U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
Commission File No. 0-20947
ON-SITE SOURCING, INC.
(Name of Small Business Issuer in its Charter)
Delaware 54-1648470
(State of Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1111 North 19th Street, Sixth Floor, Arlington, VA 22209
(Address of Principal Executive Offices) (Zip Code)
703-276-1123
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Units comprised of two shares of Common NASDAQ (since 7/11/96)
Stock and one Common Stock Purchase Warrant
Common Stock ($.01 par value) NASDAQ (since 8/19/96)
Common Stock Purchase Warrants NASDAQ (since 8/19/96)
</TABLE>
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
This report contains a total of 33 pages. The Exhibit Index appears on page 31.
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $ 21,138,948.
Aggregate market value of the Registrant's Common Stock held by non-affiliates
of the Registrant as of December 31, 1997 was approximately $9,995,642 based
upon the closing price reported for such date on the Nasdaq SmallCap Market. For
purposes of this disclosure, shares of common stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the Registrant have been excluded because such persons
may be deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of the issuer's shares of common stock as of
December 31, 1997 was 4,802,221.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
On-Site Sourcing, Inc. (the "Company" or "On-Site") provides document
management, reprographic, imaging and facilities management services to law
firms, corporations, non-profit organizations, accounting firms, financial
institutions and other organizations throughout the East Coast. In order to meet
the highly specialized requirements of each client, On-Site offers a variety of
customized reprographic, imaging and facilities management services. The
Company's reprographic services include copying, binding, labeling, collating
and indexing in support of complex, document-intensive litigation as well as
higher volume productions of manuals, brochures and other materials for
corporations and non-profit organizations. In addition, On-Site provides a
variety of imaging and scanning services which allow the transfer of information
from paper documents into CD-ROM and other electronic media. On-Site also
provides on-premises management of the customer's support services including
mailroom operations, facsimile transmission, records and supply room management
and copying services. The Company also services, refurbishes, and leases mid and
high volume copy machines thereby minimizing critical down time and increasing
productivity at the Company's reprographic centers and facilities management
sites. On-Site assumes complete responsibility for these operations by providing
management, highly-trained staff, specialized proprietary software, equipment,
and supplies, as well as copier repair and consulting services.
The Company targets the premium service segment of the market in which
speed, accuracy and quality are essential by providing high quality service at
economical prices. On-Site Sourcing, Inc. was founded in 1992 and currently
serves the greater Washington, Baltimore, Philadelphia, New York City and
Atlanta metropolitan areas through outsourcing locations in Arlington, Virginia;
Baltimore, Maryland; Philadelphia, Pennsylvania; New York, New York; and
Atlanta, Georgia, as well as facilities management locations in Washington, DC;
Baltimore, MD; Philadelphia, PA; Atlanta, GA; and Mt. Laurel, NJ. The Arlington,
Virginia outsourcing location is one of the largest processing centers in the
metropolitan Washington area. Customers include a number of the large law firms,
corporations and non-profit entities operating in these cities. The Company was
originally incorporated in Virginia in December 1992 and changed its state of
incorporation to Delaware in January 1996.
Outsourcing Market. Traditionally, most organizations have provided all of
the services required to support their own operations. Increasingly, however,
organizations are contracting out certain functions to specialized independent
business service companies. These services include reprographic, security,
secretarial, cafeteria, computer and communications facilities management.
Outsourcing allows organizations to focus their management and resources
on their own business, while often improving support systems and more
effectively controlling costs. Users of facilities management services are
relieved of the responsibilities of selecting and maintaining equipment and
hiring, training, managing and motivating employees. Facilities management
operators generally achieve economies of scale in administration and the
purchasing of equipment and supplies.
Strategy. The Company's strategy for continued growth in the premium
service sector of the reprographic and facilities management business is to
attract new customers, retain existing clients and expand the range of services
while maintaining high quality and efficient operations. The Company has
developed several management strategies in order to continue to compete
successfully with larger companies including:
o Training programs On-Site has developed intensive training programs
for all employees through the use of proprietary
computer programs. Training is based on
qualification requirements for each position and
continues throughout the course of employment.
o Quality control Strict quality control standards are also
maintained through the use of a Quality Assurance
Team, Quality Assurance Diary, intensive training
programs and client surveys. Because of the
sensitivity of the materials produced, each
document is hand checked in a separate room by a
quality control team. Less than 1% of all
documents are rejected by clients due to poor
quality.
o Employee Relations On-Site places a strong emphasis on employee
relations through the use of employee empowerment
practices, team building, close relations between
employees and management and an employee incentive
program that includes stock option plans.
<PAGE>
o Economies of Scale On-Site is able to provide efficient services to
its clients because it achieves economies of scale
in administration, training, acquisition of
equipment and supplies, improved equipment
utilization, servicing copiers and higher employee
productivity.
o Broad Range of On-Site offers a broad range of services in order
Services to tailor its operations to the highly specialized
requirements of each client. In addition to
customized reprographic services, On-Site offers
litigation support such as binding, labeling,
collating and indexing. Facilities management
services include copy and mailroom operations,
facsimile transmission, records and supply room
management, as well as copier repair and
consulting services.
The Company earns a significant portion of its revenue by providing
reprographic, imaging and litigation support services to law firms and
corporations. This accounts for approximately 88 percent of the Company's
revenue. Facilities management accounts for approximately 12 percent of the
revenue. Each service, while independent to the client, share personnel and
resources in order to minimize costs and provide high quality services.
The Company's goal is to expand its reprographics and facilities
management business in the markets currently serviced as well as in additional
markets by taking advantage of opportunities presented by the large number of
organizations that still provide their own facilities management services
internally.
Operations. On-Site provides its services through regional offices in
metropolitan Washington, DC, Philadelphia, PA, New York, NY, Baltimore, MD, and
Atlanta, GA. These facilities maintain staff, equipment, supplies and training
facilities in order to provide reprographic, imaging, and litigation support
services to a variety of customers. The Company places professional management
at each regional office and provides employees with ongoing training in
equipment operation and maintenance, customer satisfaction, interpersonal
skills, and quality control. Equipment and supplies are provided by numerous
regional and national vendors.
On-Site's facilities management services provide reprographic, mailroom
and facsimile and other services required on the premises of its customers. The
Company conducts a comprehensive analysis of each client's needs and tailors the
services provided to these needs based on volume, time, and quality
requirements.
The Company's reprographic and litigation support services to law firms
and corporations include copying, binding, drilling, "Bates" stamping, labeling,
collating, indexing, assembling and quality review. The Company currently has
technology which allows customers to "telecommute" by sending documents
instantaneously via the Internet to computers at On-Site. The documents are then
transferred into the memory of a copy machine and reproduced. On-Site also
provides a variety of imaging and scanning services which allow the transfer of
information from paper documents into electronic media.
At facilities management locations, the Company provides on-site
management of the client's support services such as copy, mail, supply and
records rooms. Mailroom services include distributing all mail and interoffice
correspondence; processing, logging and billing outgoing mail, parcels and
special courier items; logging, billing, and tracking transmission of outgoing
facsimiles and distributing incoming facsimiles. In the supply room services,
On-Site provides all required materials through a "Just in Time" system designed
to minimize the costs of logging and tracking materials provided. Records room
services include utilization of bar code applications and state-of-the-art
imaging and scanning equipment to store documents and data base information for
quick retrieval and copying. Copy room management involves tracking, logging and
billing all copies, and providing repair services to copy machines. In addition,
specialized proprietary software generates operating data that allows the
Company to analyze vendor, copy and overtime costs, as well as copy volume, and
to prepare profit and loss statements that offer solutions to productivity
problems.
Customers. On-Site's customers include law firms, non-profit
organizations, corporations, accounting and consulting firms, financial
institutions and other organizations throughout the East Coast. On-Site's
customer base is the premium service segment of the market in which speed,
accuracy and quality are critical. The Company's clients include many of the
largest law firms and business entities in the markets served. One such firm
accounted for approximately 13% of the Company's revenues for the year ended
December 31, 1997.
<PAGE>
Employees. The Company continuously recruits, trains and offers benefits
and other incentives to personnel in order to develop and retain a qualified and
reliable staff. Under the Company's training program, all personnel receive
training covering the use and maintenance of equipment, interpersonal skills and
operating procedures. The Company places a strong emphasis on employee relations
and engages in team building, and employee empowerment practices, as well as
providing incentives, including a stock option plan, that are specifically
designed to encourage and reward employee performance. Additionally, all
employees are bonded, sign confidentiality agreements and agree to undergo drug
tests. The Company believes these programs result in higher employee
productivity and professionalism. As of December 31, 1997, the Company had
approximately 420 full-time employees, of which 5 are in executive positions.
None of the Company's employees are represented by a labor union and the Company
considers its employee relations to be satisfactory.
Competition. The reprographics and facilities management businesses are
highly competitive. The most significant competition is from prospective clients
themselves, which provide these services internally. The national competitors
providing facilities management services include Pitney Bowes Management
Services and Xerox Business Systems. IKON Corporation and Donnelley Enterprise
Solutions, Inc. are national competitors providing both reprographic and
facilities management services, while Copy America, Balmar and Reliable are
regional competitors providing both of these services in the markets served by
On-Site.
Technology and Proprietary Information. The SiteTrax platform was created
as a solution to automate the highly complex document and facilities management
industry. Effective document management and reproduction, be it mail or fax
management, litigation copying, on-demand printing or document imaging requires
a tremendous monitoring, tracking and accountability solution. These functions
are mission critical, yet peripheral to the task of "putting paper to machine".
Even in the productive 90's, the document management industry inefficiently uses
expensive labor to dispatch these peripheral functions as required to actually
produce the product.
With the genesis of SiteTrax, On-Site has effectively automated all
peripheral functions. SiteTrax manages every step of the production and
management process, from logging in projects, tracking them throughout the
production and quality control process through shipping and delivery. SiteTrax
tracks mail, fax courier, and box distribution, materials usage, operator
distribution/ workflow, productivity and quality control efficiency. It also
provides integrated cost accounting and invoicing, all at the click of a mouse.
These automated processes make the Company's production and management process
more efficient and productive. The resultant savings are passed on to our
clients in the form of greater investment in quality control, competitive
pricing, and superior tracking, reporting and accountability.
The Company has also developed a proprietary automated cost recovery
system for copy machines. The system networks copy machines and tracks the
number of copies made, the client to be billed, the specific matter involved and
the employee making the copies. This system is designed to increase On-Site's
appeal to potential facilities management clients based on price and
performance. The Company has filed applications for patents on portions of this
system.
The Company relies on confidentiality and non-competition agreements with
its employees in order to protect its proprietary know-how and employs various
methods to protect the software, concepts, ideas and documentation of its
proprietary technology. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's know-how or software,
concepts, ideas and documentation. Furthermore, although the Company has and
expects to have confidentiality and non-competition agreements with its
employees, consultants, and appropriate vendors, there can be no assurance that
such arrangements will adequately protect the Company's trade secrets.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices and reprographic operations which service
the metropolitan Washington, DC area are located in approximately 31,000 square
feet of leased space in Arlington, Virginia. The lease expires in December 2002.
Rent for the premises is $450,000 per year.
The Company leases approximately 8,000 square feet of office space in
Philadelphia, PA. The lease provides for a base annual rent of $110,500 and an
expiration date in October 2000.
The Company also has offices located in approximately 2,500 square feet of
leased space in Frederick, MD. The lease provides for a base annual rent of
$15,000 with additional operating costs of $2,000 per year and an expiration
date in May 1999.
The Company has offices located in approximately 12,000 square feet of
leased space in Atlanta, GA. The lease provides for a base annual rent of
$114,528. The lease expiration date is February 28, 2002.
The Company has offices located in approximately 8,000 square feet of
leased space in New York, NY. The lease provides for a base annual rent of
$125,350 with an annual 3 % increase on November 1 of each subsequent year
through November 2005. The lease expiration date is October 31, 2006.
The Company has offices located in approximately 8,000 square feet of
leased space in Baltimore for a base rent of $54,585. Beginning November 1, 1998
the annual rent will increase to $127,756 with a 3% annual increase each
subsequent year. The lease expires on February 14, 2007.
The Company believes that its current facilities are adequate for its
current and reasonably foreseeable future needs for the markets that each
facility serves and that additional physical capacity at its current facilities
is available to accommodate expansion, if required.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of the Company's management, there are no legal proceedings
pending to which the Company is a party or to which any of its properties is
subject, other than ordinary, routine litigation incidental to the business
which is not expected to have a material adverse effect on the results of
operations, financial condition or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, covered by this report, no matters were
submitted to a vote of the Company's security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS' MATTERS
Price Range of Common Stock
The following table shows the high and low closing bid prices for the
Common Stock in the over-the-counter market. The Common Stock, Warrants and
Units (comprised of two shares of common stock and one Common Stock Purchase
Warrant) of On-Site Sourcing, Inc. are listed on the Nasdaq SmallCap Market and
trade under the symbols "ONSS", "ONSSW" and "ONSSU", respectively. The table
below represents the quarterly high and low sales prices for each quarter in
1997 and since the Company's initial public offering in July 1996.(1)
The quotations represent prices between dealers in securities, do not
include retail markup, markdowns or commissions and may not necessarily
represent the actual transactions.
================================================================================
Common Stock Warrants Units
------------ -------- -----
================================================================================
Quarter Ended: High Low High Low High Low
------ ------ ------ ------ ------ ------
- --------------------------------------------------------------------------------
September 30, 1996 $3.625 $2.125 $1.000 $0.375 $8.000 $4.500
- --------------------------------------------------------------------------------
December 31, 1996 2.625 2.125 0.375 0.250 5.000 4.500
- --------------------------------------------------------------------------------
March 31, 1997 2.625 2.000 0.563 0.313 5.875 4.250
- --------------------------------------------------------------------------------
June 30, 1997 2.484 1.750 0.375 0.250 5.500 3.500
- --------------------------------------------------------------------------------
September 30, 1997 3.750 2.125 0.563 0.281 8.125 4.500
- --------------------------------------------------------------------------------
December 31, 1997 3.750 2.750 0.688 0.313 8.000 5.500
================================================================================
(1) The Company issued units comprised of two shares of Common Stock and one
Common Stock Purchase Warrant in connection with the initial public offering.
The Units began trading on the Nasdaq SmallCap Market on July 11, 1996 and the
Common Stock and Warrants began trading separately on August 19, 1996 with the
Units also continuing to trade.
Approximate Number of Equity Security Holders
As of December 31, 1997, there were 44 holders of record and approximately
1,304 beneficial owners of the Common Stock.
Dividends
The Company has never paid cash dividends on its common stock. Payment of
dividends will be within the discretion of the Company's Board of Directors and
will depend on, among other factors, earnings, capital requirements, and the
operating and financial condition of the Company. At the present time, the
Company anticipates retaining future earnings, if any, in order to finance the
development of its business activities.
<PAGE>
Recent Issuances of Common Stock
On November 1, 1997 the Company issued 3,200 of its common stock to an
employee pursuant to an employment agreement and 5,000 shares of its Common
Stock pursuant to the exercise of employee stock options. The sales of
securities described above were made in reliance upon Section 4(2) of the 1933
Act, which provides exemptions for transactions not involving a public offering,
and the certificates for the securities bear a legend accordingly.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company began to provide reprographic and facilities management
services to the premium service segment of the Philadelphia, PA market in June
1993. The Company has subsequently expanded its geographic market to include
Washington, DC, Baltimore, MD, New York, NY and Atlanta, GA. In July 1995, the
Company expanded the scope of its business through the purchase of the net
assets of a copy machine repair service center, and in November 1996, the
Company expanded the scope of its reprographic services to include imaging and
scanning. Revenues from reprographic, imaging services and litigation support
account for approximately 88% of total revenues while facilities management
accounts for 12% of total revenue as of December 31, 1997.
The revenue provided by the reprographic and imaging services vary
depending on the volume of work orders received, with the month of December
historically being a slow period. Revenues are collected on a monthly basis for
facilities management contracts with payment due on the first of the following
month, while reprographic and service revenues are collected on a per job basis.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues
The Company's revenues are primarily derived from reprographics, imaging
services, litigation support, and facilities management. Overall revenues
increased from $9,507,666 to $21,138,948 an increase of $11,931,282 or 122% from
1996 to 1997. The increase is primarily due to increased volume of work orders
fulfilled at the Arlington, VA, Philadelphia, PA, Atlanta, GA, New York, NY and
Baltimore MD facilities. In addition, there was a 85 % increase in revenue from
facilities management sites, resulting from the increased number of sites under
contract from eleven as of December 31, 1996 to twenty one as of December 31,
1997.
Costs and Expenses
Cost of Sales. Cost of sales increased by $8,289,735, or 118% ,to
$15,293,617 in 1997 as compared to $7,003,882 for 1996. As a percentage of
revenue, cost of sales decreased from 74% in 1996 to 72% in 1997. Operating
margins increased 270% to $5,845,331, a $3,341,547 increase over 1996. As a
percent of revenue, operating margins improved from 26% in 1996 to 28 % in 1997.
In relation to revenue, operating margins improved as production costs per unit
decreased due to an increase in the volume of work orders fulfilled, the
operation of the Company's reprographic centers at a higher percentage of
capacity, the acquisition of equipment previously leased, volume purchasing
discounts and increased production per labor hour.
Selling and shipping. Costs of selling and shipping increased $1,302,654
or 119% in 1997. As a percentage of revenue, selling and shipping decreased from
12% in 1996 to 11% in 1997.
Administrative. Administrative costs in 1997 increased $1,153,268 or 108%
over the 1996 period. As a percentage of revenues these costs remained at 11%.
The increase in administrative costs can be attributed to professional fees,
increases in staffing and personnel costs, and travel associated with the
expansion into new markets during 1997.
Earnings from Operations. Earnings from operations increased 267% to
$1,217,537 in 1997 versus $331,912 in 1996. The increase is due to increased
marketing efforts, higher margins, the continued development of a client base in
markets penetrated in 1996 and the increased number of facility management sites
from eleven in 1996 to twenty one in 1997.
<PAGE>
Other Income (Expenses), Primarily Interest. Other expenses increased from
$103,770 to $141,938, an increase of $38,168 or 37% due mainly to an increase in
the amount of debt carried by the Company in order to meet the Company's working
capital and equipment needs. Other income, including interest on short-term
treasury obligations and sale of excess supplies increased by $104,558 from
$92,098 in 1996 to $196,656 in 1997.
Net Earnings. Net earnings increased from $245,240 to $721,073, an
increase of $475,833 or 194% , and, as a result, the Company has provided for
income tax expense of $551,182 in 1997 as compared to $75,000 in 1996.
Liquidity and Capital Resources at December 31, 1997
On July 9, 1996, the Company's registration statement was declared
effective. Approximately $1,500,000 of the net proceeds totaling $5,478,341 were
used to curtail the line of credit and other borrowings, bridge financing and
accounts payable. In 1996, the Company funded its expansion and growth by
utilizing the proceeds of the initial public offering and long term financing,
where appropriate, for significant capital outlays.
The Company anticipates that the cash flow from operations and credit
facilities will be sufficient to meet the Company's expected cash requirements
for the next twelve months. There can be no assurances that unforeseen events
may not require more working capital than the Company has at its disposal.
In order to finance working capital needs prior to the initial public
offering, the Company raised $310,700 through a private placement of 147,955
shares of Common stock in March 1996.
On March 29, 1996, an officer /director of the Company exercised options
to purchase 162,000 shares of common stock for $90,000. The options had been
granted pursuant to an employment agreement and fully vested during 1994. In
connection with the exercise of the options, the Company loaned the
officer/director $89,900. The loan bears interest at 6% per year and the
remaining principal and interest are due April 1, 1998. The balance of the note
at December 31, 1997 is $50,400.
On September 26, 1996, the Company loaned an officer $25,000 to purchase
common stock of the Company pursuant to an employment agreement. The loan is due
September 26, 1998, with interest accruing at the prime rate at the time of the
loan.
In order to assure additional working capital is available to the Company
to fund its future growth and expansion, on February 3, 1997, the Company signed
an agreement with a financial institution for a $2,500,000 working capital line
of credit. The working capital line of credit is collateralized by the accounts
receivable and certain other assets as described in the agreement. The working
capital line of credit is subject to certain financial covenants and bears
interest at the bank's prime rate of interest or the 30 day LIBOR rate plus
2.25%. The underlying loan has a maturity date of April 30, 1998. There have
been no advances under this agreement.
On February 27, 1997, the Company signed an agreement with a financial
institution to provide $1,100,000 to refinance certain capitalized lease
obligations under a 48 month term loan at rates deemed favorable to the Company.
The loan was funded in April 1997. Under the terms of the agreement, the loan is
collateralized by specific equipment and certain other assets. The term loan is
subject to certain financial covenants and bears interest at rates ranging from
8.75% to 9.02%.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
BALANCE SHEETS F-3
STATEMENTS OF EARNINGS F-4
STATEMENTS OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
On-Site Sourcing, Inc.
We have audited the accompanying balance sheets of On-Site Sourcing, Inc.,
as of December 31, 1997 and December 31, 1996, and the related statements of
earnings, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of On-Site Sourcing, Inc., as
of December 31, 1997 and December 31, 1996, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/S/ REZNICK FEDDER & SILVERMAN, P.C.
Bethesda, Maryland
February 16, 1998
<PAGE>
ON-SITE SOURCING, INC.
BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,490,702 $ 1,894,722
Accounts receivable, net 5,921,063 2,680,748
Prepaid supplies 417,693 188,770
Prepaid expenses 216,747 85,967
------------ ------------
Total current assets 8,046,205 4,850,207
Property and equipment, net 4,069,097 3,601,764
Note receivable - officer 25,000 25,000
Other assets, net 98,781 44,574
------------ ------------
$ 12,239,083 $ 8,521,545
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 1,992,580 $ 552,017
Accrued and other liabilities 924,487 289,199
Current portion of long-term debt 411,894 182,153
Provision for income taxes, current 139,798 --
Deferred taxes -- 60,154
------------ ------------
Total current liabilities 3,468,759 1,083,523
Long-term debt net of current portion 1,094,444 990,683
Deferred rent 96,509 76,129
Provision for Income taxes, net of current portion 419,395
Deferred taxes 66,989 14,846
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 shares authorized
4,802,221 and 4,794,021, shares issued and outstanding 48,022 47,940
Preferred stock,$.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding -- --
Subscription receivable (50,400) (50,400)
Additional paid in capital 6,367,379 6,351,911
Retained earnings 727,986 6,913
------------ ------------
7,092,987 6,356,364
------------ ------------
$ 12,239,083 $ 8,521,545
------------ ------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF EARNINGS
For the years ended December 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue $ 21,138,948 $ 9,507,666
Costs and expenses
Cost of sales 15,293,617 7,003,882
------------ ------------
5,845,331 2,503,784
------------ ------------
Selling expense 2,401,691 1,099,037
Administrative expense 2,226,103 1,072,835
------------ ------------
4,627,794 2,171,872
------------ ------------
Earnings from operations 1,217,537 331,912
Other income (expense)
Other income 196,656 92,098
Other expense, primarily interest (141,938) (103,770)
------------ ------------
54,718 (11,672)
------------ ------------
Earnings before income taxes 1,272,255 320,240
Income tax expense 551,182 75,000
------------ ------------
Net Earnings $ 721,073 $ 245,240
------------ ------------
Basic earnings per common share $ 0.15 $ 0.07
Diluted earnings per share $ 0.15 $ 0.07
</TABLE>
See notes to financial statements
F-4
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years end December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional Retained
Common Common Paid in Subscriptions (Deficit)
Shares Stock Capital Receivable Earnings Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 2,187,000 $ 21,870 $ 488,140 $ $ (238,327) $ 271,683
Sale of common stock 2,517,021 25,170 5,814 (89,900) 5,749,541
Warrants exercised 90,000 900 49,500 50,400
Payments received 39,500 39,500
Net earnings 245,240 245,240
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 4,794,021 $ 47,940 $ 6,351 $ (50,400) $ 6,913 $6,356,364
---------- ---------- ---------- ---------- ---------- ----------
Sale of common stock 8,200 82 15,468 15,550
Net earnings 721,073 721,073
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 4,802,221 $ 48,022 $6,367,379 $ (50,400) $ 727,986 $7,092,987
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 721,073 $ 245,240
----------- -----------
Adjustments to reconcile net earnings to net cash
(used in) provided by operations
Depreciation and amortization 769,918 271,682
Loss (gain) on disposition of equipment 8,460 (3,228)
Changes in assets and liabilities
Increase in accounts receivable, net (3,240,315) (1,880,671)
Increase in prepaid supplies (228,923) (134,363)
Increase in prepaid expenses (130,780) (85,967)
Increase in notes receivable officer -- (25,000)
Increase in other assets (62,874) (53,417)
Increase in accounts payable - trade 1,468,812 45,322
Increase in accrued and other liabilities 635,288 140,506
Increase (decrease) in deferred rent 20,380 (7,497)
Increase in provison for income taxes 559,193 --
Increase (decrease) in deferred taxes (8,011) 75,000
----------- -----------
Total Adjustments (208,852) (1,657,633)
----------- -----------
Net cash provided by (used in) operations 512,221 (1,412,393)
----------- -----------
Cash flows from investing activities
Capital expenditures (1,265,293) (2,193,880)
----------- -----------
Net cash used in investing activities (1,265,293) (2,193,880)
----------- -----------
Cash flows from financing activities
Proceeds from sale of common stock and
exercise of warrants 15,550 6,156,461
Payments on subscription receivable -- 39,500
Proceeds of long-term debt agreements 361,643 445,034
Net borrowings short term debt agreement -- (627,181)
Payments under long-term debt agreements (28,141) --
Net borrowings (payments) under line of credit agreement -- (260,000)
Offering costs -- (290,935)
----------- -----------
Net cash provided by financing activities 349,052 5,462,879
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (404,020) 1,856,606
Cash and cash equivalents, beginning 1,894,722 38,116
----------- -----------
Cash and cash equivalents, ending $ 1,490,702 $ 1,894,722
----------- -----------
</TABLE>
See notes to financial statements
F-6
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Supplemental disclosure of cash flow activities
Interest paid $ 133,470 $ 94,155
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
Non cash investing and financing activities:
Fixed assets acquired under capital lease obligations $ -- $ 1,147,645
=========== ===========
Disposition of fixed assets offset against
accounts payable $ 28,249 $ --
=========== ===========
Refinancing of capital lease obligations
under an equipment note $ 1,100,000 $ --
=========== ===========
</TABLE>
See notes to financial statements
F-7
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. Organization and Summary of Significant Accounting Policies
Nature of Business
On-Site Sourcing, Inc. (the Company) was originally incorporated in the
Commonwealth of Virginia in December 1992 and changed its state of
incorporation to Delaware in January 1996. The Company performs various
services, including facilities management, litigation copying, and related
services at customer and company locations, and the purchase,
refurbishment, lease, sale and servicing of copy machines. The facilities
management and litigation copying services are performed in the
metropolitan areas of Philadelphia, Pennsylvania; Washington, DC; Atlanta,
Georgia; Baltimore Maryland; and New York, New York. The servicing and
refurbishment of copy machines is conducted from all the Company's
locations.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain accounts in 1996 financial statements have been reclassified to
conform with the December 31, 1997 presentation.
Revenue Recognition
Revenue from reprographic and imaging services are recognized on a per
copy basis upon completion of the services. Facilities management revenue
is recognized based on monthly fixed fees and, in certain cases, on a
variable per copy fee basis, as defined in facilities management
agreements.
Offering Costs
Specific incremental costs, totaling $356,520, directly attributable to
the initial public offering were charged against the gross proceeds of the
offering.
Income Taxes
In 1996, deferred taxes arose from temporary differences relating to
depreciation, deferred rent and reporting, for tax purposes, on the cash
basis, and, for financial statement purposes, on the accrual basis. In
1997, as a result of the requirement for the Company to report on the
accrual basis for federal and state income tax purposes beginning in 1998,
deferred taxes for temporary differences relate to depreciation and
deferred rent.
F-8
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
1. Organization and Summary of Significant Accounting Policies (Continued)
Depreciation and amortization
Property and equipment are stated at cost. Depreciation on property and
equipment is computed on a straight-line basis over the estimated useful
lives of the assets ranging from two to ten years for financial reporting
purposes. Accelerated methods are used for tax purposes.
Acquired facilities management contracts are amortized over the remaining
terms of the specific contracts.
Recent Accounting Pronouncements Not Yet Adopted
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which are effective for periods
beginning after December 15, 1997. SFAS No.130 establishes standards for
reporting and displaying of comprehensive income and its components
(revenues, expenses, gains and losses) in the financial statements. SFAS
No.131 establishes standards for reporting information about operating
segments and supercedes SFAS No.14 "Financial Reporting for Segments of a
Business Enterprise". The Company has made no assessment of the potential
impact of adopting SFAS No. 130 and 131 at this time.
Earnings per Common Share
Effective for the year ended December 31, 1997 the company adopted SFAS
128, "Earnings Per Share", which replaces the presentation of primary
earnings per share (EPS) and fully diluted EPS with a presentation of
basic and diluted EPS, respectively. Basic EPS excludes dilution and is
calculated using the average number of shares outstanding. Diluted
earnings per share is computed on the basis of the average number of
shares outstanding plus the effect of outstanding stock options using the
"treasury stock" method. All prior EPS data have been restated. The
adoption of this new accounting standard did not have a material effect on
the Company's EPS amounts.
F-9
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
Year ended December 31,
1997 1996
---------- ----------
Net earnings available for common shareholders (A) $ 721,073 $ 245,240
---------- ----------
Average Outstanding:
Common stock (B) 4,794,705 3,666,010
Employee stock options 152,498 101,086
---------- ----------
Common stock and common stock equivalents (C) 4,947,203 3,767,096
---------- ----------
Earnings per share:
Basic (A/B) $ .15 $ .07
---------- ----------
Diluted (A/C) $ .15 $ .07
---------- ----------
Unexercised employee stock options to purchase 814,257 and 653,914 shares
of the Company's common stock as of December 31, 1997 and 1996,
respectively, were not included in the computations of diluted earnings
per share because the options' exercise prices were greater than the
average market price of the Company's common stock during the respective
period.
Deferred Rent
Deferred rent is recorded and amortized to the extent the total minimum
rental payments allocated to the current period on a straight-line basis
exceed or are less than the cash payments required.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined using available market information,
assumptions and valuation methodologies.
Subscription Receivable and Note Receivable-Officer
Management believes that it is not practicable to estimate the fair value
of notes because notes with similar characteristics are not available from
the Company.
F-10
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
1. Organization and Summary of Significant Accounting Policies (Continued)
Line of Credit and Long-term Debt
The carrying amounts approximate fair value.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to a
concentration of credit risk, principally consist of trade accounts
receivable and cash. The Company places its cash with credit worthy, high
quality financial institutions. Credit risk with respect to trade
receivables is also limited because the Company deals with a large number
of customers in a wide geographic area. At December 31, 1997, one such
customer accounted for approximately 17% of trade accounts receivable. At
December 31, 1997 the Company has no other significant concentrations of
risk.
Major Customer
During the year ended December 31, 1997, one customer accounted for
approximately 13% of revenue.
2. Composition of Certain Financial Statement Captions
Accounts Receivable
Accounts receivable consist of the following:
1997 1996
----------- -----------
Trade 6,341,063 $ 2,780,748
Allowance for uncollectible accounts (420,000) (100,000)
----------- -----------
$ 5,921,063 $ 2,680,748
=========== ===========
Other Assets
Other assets consist of the following:
1997 1996
----------- -----------
Deposits $ 30,240 $ 20,859
Employee Advances 25,208 23,715
Acquisition of facilities management contracts,
net of accumulated amortization of $8,667 43,333 --
----------- -----------
$ 98,781 $ 44,574
=========== ===========
F-11
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Copiers $ 3,391,926 $ 2,933,203
Computers, equipment and other 1,580,340 961,292
Vehicles 282,106 148,153
----------- -----------
5,254,372 4,042,648
Accumulated depreciation (1,185,275) (440,884)
----------- -----------
$ 4,069,097 $ 3,601,764
=========== ===========
</TABLE>
Depreciation expense charged to operations was $761,251 and $271,682, for the
years 1997, and 1996, respectively
Accrued and Other Liabilities
Accrued and other liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Accrued salaries, commissions, taxes and fringe benefits $ 831,197 $ 235,197
Accrued sales tax payable 72,496 54,002
Other accrued liabilities 20,794 --
----------- -----------
$ 924,487 $ 289,199
=========== ===========
</TABLE>
3. Line of Credit
In February 1997, the Company entered into a working capital line of
credit agreement with a financial institution for $2,500,000. The working
capital line of credit is collateralized by accounts receivable and
certain equipment as described in the agreement. The working line of
credit is subject to certain financial covenants, including minimum
tangible net worth requirements. The line of credit bears interest and
the bank's prime rate or the 30 day LIBOR rate plus 2.25%. As of December
31, 1997 there were no advances made under this agreement.
At December 31, 1996, the Company had available a $450,000 working capital
line of credit at the bank's prime rate plus 1%. The credit facility was
collateralized by the assets of the Company and guaranteed by the
Company's Chairman, and the Company's President and his spouse. The credit
facility expired on April 1, 1997. At December 31, 1996 outstanding
obligation under this line of credit was $ 0.
F-12
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
4. Long-term Debt
Long- term debt includes the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Equipment note of $1,100,000 at 9.02% collateralized by certain assets of the
Company payable in equal monthly installments of $22,916 plus interest,
maturing in March 2000 $ 893,750
Equipment note at 8.75%, collateralized
by the equipment, payable in equal aggregate monthly installments
of $5,594 plus interest, maturing in December 2000 268,500
Vehicle notes at 5.0%, collateralized
by the vehicles, payable in equal aggregate monthly installments
of principal and interest of approximately $983, maturing in October 2001 41,882
Vehicle notes at 9.7.%, collateralized
by the vehicles, payable in equal aggregate monthly installments of principal
and interest of approximately $ 1,272, maturing in August 2000 46,955
Capital leases obligations (See Note 5) 255,251 1,172,836
----------- -----------
1,506,338 1,172,836
Less current maturities included in current liabilities (411,894) (182,153)
----------- -----------
$ 1,094,444 $ 990,683
=========== ===========
</TABLE>
Aggregate maturities for long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 411,894
1999 419,115
2000 427,114
2001 248,215
-----------
$ 1,506,338
===========
</TABLE>
On January 30, 1996, the Company borrowed $182,000 from a bank. The notes were
payable in equal annual principal installments plus interest at 10.5% (prime
plus 2%) maturing at various dates through October 1998. The notes were repaid
during 1996.
F-13
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
5. Leases
The Company leases its office facilities, copiers and office equipment
under various operating and capital leases. Lease terms range from one to
approximately six years.
Minimum annual rental and lease commitments for leases with a remaining
term of one year or more at December 31, 1997, are as follows:
Capital Operating
Year ending December 31, Leases Leases
- ----------------------- --------- ---------
1998 $ 75,560 $ 267,674
1999 75,560 202,656
2000 75,560 127,080
2001 99,506 46,248
2002 -- 34,686
--------- ---------
Total minimum lease payments 326,186 $ 678,344
=========
Less: interest 70,935
---------
Present value of net minimum lease payments $ 255,251
=========
Fixed assets recorded under capital leases as of December 31, 1997 and
1996, total approximately $390,000 and $1,427,000, respectively,
representing reprographic machines. Interest expense on the outstanding
obligations under capital leases was approximately $30,000, and $50,000
for the years ended December 31, 1997 and 1996, respectively.
Rent expense was approximately $979,000 and $342,000 for the years ended
December 31, 1997 and 1996, respectively.
6. Related Party Transactions
Transactions with an Officer/Shareholder
During the years ended December 31, 1997 and 1996, the Company recorded
the following transactions.
o During 1997 and 1996, the Company billed the officer/shareholder
approximately $22,000 and $22,000, respectively, for reprographic
services.
o During 1997, and 1996, the Company incurred approximately $74,000
and $208,000, respectively, for legal services rendered by an
officer/shareholder. Included in the amounts payable as of December
31, 1997 and 1996, is approximately $13,000 and $2,000,
respectively, in legal fees due to the officer/shareholder.
o During 1996, the company entered into a note agreement with an
officer/shareholder in the amount of $25,000. The loan bears
interest at the prime rate of interest at the date of the loan
(8.25%). All unpaid principal and accrued interest is repayable in
September 1998.
o During 1997 and 1996, the Company recorded revenue of approximately
$275,000 and $328,000, respectively, for services provided to a
former shareholder under a facilities management agreement. Included
in accounts receivable as of December 31, 1997 and 1996 is
approximately $ 65,000 and $112,500, respectively, from the former
shareholder.
F-14
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
7. Commitments and Contingencies
Employment Agreements
The Company has entered into employment agreements with its officers and
certain employees. The agreements provide for base salaries, non compete
and nondisclosure restrictions and, in certain cases, stock options which
vest over a period of time. The agreements are terminable at the
discretion of the Company.
Letter of Credit
The Company has an undrawn bank letter of credit, in the approximate
amount of $30,000, in connection with an operating lease. The letter of
credit expires October 31, 1998.
8. Incentive Stock Option Plan
The Company adopted incentive stock option plans for 1997, 1996 and 1995,
under which pools of 500,000, 242,000 and 510,000 shares of common stock
have been reserved. The plans are administered and terms of option grants
are established by the Board of Directors. Under the terms of the plans,
options may be granted to the Company's employees to purchase shares of
common stock. Options become exercisable ratably over a vesting period as
determined by the Board of Directors, and expire over terms not exceeding
10 years from the date of grant, three months after termination of
employment, or one year after the death or permanent disability of the
employee. The Board of Directors determine the option price (not less than
fair market value) at the date of grant.
The Company applied APB Opinion No. 25 and related Interpretations in
accounting for its plans. Had compensation cost been determined in
accordance with FASB Statement No. 123, the Company's net income and net
income per share would have been the pro forma amounts indicated below:
Year Ended
---------------------------
Net income:
1997 1996
----------- -----------
As reported $ 721,073 $ 245,240
Pro forma $ 626,288 $ 227,836
Net income per common share - Basic:
As reported $ .15 $ .07
Pro forma $ .13 $ .06
Net income per common share - Diluted:
As reported $ .15 $ .07
Pro forma $ .13 $ .06
All options granted during the year ended December 31, 1997 and 1996 were
issued pursuant to the incentive stock option plans. The fair value of
each option grant under the plan is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions for 1997 and 1996, respectively were used: expected dividend
yields of 0.0% and 0.0%, expected volatility rates of 44.5% and 34%,
risk-free rates of 5.4% and 6.4 % and an expected lives of 1 to 4 years.
F-15
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
8. Incentive Stock Option Plan (Continued)
At December 31, 1995, pursuant to an employment agreement, the Company had
outstanding options to sell 162,000 shares of common stock to an
officer/director of the Company at an exercise price of $.56 per share The
options were exercised in March 1996.
At December 31, 1997 and 1996, the Company had outstanding options to sell
126,000 shares of common stock to an officer/director at an exercise price
of $1.11 per share. The options expire in December 2000.
During 1995, the Company granted to employees options for 342,000 shares
of common stock at exercise prices ranging from $1.11 to $1.39 per share.
The grant price of $1.11 per share was determined by the Board of
Directors to represent fair value and the grant price of $1.39 per share
was determined to be in excess of fair value based upon independent sales
of stock by a shareholder in December 1995 at $1.11 per share. During
1997, options for 144,000 of common stock expired and 5,000 were
exercised. As of December 31, 1997, options for 193,000 of the shares are
vested and outstanding. The options expire through December 2000.
During 1997 and 1996, the Company granted options for 383,509 and 395,000
shares of common stock at exercise prices ranging from $2.12 to $3.25 per
share. The grant price per share was equal or greater than the market
price at the date of grant. As of December 31, 1997, options for 388,998
of the shares of the shares are vested, with the remainder scheduled to
vest through October 2002. The options expire through October 2006.
The following depicts activity in the plan for two years ended December
31, 1997:
Per Share
Options Outstanding Exercise Price
------------------- --------------
Outstanding, January 1, 1996 666,000 $ .56-1.39
Options granted 395,000 $2.12-3.25
Options exercised (162,000) $ .56
Options expired (144,000) $1.10-1.39
--------- ----------
Outstanding, December 31, 1996 755,000 $1.10-3.25
Options granted 383,509 $2.12-3.25
Options exercised (5,000) $ 1.10
Options expired (166,754) $2.12-3.25
--------- ----------
Outstanding, December 31, 1997 966,755 $1.10-3.25
========= ==========
9. Stock Warrants
At December 31, 1995, in connection with issuance of stock, the Company
had outstanding warrants for a total of 90,000 shares of its common stock
exclusively to an investor with an exercise price of $.56 per share. The
warrants were exercised during 1996.
F-16
<PAGE>
ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1997 and 1996
10. Income Taxes
The amounts for income tax expense (benefit) for the year ended December
31, 1997 and 1996 were as follows:
1997 1996
--------- ---------
Current
Federal $ 447,401 $ --
State 111,792 --
--------- ---------
$ 559,193 --
Deferred
Federal $ (10,681) $ 56,355
State 2,670 18,645
--------- ---------
$ 551,182 $ 75,000
========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes. Components of the Company's deferred tax liability are as
follows:
1997 1996
--------- ---------
Excess of tax over financial accounting
depreciation $ 75,334 $ 38,522
Operating accruals -- 828,611
Loss carryforwards -- (775,385)
Other (8,345) (16,748)
--------- ---------
Deferred tax liability $ 66,989 $ 75,000
========= =========
Beginning in 1998, the Company is required to report on the accrual basis
for federal and state income tax purposes. In accordance with Internal
Revenue Service Code, the amount of income tax due resulting from the
conversion from cash to accrual will be paid over a four year period. At
December 31, 1996, the Company had approximately $2,100,000 of operating
loss carryforwards which were fully utilized in 1997.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The former independent auditor for the Company, Grant Thornton, LLP
("Grant Thornton") was dismissed on November 21, 1996. Grant Thornton
communicated certain internal control matters to the Company which meet
the definition of reportable events. Grant Thornton's communication of
certain internal control matters and the Company's decision to change
accountants was reported on in the Company's Current Report on Form 8-K
dated November 29, 1996, as amended on December 7, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The following individuals are the Directors and Officers of the Company.
All Directors are elected annually by the shareholders to serve until the
next annual meeting of shareholders and until their successors are duly
elected and qualified. Officers are elected annually by the Board of
Directors to serve at the pleasure of the Board.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------- ---- -----------------------------------------------
<S> <C> <C>
Christopher J. Weiler 35 President, Chief Executive Officer and Director
John S. Stoppelman 54 Chairman of the Board and Director
Allen C. Outlaw 32 Vice President - Marketing and Director
Anthony A. Kopsidas 27 Vice President - Operations and Director
Joseph Sciacca 44 Chief Financial Officer
Jane Cahill 35 Vice President - Sales and Director
Charles B. Millar 37 Director
Jorge R. Forgues 42 Director
Arnold J. Wasserman 60 Director
</TABLE>
Christopher J. Weiler founded the Company with Mr. Stoppelman in December
1992 and has been President, Chief Executive Officer and a director of the
Company since that time. Mr. Weiler graduated from the United States Naval
Academy in 1985 and served in the United States Navy as a surface warfare
officer and as a Navy Senate Liaison Officer on Capitol Hill, Washington,
D.C. before joining Pitney Bowes Management Services in 1991.
John S. Stoppelman founded the Company with Mr. Weiler in December 1992
and has been Chairman of the Board of Directors since inception. Mr.
Stoppelman has also served as Secretary and Treasurer. Mr. Stoppelman has
been a practicing attorney for twenty-five years. After working as an
attorney at a government agency for four years, Mr. Stoppelman entered
private practice in 1976, specializing in securities, corporate, and other
investment-related law and litigation. Mr. Stoppelman has also been the
Chairman of Justin Asset Management, Inc., a registered investment
advisory firm (1985-1994). He has served on the American Bar Association
Committee on Federal Regulation of Securities (1976-present) and as
Vice-Chairman of the Subcommittee on SEC Practice and Enforcement Matters
of the ABA Federal Regulation of Securities Committee (1979-1991). Mr.
Stoppelman has published several articles relating to the areas of his
practice and has appeared at various times on national television to
comment on various securities-related issues.
Allen C. Outlaw has been Vice President of Marketing since September 1997.
Prior thereto Mr. Outlaw served as Vice President of Sales and Marketing
since joining the Company in March 1994. Mr. Outlaw has also served on the
Board of Directors since March 1994. Prior to joining the Company, he held
various positions in the investment industry, including owner and Director
of Marketing of Justin Asset Management, a successful investment
management firm from January 1991 until joining the Company.
Anthony A. Kopsidas has been the Vice President of Operations since
December 1994. Prior thereto, Mr. Kopsidas served as a supervisor since
joining the Company in March 1994. Mr. Kopsidas served as president of
Corporate Lawn and Landscaping, a Maryland corporation, for three years
before joining the Company. Mr. Kopsidas has also served on the Board of
Directors since December 1994.
Joseph Sciacca has served as Chief Financial Officer since October 1996.
From 1991 to 1994, Mr. Sciacca served as Vice President of Finance of
Q-Star Technology Inc. and, from 1994 until joining the Company in October
1996, Mr. Sciacca was self-employed with a private practice that
specialized in business planning, business combinations and taxation. He
has been a practicing accountant for twenty-one years. He is a graduate of
Georgetown University and earned his Masters of Science in Taxation from
The American University.
<PAGE>
Jane Cahill has served as Vice President of Sales since September 1997.
Prior thereto, Ms. Cahill served as Vice President of Imaging since
joining the Company in November 1996. Prior to joining On-Site Ms. Cahill
acted as a regional account manager for a Maryland based software
development company and was responsible for many of the key litigation
conversion service bureau in the United States. Prior to that Ms. Cahill
was employed for six years with Eastman Kodak Office Imaging Division and
was responsible for sales in the Washington, DC legal marketplace. Ms.
Cahill has also served on the Board of Directors since June 1997.
Charles B. Millar has served as a Senior Vice President of the Washington
D.C. investment banking firm of Johnston, Lemon & Co., Inc. since 1991.
Mr. Millar joined the Board of Directors, Compensation and Audit
Committees in August 1996.
Jorge R. Forgues has the positions of Senior Vice President of Finance and
Administration, Chief Financial Officer and Treasurer of Network Imaging
Corporation since April 1996, a Herndon-based publicly traded software
developer. From October 1993 until assuming his current position, Mr.
Forgues was Vice President of Finance and Administration, Chief Financial
Officer and Treasurer of Globalink, a Fairfax-based, publicly-traded,
machine translation software company. From 1992 to 1993, Mr. Forgues was
the Director of Accounting for Spirit Cruises, a harbor cruise line with
operations in nine states. Prior thereto, from 1987 to 1992, Mr. Forgues
was Vice President of Finance at Best Software, Inc., a computer software
developer. Mr. Forgues joined the Board of Directors, Compensation and
Audit Committees in July 1996.
Arnold J. Wasserman is a graduate electrical engineer, graduating from New
York University College of Engineering in 1962. For the past five years
Mr. Wasserman has been the president of the Wasserman Companies. Mr.
Wasserman has in excess of forty years of business experience as an
Engineer, Sales/Marketing Executive, Leasing Executive/Consultant and
Consultant to High Tech Companies in Due-Diligence, Planning, and Product
Marketing. Mr. Wasserman is also a director and Chairman of the Audit
Committee of Stratasys, Inc., a high tech public company that specializes
in rapid prototyping technology, and a director and member of the Audit
Committees of IAT Multimedia, Inc. and Micro-Mainframes, Inc. Mr.
Wasserman joined the Company's Board of Directors in September 1996.
Messrs. John Stoppelman, Charles Millar and Jorge Forgues are the members
of the Audit Committee of the Board of Directors. Messrs. Christopher
Weiler, Charles Millar and Jorge Forgues are the members of the
Compensation Committee of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
To the best of the Company's knowledge, in 1996, all Officers, Directors
and 10% shareholders have filed, on a timely basis, all forms required by
Section 16(a) of the Exchange Act of 1934, with the exception that three
outside directors did not timely file Form 4 reporting grants of stock
options in September 1997. Such reports have subsequently been filed.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation of the Company's Chief Executive Officer and the other most
highly compensated executive officers (collectively, the "Named Executive
Officers") whose annual compensation (salary and bonus) for services
rendered in all capacities to the Company exceeded $100,000 for the years
ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
============================================================================================
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------------------------------
Other All
Annual Other
Compen- Options/ Compen-
Name and Principal Salary Bonus sation SAR's Sation
Position Year $ $ $ (#) $
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Christopher Weiler 1997 118,917 20,000 -- -- --
- --------------------------------------------------------------------------------------------
President and CEO 1996 92,000 -- -- -- --
- --------------------------------------------------------------------------------------------
Allen Outlaw 1997 99,028 5,000 -- -- --
- --------------------------------------------------------------------------------------------
Vice President, Marketing 1996 75,734 -- -- -- --
============================================================================================
</TABLE>
<PAGE>
Director Compensation
Directors currently receive no cash compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. In 1996, three outside directors each received options
to purchase 20,000 shares of Common Stock vesting over a period of one
year in equal portions at the end of each quarter. The options were
granted at the market price at the time of grant. For 1997, three outside
directors each received options to purchase 20,000 shares of Common Stock
vesting over a period of three years in equal portions at the end of each
quarter. The options were granted at the market price at the time of
grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table enumerates, as of December 31, 1997, the name and
ownership, both by numerical holding and percentage interest, of the
Company's common stock by (1) each person or group, known to the Company,
who beneficially owns more than 5 percent of the Company's outstanding
common stock; (2) the Directors and Executive Officers of the Company,
individually, and (3) the Directors and Executive Officers as a group.
In preparing the following tables, the Company has relied upon statements
filed with the Securities and Exchange Commission by beneficial owners of
more than 5 percent of the Company's outstanding common stock pursuant to
Section 13(d) or 13(g) of the Securities Act of 1934, unless the Company
knew or had reason to believe that the information contained in such
statements was not complete or accurate, in which case the Company relied
upon information which it considered to be accurate and complete.
Approximate % of
# of Shares Beneficial
Name Beneficially Owned Ownership (1)
- ---- ------------------ -------------
John S. Stoppelman (2) 641,100 13.4%
The Stoppelman Law Firm
1749 Old Meadow Road
Suite 610
McLean, VA 22102
Christopher J. Weiler 362,000 7.5%
c/o the Company
Allen C. Outlaw (3) 207,000 4.3%
c/o the Company
Anthony A. Kopsidas (4) 126,000 2.6%
c/o the Company
Joseph Sciacca (5) 67,940 1.4%
c/o the Company
Jane Cahill (6) 6,600 *
c/o the Company
Jorge R. Forgues (7) 25,000 *
500 Huntmar Park Drive
Herndon, VA 20170
Charles B. Millar (7) 25,000 *
1101 Vermont Ave., N.W.
Washington, D.C. 20005
Arnold J. Wasserman (7) 25,000 *
1 Brookwood Drive
West Caldwell, NJ 07006
All Officers and Directors as a group 1,485,640 31.0%
- -----------
* Less than 1%
(1) Based on 4,802,221 shares of Common Stock outstanding as of December 31,
1997.
(2) Assumes exercise of 3,700 Warrants to purchase Common Stock at $6.00 per
share.
(3) 162,000 shares are held by escrow agent pursuant to the Promissory Note
and Escrow Agreement. See "Interest of Management and others in Certain
Transactions - Loans and Guarantees".
(4) Assumes exercise of vested stock option to purchase 126,000 shares of
common stock at $1.11 per share.
<PAGE>
(5) Assumes exercise of stock options that are currently vested or will vest
within 60 days of December 31, 1997 to purchase 28,125 shares of common
stock at $2.125 per share.
(6) Assumes exercise of stock options that are currently vested or will vest
within 60 days of December 31, 1997 to purchase 13,200 shares of common
stock at $2.25 per share.
(7) Assumes exercise of stock options that are currently vested or will vest
within 60 days of December 31, 1997 to purchase 20,000 shares of common
stock at $2.50 per share and 5,000 shares of common stock at $3.00 per
share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1994, the Company granted options to purchase 162,000 shares of
common stock at an adjusted price of $0.56 per share to an officer and
director of the Company pursuant to his original employment agreement as
an incentive to join the Company. The options were subject to a vesting
schedule based on sales goals that were met and exceeded during 1994. At
the date of grant, these options were granted on terms no less favorable
to the Company than those available to unaffiliated parties purchasing
shares of the Company's Common Stock. The options were exercised in March
1996.
In December 1995, the Company granted options to purchase 126,000 shares
of common stock at $1.11 per share to an officer and a director of the
Company. All of the Options are currently vested. At the date of grant,
these options were granted on terms no less favorable to the Company than
those available to unaffiliated parties purchasing shares of the Company's
Common Stock.
In July 1996, the Company entered into agreements with certain Selling
Securityholders named below whereby the Selling Securityholders exchanged
shares of the Company's common stock acquired in private placements for
Units issued by the Company. Manhattan Group Funding exchanged 90,000
shares for 45,000 Units; Paul Sozansky exchanged 30,000 shares for 15,000
Units, Ronnee Medow exchanged 45,000 shares for 22,500 Units, Sagax Fund
II Ltd. exchanged 23,810 shares for 11,905 Units, Sabine Devilloutreys
exchanged 23,810 shares for 11,905 Units and Leonard and Roslyn Parker
exchanged 5,626 shares for 2,813 Units.
In September 1996, the Company granted options to purchase 75,000 shares
of the Company's common stock at $2.125 per share to an officer of the
Company. The options vest in equal quarterly installments over a four year
period. At the date of grant, these options were granted on terms no less
favorable to the Company than those available to unaffiliated parties
purchasing shares of the Company's common stock.
In September 1996, the Company granted options to purchase 20,000 shares
of the Company's common stock at $2.50 per share to each of the Company's
three outside directors. The options vest in equal quarterly installments
over a period of one year. At the date of the grant, these options were
granted on terms no less favorable to the Company than those available to
unaffiliated parties purchasing Shares of the Company's common stock.
In September 1997, the Company granted options to purchase 20,000 shares
of the Company's common stock at $3.00 per share to each of the Company's
three outside directors. The options vest in equal quarterly installments
over a period of three year. At the date of the grant, these options were
granted on terms no less favorable to the Company than those available to
unaffiliated parties purchasing Shares of the Company's common stock.
Loans and Guarantees
At various times in 1996, the President of the Company, his wife, and the
Chairman of the Board of Directors of the Company personally guaranteed
term notes with a commercial bank with an aggregate principal amount of
$323,500 and interest at 2% over the prime rate per year. The term notes
were executed by the Company for business purposes and were paid in full
in August 1996.
<PAGE>
The President of the Company, his wife, and the Chairman of the Board of
Directors of the Company personally guaranteed a revolving line of credit
with a commercial bank with a principal amount of $450,000 and interest at
1% over the prime rate per year. The line was executed by the Company for
business purposes including the financing of receivables. On April 1, 1997
the line expired.
In March 1996, the Company loaned $89,900 to an officer/director. The loan
bears interest at 6% per year with a balance of $50,400 at December 31,
1997 with principal and interest due April 1, 1998.
In September 1996, the Company loaned $25,000 to an officer, pursuant to
an employment agreement. The loan bears interest at the prime rate at the
date of the loan and is due September 26, 1998.
Revenues and Expenses
During 1997 and 1996, the Company billed the Chairman of the Board of
Directors approximately $22,000 and $22,000, respectively, for
reprographic services and the sale of a photocopier. These transactions
occurred at the same prices available to non-related third parties.
During 1997 and 1996, the Company was billed approximately $88,000 and
$208,000, respectively, for legal services rendered by the Stoppelman Law
Firm, P.C., of which the Chairman of the Board of Directors, is a
principal. The Company believes that the fees charged were at least as
favorable as those obtainable from an uninterested third party. In October
1996, the Company entered into an arrangement with The Stoppelman Law Firm
whereby the Company pays a retainer of $5,000 per month for legal services
which was subsequently increased to $7,000 per month in July 1997.
Future transactions with interested parties will continue to be handled on
an arms' length basis, upon terms no less favorable to the Company than
those available from unaffiliated third parties.
<PAGE>
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit # Description of Document
- --------- -----------------------
<S> <C>
3.01(1) Certificate of Incorporation: Delaware
3.02(1) Restated By-Laws: Delaware
4.01(1) Form of Common Stock Certificate
4.02(1) Form of Warrant Certificate
4.03(1) Form of Warrant Agreement between On-Site Sourcing, Inc. and the Continental Stock Transfer and Trust
Company
4.04(1) Registrant's Articles of Incorporation are incorporated by reference to exhibit 3.01
4.05(1) Registrant's Restated Bylaws pages 1-5 are incorporated by reference to exhibit 3.02
10.01(1) Employment Agreement between the Company and Christopher Weiler
10.02(1) Employment Agreement between the Company and Allen Outlaw
10.03(1) Employment Agreement between the Company and Anthony Kopsidas
10.04(1) Employment Agreement between the Company and Jack Krutsick
10.05(2) Employment Agreement between the Company and Larry F. Morris
10.05(3) Employment Agreement between the Company and Joseph Sciacca
10.06(1) Lease with Rubin Strouse Realty for Philadelphia, PA
10.07(1) Amendment 1 to Lease with Rubin Strouse Realty
10.08(1) Amendment 2 to Lease with Rubin Strouse Realty
10.09(1) Amendment 3 to Lease with Rubin Strouse Realty
10.10(1) Lease with JRG/Lynn Associates, 9/12/95, for Arlington, VA
10.11(1) First Addendum to Lease with JRG/Lynn Associates, 3/30/94
10.12(1) Second Addendum to Lease with JRG/Lynn Associates, 7/6/94
10.13(1) Third Addendum to Lease with JRG/Lynn Associates, 6/29/95
10.14(1) Fourth Addendum to Lease with JRG/Lynn Associates, 1/25/96
10.15(1) Lease Agreement between Oak Crest Ltd. and SWR 1/31/92 for Frederick, MD assumed by On-Site
10.16(1) Assumption of Lease Agreement between the Company and Oak Crest Ltd.
10.17(1) Lease with Kingston Atlanta Partners, L.P. - 12/15/95 for Atlanta, GA
10.18(1) Form of Management Services Contract
10.19(5) Lease with 443 Company/William Real Estate Co., Inc. for New York, NY office
10.20(5) Lease with JRG/Lynn Associates 10/18/96
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.21(5) Lease with Frederick Park Limited Partnership
10.22(5) Fifth Amendment to Lease with Suburban Station Associates
10.23(2) Revised 1996 Stock Option Plan
10.24(2) 1997 Stock Option Plan
10.25 (5) First Amendment to lease with Kingston Atlanta Partners, L.P.
10.26 Lease with Miller Properties.
16.01(4) Letter on change in certifying accountant
23.01 Consent of Reznick Fedder & Silverman PC, independent auditors
27.01 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 file No. 333-3544.
(2) Incorporated by reference to the Company's Post Effective Amendment to the
Company's Registration Statement on Form SB-2 file No. 333-3544.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 1996.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated November 29, 1996 and amended December 9, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the period ended December 31, 1996
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on this 30th day of March 1998.
ON-SITE SOURCING, INC.
BY: /s/ Christopher J. Weiler
--------------------------------
Christopher J. Weiler, President
In accordance with the Exchange, this Report has been signed below by the
following persons on behalf of the Registrant, and in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Christopher J. Weiler President, Chief Executive
- ---------------------------- Officer and Director March 30, 1998
Christopher J. Weiler
/s/ John S. Stoppelman Chairman of the
- ---------------------------- Board of Directors March 30, 1998
John S. Stoppelman
/s/ Joseph Sciacca Chief Financial Officer March 30, 1998
- ----------------------------
Joseph Sciacca
/s/ Anthony A. Kopsidas Vice President of
- ---------------------------- Operations and Director March 30, 1998
Anthony A. Kopsidas
/s/ Allen C. Outlaw Vice President of
- ---------------------------- Marketing and Director March 30, 1998
Allen C. Outlaw
/s/ Jane Cahill Vice President of
- ---------------------------- Sales and Director March 30, 1998
Jane Cahill
</TABLE>
Exhibit 10.26
Lease with Miller Properties
<PAGE>
AGREEMENT OF LEASE
BY AND BETWEEN
22 LIGHT STREET, LLC.
and
On-Site Sourcing, Inc.
PAGE
I Summary of Key Terms 3
2 Term 3
2.1.1 Original Term 3
2.2 Surrender 4
2.3 Holding Over 4
3 Commencement Date 4
4 Rent 4
4.1.1 Base Rent 4
4.1.2 Additional Rent 4
4.1.3 Rental Abatement 4
4.1.4 Real Estate Tax Base Year 4
4.1.5 Operating Costs Base Year 5
4.1.6 Payment of {Passthrough Expenses 5
4.1.7 Landlord's Right to Estimate 5
4.2 When due and payable 5
4.3 Where payable 5
4.4 Advance Rent 6
4.5 Security Deposit 6
5 Use of Premises 6
6 Tenant's Proportionate Share 6
7 Utilities 6
8 Insurance and Indemnification 6
8.1 Increase in Risk 6
8.2 Insurance to be maintained by 6
Tenant
8.3 Insurance to be maintained by 6
Landlord
8.4 Waiver of subrogation 7
8.5 Liability of parties 7
9 Improvements to Premises 7
9.1 By Landlord 7
9.2 Acceptance of Possession 7
9.3 By Tenant 7
9.4 Mechanics Liens 7
9.5 Fixtures 8
9.6 Materials Used 8
10 Maintenance and Services 8
10.1 Janitorial and Trash Removal 8
10.2 Maintenance by Tenant 8
10.3 Maintenance by Landlord 8
11 Landlord's Right of Entry 8
<PAGE>
12 Fire and other Casualties 8
12.1 General 8
12.2 Substantial Destruction 8
12.3 Tenant's Negligence 9
13 Condemnation 9
13.1 Right to Award 9
13.2 Effect of Condemnation 9
14 Assignment & Subletting 10
15 Subordination; Attornment & Non- Disturbance 10
15.1 Subordination 10
15.2 Attornment & Non-Disturbance 10
16 Default 10
16.1 Definition 10
16.2 Notice to Tenant; Grace Period 11
16.3 Landlord's Right on Event of 11
Default
16.4 Default by Landlord 12
17 Estoppel Certificate 12
18 Quiet Enjoyment 13
19 Relocation Clause 13
20 Notices 13
21 General 13
21.1 Effectiveness 13
21.2 Complete Understanding 13
21.3 Amendment 13
21.4 Applicable Law 13
21.5 Waiver 13
21.6 Time of Essence 13
21.7 Headings 13
21.8 Definitions 13
21.9 Exhibits 14
21.10 Severability 14
21.11 Definition of "the Tenant" 14
22 Deliveries 14
23 Expansion Options 14
24 Miscellaneous 14
Signature Page 15
<PAGE>
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE (hereinafter referred to as "this Lease"), made this {@L
day of August,
1997, by and between 22 Light Street, {LLC, a Limited Liability Company
organized and existing under the law of Maryland having an address at 31 Light
Street (hereinafter referred to as "the Landlord"), and On-Site Sourcing, Inc.,
existing under the law of Delaware having a primary address at 1111 North 19th
Street Arlington VA(hereinafter referred to as "the Tenant"),
{WITNESSETH, THAT FOR AND IN CONSIDERATION of the mutual entry into this Lease
by the parties hereto, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged by each party hereto, the
Landlord hereby leases to the Tenant and the Tenant hereby leases from the
Landlord all of that real property in Baltimore City, Maryland, which consists
of the space containing approximately 5,079 rentable square feet of floor area
shown outlined on a plat attached hereto as Exhibit A (hereinafter referred to
as "the Premises") and located in a building (hereinafter referred to as "the
Building") at 22 Light Street in Baltimore, Maryland, on a tract of land
(hereinafter referred to as "the Land") and any other buildings or improvements
thereon being hereinafter referred to collectively as "the Property"),
SUBJECT TO THE OPERATION AND EFFECT of any and all instruments and matters of
record or in fact, UPON T14E TERMS AND SUBJECT TO THE CONDITIONS which are
hereinafter set forth:
Section 1. Summary of Key Terms
a) Landlord: 22 Light Street, LLC
b) Tenant: On-Site Sourcing, Inc.
c) Premises: Suite 200 of 22 Light Street, containing approximately 5,079
rentable square feet
d) Term: 10 Years, 4 Months beginning on October 15, 1997
e) Base Rental Rate: $15.00 per rentable square foot
f) Rental Concession: Tenant will be responsible for rental payments during Year
I based on 3,500 rentable square feet. Commencing on Year 2, Tenant will pay
rental based on its square footage of 5,079 rentable square feet for the
remainder of the lease term.
g) Tenant's Operating Costs Percentage: II. I%
h) Annual Base Rental Increase: 3% annual increase
i) Tenant Improvement: Landlord will build out space as stipulated in Section
9.1 and Exhibit A.
j) Security Deposit: I month rent equalling $6,348.75
k) Advance Rent: I month equalling $4,375.00
1) Real Estate Tax Base Year: 1998
m) Operating Expense Base Year: 1998
n) Utilities: Directly metered and/or billed to Tenant
o) Rental Abatement: The initial two and one half months of the lease term
October 15, 1997 -December 31, 1997) shall be rent free plus January and
February of 1999 shall be rent free.
Section 2. Term.
2. 1. Length.
2.1.1. Original Term This Lease shall be for a term (hereinafter referred to as
the ("OriginalTerm) (a) commencing on October 15, 1997, (hereinafter referred to
as the "Commencement Date" and (b)terminating at 11:59 o'clock P.M., local time,
on the day immediately preceding the tenth (10th) year fourth (4th)
month anniversary of the first (1st) day of the first (1st) full calendar month
during the Term (hereinafter referred to as the ("Termination Date"). Such
termination date is February 14, 2007.
-3-
<PAGE>
2.2. Surrender. 'Me Tenant shall at its expense, at the expiration of the Term
or any earlier termination of this Lease, (a) promptly surrender to the Landlord
possession of the Premises (including any fixtures or other improvements which,
under the provisions of Section 5, are owned by the landlord) in good order and
repair damages reasonably beyond the Tenant's control and ordinary wear and tear
excepted) and broom clean, {(b) remove therefrom the Tenant's signs, goods and
effects and any machinery, trade fixtures and equipment which are used in
conducting the Tenant's trade or business and are not owned by the Landlord, and
{(c) repair any substantial damage to the Premises or the Building caused by
such removal.
2.3. Holding over. If the Tenant continues to occupy the Premises after the
expiration of the Term or any earlier termination of this Lease without having
obtained the Landlord's express, written consent thereto, then without altering
or impairing any of the Landlord's rights under this Lease or applicable law,
(a) the Tenant hereby agrees to pay to the Landlord immediately on demand by the
Landlord, as Rent for the Premises, for each calendar month or portion thereof
after such expiration of the Term or such earlier termination of this Lease, as
aforesaid, until the Tenant surrenders possession of the Premises to the
Landlord, a sum equaling one hundred twenty-five percent (125%) of the amount of
the monthly Base Rent and Additional Rent which would have been due and payable
under the provisions of the Lease and {(b) the Tenant shall surrender possession
of the Premises to the Landlord immediately on the Landlord's having demanded
the same. Nothing in the provisions of this Lease shall be deemed in any way to
give the Tenant any right to remain in possession of the Premises after such
expiration or termination, regardless of whether the Tenant has paid any such
Rent to the Landlord.
Section 3. Commencement Date.
3.1 The Commencement Date is October 15, 1997. In the event this lease is
executed later than August 15, 1997, then the commencement date may be extended,
at Landlord's sole option, on a day by day basis whereas the Premises will be
ready for occupancy 60 days after lease execution. In the event the Premises is
not ready for occupancy within 60 days after lease execution, then Landlord will
use commercially reasonable efforts to complete the tenant improvements as
expeditiously as possible thereafter.
Section 4. Base Rental Rate.
4.1. Amount. As rent for the Premises (all of which is hereinafter
referred to collectively as "Rent"),the Tenant shall pay to the
Landlord all of the following:
4.1.1. Base Rent. An annual base rent (hereinafter referred to as "the Base
Rent") which
(a) the base rental rate for the initial 12 months of the Lease Term commencing
on October 15, 1997 through October 14, 1998 is $15.00 per rentable square foot.
The rental rate shall increase 3% annually during the course of the lease term.
(b) the Tenant will pay rental for Year I of the lease based on 3,500 rentable
square feet. The Year I annual payment is $52,500. Commencing in Year 2, the
tenant will pay rental based on 5,079 rentable square feet.
(c) for the initial Lease Year I Commencing October 15, 1997 through October 14,
1998 during the Original Term, is in the sum of $52,500. If the Term commences
on a day other than the first (1st) day of a calendar month), for the initial
Lease Year Tenant shall pay one three-hundred sixty-fifth (1/365) of such
sum for each day of such calendar month falling within the Term; and
(d) for each Lease Year thereafter during the Term, the rental rate shall
increase in a sum equaling a 3% annual increase to the Base Rental Rate as
compared to the previous years rental rate. For instance, the initial lease year
rental rate is $15.00 per rentable square foot, the second lease year rental
rate shall increase by 3% to SI 5.45 per rentable square foot ($15.00 {x 1.03%),
the third lease year shall increase to $15.91(15.45 {x 1.03%) per rentable
square foot and so on.
(e the rental payment for Year 2 commencing on October 15, 1997 to October 14,
1998 is $78,470.55 (5,079 rentable square feet {x $15.45). 'Me annual rental
payment shall increase by 3% per yearthereafter.
4.1.2. Additional Rent. Additional rent (hereinafter referred to as
<PAGE>
"Additional Rent") in the amount of any payment referred to as such in any
provision of this Lease which accrues while this Lease is in effect (which
Additional Rent shall include any and all charges or other amounts which the
Tenant is obligated to pay to the Landlord under any of the provisions of this
Lease, other than the Base Rent).
4.1.3. Rental Abatement. The initial two and one half months of the lease term
shall be rent free and January, 1999 and February 1999 shall be rent free.
4.1.4. Real Estate Tax Base Year. Tenant covenants and agrees to pay to the
Landlord, in addition to the Base Rent hereinabove provided, its proportionate
share of any increase in real estate taxes and other assessments levied on the
Premises and Improvements during the term of the Lease, or any renewal thereof,
in excess of the real estate taxes levied against the building for tax year July
1, 1997 to June 30, 1998. Landlord shall furnish
-4-
<PAGE>
to Tenant a copy of each bill for taxes or other assessments which Tenant is
required to pay. Tenant shall pay to Landlord, any sums due hereunder on demand
and Landlord shall pay the taxes directly to the taxing authority. Tenant shall
have the right, at its own expense, to protest any assessment increase upon the
demised Premises. Tenant shall make any such protest in Landlord's name and
Landlord will cooperate with Tenant in making and completing such protests. For
calculation purposes, Base Year Real Estate Taxes shall reflect a fully assessed
building.
4.1.5 Operating- Costs base Year: Tenant covenants and agrees to pay as
additional rent during the term of this Lease (and any renewal) its
proportionate share of the costs and expenses incurred by Landlord in connection
with the operation and maintenance of the Premises, Building and the Property
(hereinafter "Operating Costs") over an actual amount for Operating Costs for
calendar year 1998. The foregoing Operating Costs shall be limited to those
costs and expenses incurred by Landlord in (a) janitorial services (b) building
insurance (c) property management fees (d) fire protection and fire system
monitoring (e) common area lighting (f) water and sewer service (g) elevator
service (h) trash removal (i) security system operation j) changes or fees for
governmental permits (k) premiums for hazard, liability, worker's compensation
or similar insurance upon any or all of the Property and (1) the cost of any
other items which, under generally accepted accounting principals consistently
applied from year to year with respect to the Property, constitute operating or
maintenance costs attributable to any or all of the {Prope-ty and shall exclude
costs associated with the renovation of the Property including but not
necessarily limited to the roof, structural supports and facade.
4.1.6 Payment of Passthrouph Expenses After the end of each calendar year during
the Term, the Landlord shall compute the total of the Operating Costs incurred
for all of the Property during such calendar year, and shall compare Operating
Costs to that of the Base year Operating Costs. In the event the Operating Costs
for any given year exceed the Operating Costs of the Base Year then Tenant will
pay to Landlord the difference, based on its proportionate share of space
leased. Such difference shall be paid to Landlord within thirty (30) days after
demand by the Landlord. Such demand will be provided in accordance with Lease
Section 20 and accompanied by a statement setting forth such Operating Costs and
itemized Building expense statements for the Base Year and year(s) for which
Tenant is being billed.
4.1.7. Landlord's right to estimate. Anything contained in the foregoing
provisions of this subsection to the contrary notwithstanding, the Landlord may,
at its discretion, (a) make from time to time during the Term a reasonable
estimate of the Additional Rent which may become due under such provisions for
any calendar year, (b) require the Tenant to pay to the Landlord for each
calendar month during such year one twelfth (1/12) of such Additional Rent, at
the time and in the manner that the Tenant is required hereunder to pay the
monthly installment of the Base Rent for such month, and (c) at the Landlord's
reasonable discretion, increase or decrease from time to time during such
calendar year the amount initially so estimated for such calendar year, all by
giving the Tenant written notice thereof, provided in accordance with Lease
Section 19 accompanied by a schedule setting forth in reasonable detail the
expenses comprising the Operating Costs, as so estimated. In such event, the
Landlord shall cause the actual amount of such Additional Rent to be computed
and certified to the Tenant within 120 days after the end of such calendar year,
and the Tenant or the Landlord, as the case may be, shall promptly thereafter
pay to the other the amount of any deficiency or overpayment therein, as the
case may be.
4.2. When due and payable.
4.2.1. The Base Rent for any Lease Year shall be due and payable in twelve (12)
consecutive, equal monthly installments, in advance, on the first (1st) day of
each calendar month during such Lease Year. For instance, the annual rental
payments for the first year of the lease is $52,500; therefore, rental payments
for year one will be payable in 12 equal monthly payments of $4,375 on the first
day of each calendar month.
4.2.2. Any Additional Rent accruing under any provision of this Lease shall,
except as is otherwise set forth herein, be due and payable when the installment
<PAGE>
of the Base Rent next falling due after such Additional Rent accrues becomes due
and payable.
4.2.3. Each such payment shall be made promptly when due, without any deduction
or setoff whatsoever, and without demand. Any payment made by the Tenant to the
Landlord on account of Rent may be credited by the Landlord to the payment of
any Rent then past due before being credited to Rent currently falling due. Any
such payment which is less than the amount of Rent then due shall constitute a
payment made on account thereof, the parties hereto hereby agreeing that the
Landlord's acceptance of such payment (whether or not with or accompanied by an
endorsement or statement that such lesser amount or the Landlord's acceptance
thereof constitutes payment in full of the amount of Rent then due) shall not
alter or impair the Landlord's rights hereunder to be paid all of such amount
then due, or in any other respect.
4,3. Where Payable. The Tenant shall pay the Rent, in lawful currency of the
United States of America, to the Landlord by delivering or mailing it to the
Landlord's address which is 31 Light Street, Suite 200, Baltimore, Maryland
21202 set forth hereinabove, or to such other address or in such other manner as
the Landlord from time to time specifies by written notice to the Tenant.
<PAGE>
4.4 Advance Rent Upon execution of this lease, Tenant agrees to pay to Landlord
one (1) month of advance rent in the amount of $4,375.00. Such advance rent
shall be applied towards rental payments for January,1998.
4.5 {Security Deposit Upon execution of the lease, tenant agrees to pay to
Landlord a security deposit in the amount of $6,348.75
Section 5. Use of Premises.
5.1. The Tenant shall, throughout the Term, occupy and use the Premises for and
only for general office purposes and general photo copying services.
5.2. In its use of the Premises and the remainder of the Property, the Tenant
shall not violate any applicable law, ordinance or regulation, and shall comply
with all applicable laws relating to its specific occupancy and use of the
Premises.
Section 6. Tenant's Proportionate Share
For calculation purposes, the Tenant's proportionate share of office space
leased is 1 1.7% of the entire office area. Such determination is calculated
based on Tenant's rentable square footage (5,079 square feet) divided by the
total rentable square footage of office space on floors 2-6 which is 43,320
square feet.
Section 7. Utilities
a) Tenant shall pay all costs of electricity, gas, power, telephone and other
utilities used or consumed on their premises located within Tenant's suite of 22
Light Street, and there shall be no obligation of the Landlord to furnish same.
Notwithstanding the aforegoing, Tenant agrees to maintain sufficient heat within
the Premises so that the sprinkler system remains in operation at all times. The
Landlord may have Tenant's premises separately metered.
In the event the above utilities are not separately metered and/or billed,
Tenant shall pay its proportionate share of said utilities based on an
allocation to be made by the Landlord in the exercise of reasonable judgement.
b) Landlord shall, under no circumstances, be liable to Tenant, in damages or
otherwise, for any interruption in the service of water, electricity, gas,
heating, air-conditioning or other utilities or services caused by an
unavoidable delay, by the making of any necessary repairs or improvements or by
any cause beyond Landlord's reasonable control.
Section 8. Insurance and indemnification.
8.1. Increase in risk. The Tenant (a) shall not do or permit to be done any act
or thing as a result of which either (1) any policy of insurance of any kind
covering (1) any or all of the Property or (2) any liability of the Landlord in
connection therewith may become void or suspended, or (ii) the insurance risk
under any such policy would (in the opinion of the insurer thereunder be made
greater; and (b) shall pay as Additional Rent the amount of any increase in any
premium for such insurance resulting from any breach of such covenant, within
ten (10) days after the Landlord notifies the Tenant in writing of such
increase.
8.2. Insurance to be maintained by Tenant
8.2.1. The Tenant shall maintain at its expense, throughout the Term, insurance
against loss or liability in connection with bodily injury, death, property
damage or destruction, occurring within the Premises or arising out of the use
thereof by the Tenant or its agents, employees, officers, subtenants, invitees,
visitors and guests, under one or more policies of general public liability
insurance having such limits as to each as are reasonably required by the
Landlord from time to time, but in any event of not less than (a) Two Million
Dollars ($2,000,000) for bodily injury to or death of any person or persons and
damage to property. Each such policy shall (a) name Tenant as the insured
thereunder and the Landlord (and, at the Landlord's request, any mortgagee), as
additional insureds, (b) by its terms, be considered primary and
non-contributory with respect to any other insurance carried by the Landlord or
its successors and assigns, (c) by its terms, be cancelable only on at least
thirty (30) days' prior written notice to the Landlord (and, at the Landlord's
request, any such Mortgagee), and (d) be issued by an insurer of recognized
responsibility licensed to issue such policy in Maryland.
8.2.2. (a) At least five (5) days before the Commencement Date, the Tenant shall
deliver to the Landlord a certificate of such policy and (b) at least
<PAGE>
thirty (30) days before any such policy expires, the Tenant shall deliver to the
Landlord a certificate of a replacement policy therefor; provided, that so long
as such insurance is otherwise in accordance with the provisions of this
Section, the Tenant may carry any such insurance under a blanket policy covering
the Premises for the risks and in the minimum amounts specified in paragraph
8.2.1, in which event the Tenant shall deliver to the Landlord two (2) insurer's
certificates therefor in lieu of an original or a copy thereof, as aforesaid.
8.3. Insurance to be maintained by Landlord. The Landlord shall maintain
throughout the Term all-risk
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<PAGE>
fire and extended coverage insurance upon the Building, in at least such minimum
amounts and having at least such forms of coverage as are required from time to
time by the Landlord's lender. The cost of the premiums for such insurance and
of each endorsement thereto shall be deemed, for purposes of the provisions of
Section 4.1.4., to be a cost of operating and maintaining the Property.
8.4. Waiver of subrogation. If either party hereto is paid any proceeds under
any policy of insurance naming such party as an insured, on account of any loss
or damage, then such party hereby releases the other party hereto, to and only
to the extent of the amount of such proceeds, from any and all liability for
such loss or damage, notwithstanding that such loss, damage or liability may
arise out of the negligent or intentionally tortious act Or omission of the
other party, its agents or employees; provided, that such release shall be
effective only as to a loss or damage occurring while the appropriate policy of
insurance of the releasing party provides that such release shall not impair the
effectiveness of such policy or the insured's ability to recover thereunder.
Each party hereto shall use reasonable efforts to have a clause to such effect
included in its said policies. In the event Landlord is unable to have a Waiver
of Subrogation clause in its policy, then neither Landlord nor Tenant will be
obligated to have such clause in its policy.
8.5. Liability of parties. Except if and to the extent that such party is
released from liability to the other party hereto pursuant to the provisions of
subsection 8.4,
8.5.1. the Landlord (a) shall be responsible for, and shall defend, indemnify
and hold harmless the Tenant against and from any and all liability or claim of
liability arising out of, any injury to or death of any person or damage to any
property, occurring anywhere upon the Property, if, only if and to the extent
that such injury, death or damage is proximately caused by the negligent or
intentionally tortious act or omission of the Landlord or its agents, officers
or employees, but {(b) shall not be responsible for or be obligated to defend,
indemnify or hold harmless the Tenant against or from any liability for any such
injury, death or damage occurring anywhere upon the {'3roperty (including the
Premises), (i) by reason of the Tenant's occupancy or use of the Premises
or any other portion of the Property, or {(ii) because of fire, windstorm, act
of God or other cause unless proximately caused by such negligent or
intentionally tortious act or omission of the Landlord, as aforesaid; and
8.5.2. excluding those situations in which the Landlord is obligated to
indemnify and hold harmless the Tenant under the provisions of paragraph 8.5.1,
the Tenant shall be responsible for, and shall defend, indemnify and hold
harmless the Landlord against and from, any and all liability or claim of
liability arising out of(a) the use, occupancy, conduct, operation or management
of the Premises during the Term, or {(b) any work or thing whatsoever done or
not done on the Premises during the Term, or {(c) any breach or default by the
Tenant in performing any of its obligations under the provisions of this Lease
or applicable law, or (d) any negligent, intentionally tortious or other act or
omission of the Tenant or any of its agents, contractors, servants, employees,
subtenants, licensees or invitees during the Term, or (e) any injury to or death
of any person or damage to any property occurring on the Premises during the
Term.
Section 9. Improvements to Premises.
9.1. By Landlord.
Landlord, at its cost, will buildout the Premises with building standard
material and within the specifications as outlined in Exhibit A.
9.2. Acceptance of Possession. Except for (a) latent defects or incomplete work
which would not reasonably have been revealed by an inspection of the Premises
made for the purpose of discovering the same when the Landlord delivers
possession of the Premises to the Tenant, and {(b) any other item of incomplete
work set forth on a "punch list" {prepared by the Tenant and approved in writing
by the Landlord before such delivery of possession, by its assumption of
possession of the Premises the Tenant shall for all purposes of the provisions
of this Lease be deemed to have accepted them and to have acknowledged them to
be in the condition called for hereunder.
9.3. By Tenant. The Tenant shall not make any alteration, addition or
improvement to the Premises without first obtaining the Landlord's written
<PAGE>
consent thereto and to the identity of the contractor or other person
who would make the same which, in the case of non-structural alterations,
additions and improvements only, shall not unreasonably be withheld. If the
Landlord consents to any such proposed alteration, addition or improvement,
it shall be made at the Tenant's sole expense and the Tenant shall hold the
Landlord harmless from any cost incurred on account thereof, and at such time
and in such manner as not unreasonably to interfere with the use and enjoyment
of the remainder of the Property by any tenant thereof or other person.
9.4. Mechanics' liens. The Tenant shall (a) immediately after it is filed or
claimed, have released by bonding or otherwise any mechanics', materialman's or
other lien filed or claimed against any or all of the Premises,
the Property, or any other property owned or leased by the Landlord, by reason
of labor or materials provided for the Tenant or any of its contractors or
subcontractors (other than labor or materials provided by the Landlord
pursuant to the provisions of this Lease), or otherwise arising out of the
Tenant's use or occupancy of the Premises or any other portion of the Property,
and {(b) defend, indemnify and hold harmless the Landlord against and from
any and all liability, claim of liability or expense including, by way of
example rather than of limitation, that of reasonable attorneys' fees incurred
by the Landlord on account of any such lien or claim.
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<PAGE>
9.5. Fixtures. Any and all improvements, repairs, alterations and all other
property attached to or otherwise installed as a fixture within the Premises by
the Landlord or the Tenant shall, immediately on the completion of their
installation, become the Landlord's property without payment therefor by the
Landlord, except that any machinery, equipment or fixtures installed by the
Tenant at no expense to the Landlord and used in the conduct of the Tenant's
trade or business rather than to service the Premises or any of the remainder of
the Building or the Property generally shall remain the Tenant's property, and
shall be removed by the Tenant at the end of the Term.
9.6. Materials Used Any improvements made to the Premises by either party hereto
shall be made only in a good and workmanlike manner, using new, first-class
materials.
Section 10. Maintenance and Services.
10.1. Janitorial and Trash Removal.
IO. 1. 1. The Landlord shall provide janitorial service and trash removal
service. Landlord shall strip the production area floor on a quarterly basis.
Tenant will be responsible for the cost of its trash dumpster.
10.2. Maintenance by Tenant. The Tenant shall maintain the {nonstructural
parts of the interior of the Premises in good repair and condition,
ordinary wear and tear excepted. Tenant shall also be responsible for
the care and cleaning of its production room floor.
10.3. Maintenance by Landlord. The Landlord shall {furnish, supply and
maintain in good order and repair (a) the roof, structure and
remainder of the exterior of the Building, {(b) any and all hallways,
stairways,
lobbies, elevators, sanitary sewer and water lines and facilities, {restroom
facilities, grounds, sidewalks (including the removal of snow from such
sidewalks), {(c) the plumbing, electrical and HVAC systems within the Building
including the Premises and other common areas, all if located within the
Building or the rest of the Property but not within the Premises unless stated
otherwise in the Lease, all at the Landlord's expense except for so much of such
expense as is to be borne by the Tenant under the provisions of Section 4.1.5.
or any other provision of this Lease.
Section I 1. Landlord's right of entry.
With reasonable notice except in the case of bona fide emergencies the Landlord
and its agents shall be entitled to enter the Premises at any time during the
Tenant's business hours and at any other reasonable time (a) to inspect the
Premises, {(b) to exhibit the Premises to any existing or prospective purchaser,
tenant or Mortgagee thereof, {(c) to make any alterations improvement or repair
to the Building or the Premises, or {(d) for any other purpose relating to the
operation or maintenance of the Property; provided, that the Landlord use
reasonable efforts to avoid thereby interfering more than is reasonably
necessary with the Tenant's use and enjoyment thereof.
Section 12. Fire and other casualties.
12.1. General. If the Premises are damaged by fire or other casualty during
the Term,
12.1.1. the Landlord shall restore the Premises with reasonable promptness
taking into account the time required by the Landlord to effect a settlement
with, and to procure any insurance proceeds from, any insurer against such
casualty, but in any event within one hundred eighty (I 80) days after the date
of such casualty to substantially the condition of the Premises immediately
before such casualty, and may temporarily enter and possess any or all of the
Premises for such purpose provided, that the Landlord shall not be obligated to
repair, restore or replace any fixture, improvement, alteration, furniture or
other property owned, installed or made by the Tenant, but
12.1.2. the times for commencement and completion of any such restoration shall
be extended for the period not longer than sixty (60) days of any delay
occasioned by the Landlord in doing so arising out of any of the causes
enumerated in the provisions of subsection 9. 1. If the Landlord undertakes to
restore the Premises and such restoration is not accomplished within the said
period of one hundred eighty (180) days plus the period of any extension
thereof, as aforesaid, the Tenant may terminate this Lease by giving written
notice thereof to the Landlord within thirty (30) days after the expiration of
such period, as so extended; and 12.1.3. so long as the Tenant is deprived of
the use of any or all of the Premises on account of such casualty, the Base Rent
<PAGE>
and any Additional Rent payable under the provisions of subsection 4.1.4 shall
be abated in proportion to the number of square feet of the Premises rendered
substantially unfit for occupancy by such casualty, unless, because of any such
damage, the undamaged portion of the Premises is made materially unsuitable
for use by the Tenant for the purposes set forth in the provisions of Section 5,
in which event the Base Rent and any such Additional Rent shall be abated
entirely during such period of deprivation.
12.2. Substantial destruction. Anything contained in the foregoing
provisions of this Section to the contrary notwithstanding,
12.2.1. if during the Term the Building is so damaged by fire or other casualty
that (a)either the
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<PAGE>
Premises or (whether or not the Premises are damaged) the Building are rendered
substantially unfit for occupancy, as reasonably determined by the Landlord, or
{(b) the Building is damaged to the extent that the Landlord reasonably elects
to demolish the Building, or if any Mortgagee requires that any or all of such
insurance proceeds be used to retire any or all of the debt secured by its
Mortgage, then in any such case the Landlord may elect to terminate this Lease
as of the date of such casualty, by giving written notice thereof to the Tenant
within thirty (30) days after such date; and
12.2.2. in such event, (a) the Tenant shall pay to the Landlord the Base Rent
and any Additional Rent payable by the Tenant hereunder and accrued through the
date of such termination, (b) the Landlord shall repay to the Tenant any and all
prepaid Rent for periods beyond such termination, and (c) the Landlord may enter
upon and repossess the Premises without further notice.
12.3. Tenant's negligence. Anything contained in any provision of this Lease to
the contrary notwithstanding, if any such damage to the Premises, the Building
or both are caused by or result from the negligent or intentionally tortious act
or omission of the Tenant, those claiming under the Tenant or any of their
respective officers, employees, agents or invitees, (a) the Rent shall not be
suspended or apportioned as aforesaid, and (b) except if and to the extent that
the Tenant is released from liability therefor pursuant to the provisions of
subsection 8.4, the Tenant shall pay to the Landlord upon demand, as Additional
Rent, the cost of (i) any repairs and restoration made or to be made as a result
of such damage.
Section 13. Condemnation.
13.1. Right to award.
13.1.1. If any or all of the Premises or the remainder of the Property are taken
by the exercise of any power of eminent domain or are conveyed to or at the
direction of any governmental entity under a threat of any such taking (each of
which is hereinafter referred to as a "Condemnation"), the Landlord shall be
entitled to collect from the condemning authority thereunder the entire amount
of any award made in any such proceeding or as consideration for such
conveyance, without deduction therefrom for any {leasehold or other estate or
right held by the Tenant under this Lease.
13.1.2. The Tenant hereby (a) assigns to the Landlord all of the Tenant's right,
title and interest, if any, in and to any such award; {(b) waives any right
which it may otherwise have in connection with such Condemnation, against the
Landlord or such condemning authority, to any payment for (i) the value of the
then- unexpired portion of the Term, (ii) {leasehold damages, and (iii) any
damage to or diminution of the value of the Tenant's {leasehold interest
hereunder or any portion of the Premises not covered by such Condemnation and
(c) agrees to execute any and all further documents which may be required to
facilitate the Landlord's collection of any and all such awards.
13.1.3. Subject to the operation and effect of the foregoing provisions of this
Section, the Tenant may seek, in a separate proceeding, a separate award on
account of any damages or costs incurred by the Tenant as a result of any
Condemnation of any or all of the Premises, so long as such separate award in no
way diminishes any award or payment which the Landlord would otherwise receive
as a result of such Condemnation.
13.2. Effect of Condemnation.
13.2. 1. If (a) all of the Premises are covered by a Condemnation, or {(b) any
part of the Premises is covered by a Condemnation and the remainder thereof is
insufficient for the reasonable operation therein of the Tenant's business, or
{(c) any of the Building is covered by a Condemnation and, in the Landlord's
reasonable opinion, it would be impractical to restore the remainder thereof, or
{(d) any of the rest of the Property is covered by a Condemnation and, in the
Landlord's reasonable opinion, it would be impractical to continue to operate
the remainder of the Property thereafter, then, in any such event, the Term
shall terminate on the date on which possession of so much of the Premises, the
Building or the rest of the Property, as the case may be, as is covered
by such Condemnation is taken by the condemning authority thereunder, and all
Rent (including, by way of example rather than of limitation, any Additional
Rent payable under the provisions of subsection 4.1.4, taxes and other
charges payable hereunder shall be apportioned and paid to such date.
<PAGE>
13.2.2. If there is a Condemnation and the Term does not terminate pursuant to
the foregoing provisions of this subsection, the operation and effect of this
Lease shall be unaffected by such Condemnation, except that the Base Rent and
any Additional Rent payable under the provisions of subsection 4.1.4 shall be
reduced in proportion to the square footage of floor area, if any, of the
Premises covered by such Condemnation.
13.3. If there is a Condemnation, the Landlord shall have no liability to the
Tenant on account of any (a) interruption of the Tenant's business upon the
Premises, {(b) diminution in the Tenant's ability to use the Premises, or {(c)
other injury or damage sustained by the Tenant as a result of such Condemnation.
13.4. Except for any separate proceeding brought by the Tenant under the
provisions of paragraph 13.1.3, the Landlord shall be entitled to conduct any
such condemnation proceeding and any settlement thereof free of interference
from the Tenant, and the Tenant hereby waives any right which it otherwise has
to participate therein.
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<PAGE>
Section 14. {Assignment and subletting.
a) Tenant shall not assign its interest in nor sublet the Premises in whole or
in part without the Landlord's prior written consent first had and obtained,
which consent shall not be unreasonably withheld. In the event the Premises are
sublet or assigned, Tenant shall continue to be and remain liable to the
Landlord for the performance of all it its obligations, covenants and conditions
of this Lease, notwithstanding the fact that the assignment or subletting is
made with the Landlord's consent. Any assignment or sale under execution or
other legal process or by virtue of bankruptcy or insolvency not in the ordinary
course of business, or the appointment of a trustee or a receiver, voluntarily
or involuntarily, by operation of law or otherwise, shall be deemed an
assignment within the meaning of this section. Notwithstanding the foregoing,
Tenant shall have the right to assign this Lease or any of its rights hereunder
or sublease any or all of the Premises to any subsidiary, affiliate or related
company of the Tenant without the consent of the Landlord.
{b) Tenant shall pay to Landlord, all reasonable costs and expenses, including
reasonable attorney's fees incurred by Landlord, in connection with any
subleasing of the Premises or any part thereof or any assignment of
this Lease by the Tenant, such subletting or assignment being subject to the
prior written consent of the Landlord as {hereinabove provided. In the event
Landlord gives Tenant consent for subleasing of the Premises or assignment
of this Lease, that consent shall not be considered as consent to any future
assignment or subletting.
{c) In the event Tenant assigns this Lease or any of its rights hereunder or
subleases any or all of the Premises, and Landlord consents to such assignment
or sublease, Tenant shall furnish to Landlord as part of said consent request
the proposed terms of the assignment of sublease. In the event that the amount
of base rent received by Tenant as Sublessor or Assignor is greater than the
Base Rent paid by Tenant under Section 4 hereunder, such amount above the base
rental payments and additional rent shall be shared equally between Landlord and
Tenant after deducting any marketing or Tenant Improvement costs incurred by
Tenant. Such sum is due Landlord (1) in the event of a sum paid Tenant for its
rights under this Lease, immediately at the commencement of such assignment of
sublease; or (2) payable monthly on the same date the Base Rent under this Lease
is due.
Section 15. Subordination; attornment and non-disturbance.
15.1. Subordination. This Lease shall be subject and subordinate to the
lien, operation and effect of each mortgage, deed of trust, ground lease and/or
other, similar instrument of encumbrance now or at any time hereafter
during the Term covering any or all of the Premises or the remainder of the
Property and each renewal, modification, consolidation, replacement or extension
thereof (each of which is herein referred to as a "Mortgage"), all auto-
matically and without the necessity of any action by either party hereto.
15.2. {Attornment and non-disturbance. The Tenant shall, promptly after receipt
of written notice provided in accordance with Lease Section 19 containing the
request of the Landlord or the holder of any Mortgage (herein
referred to as a "Mortgagee"), execute, seal, acknowledge and deliver such
further instrument or instruments
15.2.1. evidencing such subordination as the Landlord or such Mortgagee deems
necessary or desirable, and
15.2.2. at such Mortgagee's request attorning to such Mortgagee, provided that
such Mortgagee agrees with the Tenant that such Mortgagee will, in the event of
a foreclosure of any such mortgage or deed of trust or termination of any such
ground lease take no action to interfere with the Tenant's rights hereunder,
except on the occurrence of an Event of Default.
15.3. Anything contained in the provisions of this Section to the contrary
notwithstanding, any Mortgagee may at any time subordinate the lien of its
Mortgage to the operation and effect of this Lease without obtaining the
Tenant's consent thereto, by giving the Tenant written notice thereof, in which
event this Lease shall be deemed to be senior to such Mortgage without regard to
their respective dates of execution, delivery and/or recordation among
the Land Records of the said County, and thereafter such Mortgagee shall have
the same rights as to this Lease as it would have had, were this Lease executed
<PAGE>
and delivered before the execution of such Mortgage.
Section 16. Default.
16.1. Definition: As used in the provisions of this Lease, each of the following
events shall constitute, and is hereinafter referred to as, an "Event of
Default":
16.1.1. If the Tenant fails to (a) pay any Rent or any other sum which it is
obligated to pay by any provision of this Lease, when and as due and payable
hereunder and without demand therefor, or {(b) perform any of its other
obligations under the provisions of this Lease; or 16.1.2. if the Tenant (a)
applies for or consents to the appointment of a receiver, trustee or
liquidator of the Tenant or of all or a substantial part of its assets, (b)
files a voluntary petition in bankruptcy or admits in writing its inability to
pay its debts as they come due, (c) makes an assignment for the benefit of its
creditors, (d) files a petition or an answer seeking a reorganization or an
arrangement with creditors, or seeks to take advantage of any insolvency law,
(e) performs any other act of bankruptcy, or (f) files an answer admitting the
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material allegations of a petition filed against the Tenant in any bankruptcy,
reorganization or insolvency proceeding; or
16.1.3. if (a) an order, judgment or decree is entered by any court of competent
jurisdiction adjudicating the Tenant a bankrupt or an insolvent, approving a
petition seeking such a reorganization, or appointing a receiver, trustee or
liquidator of the Tenant or of all or a substantial part of its assets, or {(b)
there otherwise commences as to {the Tenant or any of its assets any proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment,
receivership or similar law, and if such order, judgment, decree or proceeding
continues unstayed for more than sixty (60) consecutive days after any stay
thereof expires; or
16.2. Notice to Tenant; grace period. Anything contained in the provisions of
this Section to the contrary notwithstanding, on the occurrence of an Event of
Default the Landlord shall not exercise any right or remedy on account thereof
which it holds under any provision of this Lease or applicable law unless and
until
16.2.1. the Landlord has given written notice thereof to the Tenant, and
16.2.2. the Tenant has failed, (a) if such Event of Default consists of a
failure to pay money, within ten (1O) days thereafter to pay all of such money,
or (b) if such Event of Default consists of something other than a failure to
pay money, within thirty (30) days thereafter to cure such Event of Default or,
if and only if such Event of Default is not reasonably curable within such
period of thirty (30) days, to proceed within such period actively, diligently
and in good faith to begin to cure such Event of Default and to continue
thereafter to do so until it is fully cured.
16.2.3. No such notice shall be required to be given, and even if the Landlord
gives such notice the Tenant shall be entitled to no such grace period, (i) in
any emergency situation in which, in the Landlord's reasonable judgment, it is
necessary for the Landlord to act to cure such Event of Default without giving
such notice, or (ii) more than twice during any twelve (12) month period.
16.3. Landord's rights on Event of Default.
16.3.1. On the occurrence of any Event of Default ,the Landord may subject to
the operation and effect of the provisions of subsection 16.2 take any or all of
the following actions:
(a) reenter and repossess any or all of the Premises and any or all
improvements thereon and additions thereto; and/or
(b) terminate this Lease by giving written notice of such termination to the
Tenant, which termination shall be effective as of the date of such notice or
any later date therefor specified by the Landlord therein provided, {that
without limiting the generality of the foregoing provisions of this subparagraph
16.3. 1(c), the Landlord shall not be deemed to have accepted any abandonment or
surrender by the Tenant of any or all of the Premises or the Tenant's leasehold
estate under this Lease unless the Landlord has so advised the Tenant expressly
and in writing, regardless of whether the Landlord has reentered or relet any or
all of the Premises or exercised any or all of the Landlord's other rights under
the provisions of this Section or applicable law; and/or
(c) in the Landlord's own name but either (i) as agent for the Tenant, if this
Lease has not then been terminated, or (ii) on the Landlord's own behalf, if
this Lease has then been terminated, relet any or all of the Premises with or
without any additional premises, for any or all of the remainder of the Term or,
if this Lease has then been terminated, for any or all of the period which
would, but for such termination, have constituted the remainder of the Term or
for a period exceeding such remainder, on such terms and subject to such
conditions as are acceptable to the Landlord in its sole and absolute discretion
including, by way of example rather than of limitation, the alteration of any or
all of the Premises in any manner which, in the Landlord's judgment, is
necessary or desirable as a condition to or otherwise in connection with such
reletting, and the allowance of one or more concessions or "free-rent" or
reduced-rent periods, and collect and receive the rents therefor. Anything
contained in the provisions of this Lease or applicable law to the contrary
notwithstanding, (1) the Landlord shall not have any duty or obligation to
{relet any or all of the Premises as the result of any Event of Default, or any
liability to the Tenant or any other person for any failure to do so or to
<PAGE>
collect any rent or other sum due from any such reletting;
(ii) the Tenant shall have no right in or to any surplus which may be derived by
the Landlord from any such {reletting, in the event that the proceeds of such
{reletting exceed any Rent, installment thereof or other sum owed by
the Tenant to the Landlord hereunder; and, (iii) the Tenant's liability
hereunder shall not be diminished or affected by any such failure to relet or
the giving of any such initial or other concessions or "free-rent" or reduced
rent period in the event of any such reletting. In such event, the Tenant shall
pay to the Landlord, at the times and in the manner specified by the provisions
of Section 2, both (i) the installments of the Base Rent and any Additional Rent
accruing during such remainder or, if this Lease has then been terminated,
damages equaling the respective amounts of such installments of the Base Rent
and any Additional Rent which would have accrued during such remainder,
had this Lease not been terminated, less any monies received by the Landlord
with respect to such remainder from such reletting of any or all of the
Premises, plus {(ii) the cost to the Landlord of any such reletting (including,
by way
<PAGE>
of example rather than of limitation, any attorneys' fees, leasing or brokerage
commissions, repair or improvement expenses and the expense of any other actions
taken in connection with such reletting), plus (iii) any other sums for which
the Tenant is liable under the provisions of paragraph 16.3 and the Tenant
hereby waives any and all rights which it may have under applicable law, the
exercise of which would be inconsistent with the foregoing provisions
of this subparagraph 16.3.I(d); and/or
(d) cure such Event of Default in any other manner; and/or
(e) pursue any combination of such remedies and/or any other right or remedy
available to the Landlord on account of such Event of Default under this Lease
and/or at law or in equity.
(f) collect entire amount of rent due for the remainder of the lease term at
time of default.
16.3.2. No such expiration or termination of this Lease, or summary proceedings,
abandonment or vacancy, shall relieve the Tenant of any of its liabilities and
obligations under this Lease (whether or not any or all of the Premises are
relet); accordingly, in any such event the Tenant shall pay to the Landlord the
Rent and all other charges required to be paid by Tenant up to the time of such
event, and thereafter
(a) at any time after the expiration or termination of this Lease pursuant to
this Section 16, in lieu of collecting any further monthly installments, as
aforesaid, the Landlord shall be entitled to recover from the Tenant, and the
Tenant shall pay to the Landlord, on demand, damages computed in the manner
set forth in clause (i) of subparagraph 16.3.2(b), minus the amount of any such
monthly installments previously recovered from the Tenant; and
(b) in the case of any Event of Default under the provisions of paragraphs
16.1.2 or 16.1.3, the Landlord shall immediately and automatically, without the
necessity of notice or other action by the Landlord, become entitled to recover
from the Tenant as damages for such breach, in addition to any damages or
other payments becoming due from the Tenant under any other provision of this
Lease, an amount equaling the difference between the Base Rent and the
Additional Rent reserved in this Lease from the date of such breach to the
date of the expiration of the Term and the then-fair and reasonable rental value
of the Premises for the same period. Such damages shall become due and payable
to the Landlord immediately upon the occurrence of such Event of Default and
without regard to whether or, if so, how this Lease is terminated.
16.3.3. Each party hereto hereby waives any right which it may otherwise have at
law or in equity to a trial by jury in connection with any suit or proceeding at
law or in equity brought by the other against the waiving party or which
otherwise relates to this Lease, as a result of an Event of Default or
otherwise.
16.4. Default by Landlord. If the Landlord violates any of its obligations under
the provisions of this Lease, the Tenant may (subject to the operation and
effect of the provisions of paragraph 4.2.3, requiring the Tenant to pay all
Rent when due, without deduction or set-off whatsoever) exercise any right or
remedy which it holds on account thereof hereunder, at law or in equity;
provided, that if any or all of the Premises is then subject to any first
Mortgage, the Tenant shall not exercise any of its rights or remedies on account
thereof unless and until it has given written notice of its intention to do so,
by certified or registered mail, return receipt requested, to the Mortgagee
under such first Mortgage, specifying therein the nature of such default in
reasonable detail, and unless such Mortgagee has not cured such default on the
Landlord's behalf within thirty (30) days after such notice is given.
See Rider 8
Section 17. Estoppel certificate.
The Tenant shall from time to time, within ten (10) days after being requested
to do so by written notice provided in accordance with Lease Section 19, by the
Landlord or any Mortgagee, execute, enseal, acknowledge and
deliver to the Landlord or, at the Landlord's request, to any existing or
prospective purchaser, transferee, assignee or Mortgagee of any or all of the
Premises, the Property, any interest therein or any of the Landlord's rights
under this Lease an instrument in recordable form,
17.1. certifying (a) that this Lease is unmodified and in full force and effect
or, if there has been any modification thereof, that it is in full force
<PAGE>
and effect as so modified, stating therein the nature of such modification;
(b) as to the dates to which the Base Rent and any Additional Rent and other
charges arising hereunder have been paid; (c) as to the amount of any prepaid
Rent or any credit due to the Tenant hereunder; (d) that the Tenant has accepted
possession of the Premises, and the date on which the Term commenced; (e) as to
whether, to the best knowledge, information and belief of the signer of such
certificate, the Landlord or the Tenant is then in default in performing any of
its obligations hereunder and, if so, specifying the nature of each such
default; and (f) as to any other fact or condition reasonably requested by the
Landlord or such other addressee; and
17.2. acknowledging and agreeing that any statement contained in such
certificate may be relied upon by the Landlord and any such other addressee.
-12-
<PAGE>
Section 18. Quiet enjoyment.
The Landlord hereby covenants that the Tenant, on paying the Rent and performing
the covenants set forth herein, shall peaceably and quietly hold and enjoy,
throughout the Term, (a) the Premises, and {(b) such rights as the Tenant may
hold hereunder with respect to the remainder of the Property. Nothing in the
provisions of this Lease shall be deemed to impose upon the Landlord any
liability on account of any act or failure to act by any person other than the
Landlord or, where expressly so provided herein, the Landlord's agents and
employees.
Section 19. Intentionally Omitted
Section 20. Notices.
Any notice, demand, consent, approval, request or other communication or
document to be provided hereunder to a party hereto shall be (a) in writing, and
(b) deemed to have been provided (i)(1) forty-eight (48) hours after being sent
as certified or registered mail in the United States mails, postage prepaid,
return receipt requested, or (2) thy next business day after having been
deposited in time for delivery by such service on such business day with Federal
Express or another national courier service, or (3) if such party's receipt
thereof is acknowledged in writing upon having been sent by {telefax or another
means of immediate electronic communication, in each case to the address of such
party set forth hereinabove or to such other address in the United States of
America as such party may designate from time to time by notice to each other
party hereto, or (ii) upon being given by hand or other actual delivery with a
written acknowledgement of receipt to such party. See Rider 14
Section 21. General.
21.1. Effectiveness. This Lease shall become effective upon and only upon its
execution and delivery by each party hereto.
21.2. Complete understanding. This Lease represents the complete understanding
between the parties hereto as to the subject matter hereof, and supersedes all
prior written or oral negotiations, representations, warranties, statements or
agreements between the parties hereto as to the same. No inducements,
representations, understandings or agreements have been made or relied upon in
the making of this Lease, except those specifically set forth in the provisions
of this Lease. Neither party hereto has any right to rely on any other prior or
contemporaneous representation made by anyone concerning this Lease which is not
set forth herein.
21.3. Amendment. This Lease may be amended by and only by an instrument executed
and delivered by each party hereto.
21.4. Applicable law. This Lease shall be given effect and construed by
application of the law of Maryland, and any action or proceeding arising
hereunder shall be brought in the courts of Maryland; provided, that
if such action or proceeding arises under the Constitution, laws or treaties of
the United States of America, or if there is a diversity of citizenship between
the parties thereto, so that it is to be brought in a United States District
Court, it shall be brought in the United States District Court for the District
of Maryland or any successor federal court having original jurisdiction.
21.5. Waiver. The Landlord shall not be deemed to have waived the exercise of
any right which it holds hereunder unless such waiver is made expressly and in
writing (and no delay or omission by the Landlord in exercising any such right
shall be deemed a waiver of its future exercise). No such waiver made as to any
instance involving the exercise of any such right shall be deemed a waiver as to
any other such instance, or any other such right. Without limiting the
generality of the foregoing, no action taken or not taken by the Landlord under
the provisions of this Section or any other provision of this Lease including,
by way of example rather than of limitation, the Landlord's acceptance of the
payment of Rent after the occurrence of any Event of Default shall operate as a
waiver of any right to be paid a late charge or of any other right or remedy
which the Landlord would otherwise have against the Tenant on account of such
Event of Default under the provisions of this Lease or applicable law
the Tenant hereby acknowledging that, in the interest of maintenance of good
relations between the Landlord and the Tenant, there may be instances in which
the Landlord chooses not immediately to exercise some or all of its rights on
the occurrence of an Event of Default.
21.6. Time of essence. Time shall be of the essence of this Lease.
<PAGE>
21.7. Headings. The headings of the Sections, subsections, paragraphs and
{subparagraphs hereof are provided herein for and only for convenience of
reference, and shall not be considered in construing their contents.
21.8. Definitions. As used herein, (a) the term "person" means a natural
person, a trustee, a corporation, a partnership and any other form of legal
entity; and (b) all references made (i) in the neuter, masculine or feminine
gender shall be deemed to have been made in all such genders, (ii) in the
singular or plural number shall be deemed to have been made, respectively, in
the plural or singular number as well, and (iii) to any Section, subsection,
paragraph or subparagraph shall, unless therein expressly indicated to the
contrary, be deemed to have been made to such Section, subsection, paragraph or
subparagraph of this Lease.
-13-
<PAGE>
21.9. Exhibits. Each writing or plat referred to herein as being attached
hereto as an exhibit or otherwise designated herein as an exhibit hereto is
hereby made a part hereof
21.10. Severability. No determination by any court, governmental body or
otherwise that any provision of this Lease or any amendment hereof is invalid or
unenforceable in any instance shall affect the validity or enforceability of (a)
any other such provision, or (b) such provision in any circumstance not
controlled by such determination. Each such provision shall be valid and
enforceable to the fullest extent allowed by, and shall be construed wherever
possible as being consistent with, applicable law.
21.1 1. Definition of "the Tenant". As used herein, the term "the Tenant" means
each person hereinabove named as such and such person's heirs, personal
representatives, successors and assigns, each of whom shall have the same
obligations, liabilities, rights and privileges as it would have possessed had
it originally executed this Lease as the Tenant; provided, that no such right or
privilege shall inure to the benefit of any assignee of the Tenant, immediate or
remote, unless the assignment to such assignee is made in accordance with the
provisions of Section 1O. Whenever two or more persons constitute the Tenant,
all such persons shall be jointly and severally liable for performing the
Tenant's obligations hereunder.
Section 22. Deliveries. Tenant agrees to use the freight elevator located on
the north side of the building for all of its paper good deliveries.
Section 23. Expansion Option. Tenant is granted a Right of First Refusal for
the remaining space as outlined in Exhibit B. In this event, Landlord agrees to
notify Furman Wood of the potential leaseup of the remaining space
on the second floor of 22 Light Street. In the event Tenant is interested in
leasing the remaining space on the second floor, then Furman Wood must notify
Landlord within 5 business days, via certified mail, of its intent to lease the
space at its current terms as stipulated in this lease. As far as buildout is
concerned, Landlord will fully buildout the additional space if the space is
leased by Tenant no later than January 1, 2001.
Section 24. Miscellaneous. From time to time, the Tenant may seek to refinance
the certain obligations of the Tenant existing as of the date hereof. In this
regard, Tenant may ask a lender or lenders (the "Lenders") to provide
refinancing for the Tenant, which refinancing may be secured, among other
things, all of Tenant's equipment set forth in Exhibit {C attached hereto,
together with all accessions to, products of and proceeds thereof (collectively
the "Collateral"). Future Landlord's waiver shall not be unreasonably withheld
for pieces of equipment which cost in excess of $50,000.
Any Landlord's lien, right of distraint or levy or security interest which the
Landlord may now or hereafter acquire in any of the Collateral for unpaid rent
or otherwise, whether by virtue of a lease, landlord-tenant relationship, statue
or otherwise shall be subordinated Collateral now or hereafter held by the
Lenders.
(Signature page follows on page 15)
-14-
<PAGE>
IN WITNESS WHEREOF, each party hereto has executed and ensealed this Lease or
caused it to be executed and ensealed on its behalf by its duly authorized
representatives, the day and year first above written.
WITNESS or ATTEST:
(SEAL)
/s/ Anthony Kopsidas, Executive Vice President
On-Site Sourcing Inc.
By: (SEAL
Landlord
/s/ Ira J. Miller
Managing Member
22 Light Street, LLC
As condition to entering into this Lease Agreement, On-Site Sourcing, Inc. has
agreed to guarantee the full and timely payment of all monies due to Landlord as
stipulated in this Lease.
STATE OF Maryland
CITY/COUNT OF I HEREBY CERTIFY that on this 22,day of August 1997,
before me the undersigned officer, personally appeared who acknowledged
himself/herself to be the VP Finance of On-Site Sourcing, Inc., and that he, in
such capacity, being authorized to executed the foregoing instrument for the
purposes therein contained, by signing his/her name as Joseph Sciacca of On-Site
Sourcing, Inc.
IN WITNESS WHEREOF, I hereunto set my hand and Notarial Seal.
Andra Touloumes
Notary Public
My Commission expires:
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF LEASE
THIS {FIR$T AMENDMENT TO AGREEMENT OF LEASE ("Amendment") is made as
of February 12th 1998 by and between 22 LIGHT STREET, {LLC A Maryland Limited
Liability Company (the "Landlord") and On-Site Sourcing, Inc. and each of their
successors and assigns ("Tenant").
RECITAILS
R.1. By that Agreement of Lease dated August 25, 1997 (the "Original Lease"),
the Landlord leased to the Tenant and the Tenant leased from the Landlord
certain space in a building with an address at 22 Light Street, Baltimore,
Maryland ("Building"). Terms defined in the Original Lease have the same meaning
in this Amendment, unless otherwise noted.
R.2. Landlord and Tenant desire to amend the terms and conditions of the
Original Lease to reflect an expansion of the Premises on the second floor of
the Building.
NOW, THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and sufficiency of which is mutually
acknowledged, the parties agree as follows:
I . Recitals. All of the above-referenced Recitals are incorporated into
and made a substantive part hereof.
2. Definitions. Unless otherwise defined herein, all capitalized terms
herein shall have the meaning set forth in the Original Lease.
3 . Modification of Original Lease. The Original Lease is hereby amended as
follows:
a. 2. 1. 1. Original Term. The lease term is hereby amended whereas the
entire Premises (the Original Premises and Additional Premises) shall run in
full force and effect through February 14, 2008. February 14, 2008 is the
termination date.
{b. The rentable square feet of floor area of the Premises is increased by an
additional 3,190 rentable square feet ("Additional Space" ) of floor area on the
second floor of the Building, and any reference in the Original Lease to 5,079
rentable square feet of floor area is hereby deleted and replaced with 8,269
rentable square feet of floor area. Anyreference in the Original Lease to
Tenant's Operating Cost Percentage or to 11.7% shall hereafter mean 19.1%
d. Occupancy of Additional Space: Tenant may occupy the Additional Space the
sooner of {i) 45 days after completion of construction documents or {ii) at such
time space is complete.
I
<PAGE>
e. Section 4. 1.1 of the Original Lease is deleted in its entirety and
replaced with the following:
4.1.1 Base Rent. Annual base rent (hereinafter referred to as "the Base Rent")
shall be payable by Tenant to Landlord as follows:
Monthly Payment Annual Payment
{2/l/98 - 2/28/98 $4,375.00
{3/l/98 - 3/31/98 $4,375.00
{4/l/98 - 4/30/98 $4,375.00
{5/l/98 - 5/31/98 $4,375.00
{6/l/98 - 6/30/98 $4,375.00
{7/l/98 - 7/31/98 $4,375.00
{8/l/98 - 8/31/98 $8,362.50
{9/l/98 - 9/30/98 $9,444.61
{10/l/98 - 10/31/98 $10,526.71
Year 2 of the Lease
(November 1, 1998 -
October 31, 1999): $10,646.34 $127,756.05
Years 3 through 10 shall each commence on November 1 of the respective year and
the annual rental payment (paid on a monthly basis) shall increase 3% annually
beginning in year 3.
The above stated monthly rental payment shall be paid in accordance with Section
4.2 of the Original Lease.
f. Section 6 of the Original Lease is deleted in its entirety and replaced with
the following:
Section 6 Tenant's Proportionate Share
For calculation purposes of any increase in Operating Expenses and Real Estate
Taxes, the Tenant's proportionate share of office space leased is 19.1% of the
entire office area. Such determination is calculated based on Tenant's rentable
square footage (8,269 square feet) divided by the total rentable square footage
of office space on floors 2-6 which is 43,320 square feet.
9. Tenant Improvements: Landlord will buildout the Expansion Premises with
similar materials and workmanship as that of the Original Premises. Landlord's
scope of work is maintaining the configuration of all existing offices already
existing in the Additional Premises, installing new ceiling tile and lighting,
installing new flooring and paint the entire Additional Premises. Additionally,
if requested by Tenant, Landlord will demolish or modify the existing wall
which is adjacent to Tenant's Original Premises to allow for contiguous space.
I
<PAGE>
4. General. Any references in the Original Lease to the "Lease" or the
"Agreement" shall be deemed to include the Original Lease as modified hereby.
Except as modified hereby, all terms and conditions of the Lease shall continue
in full force and effect.
IN WITNESS WHEREOF, each party hereto as executed and ensealed this First
Amendment to Agreement of Lease or caused it to be executed and ensealed on its
behalf by its duly authorized representatives, the day and year first written
above.
WITNESS or ATTEST:
By:
/s/ Anthony Kopsidas
Tenant
- -Site Sourcing, Inc
By: SEAL
Landlord
22 Light Street, LLC
/s/ Ira J. Miller
Managing Member
As condition to entering into this Lease Amendment, On-Site Sourcing, Inc. has
agreed to guarantee the full and timely payment of all monies due to Landlord as
stipulated in this Lease.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,490,702
<SECURITIES> 0
<RECEIVABLES> 5,921,063
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,046,204
<PP&E> 4,069,097
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,239,083
<CURRENT-LIABILITIES> 3,468,759
<BONDS> 0
0
0
<COMMON> 48,022
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,239,083
<SALES> 21,138,948
<TOTAL-REVENUES> 21,138,948
<CGS> 15,293,167
<TOTAL-COSTS> 19,921,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,938
<INCOME-PRETAX> 1,272,255
<INCOME-TAX> 551,182
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 721,073
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
