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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
Commission file number: 0-19922
THE BISYS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3532663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 CLOVE ROAD
LITTLE FALLS, NEW JERSEY 07424
(Address of principal executive offices) (Zip Code)
973-812-8600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.02 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
State the aggregate market value of voting stock held by nonaffiliates
of the Registrant as of September 24, 1998: $1,114,050,200.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of September 24, 1998: 25,664,165 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE: List the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
FISCAL 1998 ANNUAL REPORT to Shareholders--Part II and IV; PROXY STATEMENT for
November 16, 1998 Annual Meeting--Part III
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THE BISYS GROUP, INC.
FORM 10-K
JUNE 30, 1998
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Part I
Item 1. Business........................................................................... 1
Item 2. Properties......................................................................... 10
Item 3. Legal Proceedings.................................................................. 11
Item 4. Submission of Matters to a Vote of Security Holders................................ 11
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................................ 11
Item 6. Selected Financial Data............................................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................... 11
Item 8. Financial Statements and Supplementary Data........................................ 11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................................... 11
Part III
Item 10. Directors and Executive Officers of the Registrant................................. 12
Item 11. Executive Compensation............................................................. 12
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 12
Item 13. Certain Relationships and Related Transactions..................................... 12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................................ 12
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PART I
ITEM I. BUSINESS.
The BISYS(R) Group, Inc. and its wholly-owned subsidiaries ("BISYS" or
the "Company") supports more than 9,000 financial institutions and corporate
clients through its integrated business units. BISYS provides technology
outsourcing, check imaging applications and brokerage services to more than
1,000 financial institutions nationwide; distributes and administers over 60
families of mutual funds consisting of more than 900 portfolios; provides
retirement plan record keeping services to over 6,500 companies in partnership
with 30 of the nation's leading bank and investment management companies; and
provides insurance distribution solutions, Internet/telephone marketing,
enterprise-wide networking services, and loan/deposit product pricing research.
BISYS seeks to be the single source of all relevant outsourcing
solutions for its clients and to improve their performance, profitability and
competitive position. BISYS endeavors to expand the scope of its services
through focused account management, emphasizing services with recurring revenues
and long-term contracts. BISYS increases its business base through (i) direct
sales to new clients, (ii) sales of additional products and services to existing
clients, and (iii) acquisitions of businesses that provide complementary
outsourcing solutions to financial organizations and other customers.
BISYS was organized in August 1989 to acquire certain banking and
thrift data processing operations of Automatic Data Processing, Inc. ("ADP").
Its traditional business was established in 1966 by United Data Processing,
Inc., the predecessor of the banking and thrift data processing operations of
ADP. Together with its predecessors, BISYS has been providing outsourcing
solutions to the financial services industry for more than 30 years. BISYS is
incorporated under the laws of Delaware and has its principal executive office
at 150 Clove Road, Little Falls, New Jersey 07424 (telephone 973-812-8600).
Since its founding in 1989, BISYS has completed a number of
acquisitions as part of its strategic growth plan. Over the past five fiscal
years and through September 1998, BISYS acquired the following businesses:
July 1993 -- The Barclay Group, Inc., now part of BISYS Plan Services,
provides 401(k) marketing, administrative support and participant
recordkeeping to client companies;
September 1993 -- Assets and certain liabilities of the Meyer Interest
Rate Survey, now part of BISYS Research Services, gathers specific
information on deposit and loan products offered by banking
institutions and markets such information to clients;
October 1993 -- The Winsbury Companies, now part of BISYS Fund
Services, creates, markets, and administers proprietary mutual funds,
primarily for banks;
March 1994 -- SunTrust Data Systems, Inc., now part of BISYS
TOTALPLUS(R) business, provides information services for correspondent
community banks of SunTrust Banks, Inc.;
March 1995 -- Concord Holding Corporation ("Concord"), now part of
BISYS Fund Services, creates, markets and administers proprietary
mutual funds, primarily for banks;
May 1995 -- Document Solutions, Inc. ("DSI"), now known as BISYS
Document Solutions, offers check and document imaging solutions to
banks;
April 1996 -- Strategic Solutions Group, Inc. ("SSG"), now known as
BISYS Creative Solutions, designs, develops and provides automated
telephone and Internet-based business generation
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solutions to financial organizations, including the automated
processing of consumer loan requests and prequalification of home
buyers for mortgage loans;
June 1996 -- T.U.G., Inc. ("TUG"), now known as BISYS Insurance
Services, provides insurance distribution services to the financial
services industry;
August 1997 -- Charter Systems, Inc. ("Charter"), now known as BISYS
Networking Services, an enterprise-wide network services company which
provides network planning, design, implementation and 24-hour
monitoring and performance analysis for multi-vendor local and wide
area network environments;
August 1997 -- Dascit/White & Winston, Inc. and affiliated companies
("DWW"), now part of BISYS Insurance Services, an outsourcer of group
health care and life insurance services;
September 1997 -- Benefit Services, Inc. ("BSI"), now part of BISYS
Insurance Services, an outsourcer of long-term health care insurance
services;
May 1998 -- Underwriters Service Agency, now part of BISYS Insurance
Services, a provider of insurance distribution services;
July 1998 -- Corelink Resources Inc., and affiliated entities, now
known as BISYS Brokerage Services, a distributor and marketer of
investment products and services;
August 1998 -- The Potomac Group, now part of BISYS Insurance Services,
a distributer of life insurance products and services; and
September 1998 -- Greenway Corporation ("Greenway"), a check imaging
software provider.
RECENT DEVELOPMENTS
On May 29, 1998, BISYS acquired Underwriters Services Agency through
the acquisition of all the limited partnership interests of U.S.A. Associates
Limited Partnership and all of the outstanding stock of U.S.A., Inc., its
general partner.
On July 15, 1998, BISYS, through its subsidiary, Concord, acquired
Corelink Resources, Inc., and its subsidiaries through the exercise of its
option under an existing Shareholder's Agreement, to purchase all of the
remaining outstanding shares of the company's common stock and preferred stock
and all securities convertible into common stock. Concord was an initial
shareholder in Corelink at the time of its formation in 1993.
On August 10, 1998, BISYS acquired The Potomac Group through the merger
of two separate wholly-owned subsidiaries of BISYS with and into Potomac
Insurance Marketing Group, Inc., and with and into M & L Marketing Group of
Maryland, Inc.
On September 16, 1998, BISYS acquired Greenway through the merger of a
wholly-owned acquisition subsidiary of BISYS with and into Greenway. The
transaction was completed through the issuance of 968,202 shares of BISYS common
stock and the assumption by BISYS of Greenway stock options which were converted
into options to purchase approximately 148,792 shares of BISYS Common Stock.
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COMPANY STRATEGY
Financial organizations today are challenged to compete more
effectively, improve productivity and maximize profits during periods of both
economic growth and decline. BISYS provides viable alternatives for automating
critical tasks and functions and provides specific expertise and experience to
financial organizations. BISYS outsourcing solutions deliver to its clients
operational and economic benefits as well as additional resources to generate
incremental revenues.
BISYS objectives are to increase its client base and to expand the
services it offers to them. BISYS seeks to be the premier, full-service
outsourcing business partner focused on enhancing its clients' growth, profits
and performance, and building shareholder value by consistently increasing both
revenues and earnings per share, through a combination of internal growth, new
sales and strategic acquisitions. Six key principles have guided BISYS since its
formation and continue to shape its business growth plan:
FOCUS ON SERVING CLIENTS. BISYS seeks to strengthen business
relationships with clients by offering new products and services
designed to be technologically advanced solutions for improving client
performance, growth and competitive position in a changing market.
GROW INTERNALLY AND SELL AGGRESSIVELY. BISYS seeks to grow internally
by aggressively selling services to new clients and cross-selling
additional services to existing clients through focused sales in growth
markets. BISYS also seeks to develop and sell new services to clients
that help them retain existing customers, and attract additional
customers from new markets. BISYS seeks to grow with and profit from
its clients as a growth-focused business partner.
EXPLOIT BUSINESS AND PRODUCT SYNERGY. BISYS seeks to capitalize on the
synergies among its business units and to acquire complementary
companies that support its client relationships and long-term business
objectives. Strategic acquisitions represent an important growth tool
for BISYS. To enhance shareholder value, BISYS seeks to combine
conservative valuation discipline and transition experience to achieve
market synergies and operating leverage.
LEVERAGE TECHNOLOGICAL ADVANCEMENTS. BISYS seeks to maintain its
leadership position in providing competitive, value-added outsourcing
solutions through investment in new technology and the further
integration of BISYS system capabilities.
OPTIMIZE HUMAN RESOURCES. BISYS seeks to attract and retain executives,
technical staff and financial services professionals with the expertise
required to enable BISYS to explore and develop new opportunities that
will sustain its growth and market leadership position.
BISYS provides its products and services principally through three
major business groups: Marketing and Information Services, Investment Services
and Insurance Services.
MARKETING AND INFORMATION SERVICES
BISYS provides outsourcing solutions for information processing to
banking institutions through an integrated family of services and products
offered under the registered service mark TOTALPLUS. Although the TOTALPLUS
family of services and products are adaptable to financial institutions of any
size, BISYS believes that its primary market consists of banks with $250 million
to $10 billion in assets.
Using integrated central and client site solutions, the TOTALPLUS
product line supports most aspects of a banking institution's automation
requirements. TOTALPLUS is a comprehensive system, providing bank-wide
automation which enables community banks more effectively to compete with super
regionals, banks serving a national marketplace, and non-bank competitors. The
TOTALPLUS family of products and services provides bank-wide automation,
integrating mainframe-based, central site and PC-
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based, client site applications. During fiscal year 1998, BISYS launched the
banking industry's first true client/server outsourcing alternative based on an
open computing environment. BISYS also introduced full-service Internet banking,
utilizing network computing technologies. The TOTALPLUS solution provides
diverse financial organizations with the ability to customize each application
to meet specialized processing requirements and priorities.
BISYS currently has two major data processing centers located in the
Chicago, Illinois and Philadelphia, Pennsylvania metropolitan areas. These
regional service centers are uniformly automated with multi-tasking IBM (or
equivalent) mainframe computer systems on which all TOTALPLUS host computer
functions and client data are resident. Each client's individual operating
parameters and data are maintained separately, and extensive precautions are in
place to ensure data security and privacy of communications between the client
and the host. Both internal and external backup resources are maintained and
regularly tested for BISYS' own disaster recovery purposes.
BISYS is a leader in providing image-based technology software to
financial institutions, including sophisticated Internet-based delivery and
access solutions. These imaging solutions convert traditional paper-based checks
and other documents into digital images that can be accessed electronically.
More than 900 banks, credit unions and service bureaus are using BISYS
image-based technology software representing approximately 65% of all bank check
imaging systems in the country for the community bank market. This software,
designed to provide a fully integrated image environment, uses microcomputer
technology and supports the majority of image enabled transports available
today. This product family includes image capture and archive, image statements,
image proof of deposit, return item/image processing, image signature
verification, courtesy amount recognition, CD-ROM image delivery, customer
financial analysis and full Internet access.
BISYS provides a complete package of enterprise-wide network management
solutions including planning, design and implementation of multi-vendor network
environments. Its services include its Inframax(R) remote network monitoring and
management system which supervises the network and the operating system and
related software that resides on the network. This automated round-the-clock
service provides monitoring, fault identification and anticipation and overall
network performance reporting.
BISYS provides low-cost automated telephone and Internet-based
electronic marketing services to its clients in an unattended service bureau
environment on a seven day, 24 hour basis. These services enable banks, credit
card companies, and mortgage lenders to increase the number of new loans and
credit cards.
BISYS gathers information on deposit and loan products offered by more
than 5,000 banks, thrifts and credit unions on a daily, weekly, or monthly
basis. BISYS markets and transmits this survey information in various formats
and frequencies to over 1,650 client institutions, including 23 of the nation's
top 25 commercial banks. This data is used by both money center and community
banks to support their daily pricing decisions.
BISYS INVESTMENT SERVICES
BISYS Investment Services provides distribution, administration, fund
accounting and transfer agency services to over 60 mutual fund complexes
encompassing more than 900 individual portfolios with a market value exceeding
$200 billion in assets. BISYS also provides 401(k) plan marketing support,
administration and recordkeeping services to 30 of the nation's leading bank and
investment management companies.
BISYS is a leader in distributing and administering proprietary
open-end "mutual funds" registered under the Investment Company Act (the
"Investment Company Act"), primarily for the bank managed mutual fund sector, a
rapidly growing sector in the mutual fund industry. BISYS provides distribution
services, including the development of joint and external sales and marketing
programs and administrative services,
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including responsibility for administration, transfer agency, shareholder
services, compliance and fund accounting. BISYS also provides distribution
services through its various wholly-owned broker/dealer subsidiaries. In order
to assist its clients' mutual fund sales efforts, BISYS maintains a distribution
sales force to raise additional assets for its clients' funds. The banking
institution, or a subsidiary or affiliate thereof, typically acts as investment
advisor and custodian to the fund.
BISYS integrates its banking and mutual fund expertise to provide a
wide array of specialized services, including sweep and wrap account processing.
More than a traditional administrator and distributor, BISYS takes a
consultative approach to its client relationships, offering innovative,
fee-generating and cost-effective solutions to expand and manage the banking
institution's mutual fund business. BISYS offers its clients a complete turnkey
outsourcing solution for mutual fund operations which includes comprehensive
marketing, institutional sales, retail sales, telemarketing, development of new
products and markets and institutional and retail shareholder servicing centers.
BISYS designs, plans and implements strategies to help mutual funds attain
critical mass, reach new prospects and markets and add value in an increasingly
competitive market. In addition to its domestic business, BISYS provides
distribution and administrative services to offshore fund complexes through its
Dublin, Ireland operations.
BISYS is one of the nation's leading providers of 401(k) plan services
for small- and medium-sized companies, providing outsourcing solutions to
financial organizations and corporate clients for marketing and sales support
and administration and participant recordkeeping services for corporate
sponsored 401(k) plans. BISYS maintains partnerships with financial
organizations including banks and investment and insurance companies and
provides marketing and proposal support for their sale of their 401(k) plan
investment products. BISYS markets to and builds systems linkage with these
investment manager partners and enables them to concentrate on selling 401(k)
plans while BISYS provides the administrative and recordkeeping functions for
the fund sponsor. On an ongoing basis, BISYS performs 401(k) participant
recordkeeping and other services including daily valuation of participant
balances, administering 401(k) loans, discrimination testing, participant
statements and participant communications. Targeted at companies with fewer than
500 employees -- one of the fastest growing segments of the retirement plan
market -- BISYS services more than 6,500 corporate-sponsored retirement plans
covering nearly 750,000 employee participants.
In July 1998, BISYS extended its market presence as a comprehensive
administrator, distributor and marketer of investment products and services with
the establishment of BISYS Brokerage Services. This new division clears
transactions for more than 1,000 mutual funds, provides support for multi-fund
wrap accounts and provides third party marketing of brokerage and insurance
products to financial institutions.
INSURANCE SERVICES
BISYS provides outsourcing services for the distribution of life, group
health and long-term care insurance. BISYS is a full-service distributor and
administrator of insurance services and employs strategic alliances with major
insurance companies and national producer groups to provide a full range of
outsourcing services for insurance product distribution. BISYS services a
network of, and markets products and services through, more than 60,000
insurance agents and brokers nationwide. BISYS offers a full-service, single
source solution to support banks' initiatives to offer insurance services to
their customer bases. BISYS allows clients to use their various distribution
channels to offer insurance products and services, ranging from annuities and
commodity term products to estate planning products. In addition to product
solutions, BISYS provides clients with the systems necessary to support their
sale of insurance products, including licensing management, marketing and
proposal support, application processing and advanced underwriting and
commission accounting and processing.
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CONTRACTS
Services are provided to BISYS clients, for the most part, on the basis
of a contract which renews for successive terms, unless terminated by either
party. BISYS management has pursued a policy of obtaining renewal terms equal to
or exceeding the original contract terms.
Contracts for distribution services to mutual funds, as required by the
Investment Company Act, provide that such contracts may continue for a period
longer than two years only if such continuance is specifically approved at least
annually by both a majority of the disinterested directors and either the other
members of the board of directors or the holders of a majority of the
outstanding shares of the fund.
BISYS fee structure for data processing clients is based primarily on
number of accounts, loans, participants and/or transactions handled for each
service, in some cases, subject to minimum charges, plus additional charges for
special options, services and features. BISYS fee structure for mutual fund
services clients is based primarily on the average daily net asset value of the
fund, in some cases, subject to minimum charges. BISYS 401(k) fee structure is
based upon the number of eligible participants in a plan subject to certain
minimums. BISYS check imaging software is licensed subject to a one-time fee
with recurring maintenance fees. BISYS telephone loan support services are
provided based on a one-time implementation fee plus a per-transaction fee.
BISYS fee structure for networking services is based on an annual fee for remote
monitoring and a one-time fee for project services. Contracts with insurance
carriers providing products for BISYS customers provide for compensation based
on a percentage of premiums paid and transaction charges and are generally
cancelable on less than 90 days notice at the discretion of the parties.
Although contract terminations and non-renewals have an adverse affect
on recurring revenues, BISYS believes that the contractual nature of its
businesses, combined with its historical renewal experience, provides a high
level of recurring revenues.
CLIENT BASE
BISYS clients are located in all 50 states. BISYS provides outsourcing
solutions to commercial banks, mutual savings institutions, thrift
organizations, mutual funds, insurance companies, insurance producer groups,
corporate clients and other financial organizations including investment
counselors and brokerage firms.
DISASTER RECOVERY SYSTEMS
Where appropriate, BISYS has implemented a disaster recovery system for
its various businesses. The key restoration services include off-site storage
and rotation of critical files, availability of a third-party "hot site" and
telecommunications recovery capability. BISYS believes that its single product
and consistent platform approach to data processing and communications and other
operating procedures enable it to achieve greater efficiencies in maintaining
and enhancing its disaster recovery systems, the capabilities of which are
routinely tested by BISYS with the cooperation of its clients. BISYS has also
developed and markets a microcomputer-based client site disaster recovery
planning product that is specifically designed to meet the compliance needs of
its financial institution clients.
YEAR 2000
The Company is addressing the Year 2000 issues associated with its
existing computer systems and software applications utilizing both internal and
external resources to identify and remediate these matters throughout the
organization. The Company has completed its risk assessment and continues to
remediate all significant systems which are not currently Year 2000 ready. The
Company anticipates that all of its internal mission critical information
systems will be Year 2000 ready by December 31, 1998. In the event
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such systems are not Year 2000 ready by December 31, 1999, it could have a
material adverse impact on the Company's business and results of operations.
The Company uses third party provided/software and systems for such
tasks as account and information statement processing, fund accounting and
401(k) plan record keeping. If third parties upon which the Company depends are
unable to address their Year 2000 issues in a timely manner, it could result in
a material adverse financial risk to the Company. In order to mitigate this
risk, the Company is devoting resources necessary to develop appropriate
business continuity plans. These contingency plans will include alternative
systems and vendors, disaster recovery hot sites and manual processes. These
contingency plans are expected to be completed prior to June 30, 1999.
The Company's Year 2000 progress, the testing of remediated software
and contingency plans have been and will continue to be the subject of
independent verification and validation by the Company's Internal Audit
function. Internal Audit reports on Year 2000 are reviewed by senior management
and the Company's Board of Directors. The Company believes it has developed an
effective plan to address the Year 2000 issues and that, based on the available
information, its Year 2000 transition will not have a material effect on its
business, operations or financial results. In fiscal 1998, the Company spent
approximately $3.0 million on Year 2000 testing and remediation and currently
anticipates expenditures in the range of $3.0 to $5.0 million in fiscal 1999 and
less than $1.0 million in the first half of fiscal 2000.
SALES, MARKETING AND CLIENT SUPPORT
BISYS sells its services directly to potential clients or supports
insurance agents and companies, brokerage firms and other entities in their
endeavors to gain new clients. In addition to direct sales, BISYS utilizes
reseller/distributors to sell its software. BISYS has a number of sales offices
located throughout the United States.
BISYS utilizes an account executive staff which provides client account
management and support. In accordance with BISYS strategy of providing a single
source solution to its clients, the account executive staff also markets and
sells additional services to existing clients and manages the contract renewal
process. Using centralized resources, BISYS provides its direct sales staff and
account executives with marketplace data, presentation materials and
telemarketing data. BISYS maintains client support staff at its principal
locations, which is responsible for day-to-day interaction with clients and also
markets BISYS products and services to existing clients.
COMPETITION
BISYS believes the market for its services is highly competitive. BISYS
believes that it remains competitive due to several factors, including BISYS'
overall company strategy and commitment, product quality, reliability of
service, a comprehensive and integrated product line, timely introduction of new
products and services, and competitive pricing. BISYS believes that, by virtue
of its range of product and service offerings and its overall commitment to
client service and relationships, it competes favorably in these categories. In
addition, BISYS believes that it has a competitive advantage as a result of its
position as an independent vendor, rather than as a cooperative, an affiliate of
a financial institution, a hardware vendor or competitor to its clients.
BISYS principal competitors are independent vendors of computer
software and services, in-house departments, affiliates of financial
institutions or large computer hardware manufacturers, processing centers owned
and operated as user cooperatives, insurance companies, third party
administration firms, mutual funds companies and brokerage firms. No single
competitor offers the full range of products and services that are offered by
BISYS. Specific competitors include Fiserv, First Data, M&I Data Services,
Systematics, Federated Investors and SEI Corporation, among others.
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RESEARCH AND DEVELOPMENT
In order to meet the changing needs of the financial organizations that
it serves, BISYS continually evaluates, develops, maintains and enhances various
application software and other technology used in its business. During fiscal
1996, 1997 and 1998, BISYS spent approximately $10.2 million, $10.4 million and
$11.7 million, respectively, on research and development, primarily focused on
its proprietary systems. Most of BISYS central site application software has
been developed internally, and a majority of the client site application
software is licensed from third parties and integrated with BISYS' existing
systems.
PROPRIETARY RIGHTS
BISYS regards certain of its software as proprietary and relies upon
trade secret law, internal nondisclosure guidelines and contractual provisions
for protection. BISYS does not hold any registered patents or registered
copyrights on its software. BISYS believes that legal protection of its software
is less significant than the knowledge and experience of BISYS management and
personnel and their ability to develop, enhance and market new products and
services. BISYS believes that it holds all proprietary rights necessary for the
conduct of its business.
Application software similar to that licensed by BISYS is generally
available from alternate vendors, and in instances where BISYS believes that
additional protection is required, the applicable license agreement provides
BISYS with the right to obtain the software source code upon the occurrence of
certain events.
GOVERNMENT REGULATION
Certain BISYS subsidiaries are registered as broker/dealers with the
Securities and Exchange Commission (the "SEC"). Much of the federal regulation
of broker/dealers has been delegated to self-regulatory organizations,
principally the National Association of Securities Dealers, Inc. (the "NASD")
and the national securities exchanges. Broker/dealers are subject to regulation
which covers all aspects of the securities business, including sales methods,
trading practices, use and safekeeping of customers' funds and securities,
capital structure, recordkeeping and the conduct of directors, officers and
employees. Additional legislation, changes in rules and regulations promulgated
by the SEC, the Municipal Securities Rulemaking Board, the Office of the
Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board (the "FRB") and the self-regulatory
organizations or changes in the interpretation of enforcement of existing laws,
rules and regulations, may also directly affect the mode of operations and
profitability of broker/dealers. The SEC, the FRB, the self-regulatory
organizations, state securities law administrators, the OCC and the FDIC may
conduct regulatory proceedings for violations of applicable laws, rules and
regulations. Such violations can result in disciplinary actions (such as
censure, the imposition of fines, the issuance of cease-and-desist orders or the
suspension or revocation of registrations, memberships or licenses of a
broker/dealer or its officers, directors or employees), as well as civil and
criminal penalties. The principal purpose of such regulations generally is the
protection of the investing public and the integrity of securities markets,
rather than protection of securities firms or their creditors or stockholders.
In addition, BISYS broker/dealer subsidiaries are subject to SEC Rule
15c3-1 (commonly known as the "Net Capital Rule"). The Net Capital Rule, which
specifies the minimum amount of net capital required to be maintained by
broker/dealers, is designed to measure the general financial integrity and
liquidity of broker/dealers and requires that a certain part of broker/dealers'
assets be kept in relatively liquid form. Failure to maintain the required
minimum amount of net capital may subject a broker/dealer to suspension or
revocation of licenses, registration or membership with the New York Stock
Exchange, Inc., the SEC, the NASD, and various state securities law
administrators and may ultimately require liquidation of the broker/dealer.
Under certain circumstances, the Net Capital Rule also prohibits payment of cash
dividends, redemption or repurchase of stock, distribution of capital and
prepayment of subordinated indebtedness.
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Thus, compliance with the Net Capital Rule could restrict BISYS ability to
withdraw capital from its broker/dealer subsidiaries. At June 30, 1998, each
BISYS broker/dealer subsidiary met or exceeded the requisite net capital
requirement. At June 30, 1998, the BISYS broker/dealer subsidiaries had
aggregate net capital of approximately $8.2 million, which exceeded the
requirements of the Net Capital Rule by approximately $6.3 million.
Under the Investment Company Act of 1940, the distribution agreements
between each mutual fund and a BISYS subsidiary terminate automatically upon
assignment of the agreement. The term "assignment" includes direct assignments
by BISYS as well as assignments which may be deemed to occur, under certain
circumstances, upon the transfer, directly or indirectly, of a controlling block
of BISYS voting securities. The Investment Company Act of 1940 presumes that any
transfer of more than 25% of the voting securities of any person represents a
transfer of a controlling block of voting securities.
As a provider of services to banking institutions, BISYS is not
directly subject to federal or state banking regulations. However, BISYS may be
subject to review from time to time by the FDIC, the National Credit Union
Association, the Office of Thrift Supervision, the OCC and various state
regulatory authorities. These regulators make certain recommendations to BISYS
regarding various aspects of its operations. In addition, BISYS processing
operations are reviewed annually by an independent auditing firm.
Banks and other depository institutions doing business with BISYS are
subject to extensive regulation at the federal and state levels under laws,
regulations and other requirements specifically applicable to regulated
financial institutions, and are subject to extensive examination and oversight
by federal and state regulatory agencies. As a result, the activities of BISYS
client banks are subject to comprehensive regulation and examination, including
those activities specifically relating to the sale by or through them of mutual
funds and other investment products. BISYS is not presently aware of any facts
which would lead it to believe that any of its bank clients are not in
compliance with applicable federal and state laws, regulations and other
requirements concerning the administration and distribution of bank managed
mutual funds.
In this regard, the Glass-Steagall Act has been applied to prohibit
banks from engaging in the organization, sponsorship, underwriting and principal
distribution of mutual funds, but not to prohibit banks from providing
investment advisory, administrative, selling and other related services for, to
or with respect to the sale of mutual funds shares to their customers. Other
depository institutions laws, regulations and requirements do not impose
substantive limitations of a material nature on the activities which BISYS
client banks now perform with respect to their proprietary and other mutual
funds, but regulate in various respects the manner in which such activities may
be performed. Nevertheless, future changes in the application or the
interpretation of the Glass-Steagall Act or other banking laws and regulations,
or future legislative changes in existing banking laws, may have a material and
adverse impact on the ability of BISYS client banks to engage in mutual fund
activities, and consequently on the business relationships between BISYS and its
client banks. BISYS is not presently aware of any pending regulatory
developments, which, if approved, would adversely affect the ability of its
client banks to engage in mutual fund activities. In addition, future changes in
the Glass-Steagall Act may remove the existing prohibition on banks engaging in
the organization, sponsorship, underwriting and principal distribution of mutual
funds, thereby permitting banks to perform certain functions now required to be
performed by third parties such as BISYS. Any such change could adversely affect
BISYS in its business of providing distribution services by permitting clients
to choose to perform distribution functions independently.
Federal regulatory agencies have promulgated guidelines or other
requirements which apply to depository institutions subject to their respective
supervisory jurisdiction with respect to the sale of mutual funds and other
non-FDIC insured investment products to retail customers. These requirements
apply to, among other things, sales of investment products on bank premises by
or through the use of third-party service providers. These requirements
generally require banking institutions which contract to sell investment
products through the use of third-party service providers to implement
appropriate measures to ensure that such activities are being conducted in
accordance with applicable bank and securities regulatory
9
<PAGE> 12
requirements (including the agencies' retail sales guidelines), and may in some
instances impose certain "due diligence" obligations on regulated depository
institutions with respect to the nature and the quality of services provided by
such third-party service providers. Such regulatory requirements may increase
the extent of oversight which federal regulatory agencies may require BISYS
client banks to exercise over the activities of BISYS.
Federal and state banking laws grant state and federal regulatory
agencies broad authority to take administrative enforcement and other adverse
supervisory actions against banks and other regulated depository institutions
where there is a determination that unsafe and unsound banking practices,
violations of laws and regulations, failures to comply with or breaches of
written agreements, commitments or undertakings entered into by such banks with
their regulatory agencies, or breaches of fiduciary and other duties exist.
Banks engaged in, among other things, mutual fund-related activities may be
subject to such regulatory enforcement and other adverse actions to the extent
that such activities are determined to be unlawful, unsound or otherwise
actionable.
Certain operations of BISYS are subject to regulation by the insurance
departments of the states in which BISYS sells insurance products. Certain BISYS
employees are required to be licensed as insurance producers in certain states.
EMPLOYEES
As of June 30, 1998, BISYS employed approximately 2,200 employees. None
of its employees is represented by a union and there have been no work
stoppages, strikes or organization attempts. BISYS believes that its relations
with its employees are good.
The service nature of BISYS makes its employees an important corporate
asset. Most employees are not subject to employment agreements; however, a
limited number of executives of BISYS operating subsidiaries have such
agreements.
ITEM 2. PROPERTIES.
Other than an office building acquired in a recent acquisition, all
principal properties of the Company are leased. The following table provides
certain summary information with respect to such principal properties as of June
30, 1998:
<TABLE>
<CAPTION>
Location Function Sq. Feet Expiration Date
- -------- -------- -------- ---------------
<S> <C> <C> <C>
Little Falls, NJ Corporate headquarters 8,459 2000
Houston, TX Service Center 58,568 2001
Cherry Hill, NJ Data processing center 31,350 2000
Lombard, IL Data processing center 25,240 2000
Columbus, OH Mutual fund service center 126,686 2005
Ambler, PA Service Center 53,605 2002
Birmingham, AL Service Center 22,104 2000
Harrisburg, PA Service Center 33,982 2007
New York, NY Service Center 35,897 2008
</TABLE>
In addition to the principal facilities listed above, BISYS also leases
certain other office and data processing facilities with leases expiring
periodically over the next five years.
BISYS owns or leases central processors and associated peripheral
equipment used in its data and item processing operations and communications
network, 401(k) business and electronic banking business.
10
<PAGE> 13
BISYS believes that its existing facilities and equipment, together
with expansion in the ordinary course of business, are adequate for its present
and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
BISYS is involved in litigation arising in the ordinary course of
business. Management believes that BISYS has adequate defenses and/or insurance
coverage against such litigation and that the outcome of these proceedings,
individually or in the aggregate, will not have a material adverse effect upon
BISYS financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Certain of the information required in Item 5 is incorporated herein by
reference to page 32 of the Company's 1998 Annual Report to Shareholders (the
"Annual Report") under the heading "Market Price Information" and Note 4 to the
Company's consolidated financial statements included therein. The Company has
not paid or declared any cash dividends during its most recent two fiscal years.
Portions of the Annual Report incorporated by reference in this report are
included in this report as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
The information requested in Item 6 is incorporated herein by reference
to page 17 of the Annual Report, included in this report as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required in Item 7 is incorporated herein by reference
to pages 18 through 20 of the Annual Report, included in this report as Exhibit
13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
BISYS does not utilize market-risk-sensitive instruments (i.e.,
derivative financial instruments) to manage market risk exposures or for trading
or speculative purposes. The Company does, however, invest available cash and
cash equivalents in highly-liquid financial instruments with original maturities
of three month or less. As of June 30, 1998, BISYS had approximately $93.4
million of cash and cash equivalents invested in highly-liquid debt instruments
purchased with original maturities of three months or less, including $42.3
million of overnight repurchase agreements. BISYS believes that potential
near-term losses in future earnings, fair values and cash flows from reasonably
possible near-term changes in the market rates for such instruments are not
material to BISYS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required in Item 8 is incorporated herein by reference
to pages 21 through 31 of the Annual Report, included in this report as Exhibit
13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
11
<PAGE> 14
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10 through 13 is incorporated by reference from the Company's definitive
proxy statement, which is expected to be filed with the SEC pursuant to
Regulation 14A within 120 days after the end of the Registrant's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The consolidated financial statements of the Company as of June 30,
1998 and 1997 and for each of the three fiscal years for the period ended June
30, 1998, together with the report of PricewaterhouseCoopers LLP dated August 7,
1998 (except as to certain information presented in Note 12, for which the date
is August 21, 1998), are incorporated herein by reference to pages 17 through 31
of the Annual Report, included in this report as Exhibit 13.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted for the reason that they
are either not applicable or not required or because the information required is
contained in the consolidated financial statements or notes thereto.
(a)(3) Reports on Form 8-K
No reports on Form 8-K were filed with the SEC during the
quarter ended June 30, 1998.
(b) Exhibits:
3.1 -- Amended and Restated Certificate of Incorporation of The BISYS
Group, Inc. (Incorporated by reference to the Registrant's
Registration Statement No. 333-02932.)
3.2 -- Amended and Restated By-Laws of The BISYS Group, Inc.,
(Incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1997.)
4.1 -- Rights Agreement, dated as of May 8, 1997, by and between
The BISYS Group, Inc. and The Bank of New York, as Rights
Agent (including the form of Rights Certificate as Exhibit A).
(Incorporated by reference to Exhibit 2.1 of Form 8-A filed on
May 8, 1997 with the SEC.)
10.1 -- Letter Agreement dated May 12, 1995 between the Registrant
and Lynn J. Mangum. (Incorporated by reference to Exhibit
10.18 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, Commission File No. 0-19922.)
10.2* -- Deferred Compensation Plan.
10.3* -- Executive Life Insurance Plan.
10.4 -- The BISYS Group, Inc. Amended and Restated Stock Option and
Restricted Stock Purchase Plan. (Incorporated by reference to
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994, Commission File No.
0-19922.)
10.5 -- The BISYS Group, Inc. 1995 Stock Option Plan. (Incorporated
by reference to Exhibit A to the Registrant's proxy statement
for its 1995 annual meeting of stockholders, filed with
the SEC, Commission File No. 0-19922.)
10.6 -- The BISYS Group, Inc. 1996 Stock Option Plan. (Incorporated
by reference to Exhibit A to Registrant's proxy statement for
its 1996 annual meeting of stockholders, Commission File
No. 0-19922.)
10.7 -- BISYS 401(k) Savings Plan. (Incorporated by reference to
Exhibit 10.23 of the Registrant's Registration Statement
No. 33-45417.)
12
<PAGE> 15
10.8* -- The BISYS Group, Inc. Non-Employee Directors' Stock Option
Plan, as amended.
10.9 -- Lease of Little Falls, New Jersey facility dated January 9,
1991. (Incorporated by reference to Exhibit 10.24 of the
Registrant's Registration Statement No. 33-45417.)
10.10 -- Lease of Cherry Hill, New Jersey facility dated November
29, 1990. (Incorporated by reference to Exhibit 10.25 of the
Registrant's Registration Statement No. 33-45417.)
10.11 -- Lease of Lombard, Illinois facility dated May 29, 1990.
(Incorporated by reference to Exhibit 10.27 of the
Registrant's Registration Statement No. 33-45417.)
10.12 -- Lease of Houston, Texas facility dated June 30, 1986.
(Incorporated by reference to Exhibit 10.28 of the
Registrant's Registration Statement No. 33-45417.)
10.13 -- Lease of Ambler, Pennsylvania facility dated April 4, 1989.
(Incorporated by reference to Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, Commission File No. 0-19922.)
10.14 -- Lease of Columbus, Ohio facility dated August 30, 1994 as
amended by First Amendment dated April 14, 1995. (Incorporated
by reference to Exhibit 10.36 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-19922.)
10.15* -- Lease of New York, New York facility dated February 26, 1998.
10.16* -- Lease of Harrisburg, Pennsylvania facility dated October
24, 1997.
10.17 -- Credit Agreement by and among The BISYS Group, Inc., the
Lenders party thereto, and The Bank of New York, as Issuing
Bank and as Agent, with BNY Capital Markets, Inc., as
Arranger, dated as of March 5, 1997, without exhibits.
(Incorporated by referenced to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997, Commission File No. 0-19922.)
10.18 -- Agreement and Plan of Merger dated as of August 21, 1998,
as amended as of August 31, 1998, among The BISYS Group, Inc.,
BI-Green Acquisition Corp., Greenway Corporation and the
shareholders of Greenway Corporation named therein.
(Incorporated by reference to the Registrant's Current Report
on Form 8-K for the date September 16, 1998, Commission File
No. 0-19922.)
10.19 -- Amendment No. 1 dated as of August 31, 1998 to Agreement
and Plan of Merger dated as of August 21, 1998, as amended as
of August 31, 1998, among The BISYS Group, Inc., BI-Green
Acquisition Corp., Greenway Corporation and the shareholders
of Greenway Corporation named therein. (Incorporated by
reference to Exhibit 2.2 to the Registrant's Current Report on
Form 8-K for the date September 16, 1998, Commission File No.
0-19922.)
13* -- Pages 17-32 of the Registrant's 1998 Annual Report to
Shareholders
21* -- List of significant subsidiaries of The BISYS Group, Inc.
23* -- Consent of PricewaterhouseCoopers LLP.
27* -- Financial Data Schedule
- -----------------
*Filed herewith.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The BISYS Group, Inc.
Date: September 28, 1998 By: /s/ Dennis R. Sheehan
----------------------------
Dennis R. Sheehan
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 28th day of September 1998.
Signature Title
/s/ Lynn J. Mangum Director, Chairman of the Board, President
- ------------------------------- and Chief Executive Officer (Principal
(Lynn J. Mangum) Executive Officer)
/s/ Dennis R. Sheehan Executive Vice President and Chief Financial
- ------------------------------- Officer (Principal Financial and Accounting
(Dennis R. Sheehan) Officer)
/s/ Robert J. Casale Director
- -------------------------------
(Robert J. Casale)
/s/ Thomas A. Cooper Director
- -------------------------------
(Thomas A. Cooper)
/s/ Jay W. DeDapper Director
- -------------------------------
(Jay W. DeDapper)
/s/ John J. Lyons Director
- -------------------------------
(John J. Lyons)
/s/ Thomas E. McInerney Director
- -------------------------------
(Thomas E. McInerney)
/s/ Neil P. Marcous Director
- -------------------------------
(Neil P. Marcous)
14
<PAGE> 17
INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT NO. DESCRIPTION
10.2 -- Deferred Compensation Plan.
10.3 -- Executive Life Insurance Plan.
10.8 -- The BISYS Group, Inc., Non-Employee Director's Stock Option Plan, as
amended.
10.15 -- Lease of New York, New York facility dated February 26, 1998.
10.16 -- Lease of Harrisburg, Pennsylvania facility dated October 24, 1997.
13 -- Pages 17-32 of the Registrant's 1998 Annual Report to Shareholders.
21 -- List of significant subsidiaries of The BISYS Group, Inc.
23 -- Consent of PricewaterhouseCoopers LLP.
27 -- Financial Data Schedule.
<PAGE> 1
Exhibit 10.2
THE BISYS GROUP, INC.
DEFERRED COMPENSATION PLAN
THIS PLAN (the "Plan"), effective as of the 1st day of October, 1997
(the "Effective Date"), hereby established by THE BISYS GROUP, INC., a Delaware
corporation (hereinafter referred to as the "Employer" or the "Company"),
WITNESSETH THAT:
WHEREAS, the Employer recognizes the valuable services heretofore
performed for it by the employees participating in this Plan (herein the
"Participants" or the "Employees");
WHEREAS, the Participants of this Plan are members of a select group of
management or highly compensated employees;
WHEREAS, Employer desires to establish the Plan to allow each
Participant to defer a portion of his or her Compensation and to provide the
retirement, death and other benefits as provided herein;
WHEREAS, each Participant desires to receive such benefits and to defer
a portion of his or her Compensation;
WHEREAS, the Employer intends to establish a trust (herein the "Rabbi
Trust") to assist it in meeting its obligations hereunder; and
WHEREAS, the Employer desires to provide the terms and conditions upon
which the Employer shall pay such benefits to the Participants;
NOW, THEREFORE, in consideration of these premises, the Employer hereby
declares:
1. Establishment and Purposes.
a. Establishment. Employer hereby establishes the Plan
as of the Effective Date.
- 1 -
<PAGE> 2
b. Name. The Plan shall be known as "THE BISYS GROUP,
INC. Senior Executive Deferred Compensation Plan" or "The BISYS GROUP, INC.
Standard Deferred Compensation Plan".
c. Purpose. The purpose of the Plan is to allow the
Participants to defer a portion of their Compensation in accordance with an
Election to Defer executed as part of a Participation Agreement in substantially
the form of Exhibit 1 which is attached hereto and hereby made a part of this
Plan (or as amended or replaced by the Employer from time to time), so that such
amounts may be paid to the Participants (or their beneficiaries) upon
retirement, death or otherwise as specified herein.
2. Definitions.
Except as otherwise provided herein, the following terms shall
have the definitions hereinafter indicated wherever used in this Plan with
initial capital letters:
a. Beneficiary: Any person, entity, or any combination
thereof designated in a Beneficiary Designation executed as part of the
Participation Agreement by a Participant to receive benefits under this Plan in
the event of the Participant's death, or in the absence of any such designation,
the Participant's estate.
b. Beneficiary Designation. The provisions of the
Participation Agreement providing for the designation by the Participant of his
or her Beneficiary or Beneficiaries, as amended from time to time by the
Participant.
c. Code: The Internal Revenue Code of 1986, as amended.
- 2 -
<PAGE> 3
d. Compensation: All wages, salaries, bonuses, and any
other compensation to be paid to a Participant for services rendered to the
Employer.
e. Deferred Compensation Account: The term "Deferred
Compensation Account" shall have the meaning set forth in Section 4 of this
Plan.
f. Disability: A Participant shall be considered
"disabled" if he or she is considered disabled under the Employer's long-term
disability plan maintained for employees generally, provided that if there is no
such plan at the time, the Participant shall be considered "disabled" if he or
she is unable to substantially perform his or her regular duties at his or her
regular business location because of a physical or mental injury or illness for
a period of 180 consecutive days during a period of 365 consecutive days. The
Employer may rely on the determination made by a physician selected by the
Employer in determining whether a "Disability" exists.
g. Earnings: The amount credited to each Participant's
Deferred Compensation Account as Earnings as provided in Section 4 hereof.
h. Election to Defer: The provisions of the
Participation Agreement providing for the Participant to elect to defer a
portion of his or her Compensation, as amended from time to time.
i. Employee: An employee of the Employer selected by the
Employer to participate in this Plan, and who elects to participate in this Plan
by executing and delivering to the Employer a Participation Agreement in
substantially the form of Exhibit 1 attached hereto (or as amended or replaced
by the Employer from time to time), provided that all Participants
- 3 -
<PAGE> 4
herein shall be members of a select group of management or highly compensated
employees.
j. ERISA. The Employee Retirement Income Security Act of
1974, as amended.
k. Investment Designation. The provisions of the
Participation Agreement providing for the Investment Designation by the
Participant as described in Section 4 of this Plan, as amended or replaced from
time to time.
l. Participant: The term "Participant" shall have the
same definition herein as the term "Employee".
m. Participation Agreement. The agreement in
substantially the form of Exhibit 1 attached hereto (or as amended or replaced
by the Employer from time to time), including provisions for the Employee's
Election to Defer, the Employee's Beneficiary Designation, and the Employee's
Investment Designation.
n. Plan Year. The Plan Year for this Plan shall be the
12-month period designated by the Company from time to time.
- 4 -
<PAGE> 5
o. Senior Participant. A Participant designated by the
Company as a "Senior Participant" hereunder (the Company may make or change such
designation at any time, in any manner it deems appropriate from time to time).
p. Standard Participant. Any Participant who is not
designated as a Senior Participant hereunder at such time.
q. Year of Service. A Plan Year in which the Employee
worked at least 1,000 hours for the Employer or for any other entity which
merged with the Company or was otherwise acquired by the Company if the Employee
was employed on a full-time basis by such other entity at the time of such
merger or other acquisition.
3. Contributions.
a. Participant Elective Deferrals. As a condition to
participating in this Plan, a Participant shall execute and file with the
Employer a Participation Agreement, designating the portion of his or her annual
Compensation (or the portion of a specific part or parts of his or her
Compensation) which shall be deferred hereunder; provided however that the
deferral shall not exceed a maximum amount or percentage established by the
Company from time to time. In addition, the minimum amount which can be deferred
by any Participant for the first Plan Year hereunder shall be Nineteen Thousand
Dollars ($19,000.00), and shall be Ten Thousand Dollars ($10,000.00) each Plan
Year thereafter. For each Plan Year, as permitted by the Company, the
Participant may execute an Election to Defer by the execution of a written
document in the form and manner designated by the Employer.
b. Employer Matching Contributions Based on Company
Stock Designations by Senior Participants. In the event that a Senior
Participant makes an Investment Designation that Earnings
- 5 -
<PAGE> 6
on an amount to be deferred hereunder shall be measured by stock of the Company
(herein the phrase "stock of the Company" shall mean the kind or class of equity
security issued by the Company and identified on the Participant's Investment
Designation), the Company shall make a matching contribution (herein "Employer
Matching Contribution") equal to a percentage of the amount deferred and so
designated with the Company designating such percentage from time to time;
provided that the amount (or value) of the matching contribution shall not
exceed a maximum dollar amount as determined by the Company from time to time;
and further provided that such Employer Matching Contribution shall not be added
to a Senior Participant's Deferred Compensation Account until such Investment
Designation has continued for at least twenty-four (24) consecutive months after
the effective date of such deferral. If such Investment Designation does not
continue for such twenty-four (24) consecutive month period (for example, if the
Senior Participant's employment with the Company terminates within such 24 month
period), the Employer Matching Contribution (and any Earnings thereon) shall be
forfeited and will not be credited to the Senior Participant's Deferred
Compensation Account (the Senior Participant's elective deferrals and any
Earnings thereon will not be forfeited). No Employer Matching Contribution shall
be required with respect to any amount which is originally deferred by the
Employee and Earnings thereon are initially measured based on an Investment
Designation other than stock of the Company and subsequently the Employee
changes such designation to an Investment Designation based on stock of the
Company. No Employer Matching Contribution shall be made hereunder with respect
to Standard Participants.
4. Deferred Compensation Account.
- 6 -
<PAGE> 7
a. Any Compensation deferred by a Participant hereunder
shall be credited to a bookkeeping account ("Deferred Compensation Account"),
maintained by the Employer for the Participant as calculated by the Employer on
a quarterly basis (or more frequently at the election of the Employer). The
balance in each Participant's Deferred Compensation Account shall be equal to
the Participant's elective deferrals, any Employer Matching Contributions under
Section 3.b hereof, plus Earnings thereon (taking into account the risk of
forfeiture described in Section 3.b hereof as appropriate).
b. Earnings shall be an amount equal to the amount which
would have been earned if the Participant's Deferred Compensation Account had
been applied or invested in accordance with the Investment Designation, as
amended from time to time. Earnings shall continue to accrue on the unpaid
balance of a Deferred Compensation Account until the entire balance of such
account has been paid.
c. The Employer shall designate the available Investment
Designations and may amend such available selections from time to time. An
Employee may change his or her Investment Designations no more often than once
in each three (3) month period as permitted by the Company from time to time;
provided that in the case of a Senior Participant, notwithstanding any other
provision herein, (i) amounts designated to be measured by stock of the Company,
(ii) all Employer Matching Contributions, and (iii) all Earnings with respect to
amounts described in (i) and (ii) above, must always be measured by stock of the
Company, and the Participant may not change such designation; further provided
that if benefits are paid hereunder in installments and the Senior Participant
has terminated employment
- 7 -
<PAGE> 8
with the Company, the Senior Participant (or Beneficiary) then shall be allowed
to change his or her Investment Designation with respect to the amounts
previously covered by an Investment Designation of stock of the Company, and may
designate such investments as are then generally permitted by the Company
hereunder (if the Senior Participant fails to make such an Investment
Designation, the Earnings on such amount shall be measured based on the
Investment Designations (other than in Company stock) then in force for such
Employee or Beneficiary, and if none, shall be measured by the money market
option available (or the Investment Designation option closest to a money
market)). In determining the value of a Participant's Deferred Compensation
Account subject to the Investment Designation of stock of the Company, for these
purposes, the value of the Company's stock shall be deemed to be the average of
the closing prices of the stock on the thirty (30) business days immediately
prior to the date on which benefit payments began after the Participant's
employment with the Company terminated.
d. The Employer, in its sole and absolute discretion,
may (or may not) acquire any investment product or any other instrument or
otherwise invest any amount to provide the funds from which it can satisfy its
obligation to make benefit payments under this Plan. Any investment product or
other item so acquired for the convenience of the Employer shall be the sole and
exclusive property of the Employer (or a trust established by the Employer) with
the Employer (or a trust established by the Employer) named as sole owner and
sole beneficiary thereof. To the extent that a Participant or his or her
Beneficiary acquires a right to receive payments from the Employer under the
- 8 -
<PAGE> 9
provisions hereof, such right shall be no greater than the right of any
unsecured general creditor of the Employer.
e. The Company shall contribute amounts to the Rabbi
Trust approximately equal to the elective deferrals by the Participant, all
Earnings thereon, all Employer Matching Contributions, and all Earnings thereon,
provided that with respect to any amounts on which Earnings are measured by a
designation of stock of the Company, the Company may contribute cash and/or
options as necessary so that at all times the Rabbi Trust will be able to
purchase an appropriate amount of stock of the Company. In the event that
options are contributed, the number of shares which may be purchased shall be
adjusted appropriately for stock splits, stock dividends and other changes so
that the number of shares which may be acquired will be appropriate in light of
the benefits to be provided herein.
5. Amount and Timing of Benefit Payments.
a. Term of Years. In the event that a Participant has
(i) completed at least five (5) Years of Service while being a Participant under
this Plan and (ii) has either attained age 55 or completed twenty (20) Years of
Service (whichever comes first), the Company shall pay the Participant's
Deferred Compensation Account to the Participant in five (5) annual
installments, with each installment equal to the balance of the Employee's
Deferred Compensation Account at such time divided by the number of remaining
installments (including the installment being paid at such time), except as
otherwise provided herein.
b. Disability. If the Participant terminates employment
with the Company because of a Disability, payments hereunder shall be made as if
such Participant had completed at
- 9 -
<PAGE> 10
least five (5) Years of Service while being a Participant under this Plan and
had attained age 55 or completed twenty (20) Years of Service on the date his or
her employment terminated because of Disability.
c. Death. If the Participant dies before completing at
least five (5) Years of Service while a Participant under this Plan or before
attaining age 55 or completing twenty (20) Years of Service, the Company shall
make payments hereunder to the Participant's Beneficiary as if the Participant
had completed at least five (5) Years of Service while a Participant hereunder
and attained age 55 or completed twenty (20) Years of Service on the date of his
or her death. If the Participant dies after completing at least five (5) Years
of Service while a Participant under this Plan and after either attaining age 55
or completing twenty (20) Years of Service, but before the Participant has
received all payments due to the Participant hereunder, the Company shall make
payments to the Participant's Beneficiary at the same time and in the same
amounts as if the Participant were still living. In any case in which the
Participant has died and the Company is obligated to make installment payments
hereunder, the Company may pay the balance in the Participant's Deferred
Compensation Account in a lump sum to the Participant's Beneficiary at any time,
and thereafter the Company shall have no obligation to make any payments with
respect to such Participant or his or her Beneficiary.
d. Other Termination. In the event the Participant's
employment with the Company terminates for any reason other than Disability or
death (whether because of resignation, termination without cause, termination
with cause, or for any other reason or for no reason) prior to the time the
Participant completes at
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<PAGE> 11
least five (5) Years of Service while a Participant hereunder or prior to the
time the Participant (i) attains age 55 or (ii) completes twenty (20) Years of
Service, the Company shall pay an amount equal to the balance of the
Participant's Deferred Compensation Account as of the Participant's date of
termination to the Participant within six (6) months of such termination.
e. Payments if Stock Has Been Designated. In the case of
a lump sum payment or the first payment in the case of installment payments
(whenever the Employee's employment with the Company has been terminated), to
the extent the Participant's Investment Designations have designated stock of
the Company, the Company may pay such portion of such Participant's Deferred
Compensation Account and related Earnings in cash or Company stock, in the sole
and absolute discretion of the Company. If the Investment Designation is in
stock of the Company and the Company elects to pay part or all of such benefit
in cash, the Company shall use the average closing price of the stock during the
thirty (30) business days immediately before such payment to measure the value
of the stock of the Company. In the event that payments are to be made in
installments, after the first payment date (whenever the Employee's employment
with the Company has been terminated), none of the Participant's Deferred
Compensation Account thereafter shall be measured by stock of the Company, in
accordance with Section 4.c. herein.
f. Company's Ability to Change Payment Dates. At any
time at least one (1) year before any amount would otherwise become payable
hereunder (other than because of the unexpected death, Disability or termination
of employment of the Employee), the Company may change (with the consent of the
Participant) the timing of payments herein for any Participant, and the
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<PAGE> 12
Participant and the Company may make such other bona fide amendments as they
agree to, provided that in consideration thereof, the Participant must at least
agree (i) to continue working for the Company for an additional period of at
least one (1) year, (ii) to be liable to the Company for any damages if he or
she resigns within such period, and (iii) that he or she will not receive any
payments hereunder until the time designated by the Company (and to which the
Participant consents) as provided above. The Company shall notify the
Participant regarding the Company's rights under this paragraph at least 14
months before any amount would otherwise become payable hereunder (other than
because of the death, Disability or termination of employment of the Employee).
Notwithstanding any other provision herein, in the event that the Company is
making installment payments hereunder to any Participant, Beneficiary or other
person, the Company may at any time pay the remaining amount of the
Participant's Deferred Compensation Account in a lump sum, and thereafter the
Company shall have no further obligation hereunder with respect to such
Participant, Beneficiary or other person.
g. Unforeseeable Events. In addition, a payment or
payments may be made prior to the Employee's Disability, death or termination of
employment in the event of an unanticipated emergency that is caused by an event
beyond the control of the Employee and that would result in severe financial
hardship to the Employee if an early distribution was not made; provided that
such distributions shall not exceed the vested portion of the Employee's
Deferred Compensation Account. Any early distribution approved by the Company
for such an unforeseeable emergency shall be limited to the amount necessary to
meet the emergency, provided that any such payment shall reduce the amount of
the
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<PAGE> 13
Employee's Deferred Compensation Account on the date of such payment. The
Employee shall be under no obligation to repay amounts distributed because of an
unforeseeable emergency.
h. Payment Only from Employer Assets. Any payment of
benefits to a Participant or his or her Beneficiary shall be made from assets
which are, for all purposes, a part of the general assets of the Employer; no
person shall have or acquire any interest in such assets by virtue of the
provisions of this Plan. To the extent that a Participant or his or her
Beneficiary acquires a right to receive payments from the Employer under the
provisions hereof, such right shall be no greater than the right of any
unsecured general creditor of the Employer.
i. Beneficiaries. A Participant may designate his or her
Beneficiary or Beneficiaries to receive the amounts as provided herein after his
or her death in accordance with the Beneficiary Designation provisions of the
Participation Agreement. In the absence of such a designation, the Employer
shall pay any such amount to the Participant's estate.
6. Determination of Benefits, Claims Procedure and
Administration.
a. Determinations. A Committee designated by the
Employer (or other designee of the Employer, or the Employer itself, as the
Employer determines from time to time (referred to in this Section 6 as the
"Employer")) shall make all determinations as to rights to benefits under this
Plan. Subject to and in compliance with the specific procedures contained in the
applicable regulations promulgated under ERISA: (i) any decision by the Employer
denying a claim for any benefits under this Plan by a Participant or any other
claimant shall be stated in writing by the Employer and delivered or mailed to
the
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<PAGE> 14
claimant; (ii) each such notice shall set forth the specific reasons for the
denial, written to the best of the Employer's ability in a manner that may be
understood without legal or actuarial counsel; and (iii) the Employer shall
afford a reasonable opportunity to the claimant whose claim for benefits has
been denied for a review of the decision denying such claim.
b. Interpretation. Subject to the foregoing: (i) the
Employer shall have full power and authority to interpret, construe and
administer this Plan; and (ii) the interpretation and construction of this Plan
by the Employer, and any action taken hereunder, shall be binding and conclusive
upon all parties in interest, provided, however, that nothing herein shall
prevent any Participant or Beneficiary from enforcing his or her rights as a
general unsecured creditor hereunder.
c. Reports. The Employer shall provide the Participant
with a statement reflecting the amount of the Participant's Deferred
Compensation Account at least annually.
d. No Liability. No employee, agent, officer, trustee,
member, volunteer or director of the Employer shall, in any event, be liable to
any person for any action taken or omitted to be taken in connection with the
interpretation, construction or administration of this Plan, so long as such
action or omission to act be made in good faith.
7. Non-Assignability of Benefits. Neither any Participant nor any
Beneficiary under this Plan shall have any power or right to transfer, assign,
anticipate, hypothecate or otherwise encumber any part or all of the amounts
payable hereunder. Such amounts shall not be subject to seizure by any creditor
of a Participant or any Beneficiary hereunder, by a proceeding at law or in
equity, nor transferable by operation of law in the event
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<PAGE> 15
of the bankruptcy or insolvency of any Participant or any Beneficiary hereunder.
Any such attempted assignment or transfer shall be void and shall terminate the
Participant's participation in this Plan, and the Employer then may pay the
benefits hereunder as if the Participant had terminated employment.
8. Amendment. This Plan may not be amended, altered or modified,
except by a written instrument signed by the Employer and the Participants
effected thereby or their respective successors; provided that the Employer may
amend, alter, modify or terminate this Plan on a prospective basis at any time,
provided (i) that no such amendment, alteration, modification or termination
shall adversely affect a Participant's entitlement to benefits attributable to
amounts credited to his or her Deferred Compensation Account prior to the
amendment, alteration, modification or termination of this Plan, and (ii) that
until all amounts are distributed, the Employer must continue to offer
Investment Designations that are at least reasonably comparable to the options
available prior to such amendment, alteration, modification or termination.
9. Impact on Other Benefits. Except as otherwise required by the
Code or any other applicable law, this Plan and the benefits provided herein are
in addition to all other benefits which may be provided by the Employer to the
Participants from time to time, and shall not reduce, replace or otherwise cause
any reduction, in any manner, with regard to any of such other benefits.
10. Notices. Any notice, consent or demand required or permitted
to be given under the provisions of this Plan by the Employer or any Participant
or Beneficiary shall be in writing, and shall be signed by the person or entity
giving or making the
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<PAGE> 16
same. If such notice, consent or demand is mailed, it shall be sent by United
States certified mail, postage prepaid, addressed to the principal office of the
Employer, or if to a Participant or Beneficiary to such individual or entity's
last known address as shown on the records of the Employer. The date of such
mailing shall be deemed the date of notice, consent or demand.
11. Tax Withholding. The Employer shall have the right to deduct
from all payments made under this Plan any federal, state or local taxes
required by law to be withheld with respect to such payments.
12. Governing Law. This Plan shall be governed by and construed in
accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, the Employer has executed and adopted this Plan as
of the Effective Date.
THE BISYS GROUP, INC.
By:__________________________________________
Print Name:__________________________________________
Print Title:__________________________________________
"Employer"
EXHIBIT 1
PARTICIPATION AGREEMENT
Name of Employee:__________________________________________
Employee's Address:________________________________________
Employee's Social Security Number:_________________________
Employee's Date of Birth:__________________________________
I. ELECTION TO DEFER
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<PAGE> 17
The Participant hereby elects to defer the following amount
or percentage of his or her Compensation (or part thereof)
pursuant to THE BISYS GROUP, INC. Deferred Compensation Plan for
the ___________ year:
Type (or types) of Compensation to which this deferral election
applies:____________________________________________
$_________ for such year, OR
__________% for such year.
II. BENEFICIARY DESIGNATION
The Participant hereby designates the following individual(s) or
entity(ies) as his or her beneficiary(ies) pursuant to THE BISYS GROUP, INC.
Deferred Compensation Plan (Insert Name, Social Security Number, Relationship,
Date of Birth and Address of Individuals and fully identify any Trust by the
Name of the Trust, Date of Execution of the Trust, the Trustee's Name, the
trust's address, and the trust's Employer Identification Number):
Primary Beneficiary(ies)
__________________________________________
__________________________________________
__________________________________________
Contingent Beneficiary(ies)
__________________________________________
__________________________________________
__________________________________________
The Participant hereby reserves the right to change this Beneficiary
Designation, and any such change shall be effective when executed in writing by
the Participant and delivered to the Company, all in the manner as designated by
the Company from time to time.
III. INVESTMENT DESIGNATION FOR CURRENT DEFERRAL ELECTION
The Participant hereby designates the following investment or
investments as provided in Section 4 of THE BISYS GROUP, INC., Deferred
Compensation Plan:
% to be Invested in
Name of Investment This Investment
______________________ ______________________
______________________ ______________________
______________________ ______________________
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<PAGE> 18
______________________ ______________________
______________________ ______________________
______________________ ______________________
______________________ ______________________
______________________ ______________________
The Participant hereby reserves the right to change such investment designation
from time to time as permitted by the Plan and the Company, and any such change
shall become effective when executed in writing by the Participant and delivered
to the Company, all in the manner as designated by the Company from time to
time.
In the event that the Company desires to acquire any product or other
item (including but not limited to a life insurance policy on the Participant's
life) in connection with this Plan, the Participant hereby agrees to reasonably
cooperate to the extent necessary in such process.
In addition to the other investment designations permitted hereunder,
the Company may make available to each Senior Participant age 55 or older the
option to participate in a split-dollar arrangement with the Company, and any
amounts thereunder shall be held under such split-dollar arrangement and shall
not be held under this Deferred Compensation Plan. The terms of such
split-dollar arrangement shall be consistent with the terms of that certain
Split-Dollar Plan executed by the Company contemporaneously herewith and called
"The BISYS GROUP INC., Executive Life Insurance Plan", provided that (i) the
Participant may designate an irrevocable life insurance trust ("ILIT") or other
person or entity as the owner of the subject life insurance policy and in such
case the Participant (the insured under the policy) shall never have any
"incidents of ownership" in the policy as such term is described in Treas. Reg.
Section 20.2042-1(c), or any similar successor provision; (ii) the arrangement
shall be consistent with the calculations set forth in Schedule 1 attached
hereto (as otherwise agreed by the Participant and the Company); (iii) the
split-dollar arrangement shall terminate only upon the mutual agreement of the
Company and the Employee, except that either the owner of the policy or the
Company may terminate the split-dollar arrangement at the end of the period
shown in Schedule 1 or the corresponding schedule agreed to by the Company and
the Employee; (iv) the Company shall only be obligated to pay scheduled premiums
with respect to the Policy (or Policies) on the Employee's life for five (5)
years thereunder; and (v) upon the death of the Employee, after the payment to
the Company of an amount equal to the total premiums paid by the Company on the
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<PAGE> 19
Policy (or Policies), the balance of the death benefit shall be paid to the
Employee's designated Beneficiary. This option to participate in a split-dollar
arrangement with the Company shall not be available to Standard Participants.
IN WITNESS WHEREOF, the Employer and the Participant have executed this
Participation Agreement on the dates designated below.
Date:___________________ ___________________________
Signature of Participant
THE BISYS GROUP, INC.
Date:___________________ By:________________________
Print Name:_____________
Print Title:____________
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<PAGE> 1
Exhibit 10.3
THE BISYS GROUP, INC.
EXECUTIVE LIFE INSURANCE PLAN
THIS SPLIT DOLLAR PLAN (the "Plan"), made and established as of the 1st
day of January, 1998 (the "Effective Date"), by THE BISYS GROUP, INC., a
Delaware corporation, (hereinafter referred to as the "Company" or the
"Employer"),
WITNESSETH THAT:
WHEREAS, the Employer desires to establish this Plan for the benefit of
certain of its employees (herein "Employees" or "Participants");
WHEREAS, this Plan will provide certain life insurance benefits for
each Participant in the event of his or her death as provided herein, under a
policy of life insurance insuring the life of the Participant (hereinafter
referred to as the "Policy");
WHEREAS, the benefits provided herein replace certain group term
insurance benefits previously provided by the Company for the Employees;
WHEREAS, the Company is willing to pay all of the premiums due on the
Policy as an additional employment benefit for each Participant, on the terms
and conditions hereinafter set forth;
WHEREAS, each Employee (or a trust established by the Employee, or
another person or entity designated by the Employee) shall be the owner
("Owner") of each Policy on the Employee's life hereunder and, as such, shall
possess all incidents of ownership in and to such Policy;
WHEREAS, the Company wishes to have the Policies collaterally assigned
to it by the Owner, in order to secure the
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<PAGE> 2
repayment of the amounts which it will pay toward the premiums on the Policies,
and to allow the Company to exercise any and all investment and other similar
rights with respect to the Policy;
WHEREAS, the Company intends that by such collateral assignments the
Company shall receive only the right to such repayment, with the Owner retaining
certain other ownership rights in the Policy, as specified herein; and
WHEREAS, the Company may assign or otherwise transfer some or all of
its rights under such collateral assignments to a trust which may be established
by Company (herein the "Rabbi Trust");
NOW, THEREFORE, the Employer hereby establishes the Plan on the
following terms and conditions:
1. Establishment and Purpose. Employer hereby establishes the
Plan as of the Effective Date. The Plan shall be known as "The BISYS Group, Inc.
Executive Life Insurance Plan" or "The BISYS Group, Inc. Split Dollar Plan." The
purpose of the Plan is to provide death benefits to the Participants'
beneficiaries in certain events.
2. Definitions. Except as otherwise provided herein, the
following terms shall have the definitions hereinafter indicated whenever used
in this Plan with initial capital letters:
(a) "Employee": An employee of the Employer selected by the
Employer to participate in this Plan, and who elects to participate in this Plan
by executing and delivering to the Employer a Participation Agreement in
substantially the form of Exhibit 1 attached hereto or as amended or replaced by
the Company from time to time, provided that all Participants herein shall be
members of a select group of management or highly compensated employees.
(b) "Insurer": The life insurance company issuing the Policy
on the life of an Employee.
- 2 -
<PAGE> 3
(c) "Participant": The term "Participant" shall have the same
definition herein as the term "Employee", provided that in the event the
Participation Agreement designates an irrevocable life insurance trust or other
designee as the Owner, notwithstanding any other provision herein, such trust or
other designee shall be treated as a "Participant" hereunder to the extent
applicable, and such trust or other designee shall be deemed to own all the
"incidents of ownership" that otherwise would be held by the Employee (the "term
incidents of ownership" shall have the same definition as in Section 2042 of the
Internal Revenue Code of 1986 as amended, and all regulations thereunder), and
the Employee shall have no "incidents of ownership" in the Policy.
(d) "Participation Agreement": An agreement in the form
attached hereto as Exhibit 1 and hereby incorporated herein by this reference,
and as may be amended or replaced by the Company from time to time.
(e) "Plan": This The BISYS Group, Inc. Executive Life
Insurance Plan established hereby.
3. Eligibility. The Company shall determine which individuals may
participate in this Plan. In order to be a Participant in this Plan an
individual shall execute (i) a Participation Agreement, and (ii) a collateral
assignment document (herein "Collateral Assignment"), both in the form and
manner permitted by the Company, and shall deliver both the Participation
Agreement and the Collateral Assignment to the Company as the Company shall
determine. Also, in order to be a Participant herein, the Participant must
cooperate in the acquisition of the Policy on such Participant's life to the
extent reasonably necessary.
- 3 -
<PAGE> 4
4. Acquisition of the Policy. The Company and each Participant
shall cooperate to the extent necessary in acquiring a Policy in the initial
face amount set forth in the applicable Participation Agreement. The Company and
each Participant hereto agree that they will take all necessary action to cause
an Insurer to issue the Policy on the life of the Employee, and shall take any
further action which may be necessary to cause the Policy on the life of each
Employee to conform to the provisions of this Plan. The rights of the Owner and
the Company with respect to each Policy acquired hereunder shall be subject to
the terms and conditions of this Plan, the applicable Participation Agreement,
and the applicable Collateral Assignment.
5. Policy Ownership.
(a) The Owner shall be the sole and absolute owner of the
Policy on the Employee's life, and may exercise all ownership rights granted to
the owner thereof by the terms of the Policy, except as may otherwise be
provided herein.
(b) It is the intention of the Company that in regards to the
Collateral Assignment executed by each Owner to the Company in connection
herewith that the Owner shall retain all rights which the Policy grants to the
owner thereof except that the Company hereunder shall have the rights (i) to be
repaid the amounts which it has paid toward the premiums on the Policy, and (ii)
to exercise any and all investment and other similar rights with respect to the
Policy. Specifically, but without limitation, the Company shall neither have nor
exercise any right as collateral assignee of the Policy which could in any way
defeat or impair the Owner's right to receive the cash surrender value or the
death proceeds of the Policy in excess of the amount due the Company hereunder.
All provisions of this Plan and of
- 4 -
<PAGE> 5
such Collateral Assignments shall be construed so as to carry out
such intention.
6. Policy Dividends. Any dividend declared on a Policy, if any,
shall be applied, at the option of the Company either (i) to purchase one year
term insurance on the life of the Employee, (ii) to reduce the premiums payable
on the Policy; (iii) to purchase paid-up additional insurance on the life of the
Employee; or (iv) as the Company may otherwise designate. The Company may change
the option selected at any time and from time to time.
7. Payment of Premiums.
(a) On or before the due date of each scheduled Policy
premium, or within the grace period provided therein, the Company shall pay the
full amount of the premium to the Insurer, and shall, upon request, promptly
furnish the Employee evidence of timely payment of such premium. The Company
shall annually furnish the Employee a statement of the amount of income
reportable by the Employee for federal and state income tax purposes as a result
of its payment of such premiums and the insurance protection provided to the
Owner as the policy beneficiary.
(b) Notwithstanding any other provision herein, the Company
shall only be obligated to pay the scheduled premiums hereunder with respect to
a Policy (or Policies) on an Employee's life for (i) ten (10) years for
Participants age 54 or less at the time Employee becomes a Participant
hereunder, or (ii) for six (6) years for Participants age 55 or more at the time
Employee becomes a Participant hereunder.
(c) Notwithstanding any other provision herein, an Employee or
Owner may elect to pay additional premiums with
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<PAGE> 6
respect to the Policy, and the Owner shall be entitled to all benefits derived
from the payment of such excess premiums.
8. Collateral Assignment. To secure the repayment to the Company
of the amount of the premiums on the Policy paid by it hereunder, the Owner
shall, contemporaneously with the Employee becoming a Participant hereunder,
assign the Policy to the Company as collateral, under the form used by the
Insurer for such assignments (or the form designated by the Company from time to
time), which collateral assignment specifically provides that the Company shall
have the right thereunder to be repaid the amounts it has paid toward premiums
on the Policy hereunder. Such repayment shall be made from the cash surrender
value of the Policy (as defined therein) if this Plan is terminated with respect
to the Employee or if the Owner surrenders or cancels the Policy, or from the
death proceeds of the Policy if the Employee should die while the Policy and
Plan remain in force. In no event shall the Company take any action which would
impair or defeat the rights of the Owner in and to the Policy. The collateral
assignment of the Policy to the Company hereunder shall not be terminated,
altered or amended by the Owner while the Employee (or the Owner) is a
Participant hereunder. The Employees and Owners shall take all action necessary
to cause such Collateral Assignments to conform to the provisions of this Plan.
9. Limitations on Owner's Rights in a Policy.
(a) An Owner shall take no action with respect to a Policy
which would in any way compromise or jeopardize the Company's right to be repaid
the amounts it has paid toward premiums on the Policy while this Plan is in
effect with respect to such Employee or Owner.
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<PAGE> 7
(b) The Owner may pledge or assign a Policy, subject to the
terms and conditions of this Plan, in order to secure a loan from the Insurer or
from a third party, in an amount which shall not exceed the cash surrender value
of the Policy (as defined therein) as of the date to which premiums have been
paid, less the amount paid toward the premiums on the Policy by the Company
hereunder. Interest charges on such loan shall be the responsibility of and be
paid by the Owner.
(c) The Owner shall have the sole right to surrender or cancel
a Policy on the life of an Employee, and to receive the full cash surrender
value of the Policy directly from the Insurer. Upon the surrender or
cancellation of the Policy, the Company shall have the unqualified right to
receive a portion of the cash surrender value equal to the total amount of the
premiums paid by it hereunder. Immediately upon receipt of the cash value of the
Policy from the Insurer, the Owner shall pay to the Company the portion of such
cash value to which it is entitled hereunder and shall retain the balance, if
any; upon such receipt and payment, this Plan shall thereupon terminate with
respect to such Employee. In no event shall the Owner or the Employee, or any of
their respective successors or assigns, have any liability whatsoever if the
cash surrender value is less than the premiums paid by the Company at such time.
10. Collection of Death Benefit.
(a) Upon the death of the Employee, the Owner and the Company
shall cooperate to take whatever action is necessary to collect the death
benefit provided under the Policy; and when such benefit has been collected and
paid as provided herein, the Employee's participation (and the Owner's rights)
hereunder shall terminate and the Company shall have no further obligations to
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<PAGE> 8
such Participant or the Owner or his, her or their successors or
assigns.
(b) Upon the death of the Employee, the Company shall have the
unqualified right to receive a portion of such death benefit equal to the total
amount of the premiums paid by it hereunder. The Owner's designated beneficiary
under the Policy shall then be entitled to receive an amount equal to four (4)
times the Employee's base salary at the time the Employee became a Participant
hereunder and increasing by seven (7) percent annually plus any death benefit
derived from the payment of extra premiums by the Employee or Owner as provided
in Section 7(c) hereof. The balance of the death benefit provided under the
Policy, if any, shall be paid to the Company. In no event shall the amount
payable to the Company hereunder exceed the Policy proceeds payable at the death
of the Employee. No amount shall be paid from such death benefit to the Owner
(or the Owner's Beneficiary) until the Company has been repaid for its premium
payments hereunder. The beneficiary designation provision of the Policy on each
Employee's life shall conform to the provisions hereof.
(c) Notwithstanding any provision herein to the contrary, in
the event that, for any reason whatsoever, no death benefit is payable under the
Policy upon the death of the Employee and in lieu thereof the Insurer refunds
all or any part of the premiums paid for the Policy, the Company and the Owner
shall have the unqualified right to share such premiums based on their
respective cumulative contributions thereto.
11. Termination of Employee's Participation.
a. An Employee's participation in this Plan shall terminate
during the Employee's lifetime upon the occurrence of
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<PAGE> 9
any of the following events: (a) the total cessation of the business of the
Company; (b) the bankruptcy, receivership or dissolution of the Company; (c) the
later of (i) fifteen (15) years of participation hereunder by the Employee or
(ii) the Employee attaining age sixty (60); (d) the termination of the
Employee's employment with the Employer before the later of (i) fifteen (15)
years of participation hereunder by the Employee or (ii) the Employee attaining
age sixty (60); or (e) the termination of this Plan by the Company under Section
15 hereunder.
b. Notwithstanding any other provision herein, in the event
that (i) a Change of Control (as hereinafter defined) occurs, and (ii) the
Company fails to make a required premium payment under Section 7 before the due
date of such premium (or within the grace period provided therein), as a result
of such breach, the Company shall not be entitled to recover any of its premium
payment made under such Policy, and instead such amount shall be paid to the
Owner or the Owner's Beneficiary hereunder as appropriate. For purposes of this
Section, a "Change of Control" shall mean the purchase or other acquisition by
any person, entity or group of persons, within the meaning of section 13(d) or
14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable
successor provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of 30 percent or more of either the outstanding
shares of common stock or the combined voting power of Company's then
outstanding voting securities entitled to vote generally, or the approval by the
stockholders of Company of a reorganization, merger, or consolidation, in each
case, with respect to which persons who were stockholders of Company immediately
prior to such
- 9 -
<PAGE> 10
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50 percent of the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated Company's then
outstanding securities, or a liquidation or dissolution of Company or of the
sale of all or substantially all of Company's assets.
12. Disposition of the Policy on Termination of the Employee's
Participation During the Employee's Lifetime.
(a) For sixty (60) days after the date of the termination of
the Employee's participation in this Plan during the Employee's lifetime as
provided in Section 11 herein, the Owner shall have the option of obtaining the
release of the Collateral Assignment of the Policy to the Company. To obtain
such release, the Owner shall repay to the Company the total amount of the
premium payments made by the Company hereunder. Upon receipt of such amount, the
Company shall release the Collateral Assignment of the Policy by the execution
and delivery of an appropriate instrument of release.
(b) If the Owner fails to exercise such option within such
sixty (60) day period, then, at the request of the Company, the Owner shall
execute any document or documents required by the Insurer to transfer the
interest of the Owner in the Policy to the Company. Alternatively, the Company
may enforce its right to be repaid the amount of the premiums on the Policy paid
by it from the cash surrender value of the Policy under the Collateral
Assignment of the Policy; provided that in the event the cash surrender value of
the Policy exceeds the amount due the Company, such excess shall be paid to the
Owner. In no event shall the Owner or the Employee, or any of their respective
successors or assigns, have any
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<PAGE> 11
liability whatsoever if the cash surrender value is less than the premiums paid
by the Company. Thereafter, neither the Owner nor the Owner's successors,
assigns or beneficiaries shall have any further interest in and to the Policy,
either under the terms thereof or under this Plan.
13. Insurer. The Insurer shall be fully discharged from its
obligations under a Policy by payment of the Policy death benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Plan, or any modification or amendment hereof, nor shall any provision
herein in any way be construed as enlarging, changing, varying or in any other
way affecting the obligations of the Insurer as expressly provided in the
Policy, except insofar as the provisions hereof are made a part of the Policy by
the Collateral Assignment executed and filed with the Insurer in connection
herewith or the beneficiary designation executed and filed with the Insurer in
connection herewith. An Insurer shall be fully protected in complying with any
written instruction regarding a Policy provided by the Company.
14. Named Fiduciary, Determination of Benefits, Claims Procedure
and Administration.
(a) The Company is hereby designated as the named fiduciary
under this Plan. The named fiduciary shall have authority to control and manage
the operation and administration of this Plan, and it shall be responsible for
establishing and carrying out a funding policy and method consistent with the
objective of this Plan.
(b) (1) Claim. A person who believes that he or she is being
denied a benefit to which he or she is entitled under
- 11 -
<PAGE> 12
this Plan (hereinafter referred to as a "Claimant") may file a written request
for such benefit with the Company, setting forth his or her claim. The request
must be addressed to the Compensation Committee of the Company at its then
principal place of business.
(2) Claim Decision. Upon receipt of a claim, the Company
shall advise the Claimant that a reply will be forthcoming within ninety (90)
days and shall, in fact, deliver such reply within such period. The Company may,
however, extend the reply period for an additional ninety (90) days for
reasonable cause.
If the claim is denied in whole or in part, the
Company shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth: (a) the specific reason or reasons
for such denial; (b) the specific reference to pertinent provisions of this Plan
on which such denial is based; (c) a description of any additional material or
information necessary for the Claimant to perfect his or her claim and an
explanation why such material or such information is necessary; (d) appropriate
information as to the steps to be taken if the Claimant wishes to submit the
claim for review; and (e) the time limits for requesting a review under
subsection (3) and for review under subsection (4) hereof.
(3) Request for Review. Within sixty (60) days after the
receipt by the Claimant of the written opinion described above, the Claimant may
request in writing that the Secretary of the Company review the determination of
the Company. Such request must be addressed to the Secretary of the Company, at
its then principal place of business. The Claimant or his or her duly authorized
representative may, but need not, review the
- 12 -
<PAGE> 13
pertinent documents and submit issues and comments in writing for consideration
by the Company. If the Claimant does not request a review of the Company's
determination by the Secretary of the Company within such sixty (60) day period,
he or she shall be barred and estopped from challenging the Company's
determination.
(4) Review of Decision. Within sixty (60) days after the
Secretary's receipt of a request for review, he or she will review the Company's
determination. After considering all materials presented by the Claimant, the
Secretary will render a written opinion, written in a manner calculated to be
understood by the Claimant, setting forth the specific reasons for the decision
and containing specific references to the pertinent provisions of this Plan on
which the decision is based. If special circumstances require that the sixty
(60) day time period be extended, the Secretary will so notify the Claimant and
will render the decision as soon as possible, but no later than one hundred
twenty (120) days after receipt of the request for review.
15. Amendments. This Agreement may be amended, altered, modified,
or terminated by the Company by the delivery of a written instrument to the
Participants impacted by such amendment, alteration, modification or
termination.
16. Binding Effect. This Plan shall be binding upon and
inure to the benefit of the Company and its successors and
assigns.
17. Notice. Any notice, consent or demand required or permitted to
be given under the provisions of this Plan shall be in writing, and shall be
signed by the party giving or making same. If such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States certified mail,
postage
- 13 -
<PAGE> 14
prepaid, addressed to such party's last known address as shown on the records of
the Company. The date of such mailing shall be deemed the date of notice,
consent or demand.
18. Governing Law. This Plan, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the Company has executed this Plan effective as of
the day and year first above written.
THE BISYS GROUP, INC.
By:_____________________________
Print Name:_____________________________
Print Title:_____________________________
"Company"
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<PAGE> 15
EXHIBIT 1
PARTICIPATION AGREEMENT
Name of Employee:_______________________________________________
Employee's Address:_____________________________________________
________________________________________________________________
Employee's Social Security Number:______________________________
Employee's Date of Birth:_______________________________________
Insurer:________________________________________________________
Policy Number:__________________________________________________
Initial Face Amount:____________________________________________
Date of Issuance of Policy:_____________________________________
Name of Owner:__________________________________________________
Owner's Address:________________________________________________
________________________________________________________________
Owner's Social Security Number:_________________________________
AGREEMENT TO PARTICIPATE
The undersigned employee of THE BISYS GROUP, INC. hereby agrees to be a
Participant under THE BISYS GROUP, INC. Executive Life Insurance Plan ("Plan")
and the undersigned hereby acknowledges that as a result of the premium payments
under Section 7 of the Plan, the undersigned shall be required to include an
additional amount in taxable income each year (and pay additional income tax as
a result of such amount).
IN WITNESS WHEREOF, the Participant has executed this Participation
Agreement on the date designated below.
Date:_______________, 199__ ___________________________
Signature of Participant
Received:
THE BISYS GROUP, INC.
- 15 -
<PAGE> 16
By:_____________________________
Print Name:_____________________________
Print Title:_____________________________
Date: ___________, 199__
- 16 -
<PAGE> 1
Exhibit 10.8
(As amended effective June 18, 1998)
THE BISYS GROUP, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of The BISYS Group, Inc. Non-Employee
Directors' Stock Option Plan (the "Plan") is to promote the interests of The
BISYS Group, Inc., a Delaware corporation (the "Company"), and its stockholders
by providing a means to attract and retain highly-qualified non-employee
directors through the grant of options to purchase Common Stock of the Company.
By encouraging such stock ownership, the Company also seeks to develop in its
non-employee directors a sense of personal involvement in the business and
financial success of the Company, and to align the interests of such directors
with those of the Company's stockholders. It is intended that this purpose will
be effected by the granting of "non-qualified stock options" to acquire the
Common Stock of the Company. Under the Plan and subject to the restrictions
contained therein, the Board of Directors shall have the authority to grant
"non-qualified stock options" as described in Treasury Regulation 1.83-7 of any
successor regulation thereto. The Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERlSA"). In addition, it is
intended that the grant of options pursuant to the Plan shall not affect the
status of the Company's non-employee directors as "disinterested persons" within
the meaning of Rule 16b-3(a)(2)(i).
SECTION 2. Definitions. For purposes of this Plan, the following terms
used herein shall have the following meanings, unless a different meaning is
clearly required by the context.
2.1. "Board of Directors" shall mean the Board of Directors of the
Company.
2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3. "Committee" shall mean the committee of the Board of Directors
referred to in Section 5 hereof.
2.4. "Common Stock" shall mean the common stock, $.02 par value, of the
Company.
2.5. "Non-Employee Director" shall mean a duly elected and serving
member of the Board of Directors who is not also, and who, for a period of at
least one year has not been, an employee of the Company or of any parent or
subsidiary of the Company.
2.6. "Option" shall mean any stock option granted to a Non-Employee
Director pursuant to this Plan.
SECTION 3. Participation. Each Non-Employee Director shall participate
in the Plan.
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<PAGE> 2
SECTION 4. Common Stock Subject to the Plan.
4.1. Number of Shares. Subject to Section 7 hereof, the total number of
shares of Common Stock for which Options may be granted under this Plan shall
not exceed in the aggregate 275,000 shares of Common Stock.
4.2. Source of Shares. The Shares of Common Stock that may be subject
to Options granted under this Plan may be either authorized and unissued shares
or shares reacquired at any time and now or hereafter held as treasury stock as
the Board of Directors may determine. In the event that any outstanding Option
expires or is terminated for any reason, the shares allocable to the unexercised
portion of such Option shall again become available for issuance pursuant to the
Plan. If any shares of Common Stock acquired pursuant to the exercise of an
Option shall have been repurchased or reacquired by the Company, then such
shares shall again become available for issuance pursuant to the Plan.
SECTION 5. Administration of the Plan.
5.1. Committee. The Plan shall be administered by the Board of
Directors or, if established at any time by the Board of Directors, by a
committee thereof (the "Committee") consisting of members of the Board of
Directors who are not Non-Employee Directors. The Committee may be appointed
from time to time by, and shall serve at the pleasure of, the Board of
Directors. Notwithstanding any other provision of the Plan, Options may only be
granted under this Plan in compliance with Section 5.6 hereof, and the Board of
Directors (or the Committee) may not exercise any discretion with respect
thereto.
5.2. Interpretations. The Board of Directors (or the Committee) shall
be authorized to interpret the Plan and may, from time to time, adopt such rules
and regulations, not inconsistent with the provisions of the Plan, as it may
deem advisable to carry out the purpose of the Plan.
5.3. Interpretations Conclusive. The interpretation and construction by
the Board of Directors (or the Committee) of any provision of the Plan, any
Option granted hereunder or any agreement evidencing any such Option shall be
final and conclusive upon all parties.
5.4. Voting. Subject to Section 5.6 hereof, if a Committee shall not
then be constituted for purposes of administering the Plan, Non-Employee
Directors may vote on any matter affecting the administration of the Plan or the
granting of Options under the Plan; provided, however, that no Non-Employee
Director shall vote upon the granting of an Option to himself, but any such
Non-Employee Director may be counted in determining the existence of a quorum at
any meeting of the Board of Directors at which the Plan is administered or
action is taken with respect to the granting of any Option.
5.5. Exculpation. All expenses and liabilities incurred by the Board of
Directors (or the Committee) in the administration of the Plan shall be borne by
the Company. The Board of Directors (or the Committee) may employ attorneys,
consultants, accountants or other persons
2
<PAGE> 3
in connection with the administration of the Plan. The Company, and its officers
and directors, shall be entitled to rely upon the advice, opinions or valuations
of any such persons. No member of the Board of Directors (or the Committee)
shall be liable for any action, determination or interpretation taken or made in
good faith with respect to the Plan or any Option granted hereunder.
5.6. Granting of Options; Exercise Price; Vesting. Effective with the
1997 Annual Meeting of Stockholders, each Non-Employee Director elected by
stockholders at the 1997 Annual Meeting and each Non-Employee Director elected
by stockholders for the first time thereafter will receive an option to purchase
25,000 shares of Common Stock (subject to adjustment in the same manner as
provided in Section 7 hereof with respect to shares of Common Stock subject to
Options then outstanding) upon such election. The options will have an exercise
price equal to the fair market value of a share of Common Stock on the date of
grant and will be exercisable to the extent vested. The options will vest 20% on
the date of grant and 20% upon each re-election to the Board by stockholders at
subsequent annual meetings until such option is vested in full; provided,
however that in the event the optionee subsequently becomes an employee of the
Corporation, for so long as such optionee is an employee of the Corporation such
option shall vest 20% on each anniversary of the date of grant until such option
is vested in full, irrespective of the optionee's status as a director. A new
stock option for an additional 25,000 shares (subject to adjustment in the same
manner as provided in Section 7 hereof with respect to shares of Common Stock
subject to Options then outstanding) will be granted to each Non-Employee
Director upon re-election by stockholders at the next annual meeting following
the annual meeting at which the prior option became fully vested. For purposes
of the Plan, the fair market value of the Common Stock shall mean, as of any
date, the closing price of the Common Stock as reported on the NASDAQ National
Market System or on the principle national securities exchange on which the
Common Stock shall then be listed or, if no prices shall be reported on such
date, on the last preceding date on which such prices are reported. The
provisions of this paragraph 5.6 may not be amended more than once every six
months, other than to comport with changes in the Code, ERISA, or the rules
thereunder.
SECTION 6. Terms and Conditions of Options. The terms and conditions of
each Option granted under the Plan shall be specified by the Board of Directors
(or the Committee) and shall be set forth in an agreement between the Company
and the Non-Employee Director in such form as the Board of Directors (or the
Committee) shall approve.
The terms and conditions of each Option agreement shall include the
following:
(a) The exercise price and vesting of Options shall be as determined in
accordance with Section 5.6 hereof
(b) Options shall expire and terminate on the date that is the tenth
anniversary of the date of grant.
(c) Options shall not be transferable otherwise than by will or the
laws of descent and
3
<PAGE> 4
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title-I of ERISA or the rules thereunder.
SECTION 7. Adjustments. In the event that, after the adoption of the
Plan by the Board of Directors and the stockholders of the Company, the
outstanding shares of the Company's Common Stock shall be increased or decreased
or changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company or if another corporation through
reorganization, merger or consolidation, recapitalization, reclassification,
stock split, split-up, combination or exchange of shares or declaration of any
dividends payable in Common Stock or in any other manner effected without the
receipt of consideration by the Company, the Board of Directors shall
appropriately adjust (i) the number of shares of Common Stock subject to Options
to be granted in accordance with Section 5.6 hereof, (ii) the number of shares
of Common Stock (and the option price per share) subject to the unexercised
portion of any outstanding Option, and (iii) the number of shares of Common
Stock for which Options may be granted under this Plan as set forth in Section
4.1 hereof, in each case, to the nearest possible full share, and such
adjustments shall be effective and binding for all purposes of this Plan.
SECTION 8. Amendment of the Plan. Subject to the restrictions contained
in Section 5.6 hereof, the Board of Directors may amend the Plan from time to
time as it deems desirable; provided, however, that, the Board of Directors
shall not amend the Plan in any manner that requires the approval of
stockholders of the Company pursuant to Rule 16b-3 unless the required approval
of stockholders is obtained. In any event, no amendment made after the date an
Option is granted shall adversely affect any right of any Non-Employee Director
with respect to such Option without the written consent of such Non-Employee
Director.
SECTION 9. Compliance with Rule 16b-3. The Company shall use its best
efforts to maintain this Plan, and to assure the Options are granted and
exercised under this Plan, in accordance with Rule 16b-3 (to the extent Rule
16b-3 could be applicable to any transaction in securities arising in connection
with this Plan), and any and all successor statutes and regulations of said Rule
16b-3, including, without limitation, the seeking of any appropriate amendments
to this Plan and all requisite approvals and consents of such amendments;
provided, however, that except as otherwise set forth in the Plan, the Company
shall take no action that adversely affects Options then outstanding under this
Plan without the prior written consent of the holders of such Options.
SECTION 10. Effect of the Plan on Non-Employee Directors. Neither the
Plan nor any Option granted hereunder to a Non-Employee Director shall be
construed as conferring upon such Non-Employee Director any right to remain a
member of the Board of Directors or to be nominated for reelection as a member
of the Board of Directors.
SECTION 11. Termination of the Plan. The Board of Directors may
terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate ten years after
the date of its approval by vote of stockholders of the Company, or on such
earlier date as the number of shares of Common Stock available for
4
<PAGE> 5
issuance pursuant to Section 4. 1 hereof shall be insufficient to allow the
grant of Options as provided in Section 5.6 hereof. No Option may be granted
hereunder after termination of the Plan. The termination or amendment of the
Plan shall not alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
SECTION 12. Effective Date of the Plan. This Plan shall be effective as
of November 15, 1994, the date on which the Plan was approved by the
stockholders of the Company.
5
<PAGE> 1
Exhibit 10.15
SUBLEASE
between
STERLING WINTHROP INC.,
Sublessor
and
THE BISYS GROUP, INC.
Subtenant
SUBLEASED
PREMISES:
Entire Tenth Floor
90 Park Avenue
New York, New York 10016
DATED: February ___, 1998
<PAGE> 2
SUBLEASE
THIS SUBLEASE, dated as of this ___ day of February, 1998, between
STERLING WINTHROP INC., a Delaware corporation (formerly known as Sterling Drug,
Inc.) ("Sublessor"), having an office at 90 Park Avenue, New York, New York
10016, and THE BISYS GROUP, INC., a Delaware corporation ("Subtenant"), having
an office at 150 Clove Road, 10th Floor, Little Falls, New Jersey.
W I T N E S S E T H:
WHEREAS, Sublessor is the tenant under that certain Lease (the
"Original Lease"), dated August 13, 1963, between Carol Management Corp. ("Prime
Landlord"), as landlord, and Sterling Drug Inc. (predecessor in interest to
Sublessor), as tenant, for a certain portion (the "Premises") of the building
(the "Building") located at 90 Park Avenue, New York, New York;
WHEREAS, the Original Lease has been amended by that certain
Modification of Lease Agreement ("Modification Agreement"), dated May 13, 1987
between Carol Management Corporation, Howard Kaskel, Anita Kaskel Roe, and
Carole Schragis, as landlord, and Sterling Drug Inc., as
<PAGE> 3
tenant (the Original Lease, as amended by the Modification Agreement, the "Prime
Lease");
WHEREAS, a true and complete copy of the Prime Lease (with certain
figures deleted and portions thereof not relevant to Subtenant blackened out)
has been delivered to Subtenant simultaneously with the execution of this
Sublease and a copy of the Prime Lease (with certain figures deleted and
portions thereof not relevant to Subtenant blackened out) is attached hereto as
Exhibit A; and
WHEREAS, Sublessor and Subtenant are desirous of entering into a
sublease for a portion of the Premises comprising the entire Tenth Floor of the
Building as shown on Exhibit B attached hereto (the "Subleased Premises").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto mutually covenant
and agree as follows:
2
<PAGE> 4
Demise of Subleased Premises. Sublessor hereby subleases and demises to
Subtenant and Subtenant hereby hires and subleases from Sublessor the Subleased
Premises, for the term herein stated, for the rent herein reserved and upon and
subject to the covenants, agreements, terms, conditions, and provisions
hereinafter set forth.
1. Use of Subleased Premises. Subtenant shall use and occupy the Subleased
Premises only for executive, sales, and general offices in connection with
Subtenant's business, including such uses identified in Section 2.02 of the
Prime Lease, and for no other purposes.
3
<PAGE> 5
2. Term. The term (the "Term") of this Sublease shall commence on the date
(the "Commencement Date") which is five (5) days after the date on which
Sublessor shall send written notice (the "Sublessor's Work Completion Notice")
to Subtenant representing that Sublessor has completed the demolition portion of
Sublessor's Work (as hereinafter defined) and shall expire, unless sooner
terminated pursuant to any term or provision hereof, on the last day of the
month in which the tenth (10th) anniversary of the Rent Commencement Date (as
hereinafter defined) shall occur (the "Expiration Date").
a) Sublease Rent. Subtenant shall pay to Sublessor a fixed annual rent
(the "Sublease Rent") as follows: (i) for the period commencing on the
Commencement Date and ending on the date which is the day immediately preceding
the third (3rd) anniversary of the Commencement Date, the sum of One Million One
Hundred Eighty Four Thousand Six Hundred One Dollars ($1,184,601.00) Dollars per
annum, (ii) for the period commencing on the date which is the third (3rd)
anniversary of the Commencement Date and ending on the date which is the day
4
<PAGE> 6
immediately preceding the seventh (7th) anniversary of the Commencement Date,
the sum of One Million Two Hundred Fifty Six Thousand Three Hundred Ninety Five
Dollars ($1,256,395.00) Dollars per annum, and (iii) for the period commencing
on the date which is the seventh (7th) anniversary of the Commencement Date and
ending on the Expiration Date, the sum of One Million Three Hundred Twenty Eight
Thousand One Hundred Eighty Nine Dollars ($1,328,189.00) Dollars per annum. The
Sublease Rent shall be payable in equal monthly installments, in advance on the
first day of the month for which such rent is due.
b) Notwithstanding the foregoing, (i) Subtenant shall have no obligation
to pay Sublease Rent for the period from the Commencement Date to the date (the
"Rent Commencement Date") which is five (5) months after the Commencement Date,
as established in the Sublessor's Work Completion Notice, and (ii) Subtenant
shall have no obligation to pay additional rent for the period from the
Commencement Date to the date which is one (1) year thereafter.
5
<PAGE> 7
c) The Sublease Rent, additional rent, and other charges herein reserved
or payable shall be paid to Sublessor at the address set forth in Section 18
hereof or at such other place as Sublessor may designate, in lawful money of the
United States of America, as and when the same shall become due and payable,
without demand and without any deduction, set-off, or abatement except as
provided herein.
d) No payment by Subtenant or receipt by Sublessor of any lesser amount
than the amount stipulated to be paid hereunder shall be deemed other than on
account of the earliest stipulated rent or additional charges; nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction, and Sublessor may accept any check or payment without prejudice to
Sublessor's right to recover the balance due or to pursue any other remedy
available to Sublessor.
e) The Prime Lease. Sublessor hereby represents that (i) the Prime Lease
is in full force and effect and has not been modified or amended (except as
expressly set forth in the recitals to this Sublease),
6
<PAGE> 8
and there are no other documents, instruments, or agreements creating
obligations on Sublessor's part under the Prime Lease, (ii) Sublessor has
delivered to Subtenant a true and complete copy of the Prime Lease and all other
documents expressly set forth in the recitals hereto, including all riders,
modifications, schedules, exhibits and addenda relating thereto (in all cases
with certain figures deleted and portions thereof not relevant to Subtenant
blackened out, and for which Sublessor indemnifies Subtenant from and against
any and all liability which Subtenant may suffer as a result of such language
and figures being blackened out), (iii) Sublessor is the current tenant under
the Prime Lease, (iv) Sublessor owns and holds the entire leasehold interest and
estate arising out of the Prime Lease, and Sublessor has not encumbered,
pledged, assigned, transferred or hypothecated in any manner, except for
existing subleases, such interest or estate, (v) there are no outstanding
notices of default by Sublessor or Prime Landlord under the Prime Lease, (vi) to
the best of Sublessor's knowledge, no conditions exist which with the passage of
time or the giv-
7
<PAGE> 9
ing of notice, or both, will give rise to a default by Sublessor or Prime
Landlord under the Prime Lease, and (vii) Sublessor has full power and authority
to enter into this Sublease. Sublessor shall not do or cause to be done or
suffer or permit any act or thing to be done which would cause the Prime Lease
or the rights of Sublessor as tenant under the Prime Lease to be cancelled,
terminated or forfeited. Sublessor hereby represents and warrants to Subtenant,
that to Sublessor's knowledge that certain Subordination, Non-Disturbance and
Attornment Agreement (the "Subordination Agreement") dated as of September 14,
1987 between The Sumitomo Trust & Banking Co., Ltd. ("Mortgagee"), as mortgagee,
and Sterling Drug Inc., as tenant, is in full force and effect and unmodified,
and that Sublessor has not received from Mortgagee a notice of a default by
Sublessor under the Subordination Agreement. Sublessor agrees that it shall not
modify, amend or terminate the Subordination Agreement without Subtenant's prior
written consent, which consent shall not be unreasonably withheld; provided,
however, that Sublessor shall have the right to amend, modify or
8
<PAGE> 10
terminate the Subordination Agreement in the event that Mortgagee agrees to
enter into a subordination, non-disturbance and attornment agreement with
Subtenant in substantially the same form as the Subordination Agreement, or
otherwise agrees to provide to Subtenant the equivalent benefit which is
provided by the Subordination Agreement.
f) This Sublease shall be subject to all of the terms, covenants,
conditions, and provisions of the Prime Lease, and to all leases, and mortgages
and other rights or encumbrances to which the Prime Lease is subordinate. This
provision is self-operative but Subtenant shall within ten (10) days of
Sublessor's request execute any instrument reasonably requested by Sublessor or
Prime Landlord to evidence or confirm same.
g) Except as specifically provided herein, the terms, covenants and
conditions of the Prime Lease are incorporated herein by reference, so that each
and every term, covenant and condition of the Prime Lease binding or inuring to
the benefit of Prime Landlord thereunder, and applicable to the public areas of
the
9
<PAGE> 11
Building, or the portion of the Premises which constitutes the Subleased
Premises shall, in respect of this Sublease, bind or inure to the benefit of
Sublessor, and each and every term, covenant and condition of the Prime Lease
binding or inuring to the benefit of the tenant thereunder shall, in respect of
this Sublease, bind or inure to the benefit of Subtenant, with the same force
and effect as if such terms, covenants and conditions were completely set forth
in this Sublease, and as if the words "Landlord" and "Tenant", or words of
similar import, wherever the same appear in the Prime Lease, were construed to
mean, respectively, "Sublessor" and "Subtenant" in this Sublease, and as if the
words "Demised Premises", or words of similar import, wherever the same appear
in the Prime Lease, were construed to mean "Subleased Premises" in this
Sublease, as if the word "Lease" or words of similar import, wherever the same
appear in the Prime Lease, were construed to mean this "Sublease" and as if the
words "fixed rent" or words of similar import, wherever the same appear in the
Prime Lease, were construed to mean "Sublease Rent" in this Sublease, ex-
10
<PAGE> 12
cept to the extent that they are modified by the provisions of this Sublease and
with the following exceptions: (1) Subtenant shall have no options to rent
additional space in the Building except as specifically provided by the terms of
this Sublease; (2) Subtenant shall have no right to further sublet or assign the
Subleased Premises or any portion thereof, except as specifically provided by
the terms and conditions of the Prime Lease and this Sublease; (3) Sublessor and
its agents shall have the right upon reasonable (but not less than twelve (12)
hours) advance written notice to Subtenant to enter into and upon the Subleased
Premises at all reasonable hours and in the presence of a representative of
Subtenant for the purpose of inspecting same, without rendering Sublessor or
Sublessor's agents liable therefor except for any loss Subtenant may suffer as a
result of Sublessor's negligence, and provided that such entry does not
materially interfere with the operation of Subtenant's business; and provided,
further, that in the event entry into and upon the Subleased Premises shall be
necessary due to fire or other emergency, Sublessor or Sublessor's agents may
en-
11
<PAGE> 13
ter without advance written notice to Subtenant and forcibly, if Subtenant shall
not be personally present to open and permit entry into the Subleased Premises,
without rendering Sublessor or Sublessor's agents liable therefor except for any
loss Subtenant may suffer as a result of Sublessor's gross negligence, and
without in any manner affecting the obligations and covenants of this Sublease.
To the extent that the Prime Lease may conflict or be inconsistent with the
provisions of this Sublease, whether or not such inconsistency is expressly
noted herein, the provisions of this Sublease shall prevail, and Sublessor
indemnifies Subtenant against any and all liability which Subtenant may suffer
as a result of any such conflict. The time limits contained in the Prime Lease
for the giving of notices, making demands or the performing of any act,
condition or covenant on the part of the tenant thereunder, or for the exercise
by the tenant thereunder of any right, remedy or option, are changed for the
purpose of incorporation herein by reference by shortening same in each instance
by two (2) business days, provided, however, that if the time limit con-
12
<PAGE> 14
tained in the Prime Lease is five (5) days or less, the time limit shall be
shortened by one (1) business day, so that Subtenant shall have a lesser time to
observe or perform hereunder than Sublessor has as the tenant under the Prime
Lease. If Subtenant receives any notice or demand from Prime Landlord under the
Prime Lease with respect to the Subleased Premises, the Subtenant shall promptly
give a copy thereof to Sublessor.
h) Notwithstanding that this Sublease is subject to the Prime Lease as set
forth in the preceding paragraph (b), the following Articles and Sections of the
Prime Lease shall not be incorporated herein by reference: Sections 1.01, 1.02,
1.03, 1.04, 2.02(b), 2.02(c), the last sentence of Section 2.04, 2.08, Article
3, 5.01, 5.02, 5.04, 5.05, 5.06, 6.01, 6.02, 6.03, 6.04, 6.06, Article 7, 9.01,
9.02, 9.03, 9.10, 9.11, 9.12, the last sentence of 10.01, 12.04, 12.05(a),
12.05(b), 12.05(c), 11.03, 13.01, the last eleven words of 15.01, 15.02, 15.04,
16.03(b), 16.04, 16.05, 16.06, 17.01, 17.03, 18.01, the modification of Section
18.02 set forth in the Modification Agreement, references to "the storage space
13
<PAGE> 15
on the 42nd Floor" in Section 18.04, 18.06, the last two sentences of Section
18.07, Sections 18.08, 18.09, 18.12, 18.13, 18.14, 18.15, 18.16, 18.17, 19.06,
clause (x) of the first sentence of 21.03, 22.01, 22.03, the last sentence of
22.04, Article 23, Article 30, Article 31, Article 32, Article 33, Section
35.02, Article 37, Section 38.02(b), Articles 41, 42, 43, 44, 45, 46, and
Exhibits B, C, D and G.
i) Notwithstanding the exclusion of an Article or Section of the Prime
Lease from incorporation by reference herein, at Subtenant's request, Sublessor
shall, subject to the terms of this Sublease, enforce Sublessor's rights under
any such excluded Article or Section which requires Prime Landlord to provide
services to the Premises, to maintain the Building or building systems, or to
comply with law, to the extent any such Article or Section affects the Subleased
Premises.
j) Subtenant covenants and agrees (i) to perform and to observe all of the
terms, covenants, conditions and agreements of the Prime Lease on Sublessor's
part to be performed to the extent such terms, covenants,
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<PAGE> 16
conditions and agreements are included in, and not deleted in accordance with
subparagraph (d) above, from the copy of the Prime Lease attached hereto and to
the extent applicable to the Subleased Premises and the Building; (ii) that
Subtenant will not do or cause to be done or suffer or permit any act or thing
to be done which would or might cause the Prime Lease or the rights of Sublessor
as tenant thereunder to be cancelled, terminated or forfeited or make Sublessor
liable for any damages, claim or penalty; and (iii) to indemnify and save
Sublessor and its agents, representatives and employees harmless from and
against all liability (statutory or otherwise) claims, suits, demands, damages,
judgments, costs, interest and expenses (including reasonable counsel fees and
disbursements incurred in the defense thereof) to which Sublessor or any agent,
representative or employee may be subject or suffer whether by reason thereof,
or by reason of any claim for any injury to or death of any person or persons or
damage to property (including any loss or use thereof) arising out of,
pertaining to, or resulting from acts or omissions of the Subtenant and its
agents, ser-
15
<PAGE> 17
vants and/or employees, or otherwise arising from the use or occupancy of the
Subleased Premises or of any business conducted therein, or from any work or
thing whatsoever done or any condition created by or any other act or omission
of Subtenant, its permitted assignees or sub-subtenants, or their respective
employees, agents, contractors, visitors or licensees, in or about the Subleased
Premises.
k) Sublessor covenants and agrees to indemnify and save Subtenant and its
agents, representatives and employees harmless from and against all liability
(statutory or otherwise), claims, suits, demands, damages, judgments, costs,
interest and expenses (including reasonable counsel fees and disbursements
incurred in the defense thereof) to which Subtenant or any agent, representative
or employee may be subject or suffer by reason thereof, or by reason of any
claim for any injury to or death of any person or persons or damage to property
(including any loss of use thereof) arising out of, pertaining to, or resulting
from acts or omissions of the Sublessor and its agents, servants and/or
employees, in
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<PAGE> 18
connection with the Subleased Premises, or from any work or thing whatsoever
done or condition created by or any other act or omission of Sublessor, its
permitted assignees or sub-subtenants, or their respective employees, agents,
contractors, or licensees, in or about the Subleases Premises, or any part of
the Building, or as a result of any breach by Sublessor of its obligations under
this Sublease. The indemnitee under the applicable indemnity hereunder shall
give prompt notice to the indemnitor of any claim covered by such indemnity and
shall not confess judgment or settle any such claim without the indemnitor's
prior written consent, which shall not be unreasonably withheld or delayed. The
indemnitee shall reasonably cooperate with the indemnitor at the indemnitor's
expense. The indemnitor may select counsel of its reasonable choice in defending
any such claim.
l) Any obligation of Sublessor which is contained in this Sublease by the
incorporation by reference of the provisions of the Prime Lease shall be deemed
to have been observed or performed by Sublessor if Sublessor shall have used
reasonably diligent efforts (which
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<PAGE> 19
shall not include legal proceedings) to cause the Prime Landlord to observe
and/or perform the same, and Sublessor shall have a reasonable time to use
reasonable efforts to enforce its rights to cause such observance or
performance. Subtenant shall not in any event have any rights in respect of the
Subleased Premises greater than Sublessor's rights under the Prime Lease, and,
notwithstanding any provision to the contrary, as to obligations contained in
this Sublease by the incorporation by reference of the provisions of the Prime
Lease, Sublessor shall not be required to make any payment or perform any
obligation, and Sublessor shall have no liability to Subtenant for any matter
whatsoever, except for Sublessor's obligation to pay the rent or additional rent
due under the Prime Lease and for Sublessor's obligation to use reasonably
diligent efforts, upon written request of Subtenant, to cause the Prime Landlord
to observe or perform its obligations under the Prime Lease, as they apply to
the Subleased Premises.
m) Notwithstanding anything to the contrary contained in this Sublease
(including any of the provi-
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<PAGE> 20
sions incorporated herein for the Prime Lease), Sublessor shall not be obligated
(i) to provide any of the services that Prime Landlord has agreed to provide in
the Prime Lease or is required to provide by law; (ii) to make any of the
repairs or restorations that Prime Landlord has agreed to make in the Prime
Lease or is required to make by law; (iii) to take or to refrain from taking any
other action that Prime Landlord has agreed to take or to refrain from taking in
the Prime Lease or is required by law to take or to refrain from taking; or (iv)
to perform any obligation that Prime Landlord has agreed to perform in the Prime
Lease. Provided Sublessor is not in default of its obligations hereunder,
Sublessor shall have no liability to Subtenant on account of any failure of
Prime Landlord to provide, make, comply with, take or refrain from taking, or
perform any of the foregoing.
n) In no event shall Sublessor or Prime Landlord, or their respective
agents, representatives and employees be liable to Subtenant or any other party
for indirect, consequential or punitive damages, including claims made by way of
set-off, counterclaim or defense.
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<PAGE> 21
o) Subtenant shall have the right to forward a request to Sublessor, or
its agent, for after hours air-conditioning service pursuant to Section 17.01 of
the Prime Lease and Sublessor (or its agent) shall promptly forward such request
to Prime Landlord. Sublessor shall have no liability to Subtenant on account of
any failure of Prime Landlord to provide such after hours air-conditioning
service. Subtenant shall pay to Sublessor, on demand, as additional rent, the
amount charged by Prime Landlord for such after hours air-conditioning service.
p) Anything to the contrary in subsection (f) above, notwithstanding, in
the event Sublessor, using reasonable efforts, is unable to cause Prime Landlord
to observe any of its obligations under the Prime Lease to provide services to
the Subleased Premises, comply with law, or maintain the Building or the
building systems, as those obligations affect the Subleased Premises, Subtenant,
at Subtenant's expense, upon fifteen (15) days prior notice to Sublessor, and
using counsel selected by Subtenant and reasonably approved by Sublessor, may
prosecute any necessary action and appeal against Prime Land-
20
<PAGE> 22
lord in the name of Sublessor, and Sublessor shall, at Subtenant's sole cost and
expense, cooperate with Subtenant in any such action and appeal, provided that
such prosecution by Subtenant shall not cause a default by Sublessor as tenant
under the Prime Lease or otherwise result in the termination of the Prime Lease.
In connection with the foregoing, Subtenant may, in the name of Sublessor,
deliver a notice of default to Prime Landlord, provided however, that the
sending of any such notice of default is required as a condition precedent to
the bringing of any action described in this subsection (j), and provided
further that Subtenant may not exercise any right to terminate the Prime Lease.
Subtenant shall indemnify and hold Sublessor harmless from and against any and
all losses, costs, liability, claims, damages, expenses (including, without
limitation, reasonable attorneys' fees), penalties and fines to which Sublessor
may be exposed and which Sublessor may incur as a consequence of or arising out
of the taking of any action by Subtenant pursuant to this subsection (j)
provided such liability is not the result of a default by Sublessor hereunder
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<PAGE> 23
or under the Prime Lease, and provided, further, however, that Sublessor shall
not confess judgment or settle any claim covered by such indemnity without
Subtenant's prior written approval, which approval shall not be unreasonably
withheld or delayed.
q) Additional Rent. Subtenant shall pay to Sublessor, as additional rent
hereunder for the period from and after the applicable base period as set forth
hereinafter, in the manner hereinafter provided (i) Subtenant's Proportionate
Share (as hereinafter defined) of the amount by which Operating Expenses (as
defined in the Prime Lease) for each Operational Year (as defined in the Prime
Lease) or portion thereof occurring during the term of this Sublease, exceed the
Operating Expense Base (as hereinafter defined) (the "Operating Payment"); (ii)
Subtenant's Proportionate Share of the amount by which Taxes (as defined in the
Prime Lease) for each Tax Year (as defined in the Prime Lease) or portion
thereof occurring during the term of this Sublease, exceed the Taxes for the
Base Tax Year (as hereinafter defined) (the "Tax Payment"); and (iii) all other
costs, expenses, charges, or
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<PAGE> 24
adjustments payable by Subtenant specifically required by this Sublease.
r) For the purposes of this Section 6, the following terms shall have the
following meanings:
(1) "Subtenant's Proportionate Share" shall mean 4%, which has been
computed on the basis of a fraction, the numerator of which is 35,897 square
feet, the agreed rentable square foot area of the Subleased Premises, and the
denominator of which is 837,297 square feet, the rentable square foot area of
the Building above grade, as set forth in the Prime Lease.
(2) "Operating Expense Base" shall mean the Operating Expenses incurred for
the calendar year commencing on January 1, 1998 and ending on December 31, 1998.
(3) "Base Tax Year" shall mean the real estate tax fiscal year commencing
on July 1, 1997 and ending on June 30, 1998.
s) Tenant shall pay the Tax Payment as additional rent as hereinafter set
forth. After the amount of Taxes for each Tax Year after the Base Tax Year is
de-
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<PAGE> 25
terminable, Sublessor shall furnish Subtenant with a written statement (the
"Tax Statement"), which shall be based upon the Subsequent Tax Statement (as
defined in the Prime Lease) received from Prime Landlord, indicating (i) the
amount of Taxes which Prime Landlord will be required to pay for such Tax Year,
and (ii) Sublessor's computation of the Tax Payment for such Tax Year; and which
shall include copies of all applicable tax bills, to the extent that Sublessor
is able to so include such bills, and the mathematical formulas employed in
arriving at the various amounts to be paid, including, but not limited to, the
Tax Payment. The Tax Payment to be paid by Subtenant pursuant to this subsection
(c) shall be payable on the later of (x) fifteen (15) days prior to the dates on
which interest and penalties accrue on such Taxes if not paid, or (y) fifteen
(15) days after Sublessor has furnished Tenant with the Tax Statement for such
Tax Year.
t) Tenant shall pay the Operating Payment as additional rent as
hereinafter set forth.
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<PAGE> 26
u) Sublessor shall furnish to Subtenant, prior to or following the
commencement of each Operational Year after 1998, a written statement (the
"Operating Statement") setting forth Sublessor's estimate of Subtenant's
Operating Payment for such Operational Year, which Operating Statement shall be
based upon the information set forth in the "Subsequent Operating Statement" (as
defined in the Prime Lease) and a copy of which shall be delivered to Subtenant
together with the Operating Statement delivered by Prime Landlord for such
Operational Year. The Operating Statement shall contain sufficient formulas and
calculations to enable Subtenant to ascertain the basis of the estimate of
Subtenant's Operating Payments. Subtenant shall pay to Sublessor as additional
rent on the first day of each month during such Operational Year after 1998,
together with the payment of the Sublease Rent, an amount equal to one-twelfth
(1/12th) of Sublessor's estimate of Subtenant's Operating Payment, provided in
accordance with the preceding sentence, for such Operational Year. If, however,
Sublessor shall furnish any such estimate for an Operational Year subsequent
25
<PAGE> 27
to the commencement thereof then (a) until the first day of the month following
the month in which such estimate is furnished to Subtenant, Subtenant shall pay
to Sublessor on the first day of each month an amount equal to the monthly sum
which was payable by Subtenant to Sublessor under this Section (d) for the last
month of the preceding Operational Year; (b) promptly after such estimate is
furnished to Subtenant, or together therewith, Sublessor shall give notice to
Subtenant stating whether the installments of Subtenant's Operating Payment
previously made for such Operational Year were greater or less than the
installments of the Subtenant's Operating Payment to be made for such
Operational Year in accordance with such estimate, and (i) if there shall be a
deficiency, Subtenant shall pay the amount thereof within ten (10) days after
demand therefor, or (ii) if there shall have been an overpayment, Sublessor
shall pay the amount thereof to Subtenant within ten (10) days after demand
therefor; and (c) on the first day of the month following the month in which
such estimate is furnished to Subtenant, and monthly thereafter throughout the
remainder of such Op-
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<PAGE> 28
erational Year, Subtenant shall pay to Sublessor an amount equal to one-twelfth
(1/12th) of Subtenant's Operating Payment, as shown on such estimate. Upon
receipt of a notice from Prime Landlord pursuant to Section 6.06 of the Prime
Lease adjusting "Tenant's Projected Share of Operating Increase" (as defined in
the Prime Lease), Sublessor may furnish to Subtenant a revised statement of
Sublessor's estimate of Subtenant's Operating Payment for such Operational Year
and in such case, Tenant's Operating Payment for such Operational Year shall be
adjusted in the same manner as is provided in the preceding sentence.
v) Following the end of an Operational Year, upon receipt of the
corresponding information from Prime Landlord, Sublessor shall submit to
Subtenant a statement setting forth (i) the actual amount of Operating Expenses
for such Operational Year, (ii) the amount of Subtenant's Operating Payment for
such Operational Year, and (iii) the payments made by Subtenant on account
thereof. If the installments of Subtenant's Operating Payments made on account
of such Operational Year exceed the amount of
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<PAGE> 29
Subtenant's Operating Payment due on account of such Operational Year, such
excess shall be paid by Sublessor to Subtenant within ten (10) days of demand
therefor. If, however, said installment(s) do not equal Subtenant's Operating
Payment due on account of such Operational Year, then Subtenant agrees to pay to
Sublessor the amount necessary to make up any deficiency within ten (10) days
after the delivery of Sublessor's statement hereunder.
w) If the Commencement Date is not the first day of an Operational Year or
Tax Year, or if the date of expiration or termination of this Sublease (except
for a termination due to Subtenant's default), whether or not same is the
Expiration Date or another date prior or subsequent thereto, is not the last day
of an Operational Year or Tax Year, the Subtenant's Operating Payment and Tax
Payment shall be prorated based upon the number of days of the applicable
Operational Year or Tax Year within the term of this Sublease.
x) In no event shall the Sublease Rent be reduced as a result of the
application of the provisions of this Section 6.
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<PAGE> 30
y) Provided Subtenant shall file a request with Sublessor at least thirty
(30) days prior to the expiration of the time limit established in Section 6.04
of the Prime Lease, Sublessor shall, at the sole cost and expense of Subtenant,
exercise its right to contest the Operating Expenses with respect to any
Operational Year, or Tax Expenses with respect to any Tax Year. Any costs
incurred by Sublessor in furtherance of the foregoing shall be paid by Subtenant
within ten (10) days of demand, as additional rent; provided however, if more
than one subtenant of Sublessor shall request that Sublessor contest the
Operating Expenses or Taxes, the costs incurred by Sublessor in conducting such
contest shall be apportioned among the requesting subtenants (including
Subtenant).
3. Late Payment Charge. In the event that Subtenant fails to pay to
Sublessor any installment of Sublease Rent or additional rent, or any portion
thereof, when such payment is due pursuant to this Sublease, or in the event
Subtenant fails to make any other payment, in whole or in part, due pursuant to
this Sublease or any
29
<PAGE> 31
other amounts due and owing under the terms of the Prime Lease as incorporated
herein by reference, within five (5) days after its due date, Subtenant shall
pay interest on any such unpaid sum from its due date until the date when such
payment is made at a rate of interest equal to the Prime Rate (as defined in the
Prime Lease) plus two percent (2%) per annum. For purposes of this Sublease,
payments shall be deemed made when received by Sublessor at its address as set
forth in Section 18 of this Sublease.
4. Remedies of Sublessor. In the event that Subtenant defaults beyond
applicable notice and grace periods, if any, in its obligations under this
Sublease, Sublessor shall be entitled to exercise all rights available under the
terms of this Sublease including, without limitation, any remedy provided for in
the Prime Lease, and Subtenant shall be liable for any damages set forth in the
Prime Lease. If Sublessor elects to cancel this Sublease or dispossess
Subtenant, Sublessor shall be entitled to re-let the Subleased Premises in
accordance with the terms of the Prime Lease. In the event of such
30
<PAGE> 32
a re-letting, Sublessor shall be entitled to liquidated damages, payable within
three (3) days of Sublessor's demand consisting of the present value (discounted
at a discount rate equal to the rate on U.S. Treasury obligations selected by
Sublessor having a maturity comparable to the Expiration Date) of the difference
between the stream of monthly Sublease Rent payments which Sublessor is entitled
to collect from Subtenant through the end of the term of this Sublease and the
stream of monthly base annual rental payments, if any, which Sublessor becomes
contractually entitled to collect as a result of the re-letting through the end
of the Sublease term. In the event that a default by Subtenant results in the
termination of the Prime Lease prior to its ordinary expiration date or in any
other liability of Sublessor to Prime Landlord, Subtenant shall fully indemnify
Sublessor from and against any payments which Sublessor is required to make to
the Prime Landlord or any other subtenant of the Premises in connection with
such termination and any loss or liability resulting from Subtenant's default,
provided, however, that Subtenant's maximum liability here-
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<PAGE> 33
under shall be limited to the aggregate of Sublease Rent and additional rent
(conclusively presuming the additional rent to be the same as was payable for
the twelve months immediately preceding such default) payable hereunder for the
period commencing on the date of such default and ending on the Expiration Date.
a) Delivery of Subleased Premises; Completion and Occupancy of Subleased
Premises. Sublessor covenants and agrees to, at Sublessor's sole cost and
expense, deliver possession of the Subleased Premises to Subtenant on the
Commencement Date, free of all tenancies and occupancies in broom clean
condition and having completed all demolition work on the Subleased Premises in
accordance with Subtenant's demolition plans identified on Exhibit C annexed
hereto ("Sublessor's Work"). Sublessor covenants and agrees to, at Sublessor's
sole cost and expense, complete construction of an ADA bathroom described on
Exhibit C at least thirty (30) days prior to the Rent Commencement Date.
b) Subtenant has examined the Subleased Premises and agrees, subject to
the terms of this Sublease,
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<PAGE> 34
to accept the same in its "as-is" condition and state of repair. Sublessor has
not made and does not make any representations or warranties as to the physical
condition of the Subleased Premises (including any latent defects in or to the
Subleased Premises), the uses to which the Subleased Premises may be put, or any
other matter or thing affecting or relating to the Subleased Premises, except as
specifically set forth in this Sublease. Sublessor shall have no obligation
whatsoever to alter, improve, decorate or otherwise prepare the Subleased
Premises for Subtenant's occupancy except as set forth on Exhibit C hereto.
c) The taking of occupancy or possession of the whole or any part of the
Subleased Premises by Subtenant shall be conclusive evidence, as against
Subtenant, that Subtenant accepts possession of the Subleased Premises so
occupied and that the same were in good and satisfactory condition at the time
such occupancy or possession was so taken.
(a) Provided Subtenant shall not be in default under the terms of this
Sublease beyond the expira-
33
<PAGE> 35
tion of any applicable notice or cure period, Sublessor shall pay Subtenant for
the cost of Subtenant's Work (as hereinafter defined) performed by Subtenant
and/or Subtenant's contractors from time to time within twenty-four (24) months
after the date hereof to prepare the Subleased Premises for Subtenant's use and
occupancy, in an amount equal to $1,615,365.00 (which amount is hereinafter
referred to as "Sublessor's Contribution"), upon the terms and conditions
hereinafter set forth. At Sublessor's request from time to time as construction
progresses, but not more frequently than one time each month, Sublessor, on not
less than fifteen (15) days request from Subtenant, shall pay portions of
Sublessor's Contribution to Subtenant, or, upon Subtenant's request, directly to
Subtenant's contractors, subcontractors, materialmen, architects, and engineers,
in an amount equal to the amounts incurred in connection with Subtenant's Work
and not theretofore paid, or amounts then payable to Subtenant's contractors,
subcontractors, materialmen, architects, engineers, consultants, and other firms
and/or persons contracted by Subtenant to perform serv-
34
<PAGE> 36
ices on or in connection with the Subleased Premises, provided the same have not
been the subject of a previous disbursement from the Sublessor's Contribution.
In no event shall Sublessor be required to distribute more than ten checks with
respect to any one payment request. Sublessor's obligation to make payments from
the Sublessor's Contribution shall be subject to receipt of: (a) a request for
such payment from Subtenant, (b) copies of all receipts, invoices and bills for
the then currently billed work completed to the extent shown on the requisition
and materials furnished (or for deposits paid thereon as required by the
contract therefor) in connection with Subtenant's Work and incorporated (or to
be incorporated with respect to items for which a deposit has been made) in the
Subleased Premises (or with respect to architectural and engineering services
rendered or other services rendered by a consultant or other entity or
individual, copies of the receipts or invoices therefor), and to be paid from
the requested disbursement, and (c) except with respect to disbursements solely
for architectural and engineering services rendered, a certificate by
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<PAGE> 37
the architect or engineer stating, in its opinion, that the portion of the
Subtenant's Work theretofore completed and for which the disbursement (or any
portion thereof) is requested was performed in a good and workmanlike manner and
substantially in accordance with the final detailed plans and specifications for
such Subtenant's Work as approved by Sublessor and Prime Landlord, or that any
deposit made was required to be made under the applicable contract, and that the
amount requested from Sublessor in such certificate is then due and payable from
Subtenant or has theretofore been paid by Subtenant. Following the completion of
Subtenant's Work, and as a condition to the payment of the final five (5%)
percent of the Sublessor's Contribution, Subtenant shall deliver to Sublessor
(A) a certificate of the licensed architect or engineer employed by Subtenant
certifying (i) the total cost of Subtenant's Work (which certification shall
substantiate such total costs to the reasonable satisfaction of Sublessor) and
(ii) that Subtenant's Work has been performed and completed substantially in
accordance with the provisions of this Sublease, all legal requirements and the
36
<PAGE> 38
plans and specifications theretofore approved by Sublessor and the Prime
Landlord, (B) evidence reasonably satisfactory to Sublessor establishing that
all sums due and owing to contractors, subcontractors and materialmen have been
paid, including final lien waivers, and (C) if required by law, evidence
reasonably satisfactory to Sublessor establishing that all governmental
authorities (including, without limitation, the New York City Department of
Buildings) have issued final approval of Subtenant's Work, Sublessor's Work and
all other work in place performed by Subtenant in the Subleased Premises and
have issued all permits and other approvals required for lawful occupancy of the
Subleased Premises.
(b) As used herein, "Subtenant's Work" shall be deemed to mean the
installation of fixtures, improvements and appurtenances attached to or built
into the Subleased Premises in accordance with Subtenant's approved plans and
specifications and the other requirements of this Sublease and the Prime Lease,
and the fees and expenses of Subtenant's architect and engineer, and shall not
include trade fixtures, machinery, equipment,
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<PAGE> 39
furniture, furnishings and other articles of personal property.
(c) The right to receive payment for the cost of Subtenant's Work as set
forth in this subsection 9(d) shall be for the exclusive benefit of Subtenant,
it being the express intent of the parties hereto that, notwithstanding the
right of Subtenant to direct Sublessor to make payments directly to any such
firms, individuals, or entities, in no event shall such right be conferred upon
or for the benefit of any third party, including, without limitation, any
contractor, subcontractor, materialman, laborer, architect, engineer, attorney
or any other person, firm or entity.
d) In the event the Sublessor's Contribution exceeds the cost of
Subtenant's Work, then such excess, if any, shall be applied as a credit against
the next installment of Sublease Rent until such excess has been exhausted. To
the extent Subtenant's Work shall cost in excess of Sublessor's Contribution,
Subtenant shall be entirely responsible for such excess.
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<PAGE> 40
e) As part of Subtenant's Work, Subtenant shall perform all work required
for the Subleased Premises to comply with the Americans with Disabilities Act of
1990 ("ADA"), except as otherwise provided for in Section 9(a) hereof.
f) Sublessor hereby represents and warrants that to the best of its
knowledge there is no asbestos in the Subleased Premises. In the event asbestos
is discovered in the Subleased Premises after Subtenant's occupancy of the
Subleased Premises for the operation of its business, and the asbestos is
required by law to be removed, Subtenant shall promptly notify Sublessor and (i)
Sublessor shall, within five (5) business days of such notification elect to
either remove such asbestos from the Subleased Premises at Sublessor's cost, or
authorize Subtenant to remove such asbestos, in which event Sublessor shall
reimburse Subtenant for the reasonable costs and expenses incurred by Subtenant
in removing such asbestos, and (ii) Subtenant shall receive a credit against
Sublease Rent for each day that Subtenant is delayed in occupying the Subleased
Premises for the conduct of its
39
<PAGE> 41
business as a result of the existence and required removal of such asbestos.
g) Sublessor hereby represents and warrants that it has no actual
knowledge of any latent defects in or to the Subleased Premises.
h) Alterations. Except for painting, decorative and minor, non-structural
changes which shall not require approval or consent of any party, Subtenant
shall make no improvements, changes, additions, replacements or alterations
("Improvements") in, to, or about the Subleased Premises, including, without
limitation, Subtenant's Work, without the prior written consent of Sublessor
and, if the Prime Lease requires, the consent of Prime Landlord, to such
Improvements. Sublessor agrees not to unreasonably withhold or delay its consent
to any Improvements which comply with the provisions of subsections (a) through
(e) of Section 13.01 of the Prime Lease. In no event will Subtenant be permitted
to make structural changes to the Subleased Premises.
i) In connection with any Improvements permitted hereunder, any insurance
required to be maintained
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under the Prime Lease by the tenant thereunder shall be maintained by the
Subtenant and shall name Sublessor and Prime Landlord as insured parties
thereunder.
j) All Improvements to be made pursuant to this Section shall be made or
contracted for by Subtenant and shall be performed at Subtenant's sole cost and
expense. Subtenant further agrees to indemnify and hold Sublessor harmless from
and against any and all claims that may be made against Sublessor arising out of
or in connection with the Improvements except with respect to any matter insofar
as it arises out of any negligence of Sublessor, its officers, employees,
agents, servants, licensees or representatives.
k) Subtenant agrees to file, as required by law, any plans submitted in
connection with any Improvements, and to comply with all applicable laws and
regulations in connection with the Improvements.
l) All Improvements shall be performed by contractors approved by
Sublessor and Prime Landlord and in accordance with Article 13 of the Prime
Lease.
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<PAGE> 43
m) All Improvements installed in the Subleased Premises at any time,
either by Subtenant or by Sublessor on Subtenant's behalf, shall become the
property of Sublessor and shall remain upon and be surrendered with the
Subleased Premises unless the terms of the Prime Lease, or any consent Sublessor
or Prime Landlord shall have given to Subtenant in connection therewith shall
expressly require their removal, in which event the same shall be removed from
the Subleased Premises by Subtenant at the expiration of the term of this
Sublease, at Subtenant's expense. Upon removal of any item as may be permitted
or required hereunder, Subtenant shall immediately, and at its expense, repair
and restore the Subleased Premises to the condition existing prior to
installation of Subtenant's improvements, and repair any damage to the Subleased
Premises or the Building due to such removal. All property permitted or required
to be removed by Subtenant at the end of the term remaining in the Subleased
Premises after Subtenant's removal shall be deemed abandoned and may, at the
election of Sublessor, either be retained as Sublessor's property or be removed
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<PAGE> 44
from the Subleased Premises by Sublessor at Subtenant's expense. Nothing
contained in this subparagraph shall be construed as prohibiting Subtenant from
removing its furniture, furnishings and Subtenant's movable trade fixtures from
the Subleased Premises. Anything to the contrary herein notwithstanding,
Subtenant shall have no obligation to remove (i) improvements made to the
Subleased Premises by Sublessor prior to the date hereof, (ii) Sublessor's Work,
or (iii) Subtenant's Work, or to restore the Subleased Premises to the condition
existing prior to the date hereof or prior to the installation of the foregoing
items.
n) Subtenant understands and agrees that Sublessor shall neither do, nor
be required or obligated to make, any repairs, alterations or improvements for
Subtenant in connection with the Subleased Premises, including without
limitation, painting, finishing, plastering or decorating, but that Sublessor
shall use its diligent efforts to induce Prime Landlord to complete all repairs
for which it is responsible under the Prime Lease.
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<PAGE> 45
5. Care of Subleased Premises. Subtenant shall, at its expense, take good
care of the Subleased Premises and the appurtenances therein and make all
repairs thereto, as and when needed to preserve them in good order and
condition, as required pursuant to the terms of the Prime Lease.
a) Assignment and Subletting. Neither this Sublease nor the term and
estate granted hereby shall be voluntarily or involuntarily, by operation of law
or otherwise, assigned, transferred, mortgaged, pledged, hypothecated or
otherwise encumbered and neither the Subleased Premises, nor any part of the
Subleased Premises, nor any of Subtenant's property that is incorporated into,
affixed to or made a part of the Subleased Premises shall be encumbered or
sublet or used or occupied or utilized for desk space or mailing privileges by
anyone other than Subtenant, without Sublessor's and Prime Landlord's prior
written consent in each instance.
b) If Subtenant's interest in this Sublease is assigned in violation of
the provisions of this Section 12, such assignment shall be void and of no force
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<PAGE> 46
and effect; provided, however, that Sublessor may collect an amount equal to the
then Sublease Rent plus any other item of rental from the assignee as a fee for
its use and occupancy, and shall apply the net amount collected to the Sublease
Rent and other items of rental reserved in this Sublease. If the Subleased
Premises or any part thereof are sublet to, or occupied by, or used by, any
person other than Subtenant, whether or not in violation of this Section 12,
Sublessor, after any default by Subtenant under this Sublease, may collect any
item of rental or other sums paid by the sub-subtenant, user or occupant as a
fee for its use and occupancy, and shall apply the net amount collected to the
Sublease Rent and other items of rental reserved in this Sublease. No such
assignment, subletting, occupancy or use, whether with or without Sublessor's
prior consent, nor any such collection or application of rental or fee for use
and occupancy, shall be deemed a waiver by Sublessor of any term, covenant or
condition of this Sublease or the acceptance by Sublessor of such assignee,
sub-subtenant, occupant or user as a sub-subtenant hereunder. The consent by
Sub-
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<PAGE> 47
lessor to any assignment, subletting, occupancy or use shall not relieve
Subtenant from its obligation to obtain the express prior consent of Sublessor
to any further assignment, subletting, occupancy or use. Subtenant shall pay to
Sublessor a reasonable processing fee and the reasonable attorneys' fees and
disbursements incurred by Sublessor in connection with any proposed assignment
of Subtenant's interest in this Sublease or any proposed subletting of the
Subleased Premises or any part thereof. Neither any assignment of Subtenant's
interest in this Sublease nor any subletting, occupancy or use of the Subleased
Premises or any part thereof by any person other than Subtenant, nor any
collection of rental by Sublessor from any person other than Subtenant as
provided in this subsection (b), nor any application of any such rental as
provided in this subsection (b) shall, in any circumstances, relieve Subtenant
of its obligations under this Sublease on Subtenant's part to be observed and
performed, including Subtenant's liability for payment of Sublease Rent
hereunder, and Subtenant's liability hereunder shall continue notwithstanding
any subsequent modi-
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<PAGE> 48
fication or amendment hereof or the release of any subsequent sub-subtenant
hereunder form any liability, to all of which Subtenant hereby consents in
advance. Any person or entity to which this Sublease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Sublease on and after the
date of such assignment. Any such assignee shall execute and deliver to
Sublessor upon demand an instrument confirming such assumption.
c) Any consent by Sublessor that may hereafter be given to any act of
assignment, transfer, mortgage, pledge, encumbrance or subletting shall be held
to apply only to the specific transaction thereby approved. Such consent shall
not be construed as a waiver of the duty of Subtenant, or its successors or
assignees to obtain from Sublessor and Prime Landlord consent to any other
subsequent assignment, transfer, mortgage, pledge, encumbrance or subletting or
as a modification or limitation of the rights of Sublessor with respect to the
foregoing covenants by Subtenant.
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<PAGE> 49
d) If at any time Subtenant desires to sub-sublet a portion of the
Subleased Premises or assign this Sublease, Subtenant shall have the right so to
sub-sublet or assign, as the case may be, with the prior approval of Sublessor,
provided that (i) Prime Landlord shall have consented to such sub-subletting or
assignment, as the case may be, (ii) Subtenant shall comply with the terms and
provisions of the Prime Lease, and any additional terms and provisions which are
contained in any consent delivered by Prime Landlord to Subtenant and Sublessor
in connection with this Sublease and which are permitted by the Prime Lease to
be contained in any such consent delivered by Prime Landlord, (iii) Subtenant
shall submit to Sublessor the name and address of the proposed sub-subtenant or
assignee, as the case may be, its proposed use of the Subleased Premises, a
reasonably detailed description of such proposed sub-subtenant's or assignee's
business and any other information about such proposed sub-subtenant or assignee
reasonably requested by Sublessor, and (iv) Subtenant shall have complied with
the provisions of this Section 12 as follows:
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B. The subletting or assignment, as the case may be, shall be an
arms-length transaction with an unrelated third party;
C. The proposed sub-subtenant or assignee, as the case may be, shall not
be entitled, directly or indirectly, to diplomatic or sovereign immunity, and
any such proposed sub-subtenant or assignee shall be subject to the service of
process in, and the jurisdiction of the courts of, New York State;
D. The proposed occupancy shall not impose a material extra burden upon
the Building equipment or Building services;
E. In the case of a sub-sublease:
(1) The subletting shall be for a term ending not later than
one day prior to the Expiration Date;
(2) The proposed sub-sublease shall prohibit any subletting
without Prime Landlord's and Sublessor's consent;
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<PAGE> 51
(3) The proposed sub-sublease shall be expressly subject and
subordinate to all of the terms of the Prime Lease and this Sublease;
(4) The proposed subletting shall be for use and occupancy as
permitted under the Prime Lease;
(5) No space shall be publicly advertised for subletting at a
rental rate less than the rate then being asked by Prime Landlord or
Sublessor for similar space in the Building, but nothing herein
contained shall be deemed to prohibit Subtenant from listing the space
with brokers or negotiating or consummating a sublease at a lesser rate
of rent; and
(6) At no time shall there be more than three (3) entities,
including Subtenant, occupying the Subleased Premises.
(f) Subtenant shall reimburse Sublessor and Prime Landlord on demand
for any reasonable costs that may be incurred by Sublessor and any costs
whatsoever that may be incurred by Prime Landlord in connection with
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<PAGE> 52
any such sub-subletting or assignment, as the case may be, including, without
limitation, the costs of making investigation to determine compliance with the
provisions of this Section 12. Provided Subtenant complies with all of the terms
and provisions of this Section 12, Sublessor shall not unreasonably withhold or
delay its consent to a proposed sub-subletting or assignment by Subtenant.
(g) Subject to complying with the terms of the Prime Lease, and
obtaining the consent of the Prime Landlord, if required, Subtenant may assign
this Sublease or sublet all as a portion of the Subleased Premises (a) to a
corporation into or with which Subtenant is merged or consolidated or with an
entity to which substantially all of Subtenant's assets are transferred, (b) if
Subtenant is a partnership with a successor partnership, or (c) with an entity
which controls or is controlled by Subtenant or is under common control with
Subtenant. For purposes of this Section 12 "controls" shall be deemed to mean
(i) direct ownership of 51% or more of the voting stock of a corporation or 51%
or more of the legal and equitable interest of any other business entity and (b)
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the right and power to direct or cause the direction of the management and
policies of such entity.
(h) Subject to the provisions of Section 9.10 of the Prime Lease, if
Subtenant shall sub-sublet all or any portion of the Subleased Premises, or
assign this Sublease, in accordance with this Sublease, and the rents or other
consideration received by Subtenant under a sub-sublease or assignment shall
exceed the rents reserved hereunder that are allocable to the premises
sub-sublet, the excess shall be applied by Subtenant to reasonable brokerage
commissions, reasonable advertising fees, reasonable legal fees and the costs of
any improvements incurred by Subtenant directly in connection with and allocable
to the sub-subletting, and fifty (50%) percent of the balance of such excess
shall be paid by Subtenant to Sublessor as and when received.
(i) Notwithstanding anything contained in this Section 12 to the
contrary, in connection with the leasing of office furnishings and equipment
only, Subtenant shall be permitted to grant permission under any such lease
agreements whereby the lessors thereunder may enter
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<PAGE> 54
upon or into the Subleased Premises in order to exercise any remedies such
parties may have under such lease agreements which require access to such
furniture or equipment. Furthermore, nothing contained herein shall prevent
Subtenant from pledging its interest hereunder as security for the purchase by
Subtenant of any office furnishings or equipment to be used in the Subtenant's
business conducted at the Subleased Premises.
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<PAGE> 55
Services. Subtenant acknowledges that Sublessor will not, and shall not
be required to, furnish Subtenant any facilities or services of any kind
whatsoever, including, but not limited to, elevator service, cleaning, window
cleaning, hot or cold water, heat, ventilation, air conditioning, etc., and
Subtenant shall look solely to Prime Landlord for the furnishing of such
services provided to be furnished to the Subleased Premises pursuant to the
Prime Lease.
a) Except as provided below, Sublessor shall not be liable in any way to
Subtenant for any failure, inadequacy or defect in the character or supply of
any facility or service to the Subleased Premises.
b) Subtenant shall be entitled to the services and repairs which the Prime
Landlord is and may be obligated to furnish or make to or in the Subleased
Premises pursuant to the terms of the Prime Lease. Sublessor shall in no event
be liable to Subtenant nor should the obligations of Subtenant hereunder be
impaired or the performance thereof excused because of any failure or delay on
the Prime Landlord's part in furnishing such ser-
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<PAGE> 56
vices or in making such repairs unless such failure or delay results from
Sublessor's being in default under the Prime Lease or from Sublessor's willful
misconduct or gross negligence. If the Prime Landlord shall default in any of
its obligations to Sublessor with respect to the Subleased Premises, Subtenant
shall be entitled to participate with Sublessor in the enforcement of
Sublessor's rights against the Prime Landlord, but Sublessor shall not be
obligated to bring any action or proceeding or to take any steps to enforce
Sublessor's rights against Prime Landlord except that Sublessor agrees, upon
notice from Subtenant, to make demand upon Prime Landlord to perform its
obligations under the Prime Lease with respect to the Subleased Premises.
c) If Prime Landlord shall be entitled to any payment or remuneration by
reason of additional services provided at the request of Subtenant or for any
other reason specified in the Prime Lease resulting from acts or omissions of
Subtenant, Subtenant shall pay the same promptly upon demand as additional rent
hereunder.
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d) Sublessor shall, prior to the Commencement Date, and at the sole cost
and expense of Subtenant, (i) provide Subtenant with at least twenty (20)
directory listings on the directory in the lobby of the Building and (ii) secure
signage rights on the floor on which the Subleased Premises are located in
accordance with the Building's Rules and Regulations and the terms of the Prime
Lease.
e) Electricity. Subtenant shall at all times comply with the rules,
regulations, terms and conditions applicable to service, equipment, wiring and
requirements of the public utility supplying electricity to the Building.
Subtenant shall not use any electrical equipment or accessories in the Subleased
Premises other than for normal office use without the prior written consent of
Sublessor, which consent shall not be unreasonably withheld, delayed, or
conditioned.
f) Subtenant agrees to purchase from Sublessor all electricity consumed,
used or to be used in the Subleased Premises on a submetered basis. The amount
of electricity consumed at the Subleased Premises shall be
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determined by meter or meters or related equipment installed by Sublessor at
Sublessor's expense.
g) After the Commencement Date, Sublessor shall, from time to time,
furnish Subtenant with a statement indicating the appropriate period during
which the Usage (as defined in the Prime Lease; provided, however, that the
phrase "Subleased Premises" shall be substituted for the phase "Demised
Premises" as used in the definition of Usage in the Prime Lease) was measured,
the Average Kilowatt Hour Cost (as defined in the Prime Lease), during such
period, and the amount of Tenant's Costs (as defined in the Prime Lease) payable
by Subtenant to Sublessor for furnishing electrical current during such period.
Such statement shall be accompanied by a copy of the Prime Landlord's invoices
delivered pursuant to Section 16.05 of the Prime Lease for the applicable
billing period. Within fifteen (15) days after receipt of each such statements,
Subtenant shall pay the amount of Tenant's Costs set forth thereon to Sublessor
as additional rent.
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h) Damage; Destruction. If the Subleased Premises shall be damaged by fire
or other casualty or be condemned or taken in any manner for a public or
quasi-public use, Subtenant agrees that it shall be the obligation of the Prime
Landlord, and not of the Sublessor to repair, restore or rebuild the Subleased
Premises, to the condition which exists on the date hereof.
i) If the entire Subleased Premises shall be rendered untenantable by
reason of any such damage, the Subleased Rent and any additional rent shall
abate for the period from the date of such damage to the date when such damage
shall have been repaired, and if only a part of the Subleased Premises shall be
so rendered untenantable, the Subleased Rent and any additional rent shall abate
for such period in the proportion in which the area of the part of the Subleased
Premises so rendered untenantable bears to the total area of the Subleased
Premises. However, if, prior to the date when all of such damage shall have been
repaired, any part of the Subleased Premises so damaged shall be rendered
tenantable and shall be used or occupied by Subtenant or any
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<PAGE> 60
person or persons claiming through or under Subtenant, then the amount by which
the Subleased Rent and any additional rent shall abate shall be equitably
apportioned for the period from the date of any such use or occupancy to the
date when all such damage shall have been repaired. Subtenant hereby expressly
waives the provisions of Section 227 of the New York Real Property Law, and of
any successor law of like import then in force, and Subtenant agrees that the
provisions of this Article shall govern and control in lieu hereof.
j) If the Prime Lease shall be terminated by either party thereto pursuant
to Section 22.03 thereof, this Sublease shall terminate on and as of the same
date, without any liability of either party to the other on account thereof.
k) If the Prime Lease shall terminate or be terminated (by either party
thereto) pursuant to Section 23.01 or 23.02 thereof, this Sublease shall
terminate on and as of the same date, without liability of either party to the
other on account thereof.
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<PAGE> 61
l) If any part of the Building shall be lawfully taken by condemnation or
in any other manner for any public or quasi-public use or purpose and this
Sublease shall not terminate pursuant to subsection 15(c), then
m) (1) this Sublease shall continue in full force and effect except as
provided below, and
n) (2) (A) if all of the Subleased Premises shall be so taken, then, on
the date of such taking, this Sublease shall terminate, without liability of
either party to the other on account thereof, and (B) if any part, but not all,
of the Subleased Premises shall be so taken then (i) on the date of such taking,
this Sublease shall terminate as to such part of the Subleased Premises, without
liability of either party with respect to such part on account thereof, and (ii)
from and after such date, the rents hereunder shall be reduced pro-rata
according to the rentable area of such part of the Subleased Premises.
o) In no event shall Subtenant be entitled to any portion of any award in
any proceeding with respect to any taking and Subtenant hereby assigns to
Sub-
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lessor any such portion or interest which it may have by operation of law;
provided, however, that Subtenant shall have the same rights as Sublessor under
Section 23.04 of the Prime Lease.
p) In case of any termination of this Sublease (in whole or in part)
pursuant to this Section 15, rents shall be adjusted as of the date of
termination, and any prepaid rents shall be refunded.
q) Insurance. Subtenant understands that Sublessor will not carry
insurance of any kind on Subtenant's goods, furniture or furnishings or on any
fixtures, equipment, improvements, installations or appurtenances removable by
Subtenant and that neither Prime Landlord nor Sublessor shall not be obligated
to repair any damage thereto or replace same.
r) Subtenant shall maintain comprehensive general public liability
insurance in respect of the Subleased Premises and the conduct and operation of
business therein, with Sublessor and the Prime Landlord as additional insureds,
in amounts reasonably acceptable to Sublessor and Prime Landlord (but not in
excess of
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<PAGE> 63
$5,000,000)(the "Insurance"). Subtenant shall deliver to Sublessor a certificate
of insurance prior to the Commencement Date. Subtenant shall procure and pay for
renewals of the Insurance prior to expiration and Subtenant shall use its best
efforts to deliver to Sublessor and the Prime Landlord such renewal policy or
certificate of insurance at least thirty (30) days prior to the expiration of
any existing policy and in no event longer than ten (10) days after the
expiration of any existing policy. All such policies shall be issued by
companies of recognized responsibility licensed to do business in the State of
New York, and all such policies shall contain a provision whereby the same
cannot be cancelled unless Sublessor and the Prime Landlord are given at least
thirty (30) days' prior written notice of such cancellation.
s) Surrender of Subleased Premises. Upon the expiration or other
termination of the term, Subtenant shall (i) quit and surrender to Sublessor the
Subleased Premises, broom clean, in good order and condition, ordinary wear and
tear and damage by casualty ex-
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cepted, and (ii) remove all of its property as herein provided, and all
Improvements (excluding any Subtenant Work) installed on or after the date
hereof by, or on behalf of, Subtenant which, pursuant to the terms of the Prime
Lease Sublessor and/or Subtenant are required to remove. Subtenant's obligation
to observe or perform this covenant shall survive the termination of this
Sublease.
t) If Subtenant shall fail to duly and timely surrender the Subleased
Premises in accordance with the terms and conditions of this Sublease and the
Prime Lease, either at the expiration of the term of this Sublease, upon the
occurrence of a default which continues beyond the expiration of applicable
grace or cure periods, or upon the occurrence of any other event causing the
termination of this Sublease (a "Holdover"), in addition to all of the rights
and remedies available to Sublessor under this Sublease and the Prime Lease, in
equity or in law, it is understood that Sublessor may elect, by notice to
Subtenant, to treat Subtenant as a holdover upon a month-to-month basis at a
rent equal to the great-
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er of (i) the then current fair market rental value of the Subleased Premises,
or (ii) one and one-half times the Sublease Rent and additional rent per month
which Subtenant was required to pay during (or in the case of additional rent,
on account of or attributable to) the calendar month immediately prior to
termination. If the Subleased Premises are not surrendered upon termination,
then Subtenant shall indemnify and hold harmless Sublessor against any actual
loss, costs, liability or expenses (including attorneys fees) resulting from the
failure to surrender, including any and all claims made by Prime Landlord or any
succeeding lessee or subtenant founded upon such delay or failure to vacate the
Subleased Premises. Nothing contained in this subsection (b) shall be deemed to
give to Subtenant any right to fail to surrender possession or to hold over, and
the provisions of this subsection (b) shall not constitute an offer to rent on a
month-to-month basis or at the rent set forth above.
(i) Notices. Any notice, statement, demand, consent, approval, advice or
other communication required or permitted to be given, rendered or made by
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<PAGE> 66
either party to the other, pursuant to this Sublease or pursuant to any
applicable law or requirement of public authority (collectively, "Notice") shall
be in writing and shall be deemed to have been properly given, rendered or made
only if sent by personal delivery (or recognized overnight courier), receipted
by the party to whom addressed, or by registered or certified mail, return
receipt requested, posted in a United States post office station or depositary
in the continental United States, addressed to Subtenant prior to the
Commencement Date at its address first above written, and thereafter, at 150
Clove Road, 10th Floor, Little Falls, New Jersey, Attention: General Counsel,
and a copy thereof shall be sent to Scarinci & Hollenback, 500 Plaza Drive,
Secaucus, New Jersey, Attention: Victor E. Kinon, or to Sublessor, c/o
Insignia/Edward S. Gordon Company, Inc., 200 Park Avenue, New York, New York
10166, Attention: Mitchell Rudin and Roger Kahn, and a copy thereof shall be
sent to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022, Attention: Richard R. Kalikow.
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<PAGE> 67
(ii) Either party may, by Notice actually received, designate (i) a
different address in the United States for Notices intended for it, and (ii)
require the other party to provide a copy of any Notices to any other person at
any other address in the United States.
2. Termination of Prime Lease. If for any reason the term of the Prime
Lease is terminated prior to the Expiration Date of this Sublease, this Sublease
shall thereupon be terminated and Sublessor shall not be liable to Subtenant by
reason thereof unless such termination is due to a breach by Sublessor of its
obligations under the Prime Lease or this Sublease, or by affirmative act or
agreement between Sublessor and Prime Landlord in which event Sublessor shall be
fully liable to Subtenant for all actual damages occasioned to Subtenant by such
cancellation.
3. Brokerage. Subtenant and Sublessor represent to each other that they
have dealt with no broker in connection with this Sublease other than CB
Commercial Real Estate Group, Inc. and Insignia/Edward S. Gordon Company, Inc.
(collectively, the "Brokers") and that no
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<PAGE> 68
broker brought about or was involved in the negotiation of this Sublease other
than Brokers. Subtenant and Sublessor shall indemnify and hold each other
harmless from and against all losses, costs, damages, expenses and liabilities
including, without limitation, reasonable attorneys' fees, resulting from any
claims that may be made for a commission, fee or other compensation by reason of
this Sublease by any broker or person with whom Subtenant or Sublessor has dealt
in connection herewith other than the Brokers.
4. Consent of Sublessor. In any instance when Sublessor's consent or
approval is required under this Sublease, Sublessor's refusal to consent or to
approve any matter or thing shall be deemed reasonable, if such consent or
approval has not been obtained from Prime Landlord after Sublessor has used its
best efforts to obtain such approval.
a) Security. Subtenant shall deposit with Sublessor on the signing of this
Sublease, an irrevocable letter of credit (such letter of credit and any renewal
thereof is hereinafter referred to as, the "Letter of
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<PAGE> 69
Credit"), in form and substance reasonably acceptable to Sublessor and from a
New York clearing-house bank or such other bank reasonably acceptable to
Sublessor, which Letter of Credit shall be in the amount of Six Hundred Twenty
Eight Thousand One Hundred Ninety Seven and 50/100 ($628,197.50) Dollars payable
in the City of New York at the demand of Sublessor solely upon presentation of a
sight draft accompanied by a statement executed by an officer or authorized
representative of Sublessor certifying under oath that a default under this
Sublease has occurred and is continuing. Subtenant agrees to deposit with
Sublessor, each year during the term of this Sublease, a renewal of the Letter
of Credit at least thirty (30) days prior to the expiration of the outstanding
Letter of Credit. Provided no default shall have occurred and be continuing, on
the second anniversary of the Rent Commencement Date, the amount of the Letter
of Credit shall be reduced to $418,798.34. Provided no default shall have
occurred and be continuing on the fourth anniversary of the Rent Commencement
Date, the amount of the Letter of Credit shall be reduced to $314,098.76 (the
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<PAGE> 70
amount required to be posted at any time during the Term being hereinafter
referred to as the "Required Amount").
b) Tenant agrees that if any default shall have occurred and after notice
by Sublessor, is not cured within the applicable grace period provided in this
Sublease, or Subtenant fails to renew the outstanding Letter of Credit prior to
the thirty (30) day period as provided in the preceding sentence, Sublessor may
draw the entire proceeds of the Letter of Credit and apply the whole or any part
of such proceeds to the extent required for the payment of any Sublease Rent or
any other item of additional rent as to which Subtenant is in default or for any
sum which Sublessor may expend or may be required to expend by reason of
Subtenant's default in respect of any of the terms, covenants and conditions of
this Sublease, including, but not limited to, any damages or deficiency in the
reletting of the Subleased Premises, whether such damages or deficiency accrue
or accrues before or after summary proceedings or other reentry by Sublessor.
Sublessor may retain any of the proceeds drawn under the Letter of Credit and
not applied as hereinabove provided
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as continued security for the faithful performance by Subtenant of the terms,
covenants and conditions of this Sublease. Notwithstanding anything in this
subparagraph (b) to the contrary, in the event that a default giving rise to
Sublessor's rights under this subparagraph (b) is of a non-monetary nature,
Sublessor shall only be permitted to draw proceeds under the Letter of Credit up
to an amount as is necessary to cure such non-monetary default.
c) In the event that Subtenant shall fully and faithfully comply with all
of the terms, provisions, covenants and conditions of this Sublease, Sublessor
shall execute and deliver to Subtenant a written consent to the cancellation of
the Letter of Credit and shall return the outstanding Letter of Credit to
Subtenant within five (5) days after the Expiration Date and after the delivery
of the entire Subleased Premises to Sublessor. In the event of a sale,
conveyance or transfer of Sublessor's interest in this Sublease, and provided
that the vendee, transferee, or lessee agrees in writing (a copy of which shall
be delivered to Subtenant) to be bound by the provisions of this Sublease,
Sublessor shall have the
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right to transfer the Letter of Credit to the vendee, transferee or lessee and
upon such actual transfer Sublessor shall thereupon be released by Subtenant
from all liability for the return of such Letter of Credit and Subtenant agrees
to look solely to the new sublessor for the return of said Letter of Credit. It
is agreed that the provisions hereof shall apply to every transfer or assignment
made of the Letter of Credit to a new sublessor. Subtenant further covenants
that it will not assign or encumber or attempt to assign or encumber the Letter
of Credit and that neither Sublessor nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
d) If Sublessor applies or retains any part of the proceeds of the Letter
of Credit, Subtenant shall not be deemed to have cured the default which gave
rise to the application or retention of any part of the proceeds of the Letter
of Credit unless Subtenant shall have deposited with Sublessor, within ten (10)
days after demand therefor, the amount so applied or retained, so that
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Sublessor shall have the Required Amount on deposit at all times during the
Term.
e) Whenever Sublessor draws down on the entire Letter of Credit as a
result of Subtenant's failure to timely deposit a new letter of credit or a
replacement letter of credit as required pursuant to Section 22(a) above,
Sublessor agrees that it shall hold the proceeds thereof in excess of the
portion applied by Sublessor as a result of any applicable default by Subtenant,
as the security hereunder (in which case such cash shall constitute trust funds
and Sublessor shall deposit such trust funds into an interest bearing account).
Notwithstanding the terms of the preceding sentence, if Subtenant shall at any
time thereafter deliver a new letter of credit in the Required Amount, then
Sublessor shall promptly refund to Subtenant such cash as have not been applied
by Sublessor pursuant to the terms of this Sublease, together with all interest
earned thereon, less a one (1%) percent administrative fee.
f) Subtenant may, at its option, and at any time during the term of this
Sublease, substitute cash in
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the Required Amount, deposited in an interest bearing account, for the Letter of
Credit.
5. Sublessor's Obligations. Subject to the provisions of Section 5(e)
hereof:
6. (a) Sublessor agrees, with respect to the Subleased Premises during the
term of this Sublease, to perform and comply with the terms, provisions,
covenants and conditions of the Prime Lease and not to act or suffer or permit
anything to be done which would result in a default under the Prime Lease or
cause the Prime Lease to be terminated or forfeited.
7. (b) Sublessor agrees to cooperate with Subtenant in obtaining the
consent of the Prime Landlord where any such consent is required by this
Sublease, and will act reasonably with respect to any consent requested by
Subtenant in connection with this Sublease, provided, however, that Subtenant
shall pay Sublessor the costs of obtaining such consent charged to Sublessor by
Prime Landlord as well as such other reasonable costs of obtaining such consent
(including, without limitation, reasonable attorneys' fees).
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(1) Partnership Subtenant. If Subtenant is a partnership or if Subtenant's
interest in this Sublease shall be assigned to a partnership pursuant to Section
12 hereof (any such partnership is referred to in this Section 24 as the
"Partnership Subtenant"), the following provisions shall apply to such
Partnership Subtenant: the liability of each of the general partners comprising
Partnership Subtenant shall be joint and several; each of the general partners
comprising Partnership Subtenant hereby consents in advance to, and agrees to be
bound by (x) any written instrument which may hereafter be executed by
Partnership Subtenant or any successor partnership, changing, modifying,
extending or discharging this Sublease, in whole or in part, or surrendering all
or any part of the Subleased Premises to Sublessor, and (y) any notices,
demands, requests or other communications which may hereafter be given by
Partnership Subtenant; any bills, statements, notices, demands, requests or
other communications given or rendered to Partnership Subtenant or to any of
such general partners shall be binding upon Partnership Subtenant and all such
general partners; if
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Partnership Subtenant shall admit new general partners, all of such new general
partners shall, by their admission to Partnership Subtenant, be deemed to have
assumed joint and several liability for the performance of all of the terms,
covenants and conditions of this Sublease on Subtenant's part to be observed and
performed; and Partnership Subtenant shall give prompt notice to Sublessor of
the admission of any such new general partners, and upon demand of Sublessor,
shall cause such new general partners to execute and deliver to Sublessor an
agreement in form reasonably satisfactory to Sublessor, wherein each such new
general partner shall assume joint and several liability for the performance of
all the terms, covenants and conditions of this Lease on Subtenant's part to be
observed and performed.
8. Condition Precedent. (a) This Sublease is conditioned upon (the
"Condition Precedent") the delivery to Subtenant of a Subtenant's
Non-Disturbance Agreement (as defined in the Prime Lease) from Prime Landlord
pursuant to Section 9.12 of the Prime Lease, a request for which Sublessor shall
transmit to Prime Land-
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lord within five (5) days of the date hereof with a copy of such request sent to
Subtenant. In connection with the delivery of Subtenant's Non-Disturbance
Agreement, Subtenant agrees that in connection with any direct lease to be
entered into between Subtenant and Prime Landlord, the Sublease Rent and
additional rent payable hereunder shall be modified to comply with the
provisions of Section 9.12(2)(d) of the Prime Lease. If the Condition Precedent
is not satisfied within forty five (45) days from the date hereof, Subtenant may
deliver a notice ("Termination Notice") to Sublessor electing to terminate this
Sublease, and in the event the Condition Precedent is not satisfied within five
(5) days after the delivery of a Termination Notice, this Sublease shall be
deemed null and void and of no force or effect. If the Condition Precedent is
not satisfied within ninety (90) days from the date hereof, Sublessor may
deliver a Termination Notice to Subtenant electing to terminate this Sublease,
and in the event Subtenant does not waive the Condition Precedent within five
(5) days of the delivery of a Ter-
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mination Notice by Sublessor, this Sublease shall be deemed null and void and of
no force or effect.
9. Applicable Law. This Sublease and all of its terms and provisions shall
be construed in accordance with the laws of the State of New York.
10. Renewal Term. (a) Provided that (i) this Sublease shall not have been
previously terminated, and (ii) no default shall have occurred and be continuing
hereunder on (x) the date Subtenant gives Sublessor written notice (the "Renewal
Notice") of Subtenant's election to exercise the Renewal Option (as hereinafter
defined), and (y) the Expiration Date, Subtenant shall have the option (the
"Renewal Option") to extend the Term of this Sublease for one (1) additional
period of approximately five (5) years (the "Renewal Term"), which Renewal Term
shall commence on the date immediately succeeding the Expiration Date and end on
December 31, 2012 (in which case, such date shall be deemed the Expiration
Date). The Renewal Option may be exercised with respect to the entire Subleased
Premises only and shall be exercisable by Subtenant delivering the Renewal
Notice to Sublessor
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on or before the date which is six (6) months prior to the Expiration Date (the
"Renewal Notice Date"). Time is of the essence with respect to the giving of the
Renewal Notice on or before the Renewal Notice Date, and in the event Subtenant
does not deliver the Renewal Notice to Subtenant on or before the Renewal Notice
Date, this Section 27 shall be void and of no force or effect. Upon the giving
of the Renewal Notice, Subtenant shall have no further right or option to extend
or renew the term of this Sublease.
11. (b) If Subtenant exercises the Renewal Option, the Renewal Term shall
be upon the same terms, covenants and conditions as those contained in this
Sublease, except that (i) the annual Sublease Rent payable pursuant to Section 4
hereof shall be equal to the greater of (x) the then-escalated Sublease Rent in
effect as of the expiration of the original term hereof or (y) the Fair Market
Rent as determined pursuant to Section 28 hereof, (ii) the Operating Expense
Base for the Renewal Term shall be deemed to be the actual Operating Expenses
for the twelve month period following the first day of
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the Renewal Term, (iii) the Base Tax Year for the Renewal Term shall be deemed
to be the real estate tax fiscal year in which the first day of the Renewal Term
falls, and (iv) the provisions of subsection (a) of this Section 27 relative to
Subtenant's right to renew the Term of this Sublease shall not be applicable
during the Renewal Term.
12. Determination of Fair Market Rent. (a) For purposes of this Sublease,
the term "Fair Market Rent" shall mean the fair market value of the Subleased
Premises determined as if the Subleased Premises were available in the then
rental market for comparable first class buildings in midtown Manhattan located
south of the north side of 42nd Street and assuming that Sublessor has had a
reasonable time to locate a subtenant who rents with the knowledge of the uses
to which the Subleased Premises can be adapted, and that neither Sublessor nor
the prospective subtenant is under any compulsion to rent.
13. In determining Fair Market Rent, the appraisers shall take into account
all appropriate factors,
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including, but not limited to the fact that the Subtenant shall not be entitled
to any credit against the Sublease Rent or work allowance, if such credits or
work allowances are customary in the marketplace at the time of the
determination of Fair Market Rent.
14. For purposes of determining the Fair Market Rent, the following
procedure shall apply:
(1) Upon delivery of the Renewal Notice, Sublessor and Subtenant shall
enter into negotiations to determine the Fair Market Rent.
(2) If Sublessor and Subtenant shall not have agreed on the Fair Market
Rent on or before June 30, 2007, then Sublessor shall appoint an independent
real estate appraiser ("Sublessor's Appraiser") and Subtenant shall appoint an
independent real estate appraiser ("Subtenant's Appraiser"). If Sublessor's
Appraiser and Subtenant's Appraiser shall be unable to reach a mutual
determination of the Fair Market Rent within a ninety (90) day period, both of
the Appraisers shall jointly select a third independent real estate appraiser
("Third Appraiser") whose fee shall be borne equally by Sublessor
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<PAGE> 82
and Subtenant. In the event that Sublessor's Appraiser and Subtenant's Appraiser
shall be unable to jointly agree on the designation of the Third Appraiser
within five (5) days after they are requested to do so by either party, then the
parties agree to allow the American Arbitration Association or any successor
organization to designate the Third Appraiser in accordance with the rules,
regulations and/or procedures then obtaining of the American Arbitration
Association or any successor organization.
(3) The Third Appraiser shall conduct such hearings and investigations as
he may deem appropriate and shall, within ninety (90) days after the date of
designation of the Third Appraiser, choose either Sublessor's Appraiser's or
Subtenant's Appraiser's determination, and such choice by the Third Appraiser
shall be conclusive and binding upon Sublessor and Subtenant. Each party shall
pay its own counsel fees and expenses, if any, in connection with any
arbitration under this Section, including the expenses and fees of any Appraiser
selected by it in accordance with the provisions of this
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Section. Any Appraiser appointed pursuant to this Section shall be an
independent real estate appraiser with at least ten (10) years' experience in
leasing and valuation of properties which are similar in character to the
Building, and a member of the American Institute of Appraisers or the National
Association of Real Estate Appraisers. The Appraisers shall not have the power
to add to, modify or change any of the provisions of this Sublease.
(4) (c) After a determination has been made of the Fair Market Rent, the
parties shall execute and deliver to each other an instrument setting forth the
Fair Market Rent hereinabove determined.
(5) (d) If, for any reason whatsoever, the Fair Market Rent shall not have
been determined pursuant hereto by the commencement of the Renewal Term, then
Subtenant shall pay to Sublessor in monthly installments until such
determination, on account of the Sublease Rent, an amount equal to the monthly
installment of Sublease Rent payable on December 1, 2007. Following a final
determination of Fair Market Rent, a reconciliation shall
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be made as follows: (i) if the monthly installments of Sublease Rent determined
pursuant hereto are less than the amounts Subtenant had paid on account thereof,
Subtenant shall be entitled to a credit against the next monthly installments of
Sublease Rent in the amount of such overpayment of Sublease Rent, and (ii) if
the monthly installments of Sublease Rent determined pursuant hereto are more
than the amounts Subtenant had paid on account thereof, Subtenant shall pay to
Sublessor within thirty (30) days of such final determination the amount of any
underpayment of Sublease Rent due.
15. Expansion Option. (a) Sublessor represents that a portion of the ninth
floor of the Building (the "Kodak Space") is currently subleased by Sublessor to
Eastman Kodak Company ("Kodak") and that the entire eleventh floor of the
Building (the "Danka Space") (the Danka Space and the Kodak Space are
hereinafter referred to as the "K/D Space") is subleased by Sublessor to Kodak
pursuant to a sublease which was assigned by Kodak to Danka Business Systems PLC
("Danka"). The term of the
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subleases for both the Kodak Space and the Danka Space expires on August 30,
1999.
16. (b) Sublessor agrees that, provided no default shall have occurred and
be continuing after applicable notice and grace periods, if any, hereunder
during the period from February 1, 1999 through August 1, 1999, and provided
further that on February 1, 1999 the portion of the K/D Space which is not
otherwise subleased to Kodak, Danka, or their respective affiliates, for a term
expiring after August 30, 1999 consists of either (i) the entire Kodak Space or
(ii) in excess of 15,000 square feet of the Danka Space (the "Expansion
Condition"), Subtenant shall have a one-time option to sublease from Sublessor
the Kodak Space, in the event no portion of the Kodak Space is subleased to
Kodak, Danka, or their respective affiliates, or in the event the Kodak Space is
subleased to Kodak, Danka, or their respective affiliates, such portion of the
Danka Space as is not subleased to Kodak, Danka or their respective affiliates,
but not in excess of 20,000 square feet of the Danka Space, for the balance of
the remaining term of this Sub-
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lease, and any renewal term, subject to the provisions hereinafter set forth.
Anything to the contrary herein notwithstanding, Sublessor shall have the
absolute right to sublease all or any portion of the K/D Space to Kodak, Danka,
or any of their affiliates for a term which expires after August 30, 1999.
17. (c) Provided that the Expansion Condition occurs, Sublessor shall, on
or before March 1, 1999, send Subtenant written notice (the "Availability
Notice") of the availability for subleasing by Subtenant a portion of either the
Kodak Space, or the portion of the Danka Space (not to exceed 20,000 square
feet) which is not subleased to Kodak, Danka or their respective affiliates (the
"Expansion Space"). Subtenant shall have a period of thirty (30) days, time
being of the essence, from the date of Subtenant's receipt of the Availability
Notice to deliver a written notice (the "Acceptance Notice") electing to
sublease the Expansion Space from Sublessor for the balance of the term of this
Sublease and any renewal term. In the event Subtenant does not deliver the
Acceptance Notice within thirty (30) days following its receipt of
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the Availability Notice, the provisions of this Section 29 shall be null and
void and of no further force and effect.
18. (d) In the event Subtenant shall deliver the Acceptance Notice to
Sublessor, the Expansion Space shall be added to the Subleased Premises on the
later of September 1, 1999, or the date that the Expansion Space shall cease to
be occupied, and Subtenant shall occupy the Expansion Space in accordance with
all of the terms and conditions of this Sublease subject to the following:
19. (i) The Sublease Rent to be paid by Subtenant for the Expansion Space
shall be the greater of (x) the escalated Sublease Rent being paid by Subtenant
as of September 1, 1999, multiplied by the number of square feet in the
Expansion Space, or (y) 95% of the fair market value of the Expansion Space
determined in accordance with the provisions of Section 28 hereof.
20. (ii) Subtenant's Proportionate Share shall be increased by the
percentage which is the equivalent of a fraction, the numerator of which is the
number
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of square feet in the Expansion Space, and the denominator of which is 837,297.
21. (iii) The Expansion Space shall be delivered to the Subtenant "as is"
and Sublessor shall have no obligation to perform any work to prepare the
Expansion Space for Sublessor's occupancy.
22. In the event that the occupant of the Expansion Space shall hold over
in possession of its occupancy beyond August 30, 1999, Sublessor, at its sole
cost and expense, shall commence, and diligently prosecute, appropriate holdover
proceedings to acquire possession of the Expansion Space.
23. Upon the request of either party, Subtenant and Sublessor shall execute
and deliver an amendment to this Sublease setting forth the terms and conditions
under which Subtenant shall occupy the Expansion Space; provided, however, the
failure of the parties to execute such an amendment shall not affect the
provisions of this Section 29.
24. Covenant of Quiet Enjoyment. So long as Subtenant pays all of the
Sublease Rent and additional
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rent payable hereunder and performs all of Subtenant's other obligations
hereunder, Subtenant shall peaceably and quietly have, hold and enjoy the
Subleased Premises subject, nevertheless, to the obligations of this Sublease
and to the Prime Lease, and the leases, mortgages and other rights and
encumbrances referred to in Section 5(a) hereof.
a) Miscellaneous. This Sublease is subject and subordinate to the Prime
Lease and to the matters to which the Prime Lease is or shall be subordinate.
b) Nothing contained in this Sublease shall be construed to create privity
of estate or of contract between Subtenant and the Prime Landlord.
c) The provisions of this Sublease shall extend to, bind and inure to the
benefit of the parties hereto and their respective personal representatives,
heirs, successors and assigns, but the provisions of this paragraph shall not be
construed as a consent by Sublessor to any assignment or subletting by
Subtenant.
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d) This Sublease contains the entire agreement between the parties and all
prior negotiations and agreements are merged in this Sublease. Any agreement
hereafter made shall be ineffective to change, modify or discharge this Sublease
in whole or in part unless such agreement is in writing and signed by the
parties hereto. No provision of this Sublease shall be deemed to have been
waived by Sublessor or Subtenant unless such waiver be in writing and signed by
Sublessor or Subtenant, as the case may be. The covenants and agreement
contained in this Sublease shall bind and inure to the benefit of Sublessor and
Subtenant and their respective permitted successors and assigns.
e) In the event that any provision of this Sublease shall be held to be
invalid or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions of this Sublease shall be unaffected
thereby.
f) Capitalized terms used herein shall have the same meanings as are
ascribed to them in the Prime Lease, unless otherwise expressly defined herein.
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25. Consent of Prime Landlord. Sublessor hereby represents and warrants to
Subtenant that in accordance with the terms of the Prime Lease, the consent of
Prime Landlord to this Sublease is not required.
26. No Offer. Until executed by Sublessor, the within Sublease shall be of
no force or effect, and submission of a copy or copies thereof to Subtenant
shall not be deemed to constitute an offer to sublease, and the return thereof
may be requested by Sublessor at any time.
27. Binding Effect. This Sublease shall inure to the benefit of, and shall
be binding upon, the parties hereto and their respective successors and assigns.
28. Amendments in Writing. This Sublease may not be modified except in
writing signed by all parties hereto.
29. Further Assurances. Each party hereby agrees that upon the reasonable
request of the other party, it will, from time to time, execute and deliver to
the other party all such instruments and docu-
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ments of further assurances or otherwise, and will do any and all acts and
things reasonably required to carry out its obligations hereunder and to
consummate the transactions contemplated hereby and the purpose and intent
hereof.
30. Governing Law. This Sublease shall be governed by and construed in
accordance with the laws of the State of New York.
31.
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IN WITNESS WHEREOF, Sublessor and Subtenant have respectively executed
this Sublease as of the day and year first above written.
SUBLESSOR:
STERLING WINTHROP INC.
By: SMITHKLINE BEECHAM PLC,
Authorized Representative
By:_____________________________________
Name:
Title:
SUBTENANT:
THE BISYS GROUP, INC.
By:_____________________________________
Name:
Title:
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EXHIBIT A
Prime Lease
93
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EXHIBIT B
Premises
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EXHIBIT C
Sublessor's Work
1. Demolition in accordance with plans prepared by Larry E. Saylor, AIA,
401 East Luther Street, Carlisle, PA 17013, dated January 23, 1998 and
identified as Drawing Number D1.00.
2. Construction of an ADA-compliant unisex bathroom.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Demise of Subleased Premises. 2
2. Use of Subleased Premises. 3
3. Term 3
4. Sublease Rent 3
5. The Prime Lease 5
6. Additional Rent. 19
7. Late Payment Charge 26
8. Remedies of Sublessor 26
9. Delivery of Subleased Premises; Completion
and Occupancy of Subleased Premises 8
10. Alterations 5
11. Care of Subleased Premises 38
12. Assignment and Subletting 39
13. Services 47
14. Electricity 49
15. Damage; Destruction 50
16. Insurance 53
17. Surrender of Subleased Premises 54
18. Notices 56
19. Termination of Prime Lease 57
20. Brokerage 58
21. Consent of Sublessor 58
22. Security 59
23. Sublessor's Obligations 63
24. Partnership Subtenant 64
25. Condition Precedent 66
26. Applicable Law 67
27. Renewal Term 67
28. Determination of Fair Market Rent 69
29. Expansion Option 72
30. Covenant of Quiet Enjoyment 76
31. Miscellaneous 77
32. Consent of Prime Landlord 78
33. No Offer 78
34. Binding Effect 78
35. Amendments in Writing 78
36. Further Assurances 78
37. Governing Law 78
</TABLE>
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Exhibit A - Prime Lease
Exhibit B - Premises
Exhibit C - Sublessor's Work September 25, 1998
97
<PAGE> 1
Exhibit 10.16
LEASE
THIS LEASE, made this ____ day of ____________ 19__, between A/A REALTY
ASSOCIATES with offices at 4251 Crums Mill Road, Harrisburg, Pennsylvania 17112,
hereinafter called "LANDLORD",
AND
BISYS INSURANCE SERVICES DIVISION (T.U.G., INC.) hereinafter called
"TENANT".
ON
Property situate in the Township of Lower Paxton, County of Dauphin,
and Commonwealth of Pennsylvania in Building known as Crums Mill III office
Building, having an address of ________________________________________________.
WITNESSETH: That in consideration of the mutual covenants and
agreements herein contained, it is agreed by and between Landlord and Tenant as
follows:
1. BASIC PROVISIONS.
This Section 1 is an integral part of this Lease and all of the terms
are incorporated into this Lease in all respects. In addition to the other
provisions which are elsewhere defined in this Lease, the following, whenever
used in this Lease, with the first letter of each word capitalized, shall have
the meanings set forth in this Section, and only such meanings, unless such
meanings are expressly contradicted, limited or expanded elsewhere:
A. BUILDING NAME: CRUMS MILL III OFFICE BUILDING
B. LANDLORD'S MAILING ADDRESS: 4251 Crums Mill Road
Harrisburg, PA 17112
C. TENANT'S MAILING ADDRESS:
D. PREMISES (Sect. 3): As shown on Exhibit A
Total Floor: 33,982 Square Feet
<PAGE> 2
Premises shall include building, land, parking area and all
improvements thereon.
E. PERMITTED USE (Sect. 5): Any lawful purpose
F. GUARANTOR: None
G. TERM (Sect. 4): Ten (10) Years
Commencement date shall be: The last to occur of (i) the date the
Premises can be used in its entirety for Tenant's business; or (ii) the date of
Occupancy Permit issuance as required by the governing Municipalities, and the
Premises are Ready for Occupancy. Subject to the provisions of Section 10.A.
hereof, in the event the Commencement Date has not occurred by , Tenant may
cancel this Lease by notice to Landlord.
Expiration shall be at midnight on the last day of the final month of
the term, as defined in Section 2(H).
H. ANNUAL BASIC RENTAL (Sect. 7):
Years 1-5: $11.00 PSF ($373,802.00 per annum)
Years 6-10: shall be increased to $11.10 PSF ($377,200.20 per annum),
and in addition thereto, shall be increased or decreased by the proportionate
percentage that the interest rate on the loan obtained by Landlord and secured
by a first mortgage on the Premises is increased or decreased between the date
of commencement of this Lease and the fifth anniversary of such date.
I. SECURITY DEPOSIT (Sect. 9): One (1) months Basic Rental
J. TAXES: Tenant agrees to pay all Taxes, prior to delinquency,
as defined in Section 2 (I). Annually, upon request by Landlord, Tenant shall
provide proof of said payment to Landlord.
K. OPERATING EXPENSES: Tenant agrees to pay all Operating
Expenses as defined in Section 2(H).
L. OTHER: Tenant agrees to pay the actual costs of insurance
attributable to the building.
2. DEFINITIONS.
This Section 2 is an integral part of this Lease and all of the
following terms are incorporated into this Lease in all respects. In addition to
the other definitions which are elsewhere defined in this lease, the following,
whenever used in this Lease, with the first letter
2
<PAGE> 3
of each word capitalized, shall have the meanings set forth in this Section and
only such meanings, unless such meanings are expressly contradicted, limited or
expanded elsewhere.
A. "Building Area" shall mean the area on all levels of the
building designed for the exclusive use and occupancy of Tenant, which is 33,982
square feet.
B. "Governing Municipality" shall mean the State or Commonwealth,
County, and Local Governing Bodies, including without limitation, the Township,
Borough, Ward or District, having jurisdiction over the area in which the
building is located.
C. "Ready for Occupancy" shall mean the date on which Landlord
has substantially completed all work to be performed by it in accordance with
Exhibit "B". The Demised Premises shall not be deemed unready or incomplete if
only minor or insubstantial details of the construction, decoration or
mechanical adjustments remain to be done, or if any delay in the availability
for Tenant's occupancy is caused in whole or in part by Tenant.
D. "Lease Year" The first Lease Year shall commence on the first
(1st) day of the Term and shall end at the close of the twelfth (12th) full
calendar month following the commencement of the Term; thereafter, a Lease Year
shall consist of successive periods of twelve (12) calendar months. Any portion
of the Term remaining at the end of the last full Lease Year shall constitute
the final Lease Year and rentals and all charges shall be apportioned
accordingly.
E. "Operating Expenses" shall mean, but not be limited to, the
cost and expense for the operation, maintenance and replacements, other than
structural replacements as defined in Section 14, of the building, grounds and
land on which the Premises are located.
F. "Taxes" shall mean for any calendar year, all real estate and
other ad valorem taxes and assessments levied against the Building Area, Common
Areas and all land and improvements upon which the Premises are located and are
a part, or any payments in lieu thereof, including the expense of contesting the
amount or validity of any such Taxes, charges or assessments. Such expense to be
applicable to the period of the item contested.
G. "Land" shall mean the real property consisting of acres
upon which the Building and related improvements are to be constructed by
Landlord.
3. PREMISES AND IMPROVEMENTS.
Tenant leases entire Building and Land, including parking areas for
Tenant's exclusive use. Neither Landlord nor any other party shall have any
right to construct any other building and/or improvements on any portion of the
Land during the term of this Lease as Tenant is entitled to exclusive use
thereof.
3
<PAGE> 4
Outline specifications describing the Improvements to be provided and
installed by Landlord at its expense, and the Improvements to be provided and
installed by Tenant at its expense, have been agreed to by the parties as set
forth in Exhibit "B" attached and made a part of this Lease.
4. TERM & EXPIRATION.
A. The term of this Lease (the "Term"), shall commence on and
shall be for the number of months and/or years set forth in Section l(G).
B. Subject to Tenant's specific right to cancel in Section 1(G)
hereof, if the Premises are not substantially "Ready for occupancy" on the
commencement date set forth, the commencement date of the Term of this Lease
shall be the date Tenant is tendered delivery of the possession of the Demised
Premises Ready for occupancy in accordance with Section 1(G), or the date Tenant
takes possession of the Demised Premises, whichever date is earlier. The Lease
Term shall expire at 12:00 O'clock, Midnight, on the last day of the calendar
month which completes the number of year(s) set forth in Section 1(G).
As soon as determined, Landlord and Tenant shall confirm in
writing the commencement and expiration dates, and that the Lease is in effect
and that Tenant is in occupancy.
C. This Lease shall expire in accordance with Section l(G)
without the necessity of any notice from either Landlord or Tenant to terminate
the same, and Tenant waives notice to vacate the Premises and agrees that
Landlord shall be entitled to the benefit of all provisions of law respecting
the summary recovery of possession of the Premises from a Tenant holding over to
the same extent as if statutory notice had been given. For the period of six
months prior to the expiration of the Term, and after providing prior reasonable
notice to Tenant, and always in the presence of a representative of Tenant,
Landlord may show the Premises and all the parts to prospective tenants during
normal business hours, provided that Tenant reserves the right to refuse any
such showing that would interfere with Tenant's business activities.
D. If Tenant shall be in possession of the Premises at the end of
the original Term, or any optional extension period, in the absence of any
agreement extending the Term, the tenancy under this Lease shall become month to
month, terminable by either party on thirty days prior written notice. After 90
days of such occupancy, all rentals as defined in Section 6 shall become twice
the amounts.
E. Notwithstanding anything in this Lease to the contrary, the
Commencement Date shall not occur unless and until Landlord has delivered to
Tenant a title insurance policy in form and content acceptable to Tenant and
indicating good and marketable title vested in Landlord.
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F. Upon execution of this Lease, Landlord and Tenant will
execute a short form of Lease in the form attached hereto as Exhibit " ",
which short form of lease may be recorded in the appropriate county offices, at
the discretion of Tenant.
5. USE OF THE PREMISES.
A. Tenant shall use the Premises as permitted in Section l(E).
Tenant shall have access to the Premises 24 hours each day, 365 days each year.
6. RENTALS PAYABLE.
Tenant covenants and agrees to Pay to Landlord as Rentals, sometimes
referred to as "Rent" or "Rental", for the Premises, the following, namely:
A. The Annual Basic Rental set forth in Section 1(H), and
B. Any and all additional sums, charges or amounts of whatever
nature to be paid by Tenant to Landlord in accordance with the Terms of this
Lease whether or not such sums, charges or amounts are referred to as
"additional rental."
7. ANNUAL BASIC RENTAL.
Annual Basic Rental, as set forth in Section l(H), shall be payable in
equal monthly installments in advance, without demand and/or set off, on the
first (1st) day of each full calendar month during the Term, the first such
payment to include also any prorated Annual Basic Rental for the period from the
date of the commencement of the Term to the first day of the first full calendar
month in the term.
8. PAYMENT OF RENTALS.
A. Tenant covenants to pay all Rentals when due and payable, without
any setoff, deduction or prior demand. All moneys paid or expenses incurred by
Landlord to correct violations of any of Tenant's obligations shall be payable
to Landlord as additional rental. Any additional rental provided for in this
Lease which shall become due, shall be payable with the next installment of
Annual Basic Rental. Rentals required of Tenant shall be paid or delivered to
Landlord at the management office of Landlord or at such other place as Landlord
may, from tine to time, designate to Tenant.
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B. Any payment by Tenant or acceptance by Landlord of a lesser
amount than shall be due from Tenant to Landlord shall be treated as a payment
on account.
C. Anything in this Lease to the contrary notwithstanding, at
Landlord's option, Tenant shall pay as additional rent, a late charge in the
amount of one and one-half (1-1/2%) percent of the outstanding balance per month
for any rental payment not made within seven days of the due date.
9. SECURITY DEPOSITS.
A. Landlord acknowledges receipt from Tenant of the sum set forth
in Section l(I) to be held by Landlord as security for Tenants satisfactory
performance of the terms, covenants and conditions of this Lease including the
payment of Basic Rent and Additional Rent.
B. Landlord may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any Basic Rent
and Additional Rent or any other sum as to which Tenant is in default or for any
sum which Landlord may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this lease
including any damages or deficiency in the re-letting of the Demised Premises or
other reentry by Landlord.
C. If Landlord uses, applies or retains the whole or any part of
the security, Tenant shall replenish the security to its original sum twenty
(20) days after being notified by the Landlord of the amount due. Tenant shall
be in default of this Lease if the amount due is not paid within the required
time period.
D. In the event of a sale or leasing of the real property or any
part thereof, of which the Demised Premises form a part, Landlord shall have the
right to transfer the security to the vendee or lessee, and if such transfer
occurs, Landlord shall be released by Tenant from all liability for the return
of said security provided that the new Landlord acknowledges in writing its
obligation to return the security deposit and that the provisions hereof shall
apply to every transfer or assignment made of the security to a new Landlord.
E. Tenant covenants that it shall not assign or encumber the
security deposit given to Landlord pursuant to this Lease. Neither Landlord, its
successors or assigns shall be bound by any such assignment or encumbrance or
any attempted assignment or encumbrance.
F. Any part of the security not used or retained by Landlord
shall be returned to Tenant within thirty (30) days after delivery of exclusive
possession of the Demised Premises to Landlord.
10. LANDLORD'S IMPROVEMENTS; READY FOR OCCUPANCY.
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A. Subject to unavoidable delays due to labor disputes, Acts of
God or the public enemy, governmental regulations or controls, fire or other
conditions or causes beyond its reasonable control, Landlord will as promptly as
possible let contracts for the performance of all work to be performed by it in
accordance with Exhibit "B".
B. On the Commencement Date as defined in Section 1(G), Tenant
shall be deemed to have: (a) accepted the Premises; (b) acknowledged that the
Premises are in the condition called for as "Ready for Occupancy, (as defined in
Section 2(C)); and (c) agreed that the obligations of Landlord under Exhibit "B"
have been fully performed, except for any punch list items which shall be set
forth in writing by Tenant.
11. CHANGES AND ADDITIONS TO BUILDING AREA.
Landlord shall not, without the express written consent of Tenant,
which consent may be withheld or delayed in Tenant's reasonable business
judgment (a) make or permit changes or revisions in its plan for the Building
Area including, but not limited to, additions to, subtractions from,
rearrangements of, alterations of, modifications of or supplements to the
building areas, walkways, hallways, stairwells, escalators, elevators,
driveways, or other common facilities; (b) construct other improvements in the
Building Area and to make alterations or additions; and (c) make or permit
changes or revisions in the Building Area, including additions, and to convey
portions of the Building Area to others for the purpose of constructing other
improvements, including additions and alterations.
12. ALTERATIONS AND SERVICES BY TENANT AND TRADE FIXTURES.
A. Tenant shall not do any structural work in or about the
Demised Premises or make any structural alterations or additions without the
prior written consent of Landlord, which shall not be unreasonably withheld. All
such work to which Landlord consents shall be performed and installed at
Tenant's sole cost and expense in accordance with plans and specifications to be
supplied by Tenant, which plans shall in all instances first be subject to
Landlord's reasonable approval. As a part of Landlord's approval, Landlord shall
state if it shall require removal and restoration of the alterations or
additions at the termination of the Lease. During the work, Tenant shall
maintain such insurance as Landlord may reasonably require for the benefit of
the Landlord, Agent or such other parties as Landlord shall designate.
B. No work or installation by Tenant at the Demised Premises,
land or Building, shall be done except after the filing of a waiver of the right
to file any lien (commonly known as a "Mechanics and/or Materialmen's Lien
Waiver") with Landlord or its Agent, so as to constitute an effective waiver by
anyone having a right to file such a lien. No work which Landlord permits Tenant
to do pursuant to this Section 12, whether in the nature of erection,
construction, alteration or repair, shall be deemed to be made upon the express
or implied request of, nor for the immediate use and benefit
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of, Landlord, so that no mechanic's or materialmen's lien shall be allowed
against the estate of Landlord by reason of any consent given by Landlord to
Tenant to improve the Premises. Except as above required, Tenant may make such
other changes and alterations to the Premises without the necessity of
Landlord's approval.
C. In the event any mechanic's lien shall at any time be filed
against the Premises allegedly by reason of work, labor, services or materials
performed or furnished to Tenant or to anyone holding the Premise; through or
under Tenant, Tenant shall cause the same to be discharged of record or bonded
to the satisfaction of Landlord within thirty (30) days of filing. If Tenant
shall fail to cause such lien to be so discharged or bonded after being notified
of the filing, then, in addition to any other right or remedy of Landlord,
Landlord may discharge the same by paying the amount claimed to be due, and the
amount so paid by Landlord and all costs and expenses, including reasonable
attorneys' fees incurred by Landlord in procuring the discharge of such lien,
shall be due and payable by Tenant to Landlord as additional Rent on the first
(1st) day of the next following month.
D. Subject to the provisions of Section 12.A. hereof, any
alterations, improvements or additions made by Tenant shall remain upon the
Premises at the expiration or earlier termination of this Lease, and shall
become the property of the Landlord.
E. All trade fixtures and apparatus (as distinguished from
leasehold improvements) owned by the Tenant and installed in the Premises shall
remain the property of Tenant and shall be removable at any time, including upon
the expiration of the Term, provided Tenant shall not at such tine be in default
of any terms or covenants of this Lease; and provided further that Tenant shall
repair any damage to the Premises caused by the removal of said fixtures to the
original order and condition in which they were at the time of delivery of
possession to Tenant, ordinary wear and tear excepted. If Tenant is in default,
Landlord shall have benefit of any applicable lien on Tenant's property located
in or on the Premises as may be permitted under the laws Of the Governing
Municipality, and in the event such lien is asserted by Landlord in any manner
or by operation of law, Tenant shall not remove or permit the removal of said
property until the lien has been removed and all defaults have been cured.
13. OPERATION BY TENANT.
A. In regard to use and occupancy of the Premises, Tenant will at
its expense: (a) keep the inside and outside of all glass in the doors and
windows of the Premises clean; (b) keep all exterior surfaces of the Premises
clean; (c) replace promptly any cracked or broken glass of the Premises with
glass of like kind and quality; (d) maintain the Premises in a clean, orderly
and sanitary condition and free of insects, rodents, vermin and other pests; (e)
keep any garbage, trash, rubbish or refuse in rat-proof containers within the
interior of the Premises until removed (f) have such garbage, trash, rubbish and
refuse removed on a daily basis; (g) comply with all laws, ordinances, rules and
regulations of governmental authorities and all recommendations of the Fire
Underwriters Rating Bureau now or hereafter in effect and specifically
attributable to the Tenant's use of the Premises.
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B. In regard to use and occupancy of the Premises, tenant will
not: (a) Place or maintain any merchandise, trash, refuse, or other articles in
any vestibule or entry of the Premises, on the footwalks or corridors adjacent
thereto or elsewhere on the exterior of the Premises so as to obstruct any
corridor, footwalk, stairwell, elevator, escalator or mall; (b) Permit
accumulations of or burn garbage, trash, rubbish or other refuse within or
outside of the Premises; (c) Cause or permit objectionable odors to emanate or
be dispelled from the Premises; (d) Receive or ship articles of any kind except
through service facilities designated by Landlord unless no service door is
provided; (e) Use the Common Area adjacent to the Premises for the sale or
display of any merchandise or for any other business, occupation or undertaking;
or (f) Use or permit the use of any portion of the Premises for any unlawful
purpose; or (g) Place a load upon any floor which exceeds the floor load for
which the floor was designed to carry, or in excess of that allowed by law; (h)
Store, use or allow to be used on the Demised Premises any article or substance
which is considered to be hazardous, flammable, explosive or having an offensive
odor; (i) Enter upon the roof of the building; (j) Use electricity in the
Demised Premises in excess of the capacity of any of the electrical conductors
and equipment in or otherwise serving the Demised Premises, or add to or alter
the electrical system serving the Premises or connect thereto any additional
fixtures, appliances or equipment other than lamps, typewriters and similar
small offices machine; (k) Execute or deliver any financing or security
agreement or statement that would be a lien upon the Demised Premises or the
land or Building.
C. Tenant shall keep the Demised Premises and fixtures in good
order and repair, reasonable wear and tear and damage by any casualty not
occurring through act of negligence of Tenant or Tenant's agents, employees or
invitee excepted, and except for damage as set forth in Section 16 hereof on
demand pay Landlord, as additional rent, the cost of repair of the Demised
Premises, or the building, or any part if damaged in whole or in part by the act
or negligence of Tenant or Tenant's agents, employees or invitee.
D. Tenant and Landlord shall use every reasonable precaution
against fire, or other casualty.
E. Tenant shall give Landlord prompt written notice of any
accident, fire, casualty or damage occurring on or to the Demised Premises, and
of any defects in the apparatus in the Demised Premises.
F. Tenant shall obey the Rules and Regulations as set forth in
Exhibit D of this Lease, which may at time or from time to time, upon prior
written notice to Tenant, be changed by Landlord.
G. Tenant shall promptly correct any violation and comply with
all laws, ordinances, notices, permits, or statements of occupancy,
requirements, orders, regulations and recommendations, now or hereafter in
effect and of whatever nature, if any, and all the Federal, State, County,
municipal and/or other authorities and of the Board of Fire Underwriters and any
insurance organizations or associations, and/or companies, with respect to
Tenant's conduct or use of the Demised Premises.
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14. STRUCTURAL REPAIRS.
A. Landlord will be responsible for structural repairs to
exterior walls, exterior roof, structural columns, structural floors of the
Building Area; Landlord shall also be responsible for major repairs ("Major
Repairs") to the parking lot, utility lines (including but not limited to sewer
and water) between the building and the street, and structural repairs to the
windows (excluding any doors, door frames, windows and glass); provided Tenant
shall give Landlord written notice of the necessity for such repairs, and
provided that the damage shall not have been caused by negligence or willful
acts of Tenant, its concessionaires, officers, employees, licensees or
contractors, in which event Tenant shall be responsible. Major Repairs shall be
defined as any repair that costs in excess of $2,500 to complete in a
workmanlike manner. Landlord shall have no obligation for repair, maintenance,
alteration or any other action with respect to the Premises, in whole or any
part, or any plumbing, electrical, or other mechanical installations, or any of
Tenant's improvements or fixtures, except as may be expressly set out in this
Lease. Landlord shall keep the roof free of leaks and the Building free of
seeping water. In the event Landlord fails to make the required repairs, Tenant
shall make such repairs and deduct the cost thereof from future rent payments.
B. Tenant will have the benefit of any and all construction
warranties Landlord has obtained for any repairs, and Landlord shall use its
best efforts with the contractor to cover those repairs under the construction
warranties.
C. If Landlord or Tenant fail to perform any of the foregoing
repairs for which they are responsible on a timely and effective basis, Landlord
or Tenant as applicable may, after notice of their intention to do so to the
other party, complete such repairs and be entitled to reimbursement for the cost
of such repairs from the non-performing party.
15. INTERIOR REPAIRS.
A. Tenant will keep the interior of the Premises, together with
all electrical, plumbing and other mechanical installations, excluding items
Landlord is to repair pursuant to Section 14 hereof, in good order and repair
and will make all replacements from time to time as required at its expense.
Tenant will surrender the Premises at the expiration of the Term or at such
other time as it may vacate the Premises in as good condition as when received,
excepting depreciation caused by ordinary wear and tear, damage by fire or
casualty, unavoidable accident or Act of God. Tenant will not overload the
electrical wiring serving the Premises or within the Premises, and will install
at its expense, subject to the provisions of Section 21 hereof, any additional
electrical wiring which may be required in connection with Tenant's apparatus.
Landlord shall keep the roof free of leaks and the Building free of seeping
water. In the event Landlord fails to make the required repairs, Tenant shall
make such repairs and deduct the cost thereof from future rent payments.
B. Any damage or injury sustained by any person because of
mechanical, electrical, plumbing or any other equipment or installations, whose
maintenance and repair is the responsibility
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of Tenant shall be paid by Tenant, and Tenant shall indemnify and hold Landlord
harmless from and against all claims, actions, damages and liability, including
but not limited to, attorneys' and other professional fees, and any other cost
which Landlord might reasonably incur.
16. DAMAGE TO PREMISES.
Except for damage by casualty, Tenant will repair promptly, at its
expense, any damage to the Premises, and upon demand shall reimburse Landlord
for the cost of the repair of any damage elsewhere in the Building Area and
Common Areas, caused by negligence or willful acts of Tenant, its
concessionaires, officers, employees, licensees or contractors, regardless of
fault or by whom such damage shall be caused, unless caused by Landlord, its
agents, employees or contractors; and in default of such repairs by Tenant, at
the expiration of thirty (30) days after delivery of written notice to Tenant,
Landlord may make or cause the same to be made and Tenant agrees to pay to
Landlord promptly upon Landlord's demand as additional rent, the cost of the
repairs with interest at the rate of the lesser of ten (10%) per cent per annum
or the maximum rate of interest which Tenant contract for in the Governing
Municipality.
17. ALTERATIONS BY TENANT.
A. Tenant will not alter the exterior of the Premises and will
not make any structural alterations, renovations or improvements to the Premises
without the prior written consent of Landlord, which shall not be unreasonably
withheld. All such work to which Landlord consents shall be performed and
installed at Tenant's sole cost and expense in accordance with plans and
specifications to be supplied by Tenant, which plans shall in all instances
first be subject to Landlord's reasonable approval. As a part of Landlord's
approval, Landlord shall state if it shall require removal and restoration of
the alterations or additions at the termination of the Lease. During the work,
Tenant shall maintain such insurance as Landlord may reasonably require for the
benefit of the Landlord, Agent or such other parties as Landlord shall
designate.
18. SIGNS AND ADVERTISING.
Tenant, at Tenant's sole cost and expense, may install any sign at the
Building subject to Local Ordinance.
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19. GENERAL APPEARANCE.
Tenant shall maintain the general appearance of the interior of the
Premises in such a manner as will present a neat, clean and orderly appearance.
20. UTILITIES, ELECTRICITY; HVAC; SPRINKLER; AND OTHERS.
A. Landlord will provide and maintain the necessary means to
bring all utilities, including but not limited to, electricity and water for
Tenant's use to the Premises in accordance with Exhibit "B" attached. Tenant
shall pay all charges for heating and air-conditioning, electricity, sprinklers,
water, and all other utilities and services used by it and supplied by a public
utility or public authority, or any other person, firm or corporation, whether
billed directly to Tenant or billed directly to Landlord (in which event such
charges to be reimbursed to Landlord shall be determined on a connected load
basis and shall be payable to Landlord upon demand).
B. Landlord shall incur no liability to Tenant whatsoever should
any utility become unavailable from any public utility company, public authority
or any other person, firm or corporation, including Landlord, supplying or
distributing such utility. Landlord shall under no circumstances be liable to
Tenant in damages or otherwise for any interruption in service of water,
electricity, heating, air-conditioning or other utilities and services caused by
an unavoidable delay, by the making of any necessary repairs or improvements or
by any cause beyond Landlord's reasonable control.
21. INSURANCE.
A. Landlord will keep in force as long as this Lease remains in
effect and during such other time as Tenant occupies the Premises or any part:
(1) An all risk insurance policy or fire insurance policy
with respect to the premises based upon coverage limits of not less
than a reasonable estimate of the cost of replacing the Building.
Coverage shall be at least sufficient so that losses shall be paid in
full up to the face amount of the policy; and
(2) Liability insurance, including contractual liability,
with respect to the Premises to afford protection to the limit of not
less than Three Million Dollars ($3,000,000) for each occurrence with
respect to bodily injury and wrongful death coverage and at least Five
Hundred Thousand Dollars ($500,000) for each occurrence with respect to
property damage coverage.
(3) The company and the form of the insurance shall be
subject to Tenant approval after consultation with Tenant to obtain the
most favorable premium.
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Tenant shall be responsible for the cost of the insurance as set forth
in Section 1.L. hereof.
B. Tenant will keep in force at its expense as long as this Lease
remains in effect and during such other time as Tenant occupies the Premises or
any part all-risk insurance written at replacement cost value on Tenant's
personal property including inventory, plate glass, trade fixtures, floor
covering, furniture and other property removable by Tenant and Tenant's
leasehold improvements installed by it under Exhibit "B" or otherwise; Tenant
will further deposit the policy or policies of such insurance or certificates
with Landlord, which policies shall name Landlord or its designee as additional
named insured, and shall also contain a provision stating that such policy or
policies shall not be canceled except after thirty (30) days written notice to
Landlord. If the nature of Tenant's operation is such as to place any or all of
its employees under the coverage of local workmen's compensations or similar
statutes, Tenant shall also keep in force, at its expense, so long as this Lease
remains in effect and during such other times as Tenant occupies the Premises,
workmen's compensation or similar insurance affording statutory coverage and
containing statutory limits. If Tenant shall not comply with its covenants made
in this Section 21, Landlord has no liability and may cause insurance to be
issued, and in such event, Tenant agrees to pay as additional rent, the premium
for such insurance upon Landlord's demand.
C. Tenant shall require any contractor of Tenant who is to
perform work on the Premises to keep in force at such contractor's expense
during such tines as contractor is working in the Premises (including, without
limitation, the performance of Exhibit "B" work): (a) comprehensive general
liability insurance, including contractor's liability coverage, contractual
liability coverage, completed operations coverage, broad form property damage
endorsement, and contractor's protective liability coverage, in companies and in
form reasonably acceptable to Landlord, to afford protection to the limit, per
occurrence, of not less than one Million Dollars ($1,000,000) combined single
limit with respect to personal injury or death and property. Tenant will cause
Tenant's contractor to deposit the policy or policies of such insurance or
certificates with Landlord prior to commencing any such work, which policies
shall name Landlord, or its designee as additional named insured, and shall also
contain a provision stating that such policy or policies shall not be canceled
except after thirty (30) days' written notice to Landlord. Tenant shall also
require its contractor to keep in effect workmen's compensation or similar
insurance affording statutory coverage and containing statutory limits during
the period such contractor is performing work in the Premises on Tenant's
behalf.
22. INDEMNITY BY TENANT.
A. Tenant will indemnify and save Landlord harmless from and
against all claims, actions, damages, liability and expense, including
reasonable attorney's and other professional fees, in connection with loss of
life, personal injury and/or damage to property arising from or out of the
occupancy or use by Tenant of the Premises or the Building Area, caused wholly
or in part by any act or omission of Tenant, its officers, agents, contractors,
or employees.
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B. Unless due to negligence of Landlord, Landlord shall not be
responsible or liable to Tenant, or to those claiming by, through or under
Tenant, for any loss or damage resulting to Tenant, or those claiming, by,
through or under Tenant, or its or their property, from the breaking, busting,
stoppage or leaking of electrical cable and wires, and water, gas, sewer or
steam pipes.
C. To the maximum extent permitted by law, Tenant agrees to use
and occupy the Premises and the Building Area as Tenant is given the right to
use at Tenant's own risk. The provisions of this Section shall be applicable
from and after the execution of this Lease and until the end of the term of this
Lease, and during such further period as Tenant may use or be in occupancy of
any part of the Premises or any portion of the Building Area.
D. Landlord shall indemnify and save harmless Tenant and its
agent against and from (a) any and all claims, actions, costs, recoveries and
legal expense (i) arising from (x) the conduct Landlord, its employees, agents,
contractors or invitees, or (y) any work or thing whatsoever done, or any
condition created (other than by Tenant for Tenant's account) in or about the
Premises and/or Building during the Term of this Lease or (ii) arising from any
negligent or otherwise wrongful act or omission of Landlord or any of its
employees, agents, contractors or invitees, and (b) all costs, expenses and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon. In case any action or proceeding be brought against
Tenant by reason of any such claim, Landlord, upon notice from Tenant, shall
resist and defend such action or proceeding. The provisions of this Section
22(D) shall survive the expiration or sooner termination of this Lease.
23. INCREASE IN INSURANCE PREMIUMS: WAIVER OF SUBROGATION.
A. Tenant will not do or suffer to be done, or keep or suffer to
be kept, anything in, upon or about the Premises which will contravene
Landlord's policies insuring against loss or damage by fire or other hazards
(including, without limitation, public liability) or which will prevent Landlord
from procuring such policies in companies acceptable to Landlord. If anything
done, omitted to be done or suffered by Tenant to be kept in, upon or about the
Premises shall cause the rate of fire or other insurance on the Premises or on
other property of Landlord or of others within the Building Area to be increased
beyond the minimum rate from time to time applicable to the Premises or to any
such property for the use or uses made, Tenant will pay, as additional rent, the
amount of any such increase upon Landlord's demand. Tenant's lawful use of the
Premises will not cause any rights of Landlord under this Section to accrue.
B. Landlord shall cause each insurance policy carried by it
insuring the Premises against loss by fire or any of the casualties covered by
all-risk insurance to be written in such a manner so as to provide that the
insurer waives all right of recovery by way of subrogation against Tenant in
connection with any loss or damage covered by the Policy. Tenant will cause each
insurance policy carried by it insuring the Premises as well as the contents,
including trade fixtures and merchandise, against loss by fire or any of the
casualties covered by all-risk insurance to be written to provide that the
insurer waives all right of recovery by way of subrogation against Landlord in
connection with
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any loss or damage covered by the policy. Neither party shall be liable to the
other for any loss or damage caused by fire or any of the casualties covered by
all-risk insurance, which loss or damage is covered by the insurance policies
maintained by the other party. If such a waiver of subrogation is not available
from the insurers of either Tenant or Landlord, this Section 23(B) shall have no
effect. It is agreed that, should either party fail to procure such waiver, if
available, it will pay to he other in liquidated damages all monies to which any
subrogee becomes entitled and the cost of reasonable legal defense of any claim
for subrogation.
24. FIRE OR OTHER CASUALTY.
A. If the Premises shall be damaged by fire, the elements,
accident or other casualty ("Casualty"), and provided that the damage shall not
have been caused by negligence or willful acts of Tenant, its concessionaires,
officers, employees, licensees or contractors, but the Premises are not rendered
untenantable in whole or in part, Landlord shall promptly coordinate such damage
to be repaired (but only with respect to those items to be provided by it under
Paragraph A and B of Exhibit "B") , and the Annual Basic Rental and other
charges shall be abated proportionately as to the portion of the Premises
rendered untenantable from the date of such Casualty until the Premises are
rendered tenantable. If, as the result of Casualty, and provided that the damage
hall not have been caused by negligence or willful acts of Tenant, its
concessionaires, officers, employees, licensees or contractors, the Premises are
rendered wholly untenantable, subject to the provision of this Section 24(B),
the Annual Basic Rental and other charges shall be abated from the date of such
Casualty until the Premises have been rendered fully tenantable.
In no event shall Landlord be liable for interruption to Tenant's
business or for damage to or replacement or repair of Tenant's personal
property, including inventory, trade fixtures, floor coverings, furniture and
other property removable by Tenant under the provisions of this Lease or to
Tenant's leasehold improvements.
B. If the Premises are (a) rendered wholly untenantable, or (b)
damaged as a result of any cause which is not covered by Landlord's insurance or
is damaged in whole or in part during the last three (3) years of the Term, or
(c) all repairs required to restore the Premises to its condition prior to the
occurrence of the damage cannot be, or are not, completed within four (4) months
of the occurrence of the damage, or (d) if the Building Area is damaged to the
extent of fifty (50%) percent or more of the Floor Area, then in any event,
Landlord or Tenant may immediately terminate this Lease by giving to the other
party notice within ninety (90) days after the occurrence of such event. Annual
Basic Rental and other charges shall be adjusted as of the date of such
termination.
C. If the Building Area is so substantially damaged that it is
reasonably necessary to demolish same for the purpose of reconstruction,
Landlord or Tenant may terminate this Lease by giving to the other party notice
within ninety (90) days after the occurrence of the damage, in which event this
Lease shall immediately terminate and the Annual Basic Rental and other charges
shall be adjusted as of the date of the occurrence of such damage.
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25. CONDEMNATION.
If the whole or any part of the Premises, parking area and/or access to
or from any adjacent public roadway shall be taken under the power of eminent
domain, this Lease shall terminate as to the part so taken on the date Tenant is
required to yield possession to the condemning authority. Landlord shall make
such repairs and alterations as may be necessary in order to restore the part
not taken to useful condition and the Annual Basic Rental shall be reduced
proportionately as the portion of the Premises so taken. If the portion of the
Premises so taken substantially impairs the usefulness of the Premises for the
purposes set forth in Section l(E), either party may terminate this Lease as of
the date when Tenant is required to yield possession. If twenty-five (25%)
percent or more of the Floor Area in the Building Area is taken, then Landlord
or Tenant may terminate this Lease as of the date of the taking.
All compensation awarded for any taking of the fee (and/or leasehold if
Landlord shall then be in possession of the Premises under a ground lease) shall
belong to and be the property of Landlord and Tenant assigns to Landlord all
rights with respect thereto; provided, however, nothing contained herein shall
prevent Tenant from applying for reimbursement from the condemning authority (if
permitted by law) for moving expense, or removal of trade fixtures, or loss of
business goodwill, or severance damages.
26. INSPECTION BY LANDLORD.
Tenant will permit Landlord, its agents, employees and contractors to
enter all parts of the Premises during Tenant's business hours in the presence
of a representative of Tenant, to inspect the same and to enforce or carry out
any provision of this Lease.
27. NO ASSIGNMENTS OR SUBLETTING.
A. Tenant may assign or sublet for a Permitted Use only all or
any part of the Premises, or license concessions or lease departments, with
prior notice to Landlord but without the prior consent of Landlord, subject to
Tenant's continued responsibility under this Lease. The right to sublet or
assign for a use other than a lawful use, shall require the express prior
written approval of Landlord. This prohibition includes any subletting or
assignment which would otherwise occur by operation of law, merger,
consolidation, reorganization, transfer or other change of Tenant's corporate or
proprietary structure, or an assignment or subletting to or by a receiver or
trustee in any Federal or State bankruptcy, insolvency, or other proceedings.
B. If Tenant is a corporation and if at any time after execution
of this Lease and prior to the end of the Term, any part or all of the corporate
shares shall be transferred by sale, assignment, bequest, inheritance, operation
of law or other disposition (including such a transfer to or by a
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receiver or trustee in Federal or State bankruptcy, insolvency, or other
proceedings) so as to result in a change in the present control of said
corporation by the person or persons now owning a majority of said corporate
shares, Tenant shall notify Landlord of this event within fifteen (15) days from
the date of such transfer. In such event and whether or not Tenant has given
such notice, Landlord may terminate this Lease at any time, by giving Tenant at
least sixty (60) days written notice. This provision shall not be applicable to
Tenant if it is a corporation whose outstanding voting stock is listed on a
national securities exchange (as defined in the Securities Exchange Act of 1934,
as amended).
28. QUIET POSSESSION; SUBORDINATION; ATTORNMENT.
So long as Tenant is not in default, Tenant shall have peaceful and
quiet use and possession of the Premises, subject to all matters of record and
to any mortgage, ground lease, or other agreements to which this Lease is or may
hereafter be subordinated. This Lease is and shall at all times hereafter be
subject and subordinate in all respects to all present and future mortgages and
other security instruments encumbering all or any part of the Premises and to
all amendments, renewals, modifications, substitutions, increases, supplements,
consolidations and extensions thereof, subject to Tenant's right of peaceful,
quiet and undisturbed use and possession of the Premises.
If there shall occur any default by Landlord with respect to any
obligation of this Lease, which default is of such nature as to give Tenant
right to terminate this Lease or to reduce, offset or delay the rent payable
under this Lease, or to claim any credit, offset or delay against future rents,
then, notwithstanding any provision in this Lease to the contrary, Tenant shall
take no action as a result of such default, and shall continue to perform all
terms of this Lease as though such default shall not have occurred, until
written notice thereof shall be delivered to Landlord and to the holder (the
"Lender") any mortgage encumbering the Premises of which Tenant has written
notice and until neither Landlord nor Lender shall have cured or remedied such
default within thirty (30) days after receipt of such notice by Landlord and
Lender, or such longer period provided to Landlord under this Lease, provided
that if such default is not capable of being cured within such period, Landlord
and Lender shall also have a reasonable period of time after the expiration of
the cure period to cure such default provided it diligently proceeds with its
efforts to cure. Lender shall have the right, but not the obligation, to remedy
or cure such default. So long as Tenant is not in default in the payment of rent
additional rent or other charges, or in the performance of any of the terms,
covenants or conditions of this Lease, Tenant shall not, by reason of
foreclosure of any mortgage, acceptance of a deed in lieu of foreclosure, or the
exercise of any remedy provided in a mortgage, be disturbed by Lender in
Tenant's occupancy of the Premises during the term of this Lease or any
extension herein set forth. Landlord and Tenant agree with Lender that Tenant
shall pay directly to Lender all rent and other sums paid by Tenant under this
Lease upon Tenant's receipt of written notice from Lender of the exercise of
such rights, and Landlord hereby authorizes and directs Tenant to make all such
payments to Lender. Tenant shall attorn to and recognize as Tenant's landlord
any purchaser at a foreclosure or judicial sale relating to a mortgage or debt
secured thereby, or any transferee by deed or assignment in lieu thereof, and
its successors and assigns, and the successor Landlord will accept
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such attornment and recognize Tenant's rights of possession and use of the
Premises in accordance with the provisions of this Lease, and without further
evidence of such attornment and acceptance, Tenant shall be bound by and comply
with all the terms, provisions, covenants and obligations contained in this
Lease on its part to be performed; provided, however, that nothing contained
herein shall impose upon such purchaser or its successors or assigns any
obligation to complete any improvements or any work or restoration to be
performed under this Lease or to reimburse Tenant or any other party for any
costs thereof; provided, however, that if such purchaser or its successors or
assigns elects not to complete any such improvements or work or restoration to
be performed under this Lease, Tenant shall have the right to terminate this
Lease by giving such purchaser or its successors or assigns written notice of
such termination promptly after receiving notice of the election by such
purchaser or its successors or assigns not to complete any such improvements,
work or restoration. Neither Lender nor any purchaser at a foreclosure or
judicial sale relating to the mortgage or debt secured thereby, nor any
transferee by deed or assignment in lieu thereof nor any of its successors or
assigns shall in any way or to any extent be: (a) liable for any act or omission
of any prior Landlord (including Landlord) in contravention of any provision of
this Lease; or (b) subject to any offsets, claims or defenses which Tenant might
have against any prior Landlord (including Landlord); or (c) bound by any rent
or additional rent which Tenant might have paid for more than thirty (30) days
in advance to any prior Landlord (including Landlord); or (d) bound by any
amendment or modification of this Lease made without lender's written consent;
or (e) in any way responsible for deposit or security which was delivered to any
prior landlord (including Landlord) but which was not subsequently delivered to
Lender or such other person or entity, as the case may be. In the event of a
default under this Lease by any purchaser at a foreclosure or judicial sale
relating to the mortgage or debt secured thereby, or by any transferee by deed
or assignment in lieu thereof or by any of its successors or assigns, Tenant
shall have no recourse to any assets of such purchaser or transferee, or of its
successors or assigns other than its interest in the property of which the
Premises forms a part. Tenant shall from time to time upon request by Landlord,
execute and deliver one or more instruments in recordable form confirming that
this Lease is subject and subordinate to the matters and instruments referred to
in this Section 28 provided said instrument contains appropriate language of
non-disturbance. Tenant also agrees that any such lessor, mortgagee or trustee
above may elect to have this Lease prior to its ground lease and/or the lien of
its mortgage, deed of trust or other security instrument, respectively, and
that, in the event of such election and upon written notice to Tenant, this
Lease shall be deemed prior in lien to such sound lease and/or mortgage, deed of
trust or other security instrument whether or not this Lease is dated prior to,
or subsequent to the date of said ground lease, and/or mortgage, deed of trust
or other security instrument.
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29. BANKRUPTCY.
If any sale of Tenant's interest in the Premises created by this Lease
shall be made under execution or similar legal process; or if Tenant or any
guarantor of Tenant admits in writing its inability to pay its debts when due;
or if a receiver or trustee shall be appointed for Tenant's or its guarantor's
business or property; or if a petition is filed by (or filed against and such
filing is not released within thirty (30) days) Tenant or its guarantor for
bankruptcy, a corporate reorganization of Tenant or an arrangement with its
creditors under any state bankruptcy law; or if Tenant or its guarantor shall
make an assignment for the benefit of creditors; or if in any other manner
Tenant's interest under this Lease shall pass to another by operation of law,
Tenant shall be deemed to have breached a material covenant and Landlord may
reenter the Premises and terminate this Lease and the tenancy created.
Notwithstanding such termination, Tenant shall remain liable for all rent and
damages which may be due at the time of such termination and shall be liable for
the damages set forth in Section 34(B).
30. PERFORMANCE BY LANDLORD AND EMERGENCIES.
A. Landlord covenants and agrees to perform all obligations
expressed on its part to be performed. Upon receipt of written notice specifying
action desired by Tenant in connection with any such obligation if Landlord
shall not commence and proceed diligently to comply with such notice to the
satisfaction of Tenant within three (3) days, Tenant may do the things specified
in said notice. Tenant shall have no liability to Landlord for any loss or
damage resulting in any way from such action by Tenant, and Landlord agrees to
pay promptly upon demand any expense incurred by Tenant in taking such action,
together with interest at the rate of the lesser of fifteen (15%) percent, per
annum or the maximum rate of interest for which Landlord may contract in the
governing municipality.
31. REMEDIES OF LANDLORD.
A. If the rent agreed to be paid pursuant to Section 6 shall be
in arrears in whole or in part for ten (10) or more days, Landlord may distrain
therefore. If Tenant shall violate either (a) the covenant to pay rent and shall
fail to comply with said covenant within ten (10) days after the time such rent
is due and payable to Landlord, or (b) any other covenant, and shall fail to
comply or commence compliance within ten (10) days after being sent written
notice from Landlord, by certified or registered mail, of such violation and
diligently proceed to cure its default, or if Tenant shall repeatedly violate
any covenant, Landlord may reenter the Premises and declare this Lease and the
tenancy created terminated. Landlord shall be entitled to the benefit of all
provisions of applicable laws respecting the speedy recovery of lands and
tenements held over by Tenant or proceedings in forcible entry and detainer. To
the extent permitted by law, Tenant waives notice of reentry or institution of
legal proceedings to that end, and any right of redemption, reentry or
repossession.
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B. Landlord may perform for the account of Tenant any such
default of Tenant and immediately recover as additional rent any expenditures
made and the amount of any obligations incurred in connection therewith, plus
the prevailing prime interest rate per annum from the date of any such
expenditure.
C. Landlord may accelerate all rent and additional rent due for
the balance of the term of this Lease and declare the same to be immediately due
and payable; in determining the amount of any future payments due Landlord due
to increases in Real Estate Taxes and Operating Expenses, Landlord may make such
determination based upon the amount of Real Estate Taxes and Operating Expenses
paid by Tenant for the calendar year of such default.
D. Landlord may, at any time after the occurrence of any event of
default, reenter and repossess the Premises and any part thereof, and attempt in
its own name, as agent for Tenant if this Lease not be terminated, or in its own
behalf if this Lease be terminated, to relet all or any part of such Premises
for and upon such terms and to such persons and for such period or periods as
Landlord, in its sole discretion, shall determine, including the term beyond the
termination of this Lease; and Landlord shall not be required to accept any
tenant offered by Tenant or observe any instruction given by Tenant about such
reletting or do any act or exercise any care or diligence with respect to such
reletting or to the mitigation of damages. For the purpose of such reletting,
Landlord may decorate or make repairs, changes, alterations or additions in or
to the Premises to the extent deemed by Landlord desirable or convenient; and
the cost of such decoration, repairs, changes, alterations or additions shall be
charged to and be payable by Tenant as additional rent, as well as any
reasonable brokerage and attorney fees expended by Landlord; and any sums
collected by Landlord from any new tenant obtained on account of the Tenant
shall be credited against the balance of the rent due. Tenant shall pay to
Landlord monthly, on the days when the rent would have been payable under this
Lease, the amount due less the amount obtained by Landlord from such new tenant.
E. Landlord shall have the right of injunction, in the event of a
breach or threatened breach by Tenant of any of the terms and conditions hereof,
to restrain the same and the right to invoke any remedy allowed by law or in
equity, whether or not other remedies, indemnity or reimbursements are herein
provided. The right and remedies given to Landlord in this Lease are distinct,
separate and cumulative remedies; and no one of them, whether or not exercised
by Landlord, shall be deemed to be in exclusion of any of the others.
32. REMEDIES CUMULATIVE.
No reference to any specific right or remedy shall preclude Landlord
from exercising any other right or from having any other remedy or from
maintaining any action to which it may otherwise be entitled at law or in
equity. Landlord's failure to insist upon a strict performance of any covenant
of this Lease or to exercise any option or right herein contained shall not be a
waiver or relinquishment for the future of such covenant right or option, but
the same shall remain in full force and effect.
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33. LANDLORD'S LIABILITY.
Anything in this Lease to the contrary notwithstanding, Tenant agrees
that it shall look solely to the estate and property of the Landlord in the land
and buildings comprising the Premises, subject to prior rights of any mortgagee
or trustee, for the collection of any judgement or other judicial process
requiring the payment of money by Landlord in the event of any default or breach
by Landlord with respect to any of the terms, covenants and conditions of this
Lease to be observed and/or performed by Landlord, and no other assets of the
Landlord shall be subject to levy, execution, or other procedures for the
satisfaction of Tenant's remedies. In the event Landlord transfers this Lease,
except as collateral security for a loan, upon such transfer Landlord shall be
released from all liability and obligations provided that the transferee assumes
the obligations of Landlord under this Lease.
34. SUCCESSORS AND ASSIGNS.
This Lease and the covenants and conditions shall inure to the benefit
of Landlord and be binding upon Landlord, its successors and assigns, and shall
be binding upon Tenant and its successors and shall inure to the benefit of
Tenant and its successors.
35. NOTICES. All notices, requests, consents, waivers, elections and
demands (collectively, "Notices") required or permitted under this Lease shall
be in writing and shall be personally delivered or sent by messenger, certified
U.S. mail (return receipt requested), express courier service or telecopier
(with confirmation copy sent by overnight delivery service unless receipt of the
telecopy is confirmed), in all cases with postage or charges prepaid, and any
such Notice shall be effective when first received by the addressee at its
address set forth below (or when tendered for delivery, in cases where delivery
is refused):
If to Landlord:
A/A Realty Associates
4251 Crums Mill Road
Harrisburg, PA 17112
Attn: Arthur A. Kusic, P.C.
Telecopier: 717-540-7618
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If to Tenant:
BISYS Insurance Services Division
(T.U.G., Inc.)
4251 Crums Mill Road
Harrisburg, PA 17112
Attn: Anthony A. Pascotti
Telecopier: 717-657-2345
with a copy to:
Eckert Seamans Cherin & Mellott
One South Market Square Building
213 Market Street
P.O. Box 1248
Harrisburg, PA 17108-1248
Attn: Christopher M. Cicconi, Esq.
Telecopier: 717-237-6019
Any party may alter the address to which Notices are to be sent by giving notice
of such change of address in conformity with the provisions of this section for
the giving of Notices.
36. APPLICABLE LAW.
This Lease shall be enforced and interpreted in accordance with the
laws of the Governing Municipality.
37. INTERPRETATION.
Unless specifically stated to the contrary, this Lease shall include by
reference the terms and conditions of all Exhibits and Schedules attached.
Captions, the index and headings are for the convenience and reference only and
in no way shall be used to construe or modify the provisions set forth in this
Lease. The singular shall include the plural, the plural shall include the
singular; and the use of any gender shall refer to any other gender, all where
applicable.
38. BROKER'S COMMISSION.
Each of the parties represents and warrants that there are no claims
for brokerage commissions or finder's fees in connection with the execution of
this Lease.
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39. ESTOPPEL CERTIFICATE.
Tenant agrees that at any time and from time to time, within fifteen
(15) days after written request by Landlord, Tenant will execute, acknowledge
and deliver to Landlord and to such assignee, mortgagee or other party as may be
designated by Landlord, a certificate (in a form to be specified by Landlord)
stating to the extent accurate: (a) that by such certificate the Lease is
ratified; (b) the date on which Tenant has entered into occupancy of the
Premises; (c) the amount of the monthly portion of the Annual Basic Rental; (d)
that the Lease (unmodified or as modified, as the case may be) represents the
entire agreement between the parties as to the leasing (or if such is not the
case, the certificate shall so state, specifying the particulars of any other
applicable agreement or statement of facts) and is in full force and effect; (e)
the date on which the Lease expires; (f) that, as of the date of the
certificate, there are no defaults by Landlord or Tenant under the Lease,
including without limitation that all conditions under the Lease to be performed
theretofore by Landlord have been satisfied and there are no existing defense or
offsets which Tenant has against the enforcement of the Lease by Landlord (or,
if such is not the case, the certificate shall so state specifying the
particulars); (g) the amount of Advance Rental which has been deposited with
Landlord; (h) the month and year through which the Annual Basic Rental has been
paid; and (I) such other matters relating to the Lease as may be reasonably
requested by Landlord. In the event that Tenant fails to provide such
certificate within fifteen (15) days after written request by Landlord, Tenant
shall be deemed to have approved the contents of the certificate and Landlord is
authorized to so certify.
40. NOT A JOINT VENTURE.
Any intention to create a joint venture or partnership relation between
the parties is expressly disclaimed.
41. NO OPTION.
The submission of this Lease for examination does not constitute a
reservation of or option for the Premises. This Lease shall become effective
only upon approval, execution and delivery of this Lease by Landlord.
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42. NO MODIFICATION.
This writing is intended by the parties as a final expression of their
agreement and as a complete and exclusive statement of the terms, all
negotiations, considerations and representations between the parties having been
incorporated. No course of prior dealings between the parties or their officers,
employees, agents, or affiliates shall be relevant or admissible to supplement,
explain, or vary any of the terms of this Lease. Acceptance of, or acquiescence
in, a course of performance rendered under this or any prior agreement between
the parties or their affiliates shall not be relevant or admissible to determine
the meaning of any of the terms of this Lease. No representations,
understandings, or agreements have been made or relied upon in the making of
this Lease other than those specifically set forth. This Lease can only be
modified by a writing signed by the parties against whom the modification is
enforceable.
43. SEVERABILITY.
If any term or provision, or any portion, of this Lease or the
application, to any person or circumstances shall, to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to person or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected, and each term and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.
44. THIRD PARTY BENEFICIARY.
Nothing contained in this Lease shall be construed so as to confer upon
any other party the rights of a third party beneficiary (except rights contained
for the benefit of Landlord's ground lessor, and for mortgage or trustee, as the
case may be).
45. CORPORATE TENANTS.
In the event Tenant is a corporation, the persons executing this Lease
on behalf of Tenant covenant and warrant that: Tenant is a duly constituted
corporation qualified to do business in the Governing Municipality and the
execution of this Lease has been duly authorized by Tenant. The authorized
officers must sign on behalf of the corporation and, by doing so, such officers
make the covenants and warranty contained in this Section 55. The Lease must be
executed for Tenant, if a corporation, by the President or Vice-President and be
attested by the Secretary or Assistant Secretary, unless the By-Laws or a
resolution of the Board of Directors shall otherwise provide, in which event, a
certified copy of the By-Laws or resolution, as the case may be, must be
furnished. Also, the corporate seal of Tenant, if Tenant has such a seal, must
be affixed.
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46. OPTIONAL EXTENSION. Tenant shall have two (2) options to extend the
term of this Lease for two periods of five (5) years each (the "Renewal
Term(s)"), exercisable only upon the following conditions:
A. Tenant is in possession of the Premises and not in default
under any of the terms or conditions of this Lease which default continues after
notice thereof and the expiration of any applicable cure period;
B. Each such option must be exercised by written notice sent to
Landlord at least two (2) months prior to the end of the last lease year of the
prior Term; and
C. During each of the Renewal Term(s) all terms and provisions of
the Lease shall remain the same and in full force, except that Basic Rental for
the Renewal Term(s) shall be as set forth in the Rent Section below.
47. LANDLORD'S WARRANTIES.
A. Landlord represents and warrants that:
(1) The Building electrical system is sufficient to
supply electric current for the operation of equipment, including but
not limited to, normal and usual desk-top office equipment, computers,
telefax, word processing and photocopying machines and other similar
equipment used in business offices.
(2) The Building electrical system is sufficient to
supply electric current for Tenant's intended uses.
(3) The Building electrical system is capable of
furnishing a minimum of watts of electrical current per usable
square foot.
B. Landlord represents that the heating, ventilating and
air-conditioning system ("HVAC system" serving the Premises shall meet the
following performance criteria:
(1) Summer conditions: The entire air-conditioning system
for all spaces except the Computer Room is to maintain a 74 degrees
Fahrenheit Dry Bulb temperature, plus or minus 2 degrees Fahrenheit,
and a 50% relative humidity, plus or minus 5%, at 95 degrees Fahrenheit
Dry Bulb outdoor temperature.
(2) Winter conditions: The entire heating system for all
spaces except the Computer Room is to maintain a 72 degree Fahrenheit
Dry Bulb temperature, plus or minus 2 degrees Fahrenheit, with relative
humidity not to drop below 40%, at a minute 10 degrees Fahrenheit Dry
Bulb outside temperature.
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(3) The HVAC system shall at all times provide fresh air
in a quantity of not less than 0.25 cubic feet per minute per square
foot of the floor area.
C. Landlord represents and warrants that on the Commencement
Date, the Premises and Building will comply with all applicable laws, rules,
regulations and ordinances of all federal, state, county and municipal
authorities having jurisdiction thereof (individually called "Law", collectively
called "Laws"), including without limitation, fire, environmental, health, and
safety laws. Landlord shall at its expense promptly comply with all laws to
which the Premises and Building may be subject during the Tenant's Lease Term
(other than compliance required by reason of Tenant's particular and unique
manner of use of the Premises), including, without limitation, Laws requiring
the making of any structural repairs, modifications, capital expenditures or
improvements. Any Law requiring the installation of sprinklers, fire-retarding
or compartmentalizing walls, or fire detection or extinguishing equipment in the
Premises shall be complied with by Landlord at its sole expense.
(1) Landlord's Failure to Comply. If Landlord's failure
to comply promptly with any Law results in interference with Tenant's
business operations or in potential liability, legal action, or danger
to the health, safety or welfare of Tenant or its employees or
invitees, Tenant shall have the right, after written notice to
Landlord, to comply with such Law, and Landlord shall promptly
reimburse Tenant for Tenant's costs of such compliance. If Landlord
fails to reimburse Tenant for such costs within thirty (30) days after
Tenant's invoice therefor to Landlord, Tenant shall have the right to
deduct such amounts from Rent and Additional Rent, if any, payable
under this Lease.
D. Toxic Materials or Substances Warranty. Landlord warrants and
represents that no part of the Premises, Building or the land upon which the
same is located, including without limitation, the walls, ceilings, buildings
ventilation system, structural steel, flooring, pipes or boilers, is wrapped,
insulated, fireproofed or surfaced with any toxic, hazardous, or unlawful
substance or materials that might be harmful or injurious to the health, safety
or welfare of Lessee or its employees or invitees, including, without
limitation, asbestos or formaldehyde (hereinafter "TCM").
(1) During the Lease Term if any testing or examination
indicates the presence of TCM in the Premises Building, or on the land,
upon thirty (30) days written notice to Landlord, Landlord shall remove
such TCM and restore the affected area to its prior condition, but the
new con-TCM wrapping, insulation, fireproofing or surfacing. Such
removal and restoration shall be performed by Landlord at its sole
expense:
(a) in compliance with all applicable Laws
governing, handling, removal, or disposal of
TCM;
(b) in the safest manner possible; and
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(c) so as to minimize any interference with
Tenant's business operations.
(2) If within thirty (30) days after receipt of Tenant's
notice Landlord has not completed such removal and restoration, Tenant
shall have the option, but not the obligation, either to terminate this
Lease effective upon the date set forth in Tenant's notice, or to hire
any contractors and experts Tenant reasonably deems necessary to
perform such removal and restoration.
(3) Tenant shall have the right to claim from Landlord
all damages arising out of Landlord's breach of the warranty and
representation contained in the above. In addition, if Tenant performs
such removal and restoration of the area affected by TCM, Tenant shall
have the right to claim from Landlord all costs, and expenses
associated therewith, including without limitation:
(a) restoration;
(b) removal and disposal of TCM;
(c) air quality and materials testing, including
analyzing the Building ventilation system to
be sure that TCM fibers are not circulated
or vented into the Premises;
(d) related consultants' and experts' fees; and
(e) fines, fees or costs of any nature
whatsoever charged or assessed by any
governmental authority or agency regulating
or supervising such removal and disposal of
TCM. If Landlord fails to reimburse Tenant
for such amounts promptly after receipt of
Tenant's invoice therefor, Tenant shall have
the right to deduct such amounts from the
Base Rent and Additional Rent payable under
this Lease.
E. Landlord represents and warrants that it is the sole owner of
the Building and the Land property which the same is located, that is has the
full right and authority to enter into this Lease, and that the execution of
this Lease by the officer(s) executing it as Landlord's agent(s) has been duly
authorized by all required actions of Landlord's Board of Directors. Prior to
execution of this Lease, Landlord shall furnish Tenant with appropriate
documents satisfactory to Tenant documenting the authority of the officer(s) of
Landlord who will sign this Lease.
48. ARBITRATION. Any dispute arising out of this Lease shall at the option
of either party be settled by arbitration. Within ten (10) days after either
party shall have requested arbitration in writing, the parties shall agree on an
impartial arbitrator, and failing agreement, such arbitrator shall be selected
by the American Arbitration Association at the request of either party. The
arbitration
27
<PAGE> 28
shall be conducted in accordance with the then current rules of the American
Arbitration Association, and judgment upon the award granted by the arbitrator
may be entered in any court having jurisdiction thereof. Fees, costs and
expenses of the arbitrator shall be borne by the party against whom the
arbitration shall be determined, or in such proportions as the arbitrator shall
designate.
49. CONDITION PRECEDENT. As a condition precedent to entering into this
Lease, Landlord represents and warrants to Tenant that (i) neither the Building,
the Premises, nor the land upon which the same are located have been used to
dump, discard, landfill, deposit or dispose of any substance material above, on
or below ground, which is toxic or hazardous to human health, which would
constitute unlawful disposal and/or which would require clean up, removal or
special disposal under current federal and/or state environmental laws or
regulations; (ii) there are not underground tanks or toxic hazardous substances
used in or about the Building, Land or the Premises including, but not limited
to PCB, asbestos, Urea Formaldehyde Foam Insulation or the like; and (iii) the
Building, Land and the Premises are in full compliance with all pending laws and
federal environmental laws, including but not limited to, all applicable rules
and regulations related thereto. Landlord shall indemnify and hold Tenant
harmless from and against any liabilities, losses, and costs, including Tenant's
reasonable counsel fees, which Tenant may incur by reason of Landlord's breach
of the foregoing representation and warranty and shall, at Landlord's sole cost
and expense, immediately remove any hazardous substance from the Premises. The
foregoing provision shall survive the termination, expiration or cancellation of
this Lease.
50. DEMISE. The Tenant, at no additional cost therefore, shall have the
right to the exclusive use of the delivery areas serving the Building of which
the Premises is a part, to the exclusive use of the access driveways and
allocated parking spaces for its business purposes and for those of its agents,
servants, employees or invitees, and to the exclusive use of the entire Parcel
of Land upon which the Building has been constructed.
51. COMPLETE BUILDING. While the Exhibits attached hereto represent work to
be completed by Landlord in connection with this Lease, it is understood and
agreed by the parties hereto and warranted by the Landlord the Tenant that
Tenant is leasing among other things a completed Building ready for occupancy as
an integrated unit together with appropriate amenities consistent with a first
class office Building. The parties recognize that it is difficult if not
impossible to list all items required to construct such a Building; however, it
is the intent of the Landlord to complete and deliver a completed Building for
Tenant's business use. Landlord,
28
<PAGE> 29
as a construction and development expert warrants and represents to Tenant that
the Building upon completion and delivery shall be a fully integrated project
and usable by Tenant without further construction or addition, except as set
forth herein for the purpose intended by Tenant.
IN WITNESS WHEREOF, the parties hereto intending to be legally bound
hereby have executed this Lease as of the day and year above written.
WITNESS: LANDLORD:
A/A REALTY ASSOCIATES
____________________________________ By:_______________________________________
____________________________________ Its:______________________________________
____________________________________ Date:_____________________________________
WITNESS: TENANT:
BISYS INSURANCE SERVICES DIVISION
(T.U.G., INC.)
____________________________________ By:_______________________________________
Its:______________________________________
Date:_____________________________________
29
<PAGE> 30
BUILDING LEASE
BY AND BETWEEN
A/A REALTY ASSOCIATES
AND
BISYS INSURANCE SERVICES DIVISION (T.U.G., Inc.)
<PAGE> 1
Exhibit 13
The BISYS Group, Inc.
and Subsidiaries
SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR YEARS ENDED JUNE 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenues $ 386,344 $ 318,988 $ 247,061 $ 200,527 $ 170,799
- --------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 221,767 170,717 131,708 105,163 83,567
General and administrative 58,061 54,638 39,980 46,953 33,843
Selling and conversion 17,064 12,410 9,248 8,988 13,592
Research and development 11,731 10,408 10,176 9,392 8,895
Amortization of intangibles 3,819 3,613 3,811 5,095 3,097
Merger expenses and other charges 11,998 1,500 22,250 28,340 --
- --------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 61,904 65,702 29,888 (3,404) 27,805
Interest (income) expense (4,849) (2,216) (372) 649 887
- --------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income tax provision 66,753 67,918 30,260 (4,053) 26,918
Income tax provision 26,729 27,167 12,236 2,431 8,027
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 40,024 $ 40,751 $ 18,024 $ (6,484) $ 18,891
================================================================================================================================
Basic earnings (loss) per share $ 1.52 $ 1.63 $ 0.76 $ (0.28) $ 0.93
Diluted earnings (loss) per share $ 1.46 $ 1.55 $ 0.72 $ (0.28) $ 0.84
================================================================================================================================
BALANCE SHEET DATA:
JUNE 30,
Working capital $ 97,822 $ 87,641 $ 40,448 $ 5,326 $ 30,888
Total assets 334,101 265,085 214,625 165,338 181,394
Long-term debt, including current maturities 1,702 1,668 1,974 8,405 36,049
Stockholders' equity 238,290 191,919 143,172 114,627 117,368
================================================================================================================================
</TABLE>
1998
FINANCIALS
17 Selected Financial Data
18 Management's Discussion and Analysis of Results
of Operations and Financial Condition
21 Management's Statement of Responsibility
21 Report of Independent Accountants
22 Consolidated Statement of Operations
23 Consolidated Balance Sheet
24 Consolidated Statement of Cash Flows
25 Consolidated Statement of Stockholders' Equity
26 Notes to Consolidated Financial Statements
32 Market Price Information and Consolidated Quarterly Results
17
<PAGE> 2
The BISYS Group, Inc.
and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The BISYS Group, Inc. and subsidiaries (the "Company") provides outsourcing
solutions to and through financial organizations and reports as a single
segment. The following table presents the percentage of revenues represented by
each item in the Company's consolidated statement of operations for the periods
indicated:
<TABLE>
<CAPTION>
FOR YEARS ENDED JUNE 30, 1998 1997 1996
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 57.4 53.5 53.3
General and administrative 15.0 17.1 16.2
Selling and conversion 4.5 3.9 3.8
Research and development 3.0 3.3 4.1
Amortization of intangibles 1.0 1.1 1.5
Merger expenses and other charges 3.1 .5 9.0
- --------------------------------------------------------------------------------
Operating earnings 16.0 20.6 12.1
Interest income 1.3 0.7 0.2
- --------------------------------------------------------------------------------
Earnings before income tax provision 17.3 21.3 12.3
Income tax provision 6.9 8.5 5.0
- --------------------------------------------------------------------------------
Net income 10.4% 12.8% 7.3%
================================================================================
</TABLE>
Revenues increased $67.4 million in fiscal 1998 and $71.9 million in fiscal
1997, representing increases of 21.1% and 29.1%, respectively. Growth in fiscal
1998 and 1997 was derived from sales to new clients, existing client growth,
cross-sales to existing clients and revenues from acquired businesses, partially
offset by lost business. Revenue growth from acquired businesses approximated
$23.4 million in fiscal 1998 and $12.6 million in fiscal 1997.
Service and operating expenses increased $51.1 million in fiscal 1998 and $39.0
million in fiscal 1997, representing percentage increases of 29.9% and 29.6%,
respectively. Service and operating expenses increased as a percentage of
revenues in fiscal 1998 by 3.9% to 57.4%, and by 0.2% to 53.5% in fiscal 1997.
The increases resulted from additional costs associated with greater revenues.
General and administrative expenses increased $3.4 million, or 6.3%, and
decreased as a percentage of revenues by 2.1% to 15.0% in fiscal 1998 and
increased $14.7 million, or 36.7%, and increased as a percentage of revenues by
0.9% to 17.1% in fiscal 1997. The dollar increase in fiscal 1998 and 1997
resulted from additional costs associated with greater revenues. The decrease as
a percentage of revenues in fiscal 1998 resulted from further utilization of
existing general and administrative support resources.
Selling and conversion expenses increased $4.7 million, or 37.5%, and increased
as a percentage of revenues by 0.6% to 4.5% in fiscal 1998, and increased $3.2
million, or 34.2%, and increased as a percentage of revenues by 0.1% to 3.9% in
fiscal 1997. The increases in fiscal 1998 and 1997 resulted from added costs
associated with higher selling and conversion activities.
Research and development expenses increased $1.3 million to $11.7 million, or
12.7%, in fiscal 1998 and decreased as a percentage of revenues by 0.3% to 3.0%.
In fiscal 1997 such expenses increased $0.2 million to $10.4 million, or 2.3%,
and decreased as percentage of revenues by 0.8% to 3.3%. The dollar increases
resulted from increased personnel expenses to support greater research and
development activities, and the reduction in percentage of revenues was a result
of acquiring and merging with businesses which do not require substantial
research and development to produce revenues.
Amortization of intangible assets was $3.8 million in fiscal 1998, compared to
$3.6 million in fiscal 1997 and $3.8 million in fiscal 1996. As a percentage of
revenues, amortization decreased to 1.0% from 1.1% and from 1.5% over the same
years.
In fiscal 1998, the Company recorded transaction-related charges of $5.3 million
related to the acquisitions of Charter Systems, Inc. (Charter), Dascit/White &
Winston and affiliated companies (DWW), and Benefit Services, Inc. (BSI).
Additionally, a one-time charge of $6.7 million was incurred to realign
operations primarily in connection with a client of the Company's Fund Services
division terminating its distribution and administration agreements.
In fiscal 1997, $1.5 million of additional commission charges were incurred as a
result of increased mutual fund assets serviced pursuant to the outsourcing
alliance with the mutual fund division of Furman Selz, LLC. In fiscal 1996,
merger expenses and other charges aggregated $22.2 million. This included
transaction-related expenses arising from Strategic Solutions Group, Inc. (BISYS
Creative Solutions) and T.U.G., Inc. (BISYS Insurance Services) mergers, and
commissions and other expenses associated with the outsourcing alliance with the
mutual fund division of Furman Selz, LLC which, in total, aggregated $15.7
million. The Company also recorded a charge of $6.0
18
<PAGE> 3
million to integrate these new operations and to combine certain TOTALPLUS data
center operations and certain offices of BISYS Document Solutions. Additionally,
the Company wrote off the remaining deferred financing costs of $0.5 million in
conjunction with the expiration of its term loan facility.
Operating earnings decreased by $3.8 million to $61.9 million in fiscal 1998,
and decreased as a percentage of revenues from 20.6% to 16.0%. The decreases
were due to costs related to the mergers of Charter, DWW, and BSI and the
realignment of current operations of the Fund Services division. Operating
earnings increased by $35.8 million to $65.7 million in fiscal 1997 and
increased as a percentage of revenues from 12.1% to 20.6%. The increases were
primarily due to revenue gains, the synergies realized from consolidation of
acquired businesses, and the reduction in merger expenses and other charges.
Interest income increased $2.6 million to $4.8 million in fiscal 1998 and
increased $1.8 million to $2.2 million in fiscal 1997 due to higher average
invested balances of cash and cash equivalents.
The provision for income taxes decreased to $26.7 million in fiscal 1998 from
$27.2 million in fiscal 1997 and increased from $12.2 million in fiscal 1996.
The fiscal 1998 provision reflects an effective tax rate of 40.0% and was
impacted by the effect of non-deductible amortization, merger-related expenses,
and other expenses totaling $0.7 million, and state taxes of $3.1 million. The
fiscal 1997 provision reflects an effective tax rate of 40.0% and was impacted
by $0.9 million of non-deductible amortization and other expenses and $2.5
million of state taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of $93.4
million and working capital of $97.8 million. The Company has been able to
satisfy its cash requirements through its cash flows from operations. In
addition, the Company has a $100.0 million senior unsecured revolving credit
facility including a $10.0 million letter of credit sub-facility available to
finance working capital requirements. At June 30, 1998, the Company had $0.6
million outstanding in the form of letters of credit. The interest rate on
outstanding long-term borrowings of $1.7 million at June 30, 1998 was 7.75%.
For the year ended June 30, 1998, operating activities provided cash of $62.6
million, primarily as a result of net income of $40.0 million plus several
non-cash items including depreciation and amortization of $14.8 million,
deferred income taxes of $4.5 million, loss on disposition or write-down of
property and equipment of $2.7 million offset by changes in net operating assets
and liabilities of $1.3 million. Investing activities used cash of $50.3
million, primarily due to business acquisitions of $29.3 million, capital
expenditures of $16.9 million and investments of $6.6 million. Financing
activities provided cash of $1.2 million, primarily from $13.6 million in
proceeds from shares of common stock issued of which $12.2 million was in
connection with the exercise of stock options, offset by $10.3 million for the
repurchase of common stock.
For the years ended June 30, 1997 and 1996, operating activities provided cash
of $46.3 million and $39.7 million, respectively. Investing activities used cash
of $11.8 million and $3.2 million in fiscal years 1997 and 1996, respectively,
and financing activities provided cash of $6.2 million and used cash of $4.5
million, respectively.
The Company's strategy includes the acquisition of complementary businesses
financed by a combination of internally generated funds, long-term debt and
common stock. In fiscal 1998, the Company initiated a stock buy-back program of
up to $100 million of its outstanding common stock. Purchases will occur from
time to time in the open market to offset the possible dilutive effect of shares
to be issued under employee benefit plans, for possible use in future
acquisitions and for general and other corporate purchases.
YEAR 2000
The Company is addressing the Year 2000 issues associated with its
existing computer systems and software applications utilizing both internal and
external resources to identify and remediate these matters throughout the
organization. The Company has completed its risk assessment and continues to
remediate all significant systems which are not currently Year 2000 ready. The
Company anticipates that all of its internal mission critical information
systems will be Year 2000 ready by December 31, 1998.
If third parties upon which the Company depends are unable to address their Year
2000 issues in a timely manner, it could result in a material adverse financial
risk to the Company. In order to assure that this does not occur, the Company is
devoting resources necessary to develop appropriate business continuity plans.
These contingency plans will include alternative systems and vendors, disaster
recovery hot sites and manual processes. These contingency plans are expected to
be completed prior to June 30, 1999.
The Company's Year 2000 progress, the testing of remediated software and
contingency plans have been and will continue to be the subject of independent
verification and validation by the Company's Internal Audit function. Internal
Audit reports on Year 2000 are reviewed by senior management and the Company's
Board of Directors.
The Company believes it has developed an effective plan to address the Year 2000
issues and that, based on available information, its Year 2000 transition will
not have a material effect on its business, operations or financial results. In
fiscal 1998, the Company spent approximately $3.0 million on Year 2000 testing
19
<PAGE> 4
The BISYS Group, Inc.
and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
and remediation and currently anticipates expenditures in the range of $3.0 to
$5.0 million in fiscal 1999 and less than $1.0 million in the first half of
fiscal 2000.
SUBSEQUENT EVENT
On August 21, 1998, the Company entered into a definitive agreement and
plan of merger to acquire the Georgia-based Greenway Corporation, in a stock for
stock transaction valued at approximately $47.5 million. The Company's Board of
Directors has agreed to the terms of the agreement. The transaction will be
accounted for by the purchase method of accounting.
The Company expects to allocate a substantial portion of the purchase price to
in-process research and development costs which will result in a nonrecurring
charge in the first fiscal quarter ending September 30, 1998.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this annual report are forward-looking statements which involve
risks and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, services and related products, prices, and other factors discussed in
the Company's prior filings with the Securities and Exchange Commission.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate. Therefore, there can be no assurance that the
forward-looking statements included in this annual report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
20
<PAGE> 5
The BISYS Group, Inc.
and Subsidiaries
MANAGEMENT'S STATEMENT
OF RESPONSIBILITY
The management of the Company assumes responsibility for the integrity and
objectivity of the information in the fiscal 1998 Annual Report. The information
was prepared in conformity with generally accepted accounting principles and
reflects the best judgement of management.
To provide reasonable assurance that transactions authorized by management are
recorded and reported properly and that assets are safeguarded, the Company
maintains a system of internal controls. The concept of reasonable assurance
implies that the cost of such a system is weighed against the benefits to be
derived therefrom.
PricewaterhouseCoopers LLP, independent accountants, audits the financial
statements of the Company in accordance with generally accepted auditing
standards. Such audit considers the Company's internal control structure and
includes a communication of recommendations for improvements in the Company's
internal control structure.
The Audit Committee of the Board of Directors ensures that management is
properly discharging its financial reporting responsibilities. In performing
this function, the Committee meets with management and the independent
accountants throughout the year. Additional access to the Committee is provided
to the independent accountants on an unrestricted basis, allowing discussion of
audit results, internal accounting controls, and financial reporting.
/s/ Lynn J. Mangum
- ------------------
LYNN J. MANGUM
Chairman and
Chief Executive Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF THE BISYS GROUP, INC.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of The BISYS
Group, Inc. and its subsidiaries at June 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Pricewaterhouse Coopers LLP
- -------------------------------
PRICEWATERHOUSECOOPERS LLP
New York, New York
August 7, 1998, except as to certain information presented in
Note 12, for which the date is August 21, 1998
21
<PAGE> 6
The BISYS Group, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR YEARS ENDED JUNE 30, 1998 1997 1996
<S> <C> <C> <C>
Revenues $386,344 $318,988 $247,061
- -----------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 221,767 170,717 131,708
General and administrative 58,061 54,638 39,980
Selling and conversion 17,064 12,410 9,248
Research and development 11,731 10,408 10,176
Amortization of intangibles 3,819 3,613 3,811
Merger expenses and other charges 11,998 1,500 22,250
- -----------------------------------------------------------------------------------
Operating earnings 61,904 65,702 29,888
Interest income 4,849 2,216 372
- -----------------------------------------------------------------------------------
Earnings before income tax provision 66,753 67,918 30,260
Income tax provision 26,729 27,167 12,236
- -----------------------------------------------------------------------------------
Net income $ 40,024 $ 40,751 $ 18,024
===================================================================================
Basic earnings per share $ 1.52 $ 1.63 $ 0.76
Diluted earnings per share $ 1.46 $ 1.55 $ 0.72
===================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 7
The BISYS Group, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93,403 $ 79,951
Accounts receivable, net 73,693 59,987
Deferred tax asset 4,660 5,083
Prepaid expenses and other 8,484 6,980
- ------------------------------------------------------------------------------------------------------------
Total current assets 180,240 152,001
Property and equipment, net 37,478 32,111
Intangible assets, net 102,663 75,719
Other assets 13,720 5,254
- ------------------------------------------------------------------------------------------------------------
Total assets $ 334,101 $ 265,085
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Current maturities of long-term debt $ 124 $ 83
Accounts payable 11,626 6,673
Accrued liabilities 70,668 57,604
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 82,418 64,360
Long-term debt 1,578 1,585
Deferred tax liability 10,451 6,860
Other liabilities 1,364 361
- ------------------------------------------------------------------------------------------------------------
Total liabilities 95,811 73,166
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $0.02 par value, 80,000,000 shares authorized, 26,670,388 and
25,235,288 shares issued at June 30, 1998 and 1997, respectively 533 505
Additional paid-in capital 173,683 153,775
Retained earnings 66,229 37,639
Less treasury stock at cost, 57,895 shares at June 30, 1998 (2,155) _
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 238,290 191,919
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 334,101 $ 265,085
============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 8
The BISYS Group, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR YEARS ENDED JUNE 30, 1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,024 $ 40,751 $ 18,024
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 14,836 11,759 9,965
Loss on disposition or write-down of property and equipment 2,684 __
Deferred income tax provision 4,515 8,511 2,324
Other (775) (827) _
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (8,103) (11,801) (15,614)
Prepaid expenses and other (1,477) (2,411) 371
Other assets (1,813) (1,158) 1,849
Accounts payable 148 617 (508)
Accrued liabilities and other 12,580 900 23,309
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 62,619 46,341 39,720
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses (29,250) _ _
Net cash acquired in acquisitions and dispositions 2,683 3,827 3,024
Capital expenditures (16,930) (15,974) (12,698)
Purchase of investments (6,571) (3,000) _
- ---------------------------------------------------------------------------------------------------------------------
Proceeds from sales and maturities of investments 1,365 3,523 6,796
- ---------------------------------------------------------------------------------------------------------------------
Purchase of intangible assets (1,621) (208) (367)
Net cash used by investing activities (50,324) (11,832) (3,245)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt _ _ 6,800
Repayment of debt (2,150) (306) (16,073)
Exercise of stock options 12,229 5,385 4,113
Issuance of common stock 1,369 1,079 673
Repurchases of common stock (10,291) _ _
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,157 6,158 (4,487)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 13,452 40,667 31,988
Cash and cash equivalents at beginning of year 79,951 39,284 7,296
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 93,403 $ 79,951 $ 39,284
=====================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 338 $ 335 $ 664
Income taxes $ 19,432 $ 14,249 $ 6,391
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 9
The BISYS Group, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
FOR YEARS ENDED JUNE 30, 1996, COMMON STOCK PAID-IN (ACCUMULATED TREASURY STOCK
1997 AND 1998 SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 23,107 $ 462 $136,656 $(22,491) _ $ _
=======================================================================================================================
Exercise of stock options 630 13 4,661 _ _ _
Tax benefit of stock options exercised _ _ 3,549 _ _ _
Issuance of common stock 33 1 672 _ _ _
Common stock issued in acquisitions 1,012 20 250 1,355 _ _
Net income _ _ _ 18,024 _ _
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 24,782 496 145,788 (3,112) _ _
=======================================================================================================================
Exercise of stock options 412 8 5,377 _ _ _
Tax benefit of stock options exercised _ _ 1,532 _ _ _
Issuance of common stock 41 1 1,078 _
Net income _ _ _ 40,751 _ _
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 25,235 505 153,775 37,639 _ _
=======================================================================================================================
Exercise of stock options 592 12 9,391 (4,965) (217 8,136
Tax benefit of stock options exercised _ _ 4,607 _ _ _
Issuance of common stock 48 1 1,368 _ _ _
Common stock issued in acquisitions 795 15 4,542 (6,469) _ _
Repurchases of common stock _ _ _ _ 275 (10,291)
Net income _ _ _ 40,024 _ _
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 26,670 $ 533 $173,683 $ 66,229 58$ (2,155)
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 10
The BISYS Group, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
THE COMPANY
The BISYS Group, Inc. and subsidiaries ("BISYS" or the "Company") is a
leading national provider of outsourcing solutions to and through financial
organizations.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The BISYS
Group, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid debt instruments purchased
with original maturities of three months or less, including $42.3 million and
$48.2 million of overnight repurchase agreements at June 30, 1998 and 1997,
respectively. The Company maintains cash deposits in banks which from time to
time exceed the amount of deposit insurance available. Management periodically
assesses the financial condition of the institutions and believes that any
potential credit loss is minimal.
SHORT-TERM INVESTMENTS
Management determines the appropriate classification of investments in
debt and equity securities at the time of purchase. Marketable debt and equity
securities available for sale are carried at market based upon quoted market
prices. Unrealized gains or losses on available for sale securities are
accumulated as an adjustment to stockholders' equity, net of related deferred
income taxes. Realized gains or losses are computed based on specific
identification of the securities sold. Realized and gross unrealized gains and
losses on short-term investments were not significant for the years ended June
30, 1998, 1997 and 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight line method over the estimated useful lives of
the assets as follows:
ESTIMATED
USEFUL LIVES
(YEARS)
BUILDINGS AND LEASEHOLD IMPROVEMENTS 5 - 40
DATA PROCESSING EQUIPMENT AND SYSTEMS 2 - 5
FURNITURE AND FIXTURES 3 - 12
SOFTWARE DEVELOPMENT COSTS 3 - 5
Depreciation expense for the years ended June 30, 1998, 1997 and 1996 was
$11,092,000, $8,146,000 and $6,154,000, respectively.
Expenditures for major renewals and improvements are capitalized, while minor
replacements, maintenance and repairs which do not improve or extend the life of
such assets are charged to expense as incurred. Disposals are removed at cost
less accumulated depreciation with the resulting gain or loss being reflected in
operations. Maintenance and repairs amounted to approximately $5,025,000,
$4,978,000 and $3,731,000 for the years ended June 30, 1998, 1997 and 1996,
respectively.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight line basis over the
estimated useful lives as follows:
ESTIMATED
USEFUL LIVES
(YEARS)
COST IN EXCESS OF NET ASSETS ACQUIRED 10 - 40
CUSTOMER RELATIONSHIPS 25 - 30
OTHER 3 - 7
The Company evaluates, for impairment, the carrying value of intangible assets
by comparing the carrying value of intangible assets including goodwill, to the
anticipated future undiscounted cash flows from the businesses whose acquisition
gave rise to the asset. If an intangible asset is impaired the asset is written
down to fair value. Intangible assets resulting from acquired customer
relationships are evaluated in light of actual customer attrition rates to
ensure that the carrying value of these intangible assets is recoverable.
SOFTWARE COSTS
The Company charges to operations routine maintenance of software, design
costs and development costs incurred prior to the establishment of a product's
technological feasibility. Costs incurred subsequent to the establishment of a
product's technological feasibility are capitalized and amortized over the
expected useful life of the related product. For the years ended June 30, 1998,
1997 and 1996, the Company did not capitalize any internal costs related to the
development of new software.
REVENUE RECOGNITION
The Company records revenue as earned as evidenced by contracts or
invoices for its services at prices established by contract, price list and/or
fee schedule less applicable discounts. The Company is not subject to returns in
its businesses.
ACCOUNTS RECEIVABLE
A majority of the Company's receivables are from financial institutions
and investment companies which approximated $42.5 million and $12.6 million,
respectively, at June 30, 1998. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral for accounts
receivable. Bad debt expense for the years ended June 30, 1998, 1997 and 1996
approximated $1,642,000, $1,494,000 and $765,000, respectively. At June 30, 1998
and 1997, the Company's allowance for doubtful accounts was approximately
$2,969,000 and $2,673,000, respectively.
26
<PAGE> 11
PER SHARE DATA
Basic earnings per share is computed using the weighted average number of
common shares outstanding during each year presented. Diluted earnings per share
is computed using the weighted average number of common and dilutive common
equivalent shares outstanding during each year presented. Common equivalent
shares consist of stock options and are computed using the treasury stock
method. Earnings per share for fiscal 1997 and 1996 have been restated to comply
with FAS 128, "Earnings per Share."
Amounts utilized in per share computations are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1998 1997 1996
<S> <C> <C> <C>
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 26,313 25,038 23,742
ASSUMED CONVERSION OF COMMON
SHARES ISSUABLE UNDER STOCK
OPTION PLAN 1,034 1,319 1,326
- ---------------------------------------------------------------------
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 27,347 26,357 25,068
=====================================================================
</TABLE>
Options to purchase 1,221,294 shares of common stock at various prices ranging
from $36.50 to $39.00 were outstanding at June 30, 1998, but were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of common shares.
STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock-based
compensation plans.
INCOME TAXES
The liability method is used in accounting for income taxes whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws.
RECLASSIFICATION
Certain reclassifications have been made to the 1996 and 1997 consolidated
financial statements to conform to the 1998 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The most significant estimates are related to the allowance for doubtful
accounts, intangible assets, merger expenses and other charges, income taxes and
contingencies. It is reasonably possible that actual results could differ from
these estimates in the near term.
DISCLOSURE REGARDING FINANCIAL INSTRUMENTS
For all financial instruments, including cash and cash equivalents,
receivables, accounts payable and long-term debt, the carrying value is
considered to approximate fair value.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued FAS 131
"Disclosures about Segments of an Enterprise and Related Information." FAS 131
specifies revised guidelines for determining an entity's operating segments and
the type and level of financial information to be disclosed. FAS 131 is
effective for financial statements for fiscal years beginning after December 15,
1997 and therefore the Company will adopt the new requirements for financial
statements ending June 30, 1999.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998 with
earlier application permitted. The provisions of SOP 98-1 will result in the
Company capitalizing certain internal costs related to development of internal
use software that have previously been expensed as incurred. The Company expects
to adopt the SOP in the first quarter of fiscal 1999, the impact of which is not
expected to be material to the Company's financial position or results of
operations.
2. BUSINESS COMBINATIONS
On May 29, 1998, the Company acquired all of the partnership interests and
outstanding shares of Underwriters Service Agency and its affiliates (USA) for
total cash consideration of $29,250,000. The transaction was accounted for as a
purchase and, accordingly, the operations of USA are included in the
consolidated financial statements since the date of acquisition. Pro forma
information has not been presented due to lack of materiality.
On September 16, 1997, the Company merged with Benefit Services, Inc. (BSI) by
exchanging 71,448 shares of BISYS common stock for all the outstanding shares of
BSI.
On August 29, 1997, the Company merged with Dascit/White & Winston and
affiliated companies (DWW) by exchanging 134,396 shares of BISYS common stock
for all the outstanding stock of DWW.
On August 15, 1997, the Company merged with Charter Systems, Inc. (Charter), now
known as BISYS Networking Services, by exchanging 588,945 shares of BISYS common
stock and 258,605 BISYS equivalent stock options for all the outstanding shares
and stock options of Charter.
27
<PAGE> 12
The BISYS Group, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisitions of Charter, DWW and BSI have been accounted for as poolings of
interests, although historical financial statements have not been restated due
to immateriality. The acquired companies' results of operations have been
included in BISYS' results of operations effective July 1, 1997. The Company
incurred a pre-tax charge of $5,263,000 for the year ended June 30, 1998 for
costs associated with these mergers (see Note 9).
On April 22, 1996, the Company merged with Strategic Solutions Group, Inc.
("SSG" doing business as Creative Solutions) by exchanging 520,599 shares of
BISYS common stock for all the outstanding shares of SSG. On June 28, 1996, the
Company merged with T.U.G., Inc. ("TUG", now known as BISYS Insurance Services)
by exchanging 491,314 shares of BISYS common stock for all the outstanding
shares of TUG. The acquisitions of SSG and TUG have been accounted for as
poolings of interests, although historical financial statements have not been
restated due to immateriality. The Company incurred a charge of $1,750,000 in
the year ended June 30, 1996 for costs associated with these mergers (see Note
9).
3. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS
(IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
LAND $ 271 $ 271
BUILDINGS AND LEASEHOLD IMPROVEMENTS 7,441 6,101
DATA PROCESSING EQUIPMENT AND SYSTEMS 31,848 24,982
FURNITURE AND FIXTURES 14,952 10,516
SOFTWARE DEVELOPMENT COSTS 20,798 17,350
- -------------------------------------------------------------------------
75,310 59,220
ACCUMULATED DEPRECIATION
AND AMORTIZATION (37,832) (27,109)
- -------------------------------------------------------------------------
$ 37,478 $ 32,111
=========================================================================
INTANGIBLE ASSETS, NET:
COST IN EXCESS OF NET ASSETS ACQUIRED $ 87,991 $ 62,250
CUSTOMER RELATIONSHIPS 31,725 28,000
OTHER 1,426 205
- -------------------------------------------------------------------------
121,142 90,455
LESS: ACCUMULATED AMORTIZATION (18,479) (14,736)
- -------------------------------------------------------------------------
$ 102,663 $ 75,719
=========================================================================
ACCRUED LIABILITIES:
MERGER COSTS AND OTHER $ 3,090 $ 2,525
COMPENSATION 11,266 9,209
DEFERRED INCOME 10,593 6,988
INCOME TAXES 1,600 3,418
MARKETING 27,429 18,779
OTHER 16,690 16,685
- -------------------------------------------------------------------------
$ 70,668 $ 57,604
=========================================================================
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
MORTGAGE NOTES PAYABLE $ 1,591 $ 1,661
OTHER BORROWINGS 111 7
LESS CURRENT MATURITIES (124) (83)
- -------------------------------------------------------
$ 1,578 $ 1,585
=======================================================
INTEREST RATES AT JUNE 30 7.75% 7.75%
=======================================================
</TABLE>
Mortgage notes payable of $1,591,000 require monthly principal and interest
payments of $16,525 and are collateralized by real estate. The interest rate is
fixed at 7.75% through May 2003 and fluctuates based on certain market
conditions subsequent to that date. Maturities of the mortgage notes payable are
$76,000 in fiscal 1999, $84,000 in fiscal 2000, $91,000 in fiscal 2001, $99,000
in fiscal 2002, $106,000 in 2003 and $1,135,000 thereafter.
The Company has a $100 million senior unsecured revolving credit facility
(including a $10 million letter of credit subfacility) with its banks to support
working capital requirements and fund the Company's future acquisitions. The
facility expires in March 2002.
Outstanding borrowings under the credit facility bear interest at prime or, at
the Company's option, LIBOR plus a margin not to exceed 1.25% based upon the
ratio of the Company's consolidated indebtedness to common stockholders' equity
(the "Pricing Formula"). The credit agreement requires the Company to pay an
agent fee of $25,000 per year and a commitment fee ranging from 0.15% to 0.25%,
based on the Pricing Formula, on the unused portion of the facility. The
facility is guaranteed by all subsidiaries of The BISYS Group, Inc. (except for
broker/dealer, insurance and non-operating companies).
The credit agreement requires, among other things, the Company to maintain
certain financial covenants and limits the Company's ability to incur additional
indebtedness and to pay dividends. As of June 30, 1998, no amounts were
permitted for the payment of dividends.
The Company can borrow under the facility through March 2002, up to $100
million, reduced by the outstanding letters of credit ($628,000 at June 30,
1998). Interest is payable quarterly for prime rate borrowings or at maturity
for LIBOR borrowings, which range from 30-180 days.
In May 1996, the Company's previous multiple draw acquisition facility expired
and the remaining unamortized debt issuance costs of $513,000 were charged to
expense.
28
<PAGE> 13
5. INCOME TAXES
The significant components of the Company's net deferred tax asset (liability)
as of June 30, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
TAX EFFECTS OF:
PROPERTY AND EQUIPMENT $ (724) $ 1,156
ACCRUED LIABILITIES 2,248 2,584
ACCOUNTS RECEIVABLE 118 1,354
TAX CARRYFORWARDS 962 -
OTHER 2,620 2,439
- ------------------------------------------------------------------------
DEFERRED TAX ASSET 5,224 7,533
LESS VALUATION ALLOWANCE (857) (1,319)
- ------------------------------------------------------------------------
NET DEFERRED TAX ASSET 4,367 6,214
DEFERRED TAX LIABILITY - IDENTIFIABLE
INTANGIBLE ASSETS (10,158) (7,991)
========================================================================
DEFERRED INCOME TAXES, NET (LIABILITY)
ASSET $ (5,791) $ (1,777)
========================================================================
</TABLE>
The Company periodically evaluates the deferred tax asset and adjusts the
related valuation allowance on the deferred tax asset to an amount which is more
likely than not to be realized through future taxable income.
The components of the income tax provision for the years ended June 30, 1998,
1997, and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
DEFERRED FEDERAL TAX $ 3,867 $ 7,428 $ 2,172
CURRENT FEDERAL TAX EXPENSE 17,988 15,731 8,052
DEFERRED STATE TAX 648 1,083 152
CURRENT STATE TAX EXPENSE 4,226 2,925 1,860
- ---------------------------------------------------------------------
$26,729 $27,167 $12,236
=====================================================================
</TABLE>
A reconciliation of the Company's income tax provision and the amount computed
by applying the statutory federal income tax rate to earnings before income tax
provision for the years ended June 30, 1998, 1997 and 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
FEDERAL INCOME TAX
AT STATUTORY RATE $ 23,364 $ 23,772 $ 10,591
AMORTIZATION AND
CHARGE-OFF OF NON-DEDUCTIBLE
INTANGIBLE ASSETS 781 1,195 664
CHANGE IN VALUATION ALLOWANCE (462) -- (1,987)
NON-DEDUCTIBLE MERGER-
RELATED EXPENSES 522 -- 490
STATE TAXES 3,091 2,532 1,308
OTHER, NET (567) (332) 1,170
- -----------------------------------------------------------------------------
$ 26,729 $ 27,167 $ 12,236
=============================================================================
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases various office space under noncancellable operating leases
with remaining terms of up to ten years. The Company also leases certain office
and computer equipment and software under operating leases expiring through
2003. Rental expense associated with these operating leases for the years ended
June 30, 1998, 1997 and 1996 were $16,434,000, $15,096,000 and $15,892,000,
respectively.
The future minimum rental payments under noncancellable operating leases for the
years ending after June 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
<S> <C>
1999 $17,108
2000 12,594
2001 9,484
2002 6,799
2003 4,170
THEREAFTER 11,951
- ------------------------------------------------------
$62,106
======================================================
</TABLE>
In fiscal 1998, the Company entered into an agreement that requires the Company
to make future payments of $1,000,000, $3,000,000, and $11,500,000 in fiscal
years 1999, 2000, and 2001, respectively, in exchange for the right to resell
computer software user licenses. As part of the agreement, the Company also
committed to pay an annual support fee based on the actual number of user
licenses resold.
The Company's broker/dealer subsidiaries are subject to the Uniform Net Capital
Rule of the Securities and Exchange Commission. At June 30, 1998, the aggregate
net capital of such subsidiaries was $8,168,000, exceeding the net capital
requirement by $6,264,000.
The Company is involved in litigation arising in the ordinary course of
business. Management believes that the Company has adequate defenses and/or
insurance coverage against litigation and that the outcome of these proceedings,
individually or in the aggregate, will not have a material adverse effect upon
the Company's financial position, results of operations, or cash flows.
7. SUPPLEMENTAL CASH FLOW INFORMATION
In fiscal 1998, 1997 and 1996, the Company recorded a reduction to taxes
currently payable related to tax benefits associated with stock options of
approximately $4,607,000, $1,532,000 and $3,549,000, respectively, with a
corresponding adjustment to additional paid-in capital. These noncash
transactions have been excluded from the consolidated statement of cash flows.
During the years ended June 30, 1998, 1997 and 1996, the Company received
proceeds of $12,229,000, $5,385,000 and $4,113,000, respectively, and recorded a
deduction to deferred
29
<PAGE> 14
The BISYS Group, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation of $345,000 in 1998 and $561,000 in 1996 with offsetting increases
in additional paid-in capital relating to the exercise of stock options.
8. RETIREMENT SAVINGS PLAN
The Company has a contributory retirement and savings plan which covers all
employees and meets the requirements of Section 401(k) of the Internal Revenue
Code. Employees may contribute up to 15% of their compensation to the plan which
is matched 50% by the Company up to 6% of the employee's compensation not to
exceed $5,000.
The Company may, at the discretion of the Board of Directors, make additional
contributions to the plan. The Company's matching contribution vests 40% with
the employee after two years and 20% per year thereafter. The Company's expense
to match employee contributions for the years ended June 30, 1998, 1997 and
1996, was approximately $2,253,000, $1,511,000 and $1,069,000, respectively.
9. MERGER EXPENSES AND OTHER CHARGES
During fiscal 1998, the Company incurred a charge of $6,735,000 to realign
operations in conjunction with the termination of distribution and
administrative agreements with a client of the Company's Fund Services division.
As discussed in Note 2, the Company recorded a charge of $5,263,000 during
fiscal 1998 for costs associated with the mergers of Charter, DWW and BSI.
As discussed in Note 2, the Company recorded a charge in fiscal 1996 of
$1,750,000 in connection with the acquisitions of SSG and TUG. In June 1996, the
Company also entered into an outsourcing alliance agreement with the mutual fund
division of Furman Selz, LLC and incurred estimated commission and other
expenses of $13,960,000. The Company also recorded a charge of $6,027,000 in
fiscal 1996 to integrate new operations and to combine certain data center
operations and certain offices of Document Solutions. In fiscal 1997, the
Company incurred an additional commission charge of $1,500,000 as a result of
servicing additional mutual fund assets pursuant to the alliance with Furman.
Total merger expenses and other charges recorded for the year ended June 30,
1998, 1997 and 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
MERGER TRANSACTION EXPENSES
(LEGAL AND FINANCIAL) $ 1,805 $ -- $ 1,750
COSTS TO COMBINE OR
REALIGN OPERATIONS:
COMPENSATION RELATED 3,722 -- 3,320
FACILITIES OR SYSTEMS RELATED 4,868 -- 1,862
OTHER 1,603 -- 845
COMMISSIONS AND OTHER EXPENSES
INCURRED IN CONNECTION WITH
OUTSOURCING ALLIANCE -- 1,500 13,960
WRITE-OFF OF DEFERRED
FINANCING COSTS -- -- 513
- --------------------------------------------------------------------------
$11,998 $ 1,500 $22,250
</TABLE>
During the years ended June 30, 1998 and 1997, the following costs were paid or
charged against the merger related accruals (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
MERGER TRANSACTION EXPENSES $ 2,030 $ 2,125
COMMISSIONS 1,315 14,145
COMPENSATION RELATED COSTS 3,801 2,416
FACILITIES OR SYSTEMS RELATED COSTS 5,114 2,024
OTHER 484 694
- ---------------------------------------------------------------
$12,744 $21,404
===============================================================
</TABLE>
At June 30, 1998, $3,090,000 of estimated costs for merger expenses, and costs
to combine or realign operations are unpaid and included in accrued liabilities
on the accompanying balance sheet.
10. SHAREHOLDER RIGHTS PLAN
On May 7, 1997, the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend distribution at the rate of one Right for each share of
common stock held of record as of the close of business on May 16, 1997 and for
each share of common stock issued thereafter up to the Distribution Date
(defined below).
Each Right entitles holders of common stock to buy one share of common stock of
the Company at an exercise price of $175.00. The Rights would be exercisable,
and would detach from the common stock (the "Distribution Date") only if a
person or group (i) were to acquire 15 percent or more of the outstanding shares
of common stock of the Company; (ii) were to announce a tender or exchange offer
that, if consummated, would result in a person or group beneficially owning 15
percent or more of the outstanding shares of common stock of the Company; (iii)
were declared by the Board to be an Adverse Person (as defined in the Plan) if
such person or group beneficially owns 10% or more of the outstanding shares of
common stock in the Company. In the event of any occurrence triggering the
Distribution Date, each right would entitle the holder (other than such an
acquiring person or group) to purchase the outstanding shares of common stock of
the Company (or, in certain circumstances, common stock of the acquiring person)
with a value of twice the exercise price of the Rights upon payment of the
exercise price. The Company will be entitled to redeem the Rights at $0.0025 per
Right at any time. The Rights will expire at the close of business on May 16,
2007.
11. STOCK BASED COMPENSATION PLANS
The Company has stock option and restricted stock purchase plans which provide
for granting of options and/or restricted stock for 6,922,500 shares to certain
employees and outside directors. The options vest primarily over a five-year
period at each anniversary date of the grant. These options expire following
termination of employment or within ten years of the date of the grant,
whichever comes first. Pro forma disclosures are provided for fiscal 1998, 1997
and 1996 as if the Company had adopted the cost recognition requirements of FAS
123 "Accounting for Stock-based Compensation."
The fair value of each stock option grant is estimated on the date of grant
using The Black-Scholes pricing model with the following assumptions for grants
in 1998,1997 and 1996:
30
<PAGE> 15
1) expected dividend yields of 0%, 2) risk-free interest rates ranging from
5.35% to 6.78%, 3) expected volatility of 30%, and 4) an expected option life of
3.5 years in fiscal 1998 and 5.3 years in fiscal 1997 and fiscal 1996. For the
purpose of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period of 5 years for employees.
Using these assumptions, the weighted average fair value per option share at
date of grant for options granted during 1998, 1997 and 1996 was $10.25, $14.31
and $11.49, respectively.
Had compensation expense been recognized for the Company's stock-based
compensation plans in accordance with FAS 123, the pro forma net income and
earnings per share for the years ended June 30, 1998, 1997 and 1996 would have
been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
==============================================================================
PRO FORMA PRO FORMA PRO FORMA
<S> <C> <C> <C>
NET EARNINGS $ 36,129 $ 38,072 $ 17,100
BASIC EARNINGS PER SHARE $ 1.40 $ 1.54 $ 0.73
DILUTED EARNINGS PER SHARE $ 1.34 $ 1.46 $ 0.69
- -----------------------------------------------------------------------------
</TABLE>
The effect of applying FAS 123 for only fiscal 1998, 1997 and 1996 option grants
may not be representative of the pro forma impact in future years.
The following is a summary of stock option activity for the years ended June 30,
1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF YEAR 3,441,628 $24.40 3,175,692 $20.10 2,681,471 $12.52
OPTIONS ASSUMED IN ACQUISITIONS 258,605 $ 3.24 _ _ _ _
OPTIONS GRANTED 1,542,994 $34.09 839,300 $35.82 1,304,800 $28.80
OPTIONS EXERCISED (808,985) $15.09 (411,931) $13.05 (628,768) $ 6.71
OPTIONS CANCELLED (698,525) $29.45 (161,433) $28.20 (181,811) $16.98
- ------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT END OF YEAR 3,735,717 $28.00 3,441,628 $24.40 3,175,692 $20.10
=============================================================================================================================
EXERCISABLE AT END OF YEAR 1,196,740 $19.22 1,112,182 $15.70 876,376 $10.68
=============================================================================================================================
</TABLE>
The following summarizes information about the Company's stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING LIFE EXERCISE PRICE
RANGE OF EXERCISE PRICES OPTIONS OUTSTANDING PRICE (IN YEARS) EXERCISABLE OF EXERCISABLE
===============================================================================================================
<S> <C> <C> <C> <C> <C>
$00.01-$10.00 379,333 $ 2.76 3.6 346,582 $ 2.47
$10.01-$20.00 395,790 $18.96 5.1 292,158 $18.97
$20.01-$30.00 692,300 $24.33 6.8 281,300 $24.02
$30.01-$40.00 2,268,294 $34.92 8.9 276,700 $35.58
</TABLE>
12. SUBSEQUENT EVENTS
On July 16, 1998, the Company completed its acquisition of CoreLink Resources,
Inc. (CoreLink), which the Company has held a minority interest in since fiscal
1995. CoreLink, headquartered in Concord, California, is an outsourcing company
providing investment and insurance products and services to deposit-based
institutions.
On August 10, 1998, the Company acquired Potomac Insurance Marketing Group, Inc.
(Potomac). Potomac, based in Bethesda, Maryland, is a leading distributor of
life insurance products and services aimed at high net worth individuals.
Both transactions have been accounted for by the purchase method of accounting
and involved total cash consideration of approximately $20.3 million.
On August 21, 1998, the Company entered into a definitive agreement and plan of
merger to acquire the Georgia-based Greenway Corporation, in a stock for stock
transaction valued at approximately $47.5 million. The Company's Board of
Directors has agreed to the terms of the agreement. The transaction will be
accounted for by the purchase method of accounting.
31
<PAGE> 16
The BISYS Group, Inc.
and Subsidiaries
MARKET PRICE INFORMATION (UNAUDITED)
The following information relates to the Company's $0.02 par value common stock
which trades in the over-the-counter market and is quoted in the NASDAQ National
Market System under the symbol BSYS. Price information on the Company's common
stock is presented below:
<TABLE>
<CAPTION>
FISCAL 1998
QUARTER ENDED HIGH LOW
<S> <C> <C>
September 30, 1997 $ 42 $30 3/8
December 31, 1997 34 3/8 29 1/4
March 31, 1998 38 32 1/2
June 30, 1998 42 34 1/16
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997
QUARTER ENDED HIGH LOW
<S> <C> <C>
September 30, 1996 $41 1/2 $ 29
December 31, 1996 43 3/8 34 3/4
March 31, 1997 37 1/4 27 7/8
June 30, 1997 42 1/8 28 1/4
===============================================================================
</TABLE>
At June 30, 1998, the Company's common stock was held by 645 stockholders of
record. It is estimated that an additional 3,200 stockholders own the Company's
common stock through nominee or street name accounts with brokers.
CONSOLIDATED QUARTERLY RESULTS (UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1998
- -------------------------------------------------------------------------------------------------
QUARTERS ENDED SEP 30 DEC 31 MAR 31 JUN 30
<S> <C> <C> <C> <C>
Revenues $ 91,462 $ 91,431 $ 98,951 $104,500
Operating earnings 1,725 15,665 20,792 23,722
Earnings before income tax provision 2,750 16,690 22,220 25,093
Net income 1,623 10,014 13,332 15,055
=================================================================================================
Basic earnings per share $ 0.06 $ 0.38 $ 0.51 $ 0.57
Diluted earnings per share $ 0.06 $ 0.37 $ 0.49 $ 0.55
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997
- -------------------------------------------------------------------------------------------------
QUARTERS ENDED SEP 30 DEC 31 MAR 31 JUN 30
<S> <C> <C> <C> <C>
Revenues $ 72,395 $ 74,797 $ 83,961 $ 87,835
Operating earnings 12,274 14,433 17,591 21,404
Earnings before income tax provision 12,778 14,926 18,256 21,958
Net income 7,666 8,957 10,952 13,176
=================================================================================================
Basic earnings per share $ 0.31 $ 0.36 $ 0.44 0.52
Diluted earnings per share $ 0.29 $ 0.34 $ 0.42 0.50
=================================================================================================
</TABLE>
32
<PAGE> 1
EXHIBIT 21 - LIST OF SIGNIFICANT SUBSIDIARIES OF THE BISYS GROUP,
INC. AS OF SEPTEMBER 30, 1998
1. BISYS, Inc., a Delaware corporation.
2. BISYS Plan Services, Inc., a Delaware corporation.
3. BISYS Research Services, Inc., a Delaware corporation.
4. BISYS Fund Services, Inc., a Delaware corporation ("Fund Services").
5. Document Solutions, Inc., a Delaware corporation.
6. Concord Holding Corporation, a Delaware corporation ("Concord").
7. BISYS Insurance Services, Inc., a Pennsylvania corporation.
8. BISYS Creative Solutions, Inc., a Delaware corporation.
9. BISYS Networking Services, Inc., a Massachusetts corporation.
<PAGE> 1
EXHIBIT 23
PRICEWATERHOUSECOOPERS LLP
A professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
The BISYS Group, Inc. on Forms S-8 (File Nos. 33-91666, 33-91676, 333-02966,
333-39229, 333-39601, 333-43347, 333-43349 and 333-43351) and in the
Registration Statement of The BISYS Group, Inc. on Form S-3 (File No. 333-37109)
of our report dated August 7, 1998 (except as to certain information presented
in Note 12, for which the date is August 21, 1998) on our audits of the
consolidated financial statements of The BISYS Group, Inc. and subsidiaries as
of June 30, 1998 and 1997, and for each of the three years in the period ended
June 30, 1998, which report is incorporated by reference in this Annual Report
on Form 10-K.
/S/ PricewaterhouseCoopers LLP
New York, New York
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of The BISYS Group, Inc. and Subsidiaries for
the year ended June 30, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 93,403
<SECURITIES> 0
<RECEIVABLES> 76,662
<ALLOWANCES> 2,969
<INVENTORY> 0
<CURRENT-ASSETS> 180,240
<PP&E> 75,310
<DEPRECIATION> 37,832
<TOTAL-ASSETS> 334,101
<CURRENT-LIABILITIES> 82,418
<BONDS> 0
0
0
<COMMON> 533
<OTHER-SE> 237,757
<TOTAL-LIABILITY-AND-EQUITY> 334,101
<SALES> 0
<TOTAL-REVENUES> 386,344
<CGS> 0
<TOTAL-COSTS> 221,767
<OTHER-EXPENSES> 28,795
<LOSS-PROVISION> 1,642
<INTEREST-EXPENSE> 362
<INCOME-PRETAX> 66,753
<INCOME-TAX> 26,729
<INCOME-CONTINUING> 40,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,024
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.46
</TABLE>
