-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JqzYvObQzQEhr2TjTzzjTEvb0ot6manSyWDe2322+4Np2IvSb5/etOT3Ili2vgzS /rCdr9kT3M5I/7RgIwex0w== /in/edgar/work/20000814/0000950124-00-005011/0000950124-00-005011.txt : 20000921 0000950124-00-005011.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950124-00-005011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAMBA CORP CENTRAL INDEX KEY: 0000883741 STANDARD INDUSTRIAL CLASSIFICATION: [3576 ] IRS NUMBER: 411636021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22718 FILM NUMBER: 696999 BUSINESS ADDRESS: STREET 1: 7301 OHMS LANE STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128329800 MAIL ADDRESS: STREET 1: 7301 OHMS LANE STREET 2: STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 FORMER COMPANY: FORMER CONFORMED NAME: RACOTEK INC DATE OF NAME CHANGE: 19931025 10-Q 1 e10-q.txt FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF - ----- THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 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 0-22718 ZAMBA CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE #41-1636021 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA 55439 (Address of principal executive offices, including zip code) (612) 832-9800 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class August 4, 2000 ----- -------------- Common Stock, $0.01 par value 31,578,692 ================================================================================ 1 2 ZAMBA CORPORATION INDEX PART I -- Financial Information
Item 1. Financial Statements (Unaudited) Page No. -------- Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999 3 Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Not Applicable PART II -- Other Information Items 1-3. None 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. None 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ZAMBA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
For the three months ended For the six months ended June 30, June 30, ------------------------------ --------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ----------- Net revenues $9,715 $7,007 $17,932 $12,357 Costs and expenses: Project and personnel costs 4,775 3,767 9,090 6,855 Sales and marketing 1,133 551 2,188 1,123 General and administrative 3,363 2,466 6,130 4,254 Amortization of intangibles and non-cash compensation 1,008 944 2,025 1,897 ------------ ------------ ------------ ----------- Loss from operations (564) (721) (1,501) (1,772) Other income (expense): Interest income 57 20 131 44 Interest expense (16) (26) (39) (54) ------------ ------------ ------------ ----------- 41 (6) 92 (10) Net loss ($523) ($727) ($1,409) ($1,782) ============ ============ ============ =========== Net loss per share - basic and diluted ($0.02) ($0.02) ($0.04) ($0.06) ============ ============ ============ =========== Weighted average shares outstanding 31,490 30,656 31,398 30,401 ============ ============ ============ ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 ZAMBA CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share data)
June 30, December 31, 2000 1999 --------------- ------------- ASSETS Current assets: Cash and cash equivalents $5,112 $7,973 Accounts receivable, net 5,734 3,659 Unbilled receivables 497 274 Notes receivable - related parties 757 3 Prepaid expenses and other current assets 543 242 --------------- ------------- Total current assets 12,643 12,151 Property and equipment, net 1,145 1,068 Restricted cash - 110 Intangible assets, net 1,221 3,111 Other assets 308 71 --------------- ------------- Total assets $15,317 $16,511 =============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Current installments of long-term debt $499 $573 Accounts payable 1,654 1,079 Accrued expenses 1,602 3,029 Deferred revenue 1,331 763 --------------- ------------- Total current liabilities 5,086 5,444 Long-term debt, less current installments 608 816 --------------- ------------- Commitments Total liabilities 5,694 6,260 --------------- ------------- Stockholders' equity: Common stock, $0.01 par value, 55,000 shares authorized, 31,569 and 31,110 issued and outstanding at June 30, 2000 and December 31, 1999, respectively 316 311 Additional paid-in capital 80,676 79,900 Accumulated deficit (71,369) (69,960) --------------- ------------- Total stockholders' equity 9,623 10,251 --------------- ------------- Total liabilities and stockholders' equity $15,317 $16,511 =============== =============
The accompanying notes are an integral part of the consolidated financial statements. 4 5 ZAMBA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Six Months Ended June 30, ------------------------------------- 2000 1999 ------------ ------------- Cash flows from operating activities: Net loss ($1,409) ($1,782) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,482 2,274 Provision for bad debts 324 79 Changes in operating assets and liabilities: Accounts receivable (2,399) (1,998) Unbilled receivables (223) (110) Prepaid expenses and other assets (538) 62 Accounts payable 575 695 Accrued expenses (1,427) 1,064 Deferred revenue 568 1,769 ------------ ------------- Net cash provided by (used in) operating activities (2,047) 2,053 Cash flows from investing activities: Purchase of property and equipment (535) (488) Notes receivable (754) - Other - (70) ------------ ------------- Net cash used in investing activities (1,289) (558) Cash flows from financing activities: Proceeds from exercises of stock options and warrants 647 111 Proceeds of long-term debt - 70 Payments of long-term debt (282) (92) Change in restricted cash 110 - Dividends - (18) ------------ ------------- Net cash provided by financing activities 475 71 ------------ ------------- Net increase (decrease) in cash and cash equivalents (2,861) 1,566 Cash and cash equivalents, beginning of period 7,973 3,054 ------------ ------------- Cash and cash equivalents, end of period $5,112 $4,620 ============ =============
The accompanying notes are an integral part of the consolidated financial statements. 5 6 ZAMBA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A. Basis of Presentation: The unaudited consolidated financial statements of ZAMBA Corporation ("ZAMBA" or the "Company") as of June 30, 2000, and for the three and six month periods ended June 30, 2000, and 1999, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state our financial position as of June 30, 2000, and our results of operations and cash flows for the reported periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for any other interim period or for the full year. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Certain prior year amounts have been reclassified to conform with the 2000 presentation. These financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 1999, which were included in our 1999 Report on Form 10-K. Note B. Net Loss per Share: We incurred net losses for the three and six month periods ended June 30, 2000 and 1999, and excluded assumed conversion shares from the diluted loss per share computation, because their effect is anti-dilutive. At June 30, 2000, we had 8,968,052 stock options outstanding, which may be dilutive in future periods. Note C. Selected Balance Sheet Information:
(in thousands) June 30, 2000 December 31, 1999 ------------------- ------------------- Accounts receivable, net: Accounts receivable $6,236 $3,949 Less allowance for doubtful accounts (502) (290) ------------------- ------------------- $5,734 $3,659 =================== =================== Property and equipment, net: Computer equipment $3,123 $2,924 Furniture and equipment 992 822 Leasehold improvements 352 186 ------------------- ------------------- 4,467 3,932 Less accumulated depreciation and amortization (3,322) (2,864) ------------------- ------------------- $1,145 $1,068 =================== ===================
6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW ZAMBA is a national customer care consulting company. According to the Gartner Group, customer care is expected to grow at a cumulative average growth rate of 54% per year through 2002. Our services are designed to assist clients in building lasting relationships with customers, increase the effectiveness of customer service and sales operations, and improve overall communication with customers. We deliver our services using a unique combination of accumulated expertise in the customer care field, existing technology, and client knowledge. We perform our services on both a fixed-bid, fixed-timetable and time and material basis. Rapid development and significant client involvement are key aspects to our methodologies. We offer our clients end-to-end assistance with their implementations, including business case evaluation, system planning and design, software implementation, modification and development, training, installation, change management, network management, and post-implementation support. Our services include the design, implementation and integration of enterprise level applications to facilitate sales automation, call center management, marketing automation and automated field service and sales. We also own approximately 30% of the equity in NextNet Wireless, Inc., a private corporation engaged in the development of wireless data products targeted at wireless DSL. The chairman of ZAMBA, Joseph B. Costello, is also the chairman of NextNet Wireless, Inc. We currently derive most of our revenue from systems integration services including business case evaluation, system planning and design, software package implementation, custom software development, training, installation, change management, and post-implementation support. Our revenues and earnings may fluctuate from quarter to quarter based on the number, size and scope of projects in which we are engaged, the contractual terms and degree of completion of such projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete ongoing projects, and general economic conditions and other factors. Also, revenues from a large client may constitute a significant portion of our total revenues in any particular quarter. RESULTS OF OPERATIONS Historical results have been restated to reflect our acquisitions of Camworks, Inc.("Camworks") on December 27, 1999, and Fusion Consulting, Inc. ("Fusion") on January 7, 2000. Both acquisitions are accounted for using the pooling-of-interests method. THREE MONTHS ENDED JUNE 30, 2000, COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 Net Revenues Net revenues increased 39% to $9.72 million in 2000 compared to $7.01 million in 1999. The increase in revenues is principally due to increases in both the average size and number of client projects and due to an increase in the number of billable consultants. 7 8 Project and Personnel Costs Project and personnel costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed by the client. These costs represent the most significant expense ZAMBA incurs in providing its services. Project costs were $4.78 million or 49% of net revenues in the second quarter of 2000 compared to $3.77 million or 54% in the second quarter of 1999. The 27% increase in dollar terms was primarily due to the increase in project personnel. Project personnel increased as a result of the increased number and size of our engagements. The decline in project and personnel costs as a percentage of revenue is due to increased realized rates on projects. We expect project and personnel costs to increase on a dollar basis throughout 2000. Sales and Marketing Sales and marketing expenses were $1.13 million or 12% of net revenues in 2000 compared to $551,000 or 8% of net revenues in 1999. The increase in dollar and percentage terms is due to the hiring of additional direct sales personnel. We expect the amount spent for sales and marketing costs to continue to increase over the next few quarters. General and Administrative General and administrative costs consist primarily of expenses associated with our management, finance, human resources, information technology, and administrative groups, including occupancy costs. General and administrative expenses were $3.36 million or 35% of net revenues in 2000 compared to $2.47 million or 35% of net revenues in 1999. The increase in dollar terms is primarily due to an increase in non-billable headcount which is necessary to develop our infrastructure to support our anticipated growth. We also increased our allowance for outstanding accounts receivable as we continue to increase our customer base and revenue to cover for any potentially uncollectable accounts. We anticipate general and administrative costs to increase on a dollar basis over the next several quarters as we continue to grow and expand, which will include entering new and larger facilities and improving our technology infrastructure in order to support our anticipated revenue and headcount growth. Amortization of Intangibles and Non-cash Compensation Amortization of intangibles and non-cash compensation was $1.01 million in 2000 compared to $944,000 in 1999. The amortization is mainly due to the acquisition of The QuickSilver Group ("QuickSilver") in September 1998. The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was $7.70 million and was allocated to the following categories: people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic useful lives of between two and four years. Approximately 97% of the costs related to the QuickSilver acquisition will be amortized by September 30, 2000. The increase from second quarter 1999 is also due to non-cash compensation from stock options granted to non-shareholder employees of Camworks and Fusion subsequent to our acquisitions of each company. The options were granted with an exercise price less than fair market value as a means of incenting the employees to continue employment with ZAMBA. The remaining deferred compensation balance related to these options is $804,000 as of June 30, 2000. The amount of this charge will be approximately $57,000 per quarter for each quarter through 2003. 8 9 Interest Income Interest income was $57,000 in 2000 compared to $20,000 in 1999. The increase is due to increases in our cash and investment accounts, which were provided by operating and financing activities. Also, additional interest income was provided in 2000 from outstanding notes receivable. Interest Expense Interest expense was $16,000 in 2000 compared to $26,000 in 1999. The interest charges are due to debt acquired as a result of the acquisition of QuickSilver and interest charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver. As the debt continues to be paid down, the amount of interest expense is expected to decline. Income Taxes Income tax expense was $0 in 2000 and 1999 due to operating losses in both years. Net Loss As a result of the above, the net loss for 2000 was $523,000, or ($0.02) per share, compared to a net loss for 1999 of $727,000, or ($0.02) per share. SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 Net Revenues Net revenues increased 45% to $17.93 million in 2000 compared to $12.36 million in 1999. The increase in revenues is principally due to increases in both the average size and number of client projects and due to an increase in the number of billable consultants. Project and Personnel Costs Project and personnel costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed by the client. These costs represent the most significant expense ZAMBA incurs in providing its services. Project costs were $9.09 million or 51% of net revenues in 2000 compared to $6.86 million or 55% in 1999. The increase in dollar terms was primarily due to the increase in project personnel. Project personnel increased as a result of the increased number and size of our engagements. The decline in project and personnel costs as a percentage of revenue is due to increased realized rates on projects. We expect project and personnel costs to increase on a dollar basis throughout 2000 in order to deliver revenue growth from customer-centric solutions. Sales and Marketing Sales and marketing expenses were $2.19 million or 12% of net revenues in 2000 compared to $1.12 million or 9% of net revenues in 1999. The increase in dollar and percentage terms is due to the hiring of additional direct sales personnel. We expect the amount spent for sales and marketing costs to continue to increase over the next few quarters as we continue to grow our staff and pay commissions for the expected increase in revenue. General and Administrative General and administrative costs consist primarily of expenses associated with our management, finance, human resources, information technology, and administrative groups, including occupancy costs. General and administrative expenses were $6.13 million or 34% of net revenues in 2000 compared to $4.25 million 9 10 or 34% of net revenues in 1999. The increase in dollar terms is primarily due to an increase in non-billable headcount which is necessary to develop our infrastructure to support our anticipated growth. We anticipate general and administrative costs to increase on a dollar basis over the next several quarters as we continue to grow and expand, which will include entering new and larger facilities and improving our technology infrastructure in order to support our anticipated revenue and headcount growth. Amortization of Intangibles and Non-cash Compensation Amortization of intangibles and non-cash compensation was $2.03 million in 2000 compared to $1.90 million in 1999. The amortization is mainly due to the acquisition of The QuickSilver Group ("QuickSilver") in September 1998. The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was $7.70 million and was allocated to the following categories: people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic useful lives of between two and four years. Approximately 97% of the costs related to the QuickSilver acquisition will be amortized by September 30, 2000. The increase from 1999 is also due to non-cash compensation from stock options granted to non-shareholder employees of Camworks and Fusion subsequent to our acquisitions of each company. The options were granted with an exercise price less than fair market value as a means of incenting the employees to continue employment with ZAMBA. The remaining deferred compensation balance related to these options is $804,000 as of June 30, 2000. The amount of this charge will be approximately $57,000 per quarter for each quarter through 2003. Interest Income Interest income was $131,000 in 2000 compared to $44,000 in 1999. The increase is due to increases in our cash and investment accounts, which were provided by operating and financing activities. Also, additional interest income was provided in 2000 from outstanding notes receivable. Interest Expense Interest expense was $39,000 in 2000 compared to $54,000 in 1999. The interest charges are due to debt acquired as a result of the acquisition of QuickSilver and interest charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver. As the debt continues to be paid down, the amount of interest expense is expected to decline. Income Taxes Income tax expense was $0 in 2000 and 1999 due to operating losses in both years. Net Loss As a result of the above, the net loss for 2000 was $1,409,000, or ($0.04) per share, compared to a net loss for 1999 of $1,782,000, or ($0.06) per share. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2000, we had no significant capital spending or purchase commitments and had cash and cash equivalents totaling $5.11 million and working capital of $7.56 million. During the first six months of 2000, we issued notes receivable to four employees totaling $754,000, which are still outstanding as of June 30, 2000. For the six months ended June 30, 2000, $2.12 million was used in operating activities compared 10 11 to the $2.05 million provided by operating activities in the same period in 1999. The decrease in cash provided from operating activities is due to an increase in accounts receivable, and a decrease in accrued expenses and deferred revenue. We believe our existing capital resources will be sufficient to meet our capital requirements in 2000. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), effective in 2001, establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. We have no derivative financial instruments. At the present time, we do not anticipate that SFAS No. 133 will have a material impact on the financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have debt at a fixed interest rate ranging from 6.0% to 10.0%, as described in Item 7A in the 1999 Report on Form 10-K. There has been no material change to this information. FACTORS THAT MAY AFFECT FUTURE RESULTS Certain statements in this Report on Form 10-Q are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward looking statements. Factors that impact such forward looking statements include, among others, the growth rate of the Customer Care marketplace, the ability of our partners to maintain competitive products, our ability to develop skills in implementing Customer Care packages from additional partners, the impact of competition and pricing pressures from actual and potential competition with greater financial resources, our ability to obtain large-scale consulting services agreements, changes in expectations regarding the information technology industry, our ability to hire and retain competent employees, possible changes in collections of accounts receivable, changes in general economic conditions and interest rates, and other factors identified in our filings with the Securities and Exchange Commission. When used in this Report on Form 10-Q, the words "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intend," "potential," or "continue" and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements. ZAMBA Corporation assumes no obligation to update any forward-looking statements. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, and/or performance of achievements. There can be no assurance that our business will grow as anticipated or that we will achieve or sustain profitability on a quarterly or annual basis in the future. We derive a substantial part of our revenues from a small number of clients whom, after evaluating our capabilities, decide whether to engage us to create business case evaluations, consult on change management practices and, in some cases, to design, implement and deploy their customer care systems. A decision by any one of these clients to delay a customer care project may have a material adverse effect on our business and results of operations. 11 12 In order for our revenues from consulting and integration services to grow, we must continue to add more clients and larger projects to plan, design and implement customer care systems. Inability to obtain clients for large-scale consulting and integration services could materially and adversely affect the growth of its business. In addition to the factors listed above, actual results could vary materially from the foregoing forward-looking statements due to our inability to hire and retain qualified personnel, the risk that we may need to enhance products and services beyond what is currently planned, the levels of promotion and marketing required to promote our products and services so as to attain a competitive position in the marketplace, or other risks and uncertainties identified in this Quarterly Report and our other filings with the SEC. 12 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders Zamba held its Annual Meeting on May 18, 2000. Three proposals were presented at the Annual Meeting for voting by the stockholders: (i) the election of directors; (ii) the approval of the Zamba Corporation 2000 Employee Stock Purchase Plan; and (iii) the ratification of KPMG LLP as Zamba's independent auditors for 2000. The stockholders approved each proposal. Each person nominated for director was elected. For Joseph B. Costello, 25,783,842 votes were cast in favor of his election, and 146,614 votes were cast against. For Dixon R. Doll, 25,885,969 votes were cast in favor of his election, and 44,487 votes were cast against. For Paul D. Edelhertz, 25,773,669 votes were cast in favor of his election, and 156,787 votes were cast against. For Todd Fitzwater, 25,783,969 votes were cast in favor of his election, and 146,487 votes were cast against. For John Olsen, 25,875,719 votes were cast in favor of his election, and 54,737 votes were cast against. For Sven A. Wehrwein, 25,875,819 votes were cast in favor of his election, and 54,637 votes were cast against. 25,583,375 votes were cast in favor of the proposal to approve the Zamba Corporation 2000 Employee Stock Purchase Plan, 289,059 votes were cast against, 61,022 votes were abstentions, and there were no broker non-votes. 25,894,625 votes were cast in favor of ratifying the appointment of KPMG LLP as independent auditors for fiscal year 2000, 15,822 votes were cast against, 20,009 votes were abstentions, and there were no broker non-votes. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (see attached exhibit index) (b) Reports on Form 8-K: None 13 14 SIGNATURES Pursuant to the requirements 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. ZAMBA CORPORATION By: /s/ Paul D. Edelhertz ----------------- Paul D. Edelhertz President and Chief Executive Officer By: /s/ Michael H. Carrel ----------------- Michael H. Carrel Vice President and Chief Financial Officer Dated: August 14, 2000 14 15 EXHIBIT INDEX
- ------------------------------------------------------------------------------------- EXHIBIT NUMBER TITLE - ------------------------------------------------------------------------------------- 10.01 Lease Agreement dated May 5, 2000, between the Registrant and Harvard Property (Lake Calhoun), LP - ------------------------------------------------------------------------------------- 10.02 Lease Agreement dated May 31, 2000, between the Registrant and EOP-New England Executive Park, LCC - ------------------------------------------------------------------------------------- 27 Financial Data Schedule - -------------------------------------------------------------------------------------
15 EX-10.01 2 ex10-01.txt LEASE AGREEMENT DATED MAY 5, 2000 1 LAKE CALHOUN EXECUTIVE CENTER This LEASE AGREEMENT ("Lease"), made as of this 5th day of May, 2000, between HARVARD PROPERTY (LAKE CALHOUN), L.P., a Texas limited partnership ("Landlord"), and Zamba Corporation, a Minnesota corporation ("Tenant"); WITNESSETH, THAT 1. Premises. Landlord, subject to the terms and conditions hereof, hereby leases to Tenant certain premises ("Premises") shown crosshatched on the floor plan attached hereto as Exhibit A, containing approximately 26,770 net rentable square feet on the second floor, Suite 200, located in the building situated at 3033 Excelsior Boulevard, Minneapolis, Minnesota 55416 (the "Building"), situated on property legally described on Exhibit B attached hereto and made a part hereof (the "Land"). 2. Use. Tenant shall use the Premises only as business offices for Tenant's business of general office and shall not use the Premises for any other use or purpose without the prior written consent of Landlord. 3. Term. Tenant takes the Premises from Landlord, upon the terms and conditions herein contained for the term ("Term") of five (5) year and four (4) months commencing on the 1st day of August, 2000 (the "Commencement Date") and ending on the 30th day of November, 2005 unless sooner terminated as herein provided. Notwithstanding the foregoing if the Premises shall, on the scheduled Commencement Date of the Term, not be ready for occupancy by the Tenant due to the possession or occupancy thereof by any person not lawfully entitled thereto, or because construction has not yet been completed, or by reason of any Building operations, repair or remodeling to be done by Landlord, Landlord shall complete such construction, Building operations, repair or remodeling and to deliver possession of the Premises to Tenant. Landlord, using such good faith efforts, shall not in any way be liable for failure to obtain possession of the Premises for Tenant or to timely complete such construction, building operations, repair or remodeling, but the Base Rent, Operating Costs and Additional Rent (all as defined below) payable by Tenant hereunder shall abate until the date Landlord is able to tender possession of the Premises to Tenant, which date shall thenceforth be deemed the "Commencement Date;" and the Term of this Lease shall be automatically extended so as to include the full number of months hereinbefore provided except that if the Commencement Date is other than the first day of a calendar month, such Term shall also be extended for the remainder of the calendar month in which possession is tendered. If Tenant's possession is delayed in whole or in part as a result of: (i) Tenant's failure to agree to plans and specifications; (ii) Tenant's request for materials, finishes or installations other than Landlord's standard; (iii) Tenant's changes in plans; or (iv) the performance or completion by a party employed by Tenant, the Commencement Date shall be deemed to be the date on which Landlord would have been able to tender possession of the Premises to Tenant, but for such delay. The taking of possession by Tenant shall be deemed conclusively to establish that the Premises have been completed in accordance with the plans and specifications and are in good and satisfactory condition as of when possession was so taken (except for such items as Landlord is permitted to complete at a later date, which items shall be specified by Landlord to Tenant in writing). The date stated in Article 3 above shall be deemed to be the Commencement Date unless Landlord and Tenant execute a Commencement Letter identifying a change in that date, such letter to be in the form attached hereto as Exhibit E. In the event of any dispute as to when and whether the work performed or required to be performed by Landlord has been substantially completed, the certificate of an A.I.A. registered architect approved by Tenant or a temporary or final certificate of occupancy issued by the local governmental authority shall be conclusive evidence of such completion, effective on the date of the delivery of a copy of any such certificate to Tenant. Tenant shall have ninety (90) days from the Commencement Date to develop a "Punch List" of incomplete or incorrect items which shall be remedied by the Landlord within thirty (30) days from the date of receipt of such "Punch List." -1- 2 4. Security Deposit. On or before the Commencement Date, Tenant shall deposit with Landlord the sum of Thirty-one Thousand Two Hundred Fifty Dollars ($31,250.00) (the "Security Deposit") as security for the full and faithful performance of this Lease to be performed by Tenant. If Tenant defaults with respect to any provision of this Lease, including, without limitation, the provisions relating to the payment of Base Rent, Operating Costs or Additional Rent, the repair of damage to the Premises and/or cleaning or restoring the Premises upon termination of this Lease, Landlord may use, apply or retain all or any part of this Security Deposit for the payment of any Base Rent, Operating Costs or Additional Rent or other sum in default and any amounts which Landlord may spend or become obligated to spend by reason of Tenant's default to the full extent permitted by law. If any portion of said deposit is so used, applied or retained, Tenant shall, within ten (10) days after written demand therefore, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to an amount equal to one monthly installment of the then-applicable Base Rent, plus the monthly amount of estimated Operating Costs and other charges payable hereunder by Tenant multiplied by the number of months worth of Base Rent represented by the initial Security Deposit, and Tenant's failure to do so shall be a material default and breach of this Lease. Landlord shall not be required to keep any Security Deposit separate from its general funds, and Tenant shall be entitled to interest on any such deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant or to the last assignee of Tenant's interest hereunder within sixty (60) days after the expiration of the Term. 5. Base Rent. Tenant agrees to pay to Landlord during the Term a Base Rent (the "Base Rent") per annum, payable in equal monthly installments, due and payable in advance on the Commencement Date and on the first day of each month thereafter during the Term, without deduction or setoff of any kind, and delivered or sent to Landlord's managing agent, Harvard Property (Lake Calhoun), L.P., c/o Lanmark Property Advisors, P.O. Box 249, Rochester, MN, 55903, or at such other place as may from time to time be designated by Landlord. Base Rent is as follows: 8/1/00 - 7/31/01 $21,393.67 per month 8/1/01 - 7/31/02 $33,462.50 per month 8/1/02 - 7/31/03 $34,533.30 per month 8/1/03 - 7/31/04 $35,604.10 per month 8/1/04 - 11/30/05 $36,808.75 per month
6. Additional Rent Amounts. Any amounts in addition to Base Rent and Operating Costs payable to Landlord by Tenant hereunder, including, without limitation, amounts payable pursuant to Section 9 and Exhibit C, and any costs set forth in the Addendum to Lease, if any, described in Section 38 hereof (collectively the "Additional Rent") shall be an obligation of Tenant hereunder and all such Additional Rent shall be due and payable upon demand. 7. Operating Costs. In addition to Base Rent and Additional Rent, Tenant shall, for the entire Term, pay to Landlord, without any setoff or deduction therefrom, its Proportionate Share (as hereinafter defined) of costs which Landlord may incur in owning, maintaining and operating the Building during each calendar year of the Term (such costs hereinafter "Operating Costs"), which Operating Costs shall be paid with each installment of Base Rent due and payable hereunder. "Proportionate Share" is defined as all Operating Costs incurred by Landlord with respect to the Building (Proportionate Share being expressed as the decimal equivalent of a fraction, the numerator of which is the net rentable square feet of the Premises and the denominator of which is the net rentable square feet of the entire Building, each as reasonably determined by Landlord). Operating Costs include all expenses and costs (but not specific costs which are separately billed to and paid by individual tenants including Tenant) of every kind and nature which the Landlord shall pay or become obligated to pay because of or in connection with the ownership and operation of the Building, supporting facilities of the Building and the Land, including but not limited to all real estate taxes and special or other assessments payable with respect to the Building and the Land, and all other taxes, service payments in lieu of taxes, excises, levies, fees, or charges, general and special, ordinary and extraordinary, of any kind, which are assessed, levied, charged, confirmed or imposed by any public authority upon the Building or the Land, the operations of the Building or the Land or the Rent (as defined below) provided for in this Lease including, but not limited to, the amount of any gross receipts tax, sales tax or similar tax, or any tax imposed in lieu of real property taxes (but excluding therefrom any income tax), or tax arising out of ownership of the Building or the Land, which tax is payable or which will be payable by Landlord, by reason of the receipt of the Base Rent, Operating Costs or Additional Rent and adjustments thereto; costs of any contest of such taxes (including attorneys' fees), accounting fees, management fees, insurance premiums, utility costs, janitorial costs, Building security costs, costs of wages, salaries and fringe benefits for all individuals providing services to the Building through the level of property manager or similar position, maintenance costs (relating to the Building, the Land and adjacent land including sidewalks, landscaping and parking or service areas, common areas, service contracts, equipment and supplies), any costs incurred by Landlord in providing valet parking and all other costs of any nature whatsoever so long as directly related to the operation of the Building which for federal tax purposes may be expensed rather than -2- 3 capitalized, but exclusive only of leasing commissions, depreciation, principal and interest, and costs of tenant improvements. Operating Costs shall also include the yearly amortization of capital costs incurred by the Landlord for improvements or structural repairs to the Building required to comply with any laws, rules or regulations of any governmental authority having jurisdiction or for purposes of reducing Operating Costs, which costs shall be amortized over the useful life of such improvements or repairs, as reasonably estimated by Landlord or as required by law. As soon as reasonably practicable prior to the commencement of each calendar year during the Term, Landlord shall furnish to Tenant an estimate of Operating Costs for the ensuing calendar year and the amount of Tenant's Proportionate Share thereof. Commencing on January 1 of said ensuing calendar year, Tenant shall pay, together with each installment of Base Rent, one-twelfth (1/12th) of its estimated annual Proportionate Share of Operating Costs. As soon as reasonably practicable after the end of each calendar year during the Term, Landlord shall furnish to Tenant a statement of the actual Operating Costs for the previous calendar year, including Tenant's Proportionate Share of Operating Costs, and within thirty (30) days thereafter Tenant shall pay to Landlord or Landlord shall credit against the next Base Rent payment due Landlord from Tenant or Landlord shall pay, if the Lease has expired, as the case may be, any difference between the actual Operating Costs and the estimated Operating Costs paid by Tenant for such year. Tenant's Proportionate Share of Operating Costs for each of the years in which this Lease commences and terminates shall be prorated by multiplying the actual Operating Costs by a fraction, the numerator of which is the number of days of each such year of the Term and denominator of which is 365, provided that the denominator shall be 366 for the 2000 calendar year and every fourth year thereafter. Tenant's obligation to pay Operating Costs for the year in which this Lease expires or otherwise terminates shall survive the expiration or earlier termination of this Lease, and shall be prorated to reflect that portion of the calendar year during which Tenant was obligated to pay Operating Costs. Notwithstanding any other provision herein to the contrary, it is agreed that in the event that the Building is not fully occupied at any time during the Term, an adjustment shall be made in computing the Operating Costs for such year so that the Operating Costs shall be computed for such year as though the Building had been fully occupied during such year (including, for real estate tax purposes, as if fully occupied and assessed as a completed Building during such year). Notwithstanding the foregoing, if Landlord shall from time to time reasonably determine that the use of any utility or service in the Premises by Tenant is disproportionate to the use of other tenants, Landlord may adjust Tenant's share of the cost thereof from a date reasonably determined by Landlord to take equitable account of the disproportionate use. At Landlord's option, Landlord may install and maintain at Tenant's expense metering devices for measuring the use of any such utility or service in the Premises. 8. Quiet Enjoyment. Landlord covenants that Tenant, upon paying all Base Rent, Operating Costs and Additional Rent (the Base Rent, Operating Costs and Additional Rent may collectively be referred to herein as the "Rent") and performing all covenants and agreements on its part to be performed, shall have quiet enjoyment and possession of the Premises during the Term, subject to the terms and conditions of this Lease and to any agreements to which this Lease is or may become subordinate, provided that Landlord shall endeavor to obtain certificates of non-disturbance from all mortgagees and assignees that acknowledge Tenant's right to remain in the Premises without restriction or modification, provided that Tenant is not in default. 9. Service. Subject to a right of reimbursement from Tenant through its Proportionate Share of Operating Costs, and so long as Tenant is not in default hereunder, Landlord shall: (a) maintain, repair and replace as needed all heating, ventilating, air conditioning, mechanical, electrical and plumbing systems, facilities and equipment in the Premises and the Building; (b) replace Building-standard fluorescent electric lamps and ballasts used in the Premises; (c) maintain, repair and replace as needed all data communication and telecommunication systems provided by Landlord within the Building to a similar level of quality and quantity as existed at the Commencement Date. (d) furnish Tenant: (i) hot and cold water, at those points of supply provided for general use of tenants; (ii) heated and refrigerated air conditioning in season at such times as Landlord normally furnishes these services to all tenants of the Building, and at such temperatures and in such amounts as are in accordance with any applicable statutes, rules or regulations and are considered by Landlord to be standard, such service at other times and on Saturdays, Sundays, and holidays to be optional on the part of Landlord (Landlord hereby reserves the right to charge Tenant for any such optional service requested by Tenant on such basis as Landlord, in its sole discretion, determines); (iii) janitor service to the Premises on weekdays other than holidays; (iv) such window washing as may from time to time in the Landlord's judgment be reasonably required; and (v) operator-less -3- 4 passenger elevators for ingress and egress to the floor on which the Premises are located, provided Landlord may reasonably limit the number of elevators to be in operation on Saturdays, Sundays, and holidays. Failure to any extent to furnish, or any stoppage or interruption of these defined services, resulting from any cause, shall not render Landlord liable in any respect for damages to any person, property, or business, nor be construed as an eviction of Tenant or work an abatement of Rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof, provided Landlord endeavors to correct the situation as promptly as possible. Should any equipment or machinery furnished by Landlord cease to function properly, Landlord shall use reasonable diligence to repair the same promptly upon receipt of notice from Tenant, but Tenant shall have no claim for an abatement of Rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Whenever heat generating machines or equipment are used by Tenant in the Premises which disproportionately affect the temperature otherwise maintained by the air conditioning equipment, Landlord reserves the right to install supplementary air conditioning units in the Premises (or for the use of the Premises) and the expense of such purchase, installation, maintenance, operation and repair shall be paid by Tenant upon demand as Additional Rent. Notwithstanding the foregoing, if services required to be performed by Landlord pursuant to (a), (b) (c) or (d) above must be performed due to the negligence or willful misconduct of Tenant, its agents, servants or employees, the costs of such services shall not be a part of Operating Costs, but shall be Tenant's sole responsibility, and shall be Additional Rent payable in accordance with Section 6. 10. Covenants of Tenant. In addition to all of its other obligations pursuant to the Lease, Tenant hereby covenants with Landlord as follows: (a) Laws and Regulations. Tenant shall observe such governmental ordinances, laws and regulations as may from time to time apply to the Building or the Premises or the Tenant's use or occupancy thereof, and Tenant shall further observe such Building rules and regulations, including, without limitation, those set forth in Exhibit F, which from time to time may be put into effect by Landlord for the general safety, comfort, and convenience of Landlord, occupants and tenants of the Building and their licensees and invitees, including, without limitation, Building signage and graphics standards, use of designated common areas and other Building areas, security measures, and similar matters. (b) Surrender of Premises; Goods and Effects. Upon the termination of this Lease in any manner whatsoever, Tenant shall remove its goods and effects and those of any other person claiming under Tenant, and quit and deliver up the Premises to Landlord peaceably and quietly in as good order and condition as the same were in on the Commencement Date, reasonable use and wear excepted. Goods and effects not removed by Tenant at the termination of this Lease, however terminated, shall be considered abandoned, and Landlord may dispose of the same as it deems expedient, at Tenant's expense. Tenant shall be responsible for payment of all costs incurred by Landlord for any restoration of the Premises needed by virtue of the removal of Tenant's goods and effects whether removed by Tenant or Landlord. (c) Assignment and Subletting. Tenant shall not assign this Lease or sublet all or any part of the Premises voluntarily, involuntarily or by operation of law, or through change in the ownership of Tenant, if Tenant is a corporation, partnership, limited liability company or other form of legal entity, without first obtaining Landlord's written consent thereto and regardless of whether such consent is granted by Landlord, Tenant shall pay all costs and expenses incurred by Landlord as a result of such request, not to exceed $1,500, including attorneys' fees. Landlord's consent will not be unreasonably withheld, conditioned or delayed, provided that: (i) occupancy of any such assignee or sublessee is not, in Landlord's reasonable judgment, inconsistent with the character of the Building; (ii) such assignee or sublessee shall assume in writing the performance of the covenants and obligations of Tenant hereunder; (iii) a fully executed copy of any such assignment or sublease shall be immediately delivered to Landlord but the making of such assignment or sublease shall not be deemed to release Tenant from the payment and performance of any of its obligations under this Lease; (iv) Tenant shall promptly disclose and pay to Landlord as Additional Rent hereunder 50% of any rent or other payments pursuant to any sublease which exceed the amounts payable hereunder and any other consideration paid, or to be paid, by reason of the assignment or sublease, after subtracting all costs and expenses incurred by Tenant to procure such assignment or sublease; (v) such assignment or subletting is approved by any mortgagee holding a mortgage covering the Premises which reserves such right unto the mortgagee; (vi) Tenant is not in default of this Lease on the date of the assignment or sublease; and (vii) such assignee or sublessee meets the credit standards required by Landlord for tenants of similar size and type in the Building. Any assignment or sublease or purported assignment or sublease made without Landlord's prior written consent shall be void, and of no force and effect, whether or not -4- 5 Landlord had actual or constructive notice of such assignment or sublease. Landlord agrees to respond to all written requests within a reasonable time. (d) Signs. Tenant shall not place signs on or about the Premises or the Building or install signs, advertising or other material on the interior (if any) or exterior windows of the Premises without first obtaining Landlord's written consent thereto. (e) Damage to Building. Tenant shall not overload, damage or deface the Premises or the Building or do any act which may make void or voidable any insurance on the Premises or the Building, or which may render an increased or extra premium payable for insurance. (f) Hazardous Substances. Tenant shall not cause or permit to occur (i) any violation of any federal, state or local law, ordinance or regulation now or hereafter enacted relating to environmental conditions in, under or about the Premises or arising from Tenant's use or occupancy of the Premises; or (ii) without Landlord's prior written consent, which consent may be given or withheld in Landlord's sole discretion, use, generate, release, manufacture, refine, produce, process, store or dispose of any Hazardous Substance (as hereinafter defined) in, under or about the Premises, or transport any Hazardous Substance to or from the Premises. For the purposes of this Lease, Hazardous Substance shall include, but not be limited to flammables, explosives, radioactive materials, asbestos, polychlorinated biphenyls (PCB's), petroleum, petroleum products, chemicals known to cause cancer or adversely affect reproduction, pollutants, contaminants, hazardous wastes, toxic products and substances declared to be hazardous or toxic under any law or regulation concerning the environment now or hereafter enacted or promulgated by any governmental authority with jurisdiction. (g) Mechanic's Liens. Tenant shall keep the Premises and the Building free from any mechanics', materialmen's, contractors' or other liens arising from, or any claims for damages growing out of, any work performed, materials furnished or obligations incurred by or on behalf of Tenant. In the event of such a lien being filed against the Premises, the Building or the Land as a result of work performed, materials furnished or obligations incurred by or on behalf of Tenant, Tenant, at its sole cost and expense, shall cause such lien to be removed within ten (10) days after Tenant becomes aware of the filing of such lien. Tenant hereby indemnifies and holds Landlord harmless from and against any such lien, or claim or action thereon, and agrees that it shall reimburse Landlord promptly upon demand therefore by Landlord for costs of suit and reasonable attorneys' fees incurred by Landlord in connection with any such lien, claim or action. (h) Insurance. Tenant shall maintain at its expense at all times during the Term: (i) a policy or policies of commercial liability insurance with respect to the premises and the business of Tenant, written on an occurrence basis and naming Landlord as an additional insured thereon with limits of not less than $2,000,000 combined single limit; provided, however, that if Tenant's policy or policies of insurance is or are subject to an annual aggregate clause, Tenant shall provide Landlord with evidence demonstrating that the $2,000,000 coverage required by this subparagraph (i) applies solely to the Premises; and (ii) a policy or policies of all-risk coverage insurance insuring Tenant's leasehold improvements, trade fixtures and other personal property for the full replacement cost value thereof, and naming Landlord as a loss payee as its interest may appear. All such insurance policies shall be placed with companies with a Best rating of A+ VII or better and qualified to do business in the State of Minnesota, provide for at least thirty (30) days prior written notice to Landlord before cancellation or amendment, name Landlord as an additional insured thereon, and current, endorsed copies of such policies or certificates thereof shall be filed with Landlord prior to Tenant's occupancy of the Premises and on each anniversary of the Commencement Date during the Term. (i) Vending Machines. Tenant shall not install, operate, or permit any vending machines or coin-operated devices upon the Premises without Landlord's prior written consent. Tenant may include devices such as free pop machines for which Tenant receives no payment. (j) Maintenance of Premises. Except to the extent that Landlord is specifically responsible therefor under Paragraph 9(a) of this Lease, Tenant shall maintain the Premises and its surrounding walls, ceiling and floor and all improvements therein in good order and condition, including repairs and replacements thereto. Notwithstanding the foregoing, if any of Tenant's obligations pursuant to this subparagraph (j) involve any structural portion of the Building, or any building system, including, but not limited to, heating, ventilating and air conditioning, Tenant shall not undertake any maintenance, repair or replacement thereof without Landlord's prior written consent. -5- 6 (k) Waste. Tenant shall not commit waste on the Premises, nor allow waste to be committed by any of Tenant's agents, employees, licensees, invitees or contractors. (l) Liquidation Sale. Tenant shall not conduct, or permit to be conducted on or from the Premises, any auction of Tenant's personal property, any liquidation sale, any going-out-of-business sale or other similar activity. (m) Financial Statements. Upon request of Landlord, Tenant shall within ten (10) days thereafter, provide Landlord with the then most current public financial statements of Tenant, including a balance sheet and statement of income and expense, which shall be certified by Tenant, and if required by the Securities and Exchange Commission for that period's statement, audited by a certified public accountant. Tenant's obligations under this Section 10 to do or not to do a specified act shall extend to and include all of Tenant's employees, agents, contractors, licensees and invitees. 11. Installation of Improvements; Alterations. Subject to Tenant's performance of its obligations hereunder, Landlord agrees to install at Landlord's cost and expense the improvements described in Exhibit C attached hereto. All work performed by Landlord will be constructed (a) in a first-class manner consistent with the Building; and (b) in accordance with all governmental laws, ordinances, rules and regulations. All other improvements to the Premises shall be installed at the cost and expense of Tenant (which cost shall be payable on demand by Landlord as Additional Rent), only with the prior written approval of Landlord and in accordance with plans and specifications which have been previously submitted to and approved in writing by Landlord, and only by Landlord or by contractors and subcontractors approved in writing by Landlord (which approval shall not be unreasonably withheld). All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant and Tenant shall, unless permanently affixed to the Premises, remove all alterations, additions, improvements and partitions erected by Tenant and restore the Premises to its original condition by the date of expiration or termination of this Lease or upon earlier vacating of the Premises, reasonable wear and tear excepted. All such removals and restoration shall be accomplished in a good workmanlike manner so as not to damage the primary structure or structural qualities of the Building. Following expiration or termination of the Lease, Tenant shall be released from any obligation to fix any improvements that are allowed to remain, which shall be received by Landlord in "As is" condition. All alterations, additions or improvements proposed by Tenant shall be constructed (a) in a first-class manner consistent with the Building; and (b) in accordance with all governmental laws, ordinances, rules and regulations. Tenant shall, prior to construction of future improvements, provide such assurances to Landlord, including but not limited to, waivers of lien, surety company performance and payment bonds and personal guaranties of individuals of substance, as Landlord shall require to assure payment of the costs thereof and to protect Landlord against any loss from mechanics', laborers', materialmen's or other liens. If such improvements are not being performed by Landlord, Tenant shall permit Landlord, if Landlord so desires, at no expense or delay to Tenant, subject to Force Majeure, to supervise construction operations in connection with such work and to "post" the work in accordance with Minn. Stat. Section 514.06. In no event will such supervision or right to supervise by Landlord, nor shall any approvals given by Landlord under this Lease, constitute any warranty by Landlord to Tenant of the adequacy of the design, workmanship or quality of such work or materials for Tenant's intended use or impose any liability upon Landlord in connection with the performance of such work. 12. Casualty Loss. In case of damage to the Premises or the Building by fire or other casualty, Tenant shall give immediate written notice thereof to Landlord, who shall within thirty (30) days after such notice give notice to Tenant that: (1) Landlord elects to terminate this Lease as hereinafter provided, or (2) Landlord will cause the damage to be repaired with reasonable speed, which shall not exceed six (6) months from the date of the damage, at the expense of the Landlord, but Landlord shall have no obligation to restore or replace any property owned by Tenant; and to the extent that any portion of the Premises are rendered untenantable, the Base Rent and Operating Costs shall proportionately abate, except in the event such damage resulted from or was contributed to by the act, fault or neglect of Tenant, Tenant's employees, invitees, contractors, licensees or agents, in which event there shall be no abatement of Rent. If the damage shall be so extensive that the Landlord shall decide not to repair or rebuild, this Lease shall, at the option of Landlord, be terminated as of the date of such damage by written notice from Landlord to Tenant, and the Base Rent and Operating Costs shall be adjusted to the date of such damage and Tenant shall thereupon promptly vacate the Premises. If Landlord elects to repair the damage, Landlord shall be obligated to repair only to the extent insurance proceeds are made available therefore. In case of damage to the Premises or the Building by fire or other casualty that (a) renders more than fifty percent (50%) untenantable, in the reasonable opinion of Tenant or Landlord, or (b) occurs during the final twelve (12) months of any term, then Tenant or Landlord may at its discretion provide the other party with written notice of termination, which shall terminate the Lease as of the date of the damage, and Tenant may promptly re-enter the facility to recover any of its property that can be re-used in Tenant's business operations. -6- 7 In the event of any damage or destruction to the Building or the Premises by any peril covered by the provisions of this Section 12, Tenant shall, upon notice from Landlord, remove forthwith, at its sole cost and expense, such portion or all of the property belonging to Tenant or its assignees, sublessees or licensees from such portion or all of the Building or the Premises as Landlord shall request and Tenant hereby indemnifies and holds Landlord harmless from any loss, liability, costs, and expenses, including attorneys' fees, arising out of any claim of damage or injury as a result of any alleged failure to properly secure the Premises prior to such removal and/or such removal. 13. Condemnation. If the entire Premises are taken under power of eminent domain (which shall include the exercise of any similar governmental power or any purchase or other acquisition in lieu thereof), this Lease shall automatically terminate as of the date of taking, which shall be the date Tenant is required to yield possession thereof to the condemning authority. If a portion of the Premises is taken under power of eminent domain, Landlord shall have the right to terminate this Lease as of the date of taking by giving written notice thereof to Tenant on or before the date of taking. If Landlord does not elect to terminate this Lease, it shall, at its expense, restore or cause to be restored the Premises, exclusive of any improvements or other changes made therein by Tenant, to as near the condition which existed immediately prior to the date of taking as reasonably possible, and taking into account any reduction in the square footage of the Premises, and to the extent that the Premises are rendered untenantable, the Base Rent and Operating Costs shall proportionately abate. All damages awarded for a taking under the power of eminent domain shall belong to and be the exclusive property of Landlord, whether such damages be awarded as compensation for diminution in value of the leasehold estate hereby created or to the fee of the Premises; provided, however, that Landlord shall not be entitled to any separate award made to Tenant for the value and cost of removal of its personal property and fixtures or any relocation payment or allowance made to Tenant. 14. Liability and Indemnity. Save for its gross negligence or willful misconduct, Landlord shall not be responsible or liable to Tenant for any loss or damage resulting to Tenant, its agents, servants, employees, contractors, licensees or invitees, or its property from any cause whatsoever, including but not limited to loss or damage that may be occasioned by or through the acts or omissions of persons occupying any part of the Building or any persons transacting any business in or about the Building or persons present in or about the Building for any other purpose, whether lawful or unlawful or the inability of Tenant to conduct its business in the Premises due to the failure of Tenant's telephone system as a result of work performed on another tenant's telephone system or on the Building telephone system. Tenant shall defend, indemnify and save Landlord harmless from and against all liabilities, damages, claims, costs, charges, judgments and expenses, including, but not limited to, reasonable attorneys' fees, which may be imposed upon or incurred or paid by or asserted against Landlord, the Premises or any interest therein or in the Building by reason of or in connection with any use, nonuse, possession or operation of the Building or the Premises, or any part thereof, any negligent or tortious act on the part of Tenant or any of its agents, contractors, servants, employees, licensees or invitees, any accident, injury, death or damage to any person or property occurring in, on or about the Premises or any part thereof, and any failure on the part of Tenant to perform any of the terms or conditions of this Lease; provided, however, that nothing contained in this paragraph shall be deemed to require Tenant to indemnify Landlord with respect to any gross negligence or willful misconduct committed by Landlord or to any extent prohibited by law. 15. Default. Tenant hereby agrees that the occurrence of any one or more of the following shall constitute an Event of Default under this Lease: (a) The failure of Tenant to make any payment due hereunder within five (5) days after the due date thereof, with Landlord agreeing to provide written notice to Tenant of such failure to pay; (b) The failure of Tenant to insure and provide evidence thereof in accordance with Section 10(h) hereof; (c) The failure of Tenant to perform any of the other agreements, covenants, terms and conditions of this Lease; (d) The commencement of any proceeding by or against Tenant in bankruptcy or for appointment of a receiver; or The insolvency of Tenant, or the making by Tenant of a general assignment for the benefit of creditors, or the filing by Tenant for protection under any statute regarding bankruptcy now or hereafter in force, -7- 8 then, in any such event, Landlord, in addition to all other rights and remedies available to Landlord, by law or by other provisions hereof, may, with or without process of law, but in accordance with law, re-enter immediately into the Premises and remove all persons and property therefrom, and, at Landlord's option, annul and cancel this Lease or terminate Tenant's right to possession of the Premises without terminating this Lease, and Tenant hereby expressly waives the service of any notice in writing of intention to re-enter as aforesaid. Upon any termination of Tenant's right to possession only without termination of the Lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof as provided above, without such entry and possession terminating the Lease or releasing Tenant, in whole or in part, from any obligation including Tenant's obligation to pay the Base Rent, Operating Costs and Additional Rent hereunder for the full Term. In any such case, Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the entire amount of the Base Rent, and estimates of Operating Costs and Additional Rent, for the residue of the Term hereof plus any other sums provided herein to be paid by Tenant for the remainder of the Term. Tenant acknowledges and agrees that in the event of a default by it under this Lease, Landlord may, in addition to any and all other remedies available to it, give Tenant's name to any credit bureau, Better Business Bureau or like entity, describing Tenant as being in default of its obligations under this Lease, all without any liability accruing to Landlord and without obligation by Landlord to modify or update such report at any time. Notwithstanding the foregoing, upon any default by Tenant in any of its obligations hereunder except the obligations set forth in subparagraphs (a) and (b) above, if Tenant, within ten (10) days after notice from Landlord, commences to cure such default and prosecutes such cure diligently to completion, Tenant shall not be in default hereunder; provided, however, that such cure period shall in no event exceed thirty (30) days. Upon default, Landlord may, but need not, relet the Premises or any part thereof for such rent and upon such terms as Landlord, in its sole discretion, shall determine (including the right to relet the Premises for a greater or lesser term than that remaining under this Lease, the right to relet the Premises as part of a larger area, and the right to change the character or use made of the Premises) and Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. In any such case, Landlord may make repairs, alterations and additions in or to the Premises, and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with Landlord's expenses of reletting including, without limitation, any broker's commission and attorneys' fees incurred by Landlord. If the consideration collected by Landlord upon any such reletting plus any sums previously collected from Tenant are not sufficient to pay the full amount of all Base Rent and any amounts of Operating Costs and Additional Rent and other sums reserved in this Lease for the remaining term hereof, together with the costs of repairs, alterations, additions, redecorating, and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including attorneys' fees and brokers' commissions), Tenant shall pay to Landlord the amount of such deficiency upon demand and Tenant agrees that Landlord may file suit to recover any sums due and payable under this Section 15 from time to time. Neither acceptance of Rent by Landlord, with or without knowledge of breach, nor failure of Landlord to take action on account of any breach hereof or to enforce its rights hereunder shall be deemed a waiver of any breach, and absent written notice or consent, said breach shall be a continuing one at Landlord's sole option. Any and all remedies to which Landlord may resort under this Lease, at law or in equity are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may be entitled under this Lease, at law or in equity. 16. Late Payment. If Tenant fails to pay any installment of Rent, or other sums hereunder as and when such installment or other charge is due, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment or other charge overdue in any month and five percent (5%) each month thereafter until paid in full to help defray the additional cost to Landlord for processing such late payments, and such late charge shall be Additional Rent hereunder and the failure to pay such late charge within ten (10) days after demand therefore shall be an additional Event of Default hereunder. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. 17. Notices. All bills, statements, notices or communications, including change of address of either party, which either party may desire or be required to give to the other shall be deemed sufficiently given or rendered if in writing and either delivered to the other party personally, sent by registered or certified mail, return receipt requested, sent by national air courier service, addressed to Tenant at the Building, or to Landlord at the address where the last installment of Base Rent due hereunder was payable or, as to either party, upon receipt of notice in accordance with this Section, to the last address furnished by such party. The time of rendition thereof or the giving of such notice or communication shall be deemed to be the time when the same is personally delivered to the other party, deposited in the mail, or delivered to the -8- 9 other party by a national air courier service as herein provided. Any notice or the return of any access cards, keys, or otherwise to be given from Tenant to Landlord must be delivered in the manner set forth above to Landlord's managing agent. 18. Holding Over. Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession of the Premises to Landlord. If Tenant retains possession of the Premises or any part thereof after such termination, then Landlord may, at its option, serve written notice upon Tenant that such holding over constitutes either (a) creation of a month to month tenancy, upon the terms and conditions set forth in this Lease, or (b) creation of a tenancy at sufferance; provided, however, that the Base Rent prorated on a daily basis if subparagraph (b) is elected, shall, in addition to all other sums which are to be paid by Tenant hereunder including, but not limited to Operating Costs, whether or not as Additional Rent, be equal to 1.5 times the Base Rent being paid monthly to Landlord under this Lease immediately prior to such termination (prorated in the case of (b) on the basis of a 365 day year for each day Tenant remains in possession). If no such notice is served, then a tenancy at sufferance shall be deemed to be created at the Rent in the preceding sentence. Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of possession by Tenant including the loss of any proposed subsequent Tenant for any portion of the Premises. The provisions of this paragraph shall not constitute a waiver by Landlord of any right of re-entry as herein set forth; nor shall receipt of any Rent or any other act in apparent affirmance of the tenancy operate as a waiver of the right to terminate this Lease for a breach of any of the terms, covenants, or obligations herein on Tenant's part to be performed. 19. Subordination. The rights of Tenant shall be and are subject and subordinate at all times to the lien of any mortgage now or hereafter in force against the Building, and Tenant shall execute and deliver to Landlord within ten (10) days of Landlord's request therefore, such further instruments subordinating this Lease to the lien of any such mortgage as shall be requested by Landlord. If Landlord's interest in the Building is transferred to any person or entity by reason of (a) a foreclosure or other proceeding to enforce a mortgage against the Building; (b) delivery by Landlord of a deed in lieu of foreclosure; or (c) a sale, conveyance or assignment of the Building, then in any such case, Tenant shall immediately and automatically attorn to such person or entity without the execution of any further instruments evidencing Tenant's attornment. If requested by Tenant, Landlord agrees to use reasonable efforts to obtain an agreement of non-disturbance from the holder of any mortgage against the Building wherein Tenant's occupancy of the Premises will not be disturbed in the event that such mortgage holder, its successors or assigns succeeds to the interest of Landlord so long as Tenant is not in default under this Lease, such agreement to be in a form acceptable to such mortgage holder. 20. Estoppel Certificate. Tenant shall at any time and from time to time within ten (10) days after written request from Landlord execute and deliver to Landlord or any prospective landlord or mortgagee or prospective mortgagee a sworn and acknowledged Estoppel Certificate, in form reasonably satisfactory to Landlord and/or Landlord's mortgagee and/or any prospective landlord or prospective mortgagee certifying and stating as follows: (i) this Lease has not been modified or amended (or if modified or amended, setting forth such modifications or amendments); (ii) this Lease (as so modified or amended) is in full force and effect (or if not in full force and effect, the reasons therefor); (iii) the Tenant has no offsets or defenses to its performance of the terms and provisions of this Lease, including the payment of Rent (or if there are any such defenses or offsets, specifying the same); (iv) Tenant is in possession of the Premises, if such be the case; (v) if an assignment of rents or leases has been served upon Tenant by a mortgagee or prospective mortgagee, Tenant has received such assignment and agrees to be bound by the provisions thereof; and (vi) any other accurate statements reasonably required by Landlord or its mortgagee or prospective mortgagee. It is intended that any such statement delivered pursuant to this subsection may be relied upon by any prospective purchaser or mortgagee and their respective successors and assigns and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such Estoppel certificate. Tenant hereby irrevocably appoints Landlord as attorney-in-fact for the Tenant with full power and authority to execute and deliver in the name of Tenant such Estoppel Certificate if Tenant fails to deliver the same within such ten (10) day period and such certificate as signed by Landlord shall be fully binding on Tenant, if Tenant fails to deliver a contrary certificate within five (5) days after receipt by Tenant of a copy of the certificate executed by Landlord on behalf of Tenant, but Tenant shall not have any liability arising out of or related to Estoppel Certificates prepared by Landlord on behalf of Tenant. 21. Binding Effect. The word "Tenant," wherever used in this Lease, shall be construed to mean tenants in all cases where there is more than one tenant, and the necessary grammatical changes required to make the provisions hereof apply to corporations, partnerships or individuals, men or women, shall in all cases be assumed as though in each case fully expressed. Each provision hereof shall extend to and shall, as the case may require, bind and inure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and assigns, provided that this Lease shall not inure to the benefit of any assignee, heir, legal representative, transferee or successor of Tenant except upon the express written consent or election of Landlord. -9- 10 22. Transfer of Landlord's Interest. In the event of any transfer or transfers of Landlord's interest in the Premises or the Building, other than a transfer for security purposes only, the transferor shall be automatically relieved of any and all obligations and liabilities on the part of Landlord accruing from and after the date of such transfer, including, without limitation, the obligation of Landlord under Section 4 hereof to return the security deposit as provided therein following assignment or transfer thereof to such assignee of Landlord's interest. 23. Expense of Enforcement. Each party shall pay its own attorneys' fees and expenses. 24. Access; Changes in Building Facilities; Name. (a) All portions of the Building, except space within the inside surfaces of all walls and doors bounding the Premises, and any space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other Building facilities and the use thereof, as well as access to such facilities through the Premises for the purposes of operation, maintenance, renovation, decoration and repair are reserved to Landlord and Landlord's managing agent; (b) Tenant shall give Landlord and Landlord's managing agent access to the Premises at any time during emergencies and at all other reasonable times upon reasonable notice, without charge or diminution of Rent, to enable Landlord to examine or, during the last six (6) months of any then-current term of the Lease, exhibit the same and to make such inspections, repairs, additions and alterations to the Building or the Premises as Landlord deems necessary or may be required to make hereunder. Specifically, and without limiting the generality of the foregoing, Tenant understands and agrees that Landlord may, at any time, and from time to time during the Term, perform renovation and/or repair work in and to the Building or the systems (including, but not limited to, heating, ventilating and air-conditioning, mechanical, electrical and plumbing systems) serving the Building, any of which may require access to the same from within the Premises. In such case, Landlord shall incur no liability to Tenant, nor shall Tenant be entitled to any abatement of Rent on account of any effect on Tenant's business at the Premises which shall arise out of said access by Landlord or by the performance by Landlord of the aforesaid work at the Building; provided however that Landlord shall use reasonable efforts (which shall not include any obligation to employ labor at overtime rates) to avoid disruption of Tenant's business during any such entry upon the Premises by Landlord. (c) Landlord reserves the right, at any time, without incurring any liability to Tenant therefor, and without any obligation to provide Tenant with notice thereof, to make such changes in or to the Building and the fixtures, systems and equipment appurtenant thereto, as well as in or to the street entrances, halls, passages, concourse(s), elevators, stairways and other improvements, as it may deem necessary or desirable from time to time, including, without limitation, the right to modify the number of square feet in the Building, provided that any such change does not affect Tenant to a greater degree than any other Tenant. (d) Landlord may adopt any name for the Building and Landlord reserves the right to change the name and/or address of the Building at any time. Subject to Landlord's approval of the appearance of the sign, Tenant may put a sign containing the company name, logo, and similar information on the windows of its space over the main entryway for the Building. 25. Right of Landlord to Perform. If Tenant shall fail to pay any sum of money other than Base Rent, Operating Costs or Additional Rent required to be paid by it hereunder, or shall fail to perform any other act on its part to be performed hereunder, Landlord may, but shall not be so obligated, and without waiving or releasing Tenant from any obligations of Tenant, after the end of the fifth business day after notifying Tenant in writing of Tenant's obligation to perform, make any such payment or perform any such other act on Tenant's part to be made or performed hereunder; provided, however, that in the event of emergency, Landlord shall have the right to perform Tenant's obligations prior to the expiration of the five-day period specified above and shall have the right to use the Security Deposit to pay such expenses, or pay such expenses directly and reimburse itself from the Security Deposit. Tenant shall, promptly and upon demand therefor by Landlord, reimburse Landlord for all sums so paid by Landlord and all necessary incidental costs, and Landlord shall have the same rights and remedies in the event of the failure by Tenant to pay such amounts as Landlord would have in the event of a default by Tenant in the payment of Rent. 26. Brokers. Each of the parties (i) represents and warrants to the other that it has only dealt with CB Richard Ellis, Inc. with regard to leasing or renting space in the Building; and (ii) indemnifies and holds the other harmless from any and all losses, liability, costs or expenses (including attorney's fees) incurred as a result of an alleged breach of the foregoing warranty and representation. -10- 11 27. [Intentionally left blank] 28. Modifications for Lender. If, in connection with obtaining financing for the Building or the Premises, any lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant shall promptly execute any instrument submitted to Tenant by Landlord containing such modifications; provided, however, that such modifications shall not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created. 29. Limitation of Liability. If Landlord is ever adjudged by any court to be liable to Tenant in damages, Tenant specifically agrees to look solely to Landlord's interest in the Building for the recovery of any judgment from Landlord, it being agreed that Landlord, or if Landlord is a partnership, its partners whether general or limited, or if Landlord is a corporation, its directors, officers, or shareholders, shall never be personally liable for any such judgment. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successor in interest, or to maintain any other action not involving the personal liability of Landlord (or if Landlord is a partnership, its partners whether general or limited, or if Landlord is a corporation, its directors, officers, or shareholders), or to maintain any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord. Notwithstanding anything to the contrary in this Lease, Landlord shall not be liable to Tenant, Tenant's agents, servants or employees, or to any person or entity claiming by or through Tenant, for any consequential, indirect, special or similar types of damages. Except as may be otherwise expressly stated herein, Tenant shall not be liable to Landlord, Landlord's agents, servants or employees, or to any person or entity claiming by or through Landlord, for any consequential, indirect, special or similar types of damages. 30. [Intentionally left blank] 31. Waiver of Subrogation. Each of Landlord and Tenant hereby releases the other from any liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by the fault or negligence of the other party, or anyone for whom such party may be responsible. 32. Incorporation of Exhibits. The following exhibits to this Lease are hereby incorporated by reference for all purposes as fully as if incorporated herein: Exhibit A Premises Location Drawing Exhibit B Building Legal Description Exhibit C Leasehold Improvements Plans and Specifications Exhibit D [Intentionally Omitted] Exhibit E Commencement Letter Exhibit F Building Rules and Regulations 33. Force Majeure. All of the obligations of Landlord and of Tenant under this Lease are subject to and shall be postponed for a period equal to any delay or suspension resulting from fires, strikes, acts of God, and other causes beyond the control of the party delayed in its performance hereunder, this Lease remaining in all other respects in full force and effect and the Term not thereby extended, provided that Tenant may terminate any of its remaining obligations under this Lease if any Force Majeure condition persists substantially unremedied for more than three (3) consecutive months. Notwithstanding the foregoing, the unavailability of funds for payment or performance of Tenant's obligations hereunder shall not give rise to any postponement or delay in such payment or performance of Tenant's obligations hereunder. 34. General. The submission of this Lease for examination does not constitute the reservation of or an option for the Premises, and this Lease becomes effective only upon execution and delivery hereof by Landlord and Tenant. This Lease does not create the relationship of principal and agent or of partnership, joint venture or any association between Landlord and Tenant, the sole relationship between Landlord and Tenant being that of lessor and lessee. No waiver of any default of Tenant hereunder shall be implied from any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. The topical headings of the several paragraphs and clauses are for convenience only and do not define, limit or construe the contents of such paragraphs or clauses. All preliminary negotiations are merged into and incorporated in this Lease, and this Lease constitutes the entire agreement between the parties. Landlord has made no representations or warranties to Tenant with -11- 12 regard to this Lease, the Premises or the Building which are not expressly set forth herein. This Lease can only be modified or amended in writing, which writing shall be signed by the parties hereto, their successors or assigns (and mortgagees if required by such mortgage). All provisions hereof shall be binding upon the heirs, successors and assigns of each party hereto. -12- 13 35. Severability. The invalidity of any provision, clause or phrase herein contained shall not serve to render the balance of this Lease ineffective or void and the same shall be construed as if such had not been herein set forth. 36. Governing Law. This Lease shall be governed in accordance with the laws of the State of Minnesota. 37. Cross-Default. Tenant agrees that a default under any Parking/Storage Lease between Landlord and Tenant shall constitute a default under this Lease, which default shall entitle Landlord to pursue any and all of its remedies hereunder and thereunder. 38. Additional Provisions. (a) Landlord will provide one (1) five-year renewal option. Tenant shall be required to provide written notice to Landlord of its exercise of the renewal option not later than twelve (12) months in advance of expiration of the term of this Lease. The net rate will be at the prevailing market for similar tenants renewing in similar facilities, but in no case lower than the last year's rate. (b) Tenant needs to express to Landlord anticipated office space requirements. Landlord will make every effort to accommodate Tenant's request for future expansion space, subject to existing tenants' rights. Base Rental Rates for any expansion space will reflect Tenant's then current Base Rent and will run coterminous with initial lease. Tenant improvements will be at the amount stated in Exhibit C, prorated based on remaining term. (c) Landlord will provide four (4) indoor parking stalls in the garage free of charge for the first year of occupancy (8/1/00 - 7/31/01). Thereafter, these stalls shall be available by separate agreement at the then current market rate. (d) Tenant shall, at its own expense, be permitted to install one communications antenna on the roof of the Building, subject to Landlord's specifications and prior approval as to the means, method, size, and location of placement, installation, maintenance, operation, and removal, and provided that if such antenna interferers with the communications or business operations of Landlord or any tenant, Tenant shall remove or remedy such interference promptly after notice of the same. IN WITNESS WHEREOF, the respective parties hereto have caused this Lease to be executed as of the day and year first above written. LANDLORD: TENANT: HARVARD PROPERTY (LAKE CALHOUN), L.P. ZAMBA CORPORATION By: HP L Calhoun, Inc., a Texas corporation Its: Authorized Representative By: /s/ Robert Behringer By: /s/ Mike Carrel Its: President Its: CFO By: -------------------- Its: --------------- -13- EX-10.02 3 ex10-02.txt LEASE AGREEMENT DATED MAY 31, 2000 1 NEW ENGLAND EXECUTIVE PARK BUILDING FIFTEEN BURLINGTON, MASSACHUSETTS OFFICE LEASE AGREEMENT BETWEEN EOP-NEW ENGLAND EXECUTIVE PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("LANDLORD") AND ZAMBA CORPORATION, A DELAWARE CORPORATION ("TENANT") 2 TABLE OF CONTENTS I. BASIC LEASE INFORMATION...................................................................1 II. LEASE GRANT..............................................................................2 III. ADJUSTMENT OF COMMENCEMENT DATE; POSSESSION.............................................3 IV. RENT.....................................................................................3 V. COMPLIANCE WITH LAWS; USE.................................................................7 VI. SECURITY DEPOSIT.........................................................................7 VII. SERVICES TO BE FURNISHED BY LANDLORD....................................................7 VIII. LEASEHOLD IMPROVEMENTS.................................................................8 IX. REPAIRS AND ALTERATIONS..................................................................8 X. USE OF ELECTRICAL SERVICES BY TENANT......................................................9 XI. ENTRY BY LANDLORD.......................................................................10 XII. ASSIGNMENT AND SUBLETTING..............................................................10 XIII. LIENS.................................................................................11 XIV. INDEMNITY AND WAIVER OF CLAIMS.........................................................11 XV. INSURANCE...............................................................................12 XVI. SUBROGATION............................................................................12 XVII. CASUALTY DAMAGE.......................................................................13 XVIII. CONDEMNATION.........................................................................13 XIX. EVENTS OF DEFAULT......................................................................13 XX. REMEDIES................................................................................14 XXI. LIMITATION OF LIABILITY................................................................15 XXII. NO WAIVER.............................................................................15 XXIII. QUIET ENJOYMENT.....................................................................15 XXIV. RELOCATION............................................................................15 XXV. HOLDING OVER...........................................................................15 XXVI. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE......................................16 XXVII. ATTORNEYS' FEES......................................................................16 XXVIII. NOTICE..............................................................................16 XXIX. EXCEPTED RIGHTS.......................................................................17 XXX. SURRENDER OF PREMISES..................................................................17 XXXI. MISCELLANEOUS.........................................................................17 XXXII. ENTIRE AGREEMENT.....................................................................19
i 3 OFFICE LEASE AGREEMENT This Office Lease Agreement (the "Lease") is made and entered into as of the 31st day of May, 2000, by and between EOP-NEW ENGLAND EXECUTIVE PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and ZAMBA CORPORATION, A DELAWARE CORPORATION ("Tenant"). I. BASIC LEASE INFORMATION. A. "Building" shall mean the building located at Fifteen New England Executive Park, Burlington, Massachusetts 01803, and commonly known as Fifteen New England Executive Park. B. "Rentable Square Footage of the Building" is deemed to be 43,267 square feet. C. "Premises" shall mean the area shown on EXHIBIT A to this Lease. The Premises are located on the 1st floor and known as suite number 120. The "Rentable Square Footage of the Premises" is deemed to be 11,049 square feet. If the Premises include one or more floors in their entirety, all corridors and restroom facilities located on such full floor(s) shall be considered part of the Premises. Landlord and Tenant stipulate and agree that the Rentable Square Footage of the Building and the Rentable Square Footage of the Premises are correct and shall not be remeasured. D. "Base Rent":
PERIOD ANNUAL RATE ANNUAL MONTHLY ------ ----------- ------ ------- (MONTHS) PER SQUARE FOOT BASE RENT BASE RENT -------- --------------- --------- --------- 01 - 24 $30.00 $331,470.00 $27,622.50 25 - 36 $31.00 $342,519.00 $28,543.25 37 - 60 $32.00 $353,568.00 $29,464.00
E. "Tenant's Pro Rata Share": 25.5368%. F. "Base Year" for Taxes: Fiscal Year (defined below) 2001 (e.g., July 1, 2000 to June 30, 2001). - "Base Year for Expenses: calendar year 2000. For purposes hereof, "Fiscal Year shall mean the Base Year for Taxes and each period of July 1 to June 30 thereafter. G. "Term": A period of 60 months. The Term shall commence on July 1, 2000 (the "Commencement Date") and, unless terminated early in accordance with this Lease, end on June 30, 2005 (the "Termination Date"). However, if Landlord is required to Substantially Complete (defined in Section III.A) any Landlord Work (defined in Section I.O.) prior to the Commencement Date under the terms of a Work Letter (defined in Section I.O): (1) the date set forth in the prior sentence as the "Commencement Date" shall instead be defined as the "Target Commencement Date" by which date Landlord will use reasonable efforts to Substantially Complete the Landlord Work; and (2) the actual "Commencement Date" shall be the date on which the Landlord Work is Substantially Complete, as determined by Section III.A. In such circumstances, the Termination Date will instead be the last day of the Term as determined based upon the actual Commencement Date. Landlord's failure to Substantially Complete the Landlord Work by the Target Commencement Date shall not be a default by Landlord or otherwise render Landlord liable for damages. Promptly after the determination of the Commencement Date, Landlord and Tenant shall enter into a commencement letter agreement in the form attached as EXHIBIT C. In addition, if Tenant is entitled to register or record a notice or memorandum of this Lease pursuant to the terms of Section XXXI, Landlord and Tenant shall also execute and Tenant may register or record, as appropriate, at Tenant's cost and expense, a Commencement Date Agreement in the form attached as EXHIBIT E. Landlord shall use reasonable efforts to notify Tenant of any circumstances of which Landlord is aware that have caused or may cause a delay by Landlord to Substantially Complete the Landlord Work. 1 4 H. Tenant allowance(s): an amount not to exceed $99,441.00 as further described in the attached EXHIBIT D. I. "Security Deposit": $48,000.00. J. "Guarantor(s)": NONE. K. "Broker(s)": Boston Real Estate Partners. L. "Permitted Use": general office use. M. "Notice Addresses": Tenant: On and after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address: New England Executive Park - Building 8 Burlington, Massachusetts 01803 Phone #: Fax #: Landlord: With a copy to: EOP-New England Executive Park, L.L.C. Equity Office Properties c/o Equity Office Properties Two North Riverside Plaza Three New England Executive Park Suite 2200 Burlington, Massachusetts 01803 Chicago, Illinois 60606 Attention: Building Manager Attention: Northeast Regional Counsel Rent (defined in Section IV.A) is payable to the order of EQUITY OFFICE PROPERTIES at the following address: EOP Operating Limited Partnership as Agent for EOP-New England Executive Park, L.L.C., P.O. Box 30229, Hartford, Connecticut 06150-0229. N. "Business Day(s)" are Monday through Friday of each week, exclusive of New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day ("Holidays"). Landlord may designate additional Holidays, provided that the additional Holidays are commonly recognized by other office buildings in the area where the Building is located. O. "Landlord Work" means the work, if any, that Landlord is obligated to perform in the Premises pursuant to a separate work letter agreement (the "Work Letter"), if any, attached as EXHIBIT D. If a Work Letter is not attached to this Lease or if an attached Work Letter does not require Landlord to perform any work, the occurrence of the Commencement Date shall not be conditioned upon the performance of work by Landlord and, accordingly, Section III.A. shall not be applicable to the determination of the Commencement Date. P. "Law(s)" means all applicable statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity. Q. "Normal Business Hours" for the Building are 8:00 A.M. to 6:00 P.M. on Business Days and 8:00 A.M. to 1:00 P.M. on Saturdays. R. "Property" means the Building and the parcel(s) of land on which it is located and, at Landlord's discretion, the Building garage and other improvements serving the Building, if any, and the parcel(s) of land on which they are located. II. LEASE GRANT. 2 5 Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, together with the right in common with others to use any portions of the Property that are designated by Landlord for the common use of tenants and others, such as sidewalks, unreserved parking areas, common corridors, elevator foyers, restrooms, vending areas and lobby areas (the "Common Areas"). III. ADJUSTMENT OF COMMENCEMENT DATE; POSSESSION. A. The Landlord Work shall be deemed to be "Substantially Complete" on the date that all Landlord Work has been performed, other than any details of construction, mechanical adjustment or any other similar matter, the noncompletion of which does not materially interfere with Tenant's use of the Premises. However, if Landlord is delayed in the performance of the Landlord Work as a result of any Tenant Delay(s) (defined below), the Landlord Work shall be deemed to be Substantially Complete on the date that Landlord could reasonably have been expected to Substantially Complete the Landlord Work absent any Tenant Delay. "Tenant Delay" means any act or omission of Tenant or its agents, employees, vendors or contractors that actually delays the Substantial Completion of the Landlord Work, including, without limitation: (1) Tenant's failure to furnish information or approvals within any time period specified in this Lease, including the failure to prepare or approve preliminary or final plans by any applicable due date; (2) Tenant's selection of equipment or materials that have long lead times after first being informed by Landlord that the selection may result in a delay; (3) changes requested or made by Tenant to previously approved plans and specifications; (4) performance of work in the Premises by Tenant or Tenant's contractor(s) during the performance of the Landlord Work; or (5) if the performance of any portion of the Landlord Work depends on the prior or simultaneous performance of work by Tenant, a delay by Tenant or Tenant's contractor(s) in the completion of such work. B. Subject to Landlord's obligation, if any, to perform Landlord Work and Landlord's obligations under Section IX.B., the Premises are accepted by Tenant in "as is" condition and configuration. By taking possession of the Premises, Tenant agrees that the Premises are in good order and satisfactory condition, and that there are no representations or warranties by Landlord regarding the condition of the Premises or the Building and that Landlord shall have no obligation to remove any furniture or other property that is present in the Premises as of the Commencement Date, the parties acknowledging and agreeing that Landlord shall have no interest in or rights to such furniture or property. Notwithstanding the foregoing, Landlord shall be responsible for latent defects in the Landlord Work of which Tenant notifies Landlord to the extent that the correction of such defects is covered under valid and enforceable warranties given Landlord by contractors or subcontractors performing the Landlord Work. Landlord, at its option, may pursue such claims directly or assign any such warranties to Tenant for enforcement. If Landlord is delayed delivering possession of the Premises or any other space due to the holdover or unlawful possession of such space by any party, Landlord shall use reasonable efforts to obtain possession of the space. If Landlord is not required to Substantially Complete Landlord Work before the Commencement Date, the Commencement Date shall be postponed until the date Landlord delivers possession of the Premises to Tenant free from occupancy by any party, and the Termination Date, at the option of Landlord, may be postponed by an equal number of days. If Landlord is required to Substantially Complete Landlord Work before the Commencement Date, the Commencement Date and Termination Date shall be determined by Section I.G. C. If Tenant takes possession of the Premises before the Commencement Date, such possession shall be subject to the terms and conditions of this Lease and Tenant shall pay Rent (defined in Section IV.A.) to Landlord for each day of possession before the Commencement Date. However, except for the cost of services requested by Tenant (e.g. freight elevator usage), Tenant shall not be required to pay Rent for any days of possession before the Commencement Date during which Tenant, with the approval of Landlord, is in possession of the Premises for the sole purpose of performing improvements or installing furniture, equipment or other personal property. IV. RENT. A. Payments. As consideration for this Lease, Tenant shall pay Landlord, without any setoff or deduction, the total amount of Base Rent and Additional Rent due for the Term. "Additional Rent" means all sums (exclusive of Base Rent) that Tenant is 3 6 required to pay Landlord. Additional Rent and Base Rent are sometimes collectively referred to as "Rent". Tenant shall pay and be liable for all rental, sales and use taxes (but excluding income taxes), if any, imposed upon or measured by Rent under applicable Law. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month without notice or demand, provided that the installment of Base Rent for the first full calendar month of the Term shall be payable upon the Commencement Date. All other items of Rent shall be due and payable by Tenant on or before 30 days after billing by Landlord. All payments of Rent shall be by good and sufficient check or by other means (such as automatic debit or electronic transfer) acceptable to Landlord. If Tenant fails to pay any item or installment of Rent when due, Tenant shall pay Landlord an administration fee equal to 5% of the past due Rent, provided that Tenant shall be entitled to a grace period of 5 days for the first 2 late payments of Rent in a given calendar year. If the Term commences on a day other than the first day of a calendar month or terminates on a day other than the last day of a calendar month, the monthly Base Rent and Tenant's Pro Rata Share of any Tax Excess (defined in Section IV.B.) or Expense Excess (defined in Section IV.B.) for the month shall be prorated based on the number of days in such calendar month. Landlord's acceptance of less than the correct amount of Rent shall be considered a payment on account of the earliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord and satisfaction, and either party may accept the check or payment without prejudice to that party's right to recover the balance or pursue other available remedies. Tenant's covenant to pay Rent is independent of every other covenant in this Lease. B. Expense Excess and Tax Excess. Tenant shall pay Tenant's Pro Rata Share of the amount, if any, by which Expenses (defined in Section IV.C.) for each calendar year during the Term exceed Expenses for the Base Year (the "Expense Excess") and also the amount, if any, by which Taxes (defined in Section IV.D.) for each Fiscal Year during the Term exceed Taxes for the Base Year (the "Tax Excess"). If Expenses and/or Taxes in any calendar year or Fiscal Year decrease below the amount of Expenses and/or Taxes for the Base Year, Tenant's Pro Rata Share of Expenses and/or Taxes, as the case may be, for that calendar year or Fiscal Year shall be $0. Landlord shall provide Tenant with a good faith estimate of the Expense Excess and of the Tax Excess for each calendar year or Fiscal Year during the Term. On or before the first day of each month, Tenant shall pay to Landlord a monthly installment equal to one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of the Expense Excess and one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of the Tax Excess. If Landlord determines that its good faith estimate of the Expense Excess or of the Tax Excess was incorrect by a material amount, Landlord may provide Tenant with a revised estimate. After its receipt of the revised estimate, Tenant's monthly payments shall be based upon the revised estimate. If Landlord does not provide Tenant with an estimate of the Expense Excess by January 1 of a calendar year, or the Tax Excess by the start of each new Fiscal Year, Tenant shall continue to pay monthly installments based on the previous calendar year's or Fiscal Year's estimate(s), as the case may be, until Landlord provides Tenant with the new estimate. Upon delivery of the new estimate, an adjustment shall be made for any month for which Tenant paid monthly installments based on the previous calendar or Fiscal Year's estimate(s). Tenant shall pay Landlord the amount of any underpayment within 30 days after receipt of the new estimate. Any overpayment shall be refunded to Tenant within 30 days or credited against the next due future installment(s) of Additional Rent. As soon as is practical following the end of each calendar year or Fiscal Year, as the case may be, Landlord shall furnish Tenant with a statement of the actual Expenses and Expense Excess and the actual Taxes and Tax Excess for the prior calendar year or Fiscal Year, as the case may be. If the estimated Expense Excess and/or estimated Tax Excess for the prior calendar year or Fiscal Year, as the case may be, is more than the actual Expense Excess and/or actual Tax Excess for the prior calendar year or Fiscal Year, as the case may be, Landlord shall apply any overpayment by Tenant against Additional Rent due or next becoming due, provided if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due. If the estimated Expense Excess and/or estimated Tax Excess for the prior calendar year or Fiscal Year, as the case may be, is less than the actual Expense Excess and/or actual Tax Excess for such prior calendar year or Fiscal Year, as the case may be, Tenant shall pay Landlord, within 30 4 7 days after its receipt of the statement of Expenses and/or Taxes, any underpayment for the prior calendar year. C. Expenses Defined. "Expenses" means all costs and expenses incurred in each calendar year in connection with operating, maintaining, repairing, and managing the Building and the Property, including, but not limited to: 1. Labor costs, including, wages, salaries, social security and employment taxes, medical and other types of insurance, uniforms, training, and retirement and pension plans. 2. Management fees, the cost of equipping and maintaining a management office, accounting and bookkeeping services, legal fees not attributable to leasing or collection activity, and other administrative costs. Landlord, by itself or through an affiliate, shall have the right to directly perform or provide any services under this Lease (including management services), provided that the cost of any such services shall not exceed the cost that would have been incurred had Landlord entered into an arms-length contract for such services with an unaffiliated entity of comparable skill and experience. 3. The cost of services, including amounts paid to service providers and the rental and purchase cost of parts, supplies, tools and equipment. 4. Premiums and deductibles paid by Landlord for insurance, including workers compensation, fire and extended coverage, earthquake, general liability, rental loss, elevator, boiler and other insurance customarily carried from time to time by owners of comparable office buildings. 5. Electrical Costs (defined below) and charges for water, gas, steam and sewer, but excluding those charges for which Landlord is reimbursed by tenants. "Electrical Costs" means: (a) charges paid by Landlord for electricity; (b) costs incurred in connection with an energy management program for the Property; and (c) if and to the extent permitted by Law, a fee for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for electricity, provided that such fee shall not exceed 50% of any savings obtained by Landlord. Electrical Costs shall be adjusted as follows: (i) amounts received by Landlord as reimbursement for above standard electrical consumption shall be deducted from Electrical Costs; (ii) the cost of electricity incurred to provide overtime HVAC to specific tenants (as reasonably estimated by Landlord) shall be deducted from Electrical Costs; and (iii) if Tenant is billed directly for the cost of building standard electricity to the Premises as a separate charge in addition to Base Rent, the cost of electricity to individual tenant spaces in the Building shall be deducted from Electrical Costs. 6. The amortized cost of capital improvements (as distinguished from replacement parts or components installed in the ordinary course of business) made to the Property which are: (a) performed primarily to reduce operating expense costs or otherwise improve the operating efficiency of the Property; or (b) required to comply with any Laws that are enacted, or first interpreted to apply to the Property, after the date of this Lease. The cost of capital improvements shall be amortized by Landlord over the lesser of the Payback Period (defined below) or 5 years. The amortized cost of capital improvements may, at Landlord's option, include actual or imputed interest at the rate that Landlord would reasonably be required to pay to finance the cost of the capital improvement. "Payback Period" means the reasonably estimated period of time that it takes for the cost savings resulting from a capital improvement to equal the total cost of the capital improvement. If Landlord incurs Expenses for the Property together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned between the Property and the other buildings or properties. Expenses shall not include: the cost of capital improvements (except as set forth above); depreciation; interest (except as provided above for the amortization of capital improvements); principal payments of mortgage and other non-operating debts of Landlord; the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds; costs in connection with leasing space in the 5 8 Building, including brokerage commissions; lease concessions, including rental abatements and construction allowances, granted to specific tenants; costs incurred in connection with the sale, financing or refinancing of the Building; fines, interest and penalties incurred due to the late payment of Taxes (defined in Section IV.D) or Expenses; organizational expenses associated with the creation and operation of the entity which constitutes Landlord; or any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases. If the Building is not at least 95% occupied during any calendar year or if Landlord is not supplying services to at least 95% of the total Rentable Square Footage of the Building at any time during a calendar year, Expenses shall, at Landlord's option, be determined as if the Building had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Building during that calendar year. If Tenant pays for its Pro Rata Share of Expenses based on increases over a "Base Year" and Expenses for a calendar year are determined as provided in the prior sentence, Expenses for the Base Year shall also be determined as if the Building had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Building. The extrapolation of Expenses under this Section shall be performed by appropriately adjusting the cost of those components of Expenses that are impacted by changes in the occupancy of the Building. D. Taxes Defined. "Taxes" shall mean: (1) all real estate taxes and other assessments on the Building and/or Property, including, but not limited to, assessments for special improvement districts and building improvement districts, taxes and assessments levied in substitution or supplementation in whole or in part of any such taxes and assessments and the Property's share of any real estate taxes and assessments under any reciprocal easement agreement, common area agreement or similar agreement as to the Property; (2) all personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Property; and (3) all costs and fees incurred in connection with seeking reductions in any tax liabilities described in (1) and (2), including, without limitation, any costs incurred by Landlord for compliance, review and appeal of tax liabilities. Without limitation, Taxes shall not include any income, capital levy, franchise, capital stock, gift, estate or inheritance tax. If an assessment is payable in installments, Taxes for the year shall include the amount of the installment and any interest due and payable during that year. For all other real estate taxes, Taxes for that year shall, at Landlord's election, include either the amount accrued, assessed or otherwise imposed for the year or the amount due and payable for that year, provided that Landlord's election shall be applied consistently throughout the Term. If a change in Taxes is obtained for any year of the Term during which Tenant paid Tenant's Pro Rata Share of any Tax Excess, then Taxes for that year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on the adjustment. Likewise, if a change is obtained for Taxes for the Base Year, Taxes for the Base Year shall be restated and the Tax Excess for all subsequent years shall be recomputed. Tenant shall pay Landlord the amount of Tenant's Pro Rata Share of any such increase in the Tax Excess within 30 days after Tenant's receipt of a statement from Landlord. E. Audit Rights. Tenant may, within 90 days after receiving Landlord's statement of Expenses, give Landlord written notice ("Review Notice") that Tenant intends to review Landlord's records of the Expenses for that calendar year. Within a reasonable time after receipt of the Review Notice, Landlord shall make all pertinent records available for inspection that are reasonably necessary for Tenant to conduct its review. If any records are maintained at a location other than the office of the Building, Tenant may either inspect the records at such other location or pay for the reasonable cost of copying and shipping the records. If Tenant retains an agent to review Landlord's records, the agent must be with a licensed CPA firm. Tenant shall be solely responsible for all costs, expenses and fees incurred for the audit. Within 60 days after the records are made available to Tenant, Tenant shall have the right to give Landlord written notice (an "Objection Notice") stating in reasonable detail any objection to Landlord's statement of Expenses for that year. If Tenant fails to give Landlord an Objection Notice within the 60 day period or fails to provide Landlord with a Review Notice within the 90 day period described above, Tenant shall be deemed to have approved Landlord's statement of Expenses and shall be barred from raising any claims regarding the Expenses for that year. If Tenant provides Landlord with a timely Objection Notice, Landlord and Tenant shall work together in good faith to resolve any issues raised in Tenant's Objection Notice. If Landlord and Tenant determine that 6 9 Expenses for the calendar year are less than reported, Landlord shall provide Tenant with a credit against the next installment of Rent in the amount of the overpayment by Tenant. Likewise, if Landlord and Tenant determine that Expenses for the calendar year are greater than reported, Tenant shall pay Landlord the amount of any underpayment within 30 days. The records obtained by Tenant shall be treated as confidential. In no event shall Tenant be permitted to examine Landlord's records or to dispute any statement of Expenses unless Tenant has paid and continues to pay all Rent when due. V. COMPLIANCE WITH LAWS; USE. The Premises shall be used only for the Permitted Use and for no other use whatsoever. Tenant shall not use or permit the use of the Premises for any purpose which is illegal, dangerous to persons or property or which, in Landlord's reasonable opinion, unreasonably disturbs any other tenants of the Building or interferes with the operation of the Building. Tenant shall comply with all Laws, including the Americans with Disabilities Act, regarding the operation of Tenant's business and the use, condition, configuration and occupancy of the Premises. Tenant, within 10 days after receipt, shall provide Landlord with copies of any notices it receives regarding a violation or alleged violation of any Laws. Tenant shall reimburse and compensate Landlord for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to any violations of Laws by Tenant or any Tenant Related Parties with respect to the Premises. Tenant shall comply with the rules and regulations of the Building attached as EXHIBIT B and such other reasonable rules and regulations adopted by Landlord from time to time. Tenant shall also cause its agents, contractors, subcontractors, employees, customers, and subtenants to comply with all rules and regulations. Landlord shall not knowingly discriminate against Tenant in Landlord's enforcement of the rules and regulations. VI. SECURITY DEPOSIT. The Security Deposit shall be delivered to Landlord upon the execution of this Lease by Tenant and shall be held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenant's obligations. The Security Deposit is not an advance payment of Rent or a measure of Tenant's liability for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to satisfy past due Rent or to cure any uncured default by Tenant. If Landlord uses the Security Deposit, Tenant shall on demand restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 45 days after the later to occur of: (1) the determination of Tenant's Pro Rata Share of any Tax Excess and Expense Excess for the final year of the Term; (2) the date Tenant surrenders possession of the Premises to Landlord in accordance with this Lease; or (3) the Termination Date. If Landlord transfers its interest in the Premises, Landlord may assign the Security Deposit to the transferee and, following the assignment and the assumption of Landlord's responsibilities under this Article VI by the transferee, Landlord shall have no further liability for the return of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts. VII. SERVICES TO BE FURNISHED BY LANDLORD. A. Landlord agrees to furnish Tenant with the following services: (1) Water service for use in the lavatories on each floor on which the Premises are located; (2) Heat and air conditioning in season during Normal Business Hours, at such temperatures and in such amounts as are standard for comparable buildings or as required by governmental authority. Tenant, upon such advance notice as is reasonably required by Landlord, shall have the right to receive HVAC service during hours other than Normal Business Hours. Tenant shall pay Landlord the standard charge for the additional service as reasonably determined by Landlord from time to time; (3) Maintenance and repair of the Property as described in Section IX.B.; (4) Janitor service on Business Days. If Tenant's use, floor covering or other improvements require special services in excess of the standard services for the Building, Tenant shall pay the additional cost attributable to the special services; (5) Elevator service; (6) Electricity to the Premises for general office use, in accordance with and subject to the terms and conditions in Article X; and (7) such other services as Landlord reasonably determines are necessary or appropriate for the Property. 7 10 B. Landlord's failure to furnish, or any interruption or termination of, services due to the application of Laws, the failure of any equipment, the performance of repairs, improvements or alterations, or the occurrence of any event or cause beyond the reasonable control of Landlord (a "Service Failure") shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement. However, if the Premises, or a material portion of the Premises, is made untenantable for a period in excess of 3 consecutive Business Days as a result of the Service Failure, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the 4th consecutive Business Day of the Service Failure and ending on the day the service has been restored. If the entire Premises has not been rendered untenantable by the Service Failure, the amount of abatement that Tenant is entitled to receive shall be prorated based upon the percentage of the Premises rendered untenantable and not used by Tenant. In no event, however, shall Landlord be liable to Tenant for any loss or damage, including the theft of Tenant's Property (defined in Article XV), arising out of or in connection with the failure of any security services, personnel or equipment. VIII. LEASEHOLD IMPROVEMENTS. All improvements to the Premises (collectively, "Leasehold Improvements") shall be owned by Landlord and shall remain upon the Premises without compensation to Tenant. However, Landlord, by written notice to Tenant within 30 days prior to the Termination Date, may require Tenant to remove, at Tenant's expense: (1) Cable (defined in Section IX.A) installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Building; and (2) any Leasehold Improvements that are performed by or for the benefit of Tenant and, in Landlord's reasonable judgment, are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (collectively referred to as "Required Removables"). Without limitation, it is agreed that Required Removables include internal stairways, raised floors, personal baths and showers, vaults, rolling file systems and structural alterations and modifications of any type. The Required Removables designated by Landlord shall be removed by Tenant before the Termination Date, provided that upon prior written notice to Landlord, Tenant may remain in the Premises for up to 5 days after the Termination Date for the sole purpose of removing the Required Removables. Tenant's possession of the Premises shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Rent on a per diem basis at the rate in effect for the last month of the Term. Tenant shall repair damage caused by the installation or removal of Required Removables. If Tenant fails to remove any Required Removables or perform related repairs in a timely manner, Landlord, at Tenant's expense, may remove and dispose of the Required Removables and perform the required repairs. Tenant, within 30 days after receipt of an invoice, shall reimburse Landlord for the reasonable costs incurred by Landlord. Notwithstanding the foregoing, Tenant, at the time it requests approval for a proposed Alteration (defined in Section IX.C) and at the time it submits the plans for the Initial Improvements, may request in writing that Landlord advise Tenant whether the Alteration or any portion of the Alteration or the Initial Alterations or any portion of the Initial Alterations will be designated as a Required Removable. Within 10 days after receipt of Tenant's request, Landlord shall advise Tenant in writing as to which portions of the Alteration or the Initial Alterations, if any, will be considered to be Required Removables. IX. REPAIRS AND ALTERATIONS. A. Tenant's Repair Obligations. Tenant shall, at its sole cost and expense, promptly perform all maintenance and repairs to the Premises that are not Landlord's express responsibility under this Lease, and shall keep the Premises in good condition and repair, reasonable wear and tear excepted. Tenant's repair obligations include, without limitation, repairs to: (1) floor covering; (2) interior partitions; (3) doors; (4) the interior side of demising walls; (5) electronic, phone and data cabling and related equipment (collectively, "Cable") that is installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Building; (6) supplemental air conditioning units, private showers and kitchens, including hot water heaters, plumbing, and similar facilities serving Tenant exclusively; and (7) Alterations performed by contractors retained by Tenant, including related HVAC balancing. All work shall be performed in accordance with the rules and procedures described in Section IX.C. below. If Tenant fails to make any repairs to the Premises for more than 15 days after notice from Landlord (although notice shall not be required if there is an emergency), Landlord may make the repairs, and Tenant shall pay the reasonable cost of the 8 11 repairs to Landlord within 30 days after receipt of an invoice, together with an administrative charge in an amount equal to 10% of the cost of the repairs. B. Landlord's Repair Obligations. Landlord shall keep and maintain in good repair and working order and make repairs to and perform maintenance upon: (1) structural elements of the Building; (2) mechanical (including HVAC), electrical, plumbing and fire/life safety systems serving the Building in general; (3) Common Areas; (4) the roof of the Building; (5) exterior windows of the Building; and (6) elevators serving the Building. Landlord shall promptly make repairs (considering the nature and urgency of the repair) for which Landlord is responsible. In addition, Landlord may elect, at the expense of Tenant, to repair any damage or injury to the Building caused by moving property of Tenant in or out of the Building, or by installation or removal of furniture or other property, or by misuse by, neglect or improper conduct of Tenant or any Tenant Related Parties (hereinafter defined). C. Alterations. Tenant shall not make alterations, additions or improvements to the Premises or install any Cable in the Premises or other portions of the Building (collectively referred to as "Alterations") without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld or delayed. However, Landlord's consent shall not be required for any Alteration that satisfies all of the following criteria (a "Cosmetic Alteration"): (1) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (2) is not visible from the exterior of the Premises or Building; (3) will not affect the systems or structure of the Building; and (4) does not require work to be performed inside the walls or above the ceiling of the Premises. However, even though consent is not required, the performance of Cosmetic Alterations shall be subject to all the other provisions of this Section IX.C. Prior to starting work, Tenant shall furnish Landlord with plans and specifications reasonably acceptable to Landlord; names of contractors reasonably acceptable to Landlord (provided that Landlord may designate specific contractors with respect to Building systems); copies of contracts; necessary permits and approvals; evidence of contractor's and subcontractor's insurance in amounts reasonably required by Landlord; and any security for performance that is reasonably required by Landlord. Changes to the plans and specifications must also be submitted to Landlord for its approval. Alterations shall be constructed in a good and workmanlike manner using materials of a quality that is at least equal to the quality designated by Landlord as the minimum standard for the Building. Landlord may designate reasonable rules, regulations and procedures for the performance of work in the Building and, to the extent reasonably necessary to avoid disruption to the occupants of the Building, shall have the right to designate the time when Alterations may be performed. Tenant shall reimburse Landlord within 30 days after receipt of an invoice for sums paid by Landlord for third party examination of Tenant's plans for non-Cosmetic Alterations. In addition, within 30 days after receipt of an invoice from Landlord, Tenant shall pay Landlord a fee for Landlord's oversight and coordination of any non-Cosmetic Alterations equal to 10% of the cost of the non-Cosmetic Alterations. Upon completion, Tenant shall furnish "as-built" plans (except for Cosmetic Alterations), completion affidavits, full and final waivers of lien and receipted bills covering all labor and materials. Tenant shall assure that the Alterations comply with all insurance requirements and Laws. Landlord's approval of an Alteration shall not be a representation by Landlord that the Alteration complies with applicable Laws or will be adequate for Tenant's use. Tenant shall pay, as an additional charge, the entire increase in real estate taxes on the Building which shall, at any time prior to or after the Commencement Date, result from or be attributable to any alteration, addition or improvement to the Premises made by or for the account of Tenant in excess of the Building Standard improvements for the Building. X. USE OF ELECTRICAL SERVICES BY TENANT. A. Electricity used by Tenant in the Premises shall be paid for by Tenant by a separate charge payable by Tenant to Landlord within 30 days after billing by Landlord. Electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and distribution services, and the cost of electricity may consist of several different components or separate charges for such services, such as generation, distribution and stranded cost charges. Landlord shall have the exclusive right to select any company providing electrical service to the Premises, to aggregate the electrical service for the Property and Premises with other buildings, to purchase electricity through a broker and/or buyers group and to change 9 12 the providers and manner of purchasing electricity. Landlord shall be entitled to receive a fee (if permitted by Law) for the selection of utility companies and the negotiation and administration of contracts for electricity, provided that the amount of such fee shall not exceed 50% of any savings obtained by Landlord. B. Tenant's use of electrical service shall not exceed, either in voltage, rated capacity, use beyond Normal Business Hours or overall load, that which Landlord deems to be standard for the Building. If Tenant requests permission to consume excess electrical service, Landlord may refuse to consent or may condition consent upon conditions that Landlord reasonably elects (including, without limitation, the installation of utility service upgrades, meters, submeters, air handlers or cooling units), and the additional usage (to the extent permitted by Law), installation and maintenance costs shall be paid by Tenant. Landlord shall have the right to separately meter electrical usage for the Premises and to measure electrical usage by survey or other commonly accepted methods. XI. ENTRY BY LANDLORD. Landlord, its agents, contractors and representatives may enter the Premises to inspect or show the Premises, to clean and make repairs, alterations or additions to the Premises, and to conduct or facilitate repairs, alterations or additions to any portion of the Building, including other tenants' premises. Except in emergencies or to provide janitorial and other Building services after Normal Business Hours, Landlord shall provide Tenant with reasonable prior notice of entry into the Premises, which may be given orally. If reasonably necessary for the protection and safety of Tenant and its employees, Landlord shall have the right to temporarily close all or a portion of the Premises to perform repairs, alterations and additions. However, except in emergencies, Landlord will not close the Premises if the work can reasonably be completed on weekends and after Normal Business Hours. Entry by Landlord shall not constitute constructive eviction or entitle Tenant to an abatement or reduction of Rent. XII. ASSIGNMENT AND SUBLETTING. A. Except in connection with a Permitted Transfer (defined in Section XII.E. below), Tenant shall not assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a "Transfer") without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed if Landlord does not elect to exercise its termination rights under Section XII.B below. Without limitation, it is agreed that Landlord's consent shall not be considered unreasonably withheld if: (1) the proposed transferee's financial condition does not meet the criteria Landlord uses to select Building tenants having similar leasehold obligations; (2) the proposed transferee's business is not suitable for the Building considering the business of the other tenants and the Building's prestige, or would result in a violation of another tenant's rights; (3) the proposed transferee is a governmental agency or occupant of the Building; (4) Tenant is in default after the expiration of the notice and cure periods in this Lease; (5) any portion of the Building or Premises would likely become subject to additional or different Laws as a consequence of the proposed Transfer; or (6) Landlord has commenced negotiations with the proposed transferee for other space in the Building. Tenant shall not be entitled to receive monetary damages based upon a claim that Landlord unreasonably withheld its consent to a proposed Transfer and Tenant's sole remedy shall be an action to enforce any such provision through specific performance or declaratory judgment. Any attempted Transfer in violation of this Article shall, at Landlord's option, be void. Consent by Landlord to one or more Transfer(s) shall not operate as a waiver of Landlord's rights to approve any subsequent Transfers. In no event shall any Transfer or Permitted Transfer release or relieve Tenant from any obligation under this Lease. B. As part of its request for Landlord's consent to a Transfer, Tenant shall provide Landlord with financial statements for the proposed transferee, a complete copy of the proposed assignment, sublease and other contractual documents and such other information as Landlord may reasonably request. Landlord shall, by written notice to Tenant within 30 days of its receipt of the required information and documentation, either: (1) consent to the Transfer by the execution of a consent agreement in a form reasonably designated by Landlord or reasonably refuse to consent to the Transfer in writing; or (2) exercise its right to terminate this Lease with respect to the portion of the Premises that Tenant is proposing to assign or sublet. Any such termination shall be 10 13 effective on the proposed effective date of the Transfer for which Tenant requested consent. Tenant shall pay Landlord a review fee of $2,000.00 for Landlord's review of any Permitted Transfer or requested Transfer. C. Tenant shall pay Landlord 50% of all rent and other consideration which Tenant receives as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Premises and Term covered by the Transfer. Tenant shall pay Landlord for Landlord's share of any excess within 30 days after Tenant's receipt of such excess consideration. Tenant may deduct from the excess all reasonable and customary expenses directly incurred by Tenant attributable to the Transfer (other than Landlord's review fee), including brokerage fees, legal fees and construction costs. If Tenant is in Monetary Default (defined in Section XIX.A. below), Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of any payments received (less Landlord's share of any excess). D. Except as provided below with respect to a Permitted Transfer, if Tenant is a corporation, limited liability company, partnership, or similar entity, and if the entity which owns or controls a majority of the voting shares/rights at any time changes for any reason (including but not limited to a merger, consolidation or reorganization), such change of ownership or control shall constitute a Transfer. The foregoing shall not apply so long as Tenant is an entity whose outstanding stock is listed on a recognized security exchange, or if at least 80% of its voting stock is owned by another entity, the voting stock of which is so listed. E. Tenant may assign its entire interest under this Lease to a successor to Tenant by purchase, merger, consolidation or reorganization without the consent of Landlord, provided that all of the following conditions are satisfied (a "Permitted Transfer"): (1) Tenant is not in default under this Lease; (2) Tenant's successor shall own all or substantially all of the assets of Tenant; (3) Tenant's successor shall have a net worth which is at least equal to the greater of Tenant's net worth at the date of this Lease or Tenant's net worth as of the day prior to the proposed purchase, merger, consolidation or reorganization; (4) the Permitted Use does not allow the Premises to be used for retail purposes; and (5) Tenant shall give Landlord sufficient written notice prior to the effective date of the proposed purchase, merger, consolidation or reorganization. Tenant's notice to Landlord shall include information and documentation showing that each of the above conditions has been satisfied. If requested by Landlord, Tenant's successor shall sign a commercially reasonable form of assumption agreement. XIII. LIENS. Tenant shall not permit mechanic's or other liens to be placed upon the Property, Premises or Tenant's leasehold interest in connection with any work or service done or purportedly done by or for benefit of Tenant. If a lien is so placed, Tenant shall, within 10 days of notice from Landlord of the filing of the lien, fully discharge the lien by settling the claim which resulted in the lien or by bonding or insuring over the lien in the manner prescribed by the applicable lien Law. If Tenant fails to discharge the lien, then, in addition to any other right or remedy of Landlord, Landlord may bond or insure over the lien or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to bond or insure over the lien or discharge the lien, including, without limitation, reasonable attorneys' fees (if and to the extent permitted by Law) within 30 days after receipt of an invoice from Landlord. XIV. INDEMNITY AND WAIVER OF CLAIMS. A. Except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord Related Parties (defined below), Tenant shall indemnify, defend and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagee(s) (defined in Article XXVI) and agents ("Landlord Related Parties") harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys' fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Landlord or any of the Landlord Related Parties and arising out of or in connection with any damage or injury occurring in the Premises or any negligence or willful misconduct (including violations of Law) of Tenant, the Tenant Related Parties (defined below) or any of Tenant's transferees, contractors or licensees. 11 14 B. Except to the extent caused by the negligence or willful misconduct of Tenant or any Tenant Related Parties (defined below), Landlord shall indemnify, defend and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors, employees and agents ("Tenant Related Parties") harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys' fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Tenant or any of the Tenant Related Parties and arising out of or in connection with the negligence or willful misconduct (including violations of Law) of Landlord, the Landlord Related Parties or any of Landlord's contractors. C. Landlord and the Landlord Related Parties shall not be liable for, and Tenant waives, all claims for loss or damage to Tenant's business or loss, theft or damage to Tenant's Property or the property of any person claiming by, through or under Tenant resulting from: (1) wind or weather; (2) the failure of any sprinkler, heating or air-conditioning equipment, any electric wiring or any gas, water or steam pipes; (3) the backing up of any sewer pipe or downspout; (4) the bursting, leaking or running of any tank, water closet, drain or other pipe; (5) water, snow or ice upon or coming through the roof, skylight, stairs, doorways, windows, walks or any other place upon or near the Building; (6) any act or omission of any party other than Landlord or Landlord Related Parties; and (7) any causes not reasonably within the control of Landlord. Tenant shall insure itself against such losses under Article XV below. XV. INSURANCE. Tenant shall carry and maintain the following insurance ("Tenant's Insurance"), at its sole cost and expense: (1) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $2,000,000.00; (2) All Risk Property/Business Interruption Insurance, including flood and earthquake, written at replacement cost value and with a replacement cost endorsement covering all of Tenant's trade fixtures, equipment, furniture and other personal property within the Premises ("Tenant's Property"); (3) Workers' Compensation Insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute; and (4) Employers Liability Coverage of at least $1,000,000.00 per occurrence. Any company writing any of Tenant's Insurance shall have an A.M. Best rating of not less than A-VIII. All Commercial General Liability Insurance policies shall name Tenant as a named insured and Landlord (or any successor), Equity Office Properties Trust, a Maryland real estate investment trust, EOP Operating Limited Partnership, a Delaware limited partnership, and their respective members, principals, beneficiaries, partners, officers, directors, employees, and agents, and other designees of Landlord as the interest of such designees shall appear, as additional insureds. All policies of Tenant's Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 30 days' advance written notice of any change, cancellation, termination or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenant's Insurance prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises for any reason, and upon renewals at least 15 days prior to the expiration of the insurance coverage. So long as the same is available at commercially reasonable rates, Landlord shall maintain so called All Risk property insurance on the Building at replacement cost value, as reasonably estimated by Landlord. Except as specifically provided to the contrary, the limits of either party's' insurance shall not limit such party's liability under this Lease. XVI. SUBROGATION. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby waive and shall cause their respective insurance carriers to waive any and all rights of recovery, claim, action or causes of action against the other and their respective trustees, principals, beneficiaries, partners, officers, directors, agents, and employees, for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to Tenant's Property, the Building, the Premises, any additions or improvements to the Building or Premises, or any contents thereof, including all rights of recovery, claims, actions or causes of action arising out of the negligence of Landlord or any Landlord Related Parties or the negligence of Tenant or any Tenant Related Parties, which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance. 12 15 XVII. CASUALTY DAMAGE. A. If all or any part of the Premises is damaged by fire or other casualty, Tenant shall immediately notify Landlord in writing. During any period of time that all or a material portion of the Premises is rendered untenantable as a result of a fire or other casualty, the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant. Landlord shall have the right to terminate this Lease if: (1) the Building shall be damaged so that, in Landlord's reasonable judgment, substantial alteration or reconstruction of the Building shall be required (whether or not the Premises has been damaged); (2) Landlord is not permitted by Law to rebuild the Building in substantially the same form as existed before the fire or casualty; (3) the Premises have been materially damaged and there is less than 2 years of the Term remaining on the date of the casualty; (4) any Mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (5) a material uninsured loss to the Building occurs. Landlord may exercise its right to terminate this Lease by notifying Tenant in writing within 90 days after the date of the casualty. If Landlord does not terminate this Lease, Landlord shall commence and proceed with reasonable diligence to repair and restore the Building and the Leasehold Improvements (excluding any Alterations that were performed by Tenant in violation of this Lease). However, in no event shall Landlord be required to spend more than the insurance proceeds received by Landlord. Landlord shall not be liable for any loss or damage to Tenant's Property or to the business of Tenant resulting in any way from the fire or other casualty or from the repair and restoration of the damage. Landlord and Tenant hereby waive the provisions of any Law relating to the matters addressed in this Article, and agree that their respective rights for damage to or destruction of the Premises shall be those specifically provided in this Lease. B. If all or any portion of the Premises shall be made untenantable by fire or other casualty, Landlord shall, with reasonable promptness, cause an architect or general contractor selected by Landlord to provide Landlord and Tenant with a written estimate of the amount of time required to substantially complete the repair and restoration of the Premises and make the Premises tenantable again, using standard working methods ("Completion Estimate"). If the Completion Estimate indicates that the Premises cannot be made tenantable within 270 days from the date the repair and restoration is started, then regardless of anything in Section XVII.A above to the contrary, either party shall have the right to terminate this Lease by giving written notice to the other of such election within 10 days after receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease if the fire or casualty was caused by the negligence or intentional misconduct of Tenant, Tenant Related Parties or any of Tenant's transferees, contractors or licensees. XVIII. CONDEMNATION. Either party may terminate this Lease if the whole or any material part of the Premises shall be taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a "Taking"). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Property which would leave the remainder of the Building unsuitable for use as an office building in a manner comparable to the Building's use prior to the Taking. In order to exercise its right to terminate the Lease, Landlord or Tenant, as the case may be, must provide written notice of termination to the other within 45 days after the terminating party first receives notice of the Taking. Any such termination shall be effective as of the date the physical taking of the Premises or the portion of the Building or Property occurs. If this Lease is not terminated, the Rentable Square Footage of the Building, the Rentable Square Footage of the Premises and Tenant's Pro Rata Share shall, if applicable, be appropriately adjusted. In addition, Rent for any portion of the Premises taken or condemned shall be abated during the unexpired Term of this Lease effective when the physical taking of the portion of the Premises occurs. All compensation awarded for a Taking, or sale proceeds, shall be the property of Landlord, any right to receive compensation or proceeds being expressly waived by Tenant. However, Tenant may file a separate claim at its sole cost and expense for Tenant's Property and Tenant's reasonable relocation expenses, provided the filing of the claim does not diminish the award which would otherwise be receivable by Landlord. XIX. EVENTS OF DEFAULT. 13 16 Tenant shall be considered to be in default of this Lease upon the occurrence of any of the following events of default: A. Tenant's failure to pay when due all or any portion of the Rent, if the failure continues for 5 days after written notice to Tenant ("Monetary Default"). B. Tenant's failure (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, if the failure is not cured within 10 days after written notice to Tenant. However, if Tenant's failure to comply cannot reasonably be cured within 10 days, Tenant shall be allowed additional time (not to exceed 60 days) as is reasonably necessary to cure the failure so long as: (1) Tenant commences to cure the failure within 10 days, and (2) Tenant diligently pursues a course of action that will cure the failure and bring Tenant back into compliance with the Lease. However, if Tenant's failure to comply creates a hazardous condition, the failure must be cured immediately upon notice to Tenant. In addition, if Landlord provides Tenant with notice of Tenant's failure to comply with any particular term, provision or covenant of the Lease on 3 occasions during any 12 month period, Tenant's subsequent violation of such term, provision or covenant shall, at Landlord's option, be an incurable event of default by Tenant. C. Tenant or any Guarantor becomes insolvent, makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts when due. D. The leasehold estate is taken by process or operation of Law. E In the case of any ground floor or retail Tenant, Tenant does not take possession of, or abandons or vacates all or any portion of the Premises. F. Tenant is in default beyond any notice and cure period under any other lease or agreement with Landlord, including, without limitation, any lease or agreement for parking. XX. REMEDIES. A. Upon any default, Landlord shall have the right without notice or demand (except as provided in Article XIX) to pursue any of its rights and remedies at Law or in equity, including any one or more of the following remedies: 1. Terminate this Lease, in which case Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to surrender the Premises, Landlord may, in compliance with applicable Law and without prejudice to any other right or remedy, enter upon and take possession of the Premises and expel and remove Tenant, Tenant's Property and any party occupying all or any part of the Premises. Tenant shall pay Landlord on demand the amount of all past due Rent and other losses and damages which Landlord may suffer as a result of Tenant's default, whether by Landlord's inability to relet the Premises on satisfactory terms or otherwise, including, without limitation, all Costs of Reletting (defined below) and any deficiency that may arise from reletting or the failure to relet the Premises. "Costs of Reletting" shall include all costs and expenses incurred by Landlord in reletting or attempting to relet the Premises, including, without limitation, reasonable legal fees, brokerage commissions, the cost of alterations and the value of other concessions or allowances granted to a new tenant. 2. Terminate Tenant's right to possession of the Premises and, in compliance with applicable Law, expel and remove Tenant, Tenant's Property and any parties occupying all or any part of the Premises. Landlord may (but shall not be obligated to) relet all or any part of the Premises, without notice to Tenant, for a term that may be greater or less than the balance of the Term and on such conditions (which may include concessions, free rent and alterations of the Premises) and for such uses as Landlord in its absolute discretion shall determine. Landlord may collect and receive all rents and other income from the reletting. Tenant shall pay Landlord on demand all past due Rent, all Costs of Reletting and any deficiency arising from the reletting or failure to relet the Premises. Landlord shall not be responsible or liable for the failure to relet all or any part of the Premises or for the failure to collect any Rent. The re-entry or taking of possession of the Premises shall not be construed 14 17 as an election by Landlord to terminate this Lease unless a written notice of termination is given to Tenant. 3. In lieu of calculating damages under Sections XX.A.1 or XX.A.2 above, Landlord may elect to receive as damages the sum of (a) all Rent accrued through the date of termination of this Lease or Tenant's right to possession, and (b) an amount equal to the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value at the Prime Rate (defined in Section XX.B. below) then in effect, minus the then present fair rental value of the Premises for the remainder of the Term, similarly discounted, after deducting all anticipated Costs of Reletting. B. Unless expressly provided in this Lease, the repossession or re-entering of all or any part of the Premises shall not relieve Tenant of its liabilities and obligations under the Lease. No right or remedy of Landlord shall be exclusive of any other right or remedy. Each right and remedy shall be cumulative and in addition to any other right and remedy now or subsequently available to Landlord at Law or in equity. If Landlord declares Tenant to be in default, Landlord shall be entitled to receive interest on any unpaid item of Rent at a rate equal to the Prime Rate plus 4%. For purposes hereof, the "Prime Rate" shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the state in which the Building is located. Forbearance by Landlord to enforce one or more remedies shall not constitute a waiver of any default. XXI. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE PROPERTY. TENANT SHALL LOOK SOLELY TO LANDLORD'S INTEREST IN THE PROPERTY FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) (DEFINED IN ARTICLE XXVI BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN ARTICLE XXVI BELOW) ON THE PROPERTY, BUILDING OR PREMISES, NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT. WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL LANDLORD OR ANY MORTGAGEES OR LANDLORD RELATED PARTIES EVER BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES OR ANY LOST PROFITS OF TENANT. XXII. NO WAIVER. Either party's failure to declare a default immediately upon its occurrence, or delay in taking action for a default shall not constitute a waiver of the default, nor shall it constitute an estoppel. Either party's failure to enforce its rights for a default shall not constitute a waiver of its rights regarding any subsequent default. Receipt by Landlord of Tenant's keys to the Premises shall not constitute an acceptance or surrender of the Premises. XXIII. QUIET ENJOYMENT. Tenant shall, and may peacefully have, hold and enjoy the Premises, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building, and shall not be a personal covenant of Landlord or the Landlord Related Parties. XXIV. RELOCATION. Intentionally deleted. XXV. HOLDING OVER. Except for any permitted occupancy by Tenant under Article VIII, if Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, occupancy of the Premises after the termination or expiration shall be that of a tenancy at sufferance. Tenant's 15 18 occupancy of the Premises during the holdover shall be subject to all the terms and provisions of this Lease and Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the greater of: (1) the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover; or (2) the fair market gross rental for the Premises as reasonably determined by Landlord. No holdover by Tenant or payment by Tenant after the expiration or early termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Landlord is unable to deliver possession of the Premises to a new tenant, or to perform improvements for a new tenant, as a result of Tenant's holdover and Tenant fails to vacate the Premises within 15 days after Landlord notifies Tenant of Landlord's inability to deliver possession, or perform improvements, Tenant shall be liable to Landlord for all damages, including, without limitation, consequential damages, that Landlord suffers from the holdover. XXVI. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE. Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building or the Property, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a "Mortgage"). The party having the benefit of a Mortgage shall be referred to as a "Mortgagee". This clause shall be self-operative, but upon request from a Mortgagee, Tenant shall execute a commercially reasonable subordination agreement in favor of the Mortgagee. In lieu of having the Mortgage be superior to this Lease, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. If requested by a successor-in-interest to all or a part of Landlord's interest in the Lease, Tenant shall, without charge, attorn to the successor-in-interest. Landlord and Tenant shall each, within 10 days after receipt of a written request from the other, execute and deliver an estoppel certificate to those parties as are reasonably requested by the other (including a Mortgagee or prospective purchaser). The estoppel certificate shall include a statement certifying that this Lease is unmodified (except as identified in the estoppel certificate) and in full force and effect, describing the dates to which Rent and other charges have been paid, representing that, to such party's actual knowledge, there is no default (or stating the nature of the alleged default) and indicating other matters with respect to the Lease that may reasonably be requested. Notwithstanding the foregoing, upon written request by Tenant, Landlord will use reasonable efforts to obtain a non-disturbance, subordination and attornment agreement from Landlord's then current Mortgagee on such Mortgagee's then current standard form of agreement. "Reasonable efforts" of Landlord shall not require Landlord to incur any cost, expense or liability to obtain such agreement, it being agreed that Tenant shall be responsible for any fee or review costs charged by the Mortgagee. Upon request of Landlord, Tenant will execute the Mortgagee's form of non-disturbance, subordination and attornment agreement and return the same to Landlord for execution by the Mortgagee. Landlord's failure to obtain a non-disturbance, subordination and attornment agreement for Tenant shall have no effect on the rights, obligations and liabilities of Landlord and Tenant or be considered to be a default by Landlord hereunder. XXVII. ATTORNEYS' FEES. If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Lease, or if either party intervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorneys' fees. XXVIII. NOTICE. If a demand, request, approval, consent or notice (collectively referred to as a "notice") shall or may be given to either party by the other, the notice shall be in writing and delivered by hand or sent by registered or certified mail with return receipt requested, or sent by overnight or same day courier service at the party's respective Notice Address(es) set forth in Article I, except that if Tenant has vacated the Premises (or if the Notice Address for Tenant is other than the Premises, and Tenant has vacated such address) without providing Landlord a new Notice Address, Landlord may serve notice in any manner described in this Article or in any other manner permitted by Law. Each notice shall be deemed to have been received or given on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or the other Notice Address of Tenant without providing a new Notice Address, three (3) days after notice is deposited in the U.S. mail or with a courier 16 19 service in the manner described above. Either party may, at any time, change its Notice Address by giving the other party written notice of the new address in the manner described in this Article. XXIX. EXCEPTED RIGHTS. This Lease does not grant any rights to light or air over or about the Building. Landlord excepts and reserves exclusively to itself the use of: (1) roofs, (2) telephone, electrical and janitorial closets, (3) equipment rooms, Building risers or similar areas that are used by Landlord for the provision of Building services, (4) rights to the land and improvements below the floor of the Premises, (5) the improvements and air rights above the Premises, (6) the improvements and air rights outside the demising walls of the Premises, and (7) the areas within the Premises used for the installation of utility lines and other installations serving occupants of the Building. Landlord has the right to change the Building's name or address. Landlord also has the right to make such other changes to the Property and Building as Landlord deems appropriate, provided the changes do not materially affect Tenant's ability to use the Premises for the Permitted Use. Landlord shall also have the right (but not the obligation) to temporarily close the Building if Landlord reasonably determines that there is an imminent danger of significant damage to the Building or of personal injury to Landlord's employees or the occupants of the Building. The circumstances under which Landlord may temporarily close the Building shall include, without limitation, electrical interruptions, hurricanes and civil disturbances. A closure of the Building under such circumstances shall not constitute a constructive eviction nor entitle Tenant to an abatement or reduction of Rent. XXX. SURRENDER OF PREMISES. At the expiration or earlier termination of this Lease or Tenant's right of possession, Tenant shall remove Tenant's Property (defined in Article XV) from the Premises, and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear excepted. Tenant shall also be required to remove the Required Removables in accordance with Article VIII. If Tenant fails to remove any of Tenant's Property within 2 days after the termination of this Lease or of Tenant's right to possession, Landlord, at Tenant's sole cost and expense, shall be entitled (but not obligated) to remove and store Tenant's Property. Landlord shall not be responsible for the value, preservation or safekeeping of Tenant's Property. Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred for Tenant's Property. In addition, if Tenant fails to remove Tenant's Property from the Premises or storage, as the case may be, within 30 days after written notice, Landlord may deem all or any part of Tenant's Property to be abandoned, and title to Tenant's Property shall be deemed to be immediately vested in Landlord. XXXI. MISCELLANEOUS. A. This Lease and the rights and obligations of the parties shall be interpreted, construed and enforced in accordance with the Laws of the state in which the Building is located and Landlord and Tenant hereby irrevocably consent to the jurisdiction and proper venue of such state. If any term or provision of this Lease shall to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by Law. The headings and titles to the Articles and Sections of this Lease are for convenience only and shall have no effect on the interpretation of any part of the Lease. B. Tenant shall not record this Lease or any memorandum or notice without Landlord's prior written consent; provided, however, Landlord agrees to consent to the recordation or registration of a memorandum or notice of this Lease, at Tenant's cost and expense (and in a form reasonably satisfactory to Landlord), if the initial term of this Lease or the initial term plus any renewal terms granted exceed, in the aggregate, 7 years. If this Lease is terminated before the Term expires, upon Landlord's request the parties shall execute, deliver and record an instrument acknowledging the above and the date of the termination of this Lease, and Tenant appoints Landlord its attorney-in-fact in its name and behalf to execute the instrument if Tenant shall fail to execute and deliver the instrument after Landlord's request therefor within 10 days. C. Landlord and Tenant hereby waive any right to trial by jury in any proceeding based upon a breach of this Lease. 17 20 D. Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant, the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, civil disturbances and other causes beyond the reasonable control of the performing party ("Force Majeure"). However, events of Force Majeure shall not extend any period of time for the payment of Rent or other sums payable by either party or any period of time for the written exercise of an option or right by either party. E. Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Building and/or Property referred to herein, and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations. F. Tenant represents that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Tenant shall indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Lease. Landlord agrees to indemnify and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers claiming to have represented Landlord in connection with this Lease. G. Tenant covenants, warrants and represents that: (1) each individual executing, attesting and/or delivering this Lease on behalf of Tenant is authorized to do so on behalf of Tenant; (2) this Lease is binding upon Tenant; and (3) Tenant is duly organized and legally existing in the state of its organization and is qualified to do business in the state in which the Premises are located. If there is more than one Tenant, or if Tenant is comprised of more than one party or entity, the obligations imposed upon Tenant shall be joint and several obligations of all the parties and entities. If Tenant is a partnership, then each present and future partner shall be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions to be performed by Tenant. Landlord may request (and Tenant shall comply) that Tenant, at the time that Tenant admits any new partner to its partnership, require each new partner to execute an agreement in form and substance satisfactory to Landlord under which the new partner shall agree to be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions to be performed by Tenant, without regard to when the new partner is admitted to the partnership (or when any obligations under any of covenants, agreements, terms, provisions and conditions accrue). Notices, payments and agreements given or made by, with or to any one person or entity shall be deemed to have been given or made by, with and to all of them. H. Time is of the essence with respect to Tenant's exercise of any expansion, renewal or extension rights granted to Tenant. This Lease shall create only the relationship of landlord and tenant between the parties, and not a partnership, joint venture or any other relationship. This Lease and the covenants and conditions in this Lease shall inure only to the benefit of and be binding only upon Landlord and Tenant and their permitted successors and assigns. I. The expiration of the Term, whether by lapse of time or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or early termination of this Lease. Without limiting the scope of the prior sentence, it is agreed that Tenant's obligations under Sections IV.A, IV.B., VIII, XIV, XX, XXV and XXX shall survive the expiration or early termination of this Lease. J. Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and the delivery of it does not constitute an offer to Tenant or an option. This Lease shall not be effective against any party hereto until an original copy of this Lease has been signed by such party. K. All understandings and agreements previously made between the parties are superseded by this Lease, and neither party is relying upon any warranty, statement or representation not contained in this Lease. This Lease may be modified only by a written agreement signed by Landlord and Tenant. 18 21 L. Tenant, within 15 days after request, shall provide Landlord with a current financial statement and such other information as Landlord may reasonably request in order to create a "business profile" of Tenant and determine Tenant's ability to fulfill its obligations under this Lease. Landlord, however, shall not require Tenant to provide such information unless Landlord is requested to produce the information in connection with a proposed financing or sale of the Building. Upon written request by Tenant, Landlord shall enter into a commercially reasonable confidentiality agreement covering any confidential information that is disclosed by Tenant. XXXII. ENTIRE AGREEMENT. This Lease and the following exhibits and attachments constitute the entire agreement between the parties and supersede all prior agreements and understandings related to the Premises, including all lease proposals, letters of intent and other documents: EXHIBIT A (Outline and Location of Premises), EXHIBIT B (Rules and Regulations), EXHIBIT C (Commencement Letter), EXHIBIT D (Work Letter Agreement) and EXHIBIT E (Commencement Date Agreement (for recording). Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS/ATTEST: LANDLORD: EOP-NEW ENGLAND EXECUTIVE PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY By: EOP Operating Limited Partnership, a Delaware limited partnership, its sole member By: Equity Office Properties Trust, a Maryland real estate investment trust, its managing general partner /s/ Hannah Song By: /s/ Tom Bakke Name (print): Hannah Song Name: Thomas Q. Bakke - ---------------------------------- Title: Vice President Name (print): ------------------- WITNESS/ATTEST: TENANT: ZAMBA CORPORATION, A DELAWARE CORPORATION By: /s/ Peter D. Marton /s/ Melissa L. Lightbody Name: Peter D. Marton Name (print): Melissa L. Lightbody Title: COO - ---------------------------------- Name (print): ------------------- 19 EX-27 4 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 US DOLLARS YEAR DEC-31-2000 JAN-01-2000 JUN-30-2000 1 5,112 0 6,231 (502) 0 12,643 4,467 (3,322) 15,317 5,086 0 0 0 80,992 (71,369) 15,317 0 17,932 0 9,090 10,343 324 39 (1,409) 0 (1,409) 0 0 0 (1,409) (0.04) (0.04)
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