant to occupy
or enter the Premises to at all times abide by the Rules. If there is a breach
of any Rules, Landlord shall have all remedies in this Lease provided for in an
Event of Default by Tenant and shall, in addition, have any remedies available
at law or in equity, including but not limited to, the right to enjoin any
breach of such Rules. Landlord shall not be responsible to Tenant for the
nonobservance by any other tenant or person of any such Rules.
<PAGE>
30. RIGHT TO RELOCATE
At any time or from time to time during the Lease Term, Landlord shall
have the unrestricted and unconditional right to relocate Tenant from the
Premises to any other office space within the project currently referred to as
"Concourse". Landlord shall deliver notice to Tenant of Landlord's desire to
relocate Tenant, together with a proposal for the area to which such Premises
shall be relocated. Should Landlord exercise its right to relocate Tenant under
this Paragraph 30 then (i) expenses of said relocation or of any necessary
renovation or alteration (including costs of cabling or re-cabling, costs of
moving telephone equipment, costs of replacing stationary rendered obsolete by
virtue of the change of address, and the costs of the move), as calculated by
Landlord prior to any relocation, shall be paid by Landlord, and (ii) following
such relocation, the substituted space shall for all purposes thereinafter
constitute the Premises and all terms and conditions of this Lease shall apply
with full force and effect to the Premises as so relocated. Tenant shall have
the right to terminate the Lease if Tenant believes, in Tenant's reasonable and
good faith judgment, that the space to which the Premises are being relocated is
not acceptable. In such event, Tenant shall notify Landlord within twenty (20)
days of the date Tenant first has notice of the space proposed as the new
Premises, such termination to be effective sixty (60) days after such notice of
termination is given. If Tenant has not relocated its premises within sixty
(60) days after Landlord first notifies Tenant of Landlord's desire to relocate
Tenant, then it shall be an event of default on the part of Tenant, and Landlord
shall have, as a part of said remedies, the right to terminate this Lease. Such
termination shall be effective upon any date selected by Landlord in the
Termination Notice which is at least ten (10) days after the Termination Notice
is given by Landlord to Tenant. Tenant hereby further covenants and agrees to
promptly execute and deliver to Landlord any lease amendment or other such
document appropriate to reflect the changes in the Lease described or
contemplated above.
31. LATE PAYMENTS
Any payment due of Tenant hereunder not received by Landlord within five (5)
days of the date when due shall be assessed a five percent (5%) charge for
Landlord's administrative and other costs in processing and pursuing the payment
of such late payment, and shall be assessed an additional five percent (5%)
charge for the aforesaid costs of Landlord for each month thereafter until paid
in full. Acceptance by Landlord of a payment, and the cashing of a check, in an
amount less than that which is currently due shall in no way affect Landlord's
rights under this Lease and in no way be an accord and satisfaction. This
provision does not prevent Landlord from declaring the non-payment of Rent when
due an event of default hereunder.
<PAGE>
32. ESTOPPEL CERTIFICATE
Tenant shall, within ten (10) business days of the request by
Landlord, execute, acknowledge and deliver to Landlord, any Mortgagee,
prospective Mortgagee or any prospective purchaser or transferee of the
Property, the Building, or both (as designated by Landlord), an Estoppel
Certificate in recordable form, or in such other form as Landlord may from time
to time require, evidencing whether or not (a) this Lease is in full force and
effect; (b) this Lease has been amended in any way; (c) Tenant has accepted and
is occupying the Premises; (d) there are any existing defaults on the part of
Landlord hereunder or defenses or offsets against the enforcement of this Lease
to the knowledge of Tenant (specifying the nature of such defaults, defenses or
offsets, if any); (e) the date to which Rent and other amounts due hereunder, if
any, have been paid; and (f) any such other information as may be reasonably
requested by Landlord. Each certificate delivered pursuant to this Paragraph
may be relied on by Landlord, any prospective purchaser or transferee of
Landlord's interest hereunder, or any Mortgagee or prospective Mortgagee.
33. SEVERABILITY AND INTERPRETATION
(a) If any clause or provision of this Lease shall be deemed illegal,
invalid or unenforceable under present or future laws effective during the Term,
the remainder of this Lease shall not be affected by such illegality, invalidity
or unenforceability, and in lieu of each clause or provision of this Lease that
is illegal, invalid or unenforceable, there shall be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
(b) If any provisions of this Lease require judicial interpretation,
the court interpreting or construing the same shall not apply a presumption that
the terms of any such provision shall be more strictly construed against one
party or the other by reason of the rule of construction that a document is to
be construed most strictly against the party who itself or through its agent
prepared the same, as all parties hereto have participated in the preparation of
this Lease.
34. MULTIPLE TENANTS
If more than one individual or entity comprises and constitutes
Tenant, then all individuals and entities comprising Tenant are and shall be
jointly and severally liable for the due and proper performance of Tenant's
duties and obligations arising under or in connection with this Lease.
35. FORCE MAJEURE
Landlord shall be excused for the period of any delay and shall not be
deemed in default with respect to the performance of any of the terms,
covenants, and conditions of this Lease when prevented from so doing by causes
beyond Landlord's control, which shall include, but not be limited to, all labor
disputes, governmental regulations or controls, fire or other casualty,
inability to obtain any material or services, or acts of God.
36. QUIET ENJOYMENT
So long as Tenant is in full compliance with the terms and conditions
of this Lease, Landlord shall warrant and defend Tenant in the quiet enjoyment
and possession of the Premises during
<PAGE>
the Term against any and all claims made by, through or under Landlord, subject
to the terms of this Lease.
37. BROKERAGE COMMISSION; INDEMNITY
TC ATLANTA, INC. ("TC") HAS ACTED AS CONTRACT MANAGER FOR LANDLORD IN
THIS TRANSACTION AND THE WILLIAM B. HARE COMPANY ("HARE") HAS ACTED AS AGENT FOR
TENANT IN THIS TRANSACTION. BOTH TC AND HARE ARE TO BE PAID A COMMISSION BY
LANDLORD. Tenant and Landlord warrant that there are no other claims for
broker's commissions or finder's fees in connection with its execution of this
Lease. Tenant hereby indemnifies Landlord and holds Landlord harmless from and
against all loss, cost, damage or expense, including, but not limited to,
attorney's fees and court costs, incurred by Landlord as a result of or in
conjunction with a claim of any real estate agent or broker, if made by, through
or under Tenant. Landlord hereby indemnifies Tenant and holds Tenant harmless
from and against all loss, cost, damage or expense, including, but not limited
to, attorney's fees and court costs, incurred by Tenant as a result of or in
conjunction with a claim of any real estate agent or broker, if made by, through
or under Landlord. Tenant shall cause any agent or broker representing Tenant
to execute a lien waiver to and for the benefit of Landlord, waiving any and all
lien rights with respect to the Building or Property such agent or broker has or
might have under Georgia law.
38. EXCULPATION OF LANDLORD
Landlord's liability to Tenant with respect to this Lease shall be
limited solely to Landlord's interest in the Building. Neither Landlord, any of
the partners of Landlord, any officer, director, or shareholder of Landlord nor
any of the partners of Landlord shall have any personal liability whatsoever
with respect to this Lease.
39. ORIGINAL INSTRUMENT
Any number of counterparts of this Lease may be executed, and each
such counterpart shall be deemed to be an original instrument.
40. GEORGIA LAW
This Lease has been made under and shall be construed and interpreted
under and in accordance with the laws of the State of Georgia.
41. NO RECORDATION OF LEASE
Without the prior consent of Landlord, neither this Lease nor any
memorandum hereof shall be recorded or placed on public record.
42. HAZARDOUS WASTES
Tenant shall not (either with or without negligence) cause or permit
the escape, disposal or release of any biologically or chemically active or
other hazardous substances or materials. Tenant shall not allow the storage or
use of such substances or materials in any manner not sanctioned by law or by
the highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Building, the Premises
or the Property, any such materials or
<PAGE>
substances except to use in the ordinary course of Tenant's business, and then
only after notice is given to Landlord of the identity of such substances or
materials. Without limitation, hazardous substances and materials shall include
those described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any
applicable state or local laws and the regulations adopted under these acts. If
any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional charges if such requirement applies to the Premises. In addition,
Tenant shall execute affidavits, representations and the like from time to time
at Landlord's request concerning Tenant's best knowledge and belief regarding
the presence of hazardous substances or materials on the Premises. In all
events, Tenant shall indemnify Landlord in the manner elsewhere provided in this
Lease from any release of hazardous materials on the Premises occurring while
Tenant is in possession, or elsewhere if caused by Tenant or persons acting
under Tenant. The within covenants shall survive the expiration or earlier
termination of the Lease Term.
43. LEASE BINDING UPON DELIVERY
This Lease shall not be binding until and unless all parties have duly
executed said Lease and a fully executed counterpart of said Lease has been
delivered to Tenant.
44. SPECIAL STIPULATIONS
The special stipulations attached hereto as EXHIBIT "G" and made a
part hereof, if any, shall control if in conflict with any of the foregoing
provisions of this Lease.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to
be executed under seal, on the day and year first above written.
TENANT:
DELPHI INFORMATION SYSTEMS, a
corporation of the State of Delaware
_________________________(SEAL)
Authorized Signature
_________________________
Type Name of Signatory
Dated executed by _________________________(SEAL)
Tenant:__________ Authorized Signature
_________________________
Type Name of Signatory
(CORPORATE SEAL)
*Note: If Tenant is a corporation, two authorized corporate officers
must execute this Lease in their appropriate capacities for Tenant,
affixing the corporate seal.
By the execution and delivery of this Lease Tenant has made and shall be
deemed to have made a continuous and irrevocable offer to lease the Premises, on
the terms contained in this Lease, subject only to acceptance by Landlord (as
evidenced by Landlord's signature hereon), which Landlord may accept in its sole
and absolute discretion.
Tenant's Federal Employer Identification Number:______________
LANDLORD:
485 PROPERTIES, LLC, a Delaware limited
liability company
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date executed by
Landlord:________
<PAGE>
EXHIBIT "G"
SPECIAL STIPULATIONS
1. RIGHT OF FIRST REFUSAL. Provided this Lease is then in full force and
effect and Tenant is in full compliance with the terms and conditions of this
Lease, and there is no sublease of any portion of the Premises or assignment of
any of Tenant's interest in the Lease, Landlord hereby grants Tenant the right
to lease approximately 10,000 rentable square feet on the 16th floor of the
Building, more particularly shown on SCHEDULE "1" attached hereto and by this
reference incorporated herein (the "Expansion Space"), in accordance with the
within terms and conditions. Should Landlord receive an offer from an
unaffiliated third party to lease the Expansion Space, upon terms and conditions
and at a rental rate acceptable to Landlord, Landlord shall notify Tenant
thereof in writing setting forth the terms and conditions of such offer, and
offering to lease the Expansion Space to Tenant upon the financial terms
contained in the third party offer. Tenant shall have five (5) days to accept
or reject such offer. If Tenant rejects such offer or fails to respond within
said five (5) day period, then Landlord shall be entitled to rent said space to
such third party on such terms and conditions not materially more favorable than
the terms and conditions offered to Tenant. If Tenant accepts said offer and
such offer occurs within the first two (2) years of the Term, then Tenant shall
have leased such space upon the financial terms contained in said offer, and
upon the other terms and conditions as contained in this Lease and for a term
coterminous with this Lease, except that the space shall be leased "as is, where
is". The Rent for said Expansion Space shall commence on the earlier to occur
of (i) thirty (30) days after Tenant accepts such offer for such Expansion
Space, or (ii) on the date Tenant occupies said Expansion Space. If Tenant
accepts such offer and such offer occurs after the end of the second year of the
Term, then all terms and conditions set forth in the third party offer shall
apply, including the term, which may not be coterminous with this Lease.
2. RENEWAL OF LEASE. (a) Provided this Lease is then in full force and
effect and Tenant is in full compliance with the terms and conditions of this
Lease, and there is no sublease of any portion of the Premises or assignment of
any of Tenant's interest in the Lease, Landlord hereby grants to Tenant an
option to renew this Lease for one (1) period of five (5) years, at a rental
rate equal to the rental rate then being offered by Landlord to tenants desiring
to lease comparable space in the Building or in other buildings comparable to
the Building located in projects comparable to the project in which the Building
is located, with comparable on-site amenities and services and comparable
parking rights and privileges, as such rate is established by Landlord in its
reasonable judgment. Tenant shall notify Landlord no more than fourteen (14)
months and no less than twelve (12) months prior to the end of the Term if
Tenant desires to renew this Lease under the terms of this Special Stipulation
No. 2. If Tenant does give such notice, Landlord shall indicate to Tenant at
least nine (9) months prior to the end of the Term the rental rate which shall
be in effect for the Term as extended, on the basis as above-described. Tenant
shall have thirty (30) days from the date Landlord makes such offer to either
accept or reject such offer. If Tenant rejects such offer or fails to respond
within such thirty (30) day period, then this Lease shall terminate as of the
end of the Term as established herein. If Tenant accepts such offer, then the
Term shall be extended by said five (5) year period, upon the same terms and
conditions as contained in this Lease, and the rent for such period shall be the
rent as offered by Landlord and accepted by Tenant pursuant to the terms and
conditions of this Special Stipulation No. 2.(b)
Notwithstanding anything to the contrary contained herein, any right or
option to extend the Term of the Lease or expand the Premises is expressly
contingent upon Landlord consenting to such extension or expansion, with such
consent by Landlord to be granted or withheld solely upon the credit issues
described below. Landlord shall not be obligated to consent to Tenant's
exercise of any right or option for an extension or expansion, and such exercise
by Tenant shall be of no force or effect if, at the time of the exercise in
question by Tenant, the creditworthiness of Tenant (taking into account net
worth, cash on hand and cash available and net cash flow from operations) would
not be acceptable to Landlord, in Landlord's reasonable judgment, if Tenant
desired to lease space from Landlord in the Building as a new tenant. As a
condition to the consent by Landlord to the exercise of any such right or option
by Tenant, Landlord may request current financial statements from Tenant
certified by an officer or partner of Tenant, or, if available, an outside
independent auditor, to be true and correct. Tenant shall provide such
information to Landlord upon request, and Landlord shall have a reasonable time
to review and assess such information prior to granting consent to any such
exercise by Tenant.
<PAGE>
Exhibit 21.1
SUBSIDIARIES
Delphi Information Systems International, Inc.
Canadian Insurance Computer Systems, Inc.
Delphi Information Systems, (UK) Ltd.
Delphi Information Systems, (NZ) Ltd.
Complete Broking Systems, (Malaysia) Sdn. Bhd.
Complete Broking Systems Australia PTY, Ltd.
Delphi Information Systems, (Singapore) PTE, Ltd.
<PAGE>
Exhibit 23-1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (No. 33-62901, 33-23261, 333-45156) and Form
S-3 (No. 333-12781).
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 14, 1999
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