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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _______
Commission file number 0-22554
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OPINION RESEARCH CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-3118960
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
23 Orchard Road, Skillman, New Jersey 08558
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 281-5100
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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Preferred Stock Purchase Rights
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(Titles of Classes)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_______
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock by non-affiliates of the
Registrant, based on the closing sale price of its common stock on February 29,
2000, a date within 60 days prior to the date of filing, as quoted on the
American Stock Exchange, was approximately $27,444,000.*
As of February 29, 2000, 4,263,083 shares of common stock, par value $.01
per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the Registrant's definitive Proxy Statement, which will
be filed with the Securities and Exchange Commission in connection
with the Registrant's 2000 Annual Meeting of Stockholders, are
incorporated by reference into Part III of this report.
_______________________
*Calculated by excluding all shares that may be deemed to be beneficially owned
by executive officers, directors of the Registrant, without conceding that all
such persons are "affiliates" of the Registrant for purposes of the federal
securities laws.
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Readers of this report should be aware that the following important factors,
among others, in some cases have affected, and in the future could affect, the
actual operating results of Opinion Research Corporation (the "Company") and
could cause the Company's actual consolidated results for 2000 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company:
Reliance on Key Clients. The Company's success is dependent upon its ability
to maintain its existing clients and obtain new clients. The loss of one or more
of the Company's large clients or a significant reduction in business from such
clients could have a material adverse effect on the Company. The Company's focus
on attracting larger projects and establishing long-term client relationships
may increase the Company's reliance on particular projects and clients. Although
the Company's ongoing projects may generally be terminated by its clients at any
time, funds for work completed are normally recoverable.
Fluctuations in Demand for Company Services. Demand for the Company's
services can be affected by a number of factors outside the Company's control,
including marketing budgets, economic conditions, consolidations and other
industry-specific trends, government spending, and changes in management or
ownership of a client. As a result, the Company's revenues and operating results
may fluctuate.
Business Strategy Regarding Acquisitions and International Expansion. Part of
the Company's business strategy is to expand domestically and internationally,
and to extend into related businesses through strategic acquisitions. There can
be no assurance that the Company will be able to so expand or to identify
targets for such acquisitions on terms attractive to the Company. Further, there
can be no assurance that the Company's services will be widely accepted as it
seeks to expand in international markets. International expansion will also
subject the Company to risks inherent in doing business abroad, including
adverse fluctuations in currency exchange rates, limitations on asset transfer,
changes in foreign regulations and political turmoil. Furthermore, there can be
no assurance that the Company will be able to integrate successfully the
operations of any subsequently acquired company with its own operations.
Dependence on Key Personnel. The Company is dependent upon the efforts and
skills of certain key senior executives. The loss of the services of one or more
of these individuals could have a material adverse effect on the Company.
Competition. The Company faces competition in connection with most of the
individual services and products it provides. Although the Company believes that
no single competitor offers a comparable combination of services and products,
there can be no assurance that other companies, some with greater financial
resources than the Company, will not attempt to offer a range of services and
products similar to those offered by the Company, or otherwise compete more
effectively in the business-to-business market research and information services
industry. For consumer market research services, the Company regularly
experiences significant competition from a large number of competitors,
including consumer market research companies, advertising agencies and business
consulting firms.
For public sector research services, the Company competes with a large number
of firms that vary in size as well as with not-for-profit organizations. The
competition varies depending upon the agency for whom the work is being
conducted and the services to be provided. Technical competence and price are
the key differentiators.
For outbound telemarketing services, the Company competes with a large number
of telemarketing companies. Quality of service and the application of continuous
statistical modeling on call lists are the key differentiators.
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PART I
Item 1. Business
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General
Opinion Research Corporation (the "Company") was established in 1938
to apply the principles of general public opinion polling to marketing issues
facing America's largest companies. The Company has evolved to provide primary
market research, social research, information services, marketing services, and
model-based telemarketing. The Company assists clients in evaluating, monitoring
and optimizing the effectiveness of their marketing and sales with a focus on
businesses selling primarily to other businesses. The Company's services and
products address issues such as customer loyalty and retention, market demand
and forecasting, corporate image, competitive positioning, public sector primary
research, and model-based telemarketing.
In August 1993, the Company acquired all of the stock of Gordon
Simmons Research Group, Ltd. ("GSR"), substantially increasing the Company's
presence in the U.K. and expanding the international aspects of its business. In
April 1994, the Company acquired all of the stock of Strategic Research and
Consulting ("SRC"). The SRC acquisition gave the Company access to the U.S.
automotive industry. In August 1995, the Company opened a branch office in Hong
Kong and continued to expand internationally with the formation of GSR/SIA
Limited ("GSR/SIA") in the U.K. in the latter part of 1996. In purchasing the
assets of a division of an information technology company, GSR/SIA expanded the
Company's capabilities in servicing international clients and introduced the
Company to the U.K. public sector. During 1997, as part of its globalization
strategy, the Company acquired a presence in Korea, Taiwan, and Mexico. In
January 1998, the Company acquired ProTel Marketing, Inc. ("ORC ProTel" or
"ProTel"), a high quality telemarketing company based in Lansing, Illinois. In
May 1999, the Company acquired Macro International Inc. ("ORC Macro" or
"Macro"), a predominately public sector research, consulting and technology
company based in the Washington, D.C. area.
The Company collects customer and market information through computer-
assisted telephone interviews, internet based data collection techniques,
personal interviews, mail questionnaires and specialized techniques such as
business panels. Management believes that the Company's extensive expertise with
regard to certain business issues enables it to provide reliable customer and
market information and advisory services to clients. The Company also believes
that its recognized name and long-standing reputation enable it to obtain
information from senior executives who are difficult to access.
The Company's strategy for market research focuses on client projects
that require periodic updating and tracking of information, thereby creating the
potential for higher-margin recurring revenues. The portion of the Company's
market research revenues from such projects was approximately 52% in 1999.
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The Company's Services and Products
The Company offers a variety of services and products to assist
clients with their strategic and tactical decisions as well as their plans for
marketing and selling their products to other businesses and consumers.
Services
Customer Loyalty & Retention. The Company assists its clients in
quantifying customer loyalty and increasing customer retention. By capturing and
analyzing the perceptions and experiences of its clients' prospects, clients,
and employees, the Company provides analysis and feedback on customer loyalty
which drives superior customer retention and business performance. The Company
provides its clients with information on the elements of products or services
which are most important to their customers; on how well these products and
services compare to the competition; and on which customers will continue to
purchase and recommend such products and services.
Corporate Reputation & Branding. The Company works with clients
worldwide to manage their corporate and brand images; identify and achieve
optimal positioning in the marketplace; and strengthen equity with customers,
employees and the financial community. The strength of a client's image or
reputation is identified through interviews with constituency groups with whom
the client interacts and whose decisions influence the client's success. These
groups may include customers, potential customers, distributors, suppliers, the
media and the investment community.
Demographic and Health Surveys. The Company manages international
research programs in developing nations. By providing information for informed
decisions in population, health and nutrition, it supports a range of data
collection options that can be tailored to fit specific monitoring and
evaluation needs of host countries. These include a variety of population and
facility-based surveys, secondary data analyses and other specialized research
such as qualitative, education and gender-based studies.
Management Consulting. The Company offers a full spectrum of services
to address opportunities and problem areas, and to ensure that client
organizations can meet future challenges effectively. Its methods and expertise
produce strategies, plans and interventions that fit the values, cultures and
needs of the client organization and its managers. The Company's focus is on
sound analysis, with effective support in implementing recommended strategies
and solutions and ensuring capacity within the client organization so that
continuing outside assistance is not required.
Market Assessment. The Company works with clients worldwide to
analyze and forecast market demand for new products and services. The Company
combines sophisticated analytic techniques with global reach to provide clients
with insight regarding optimal
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product/services configuration and pricing, as well as market size information.
This work supports clients' business planning and capital generation for new
ventures.
Advanced Analytics & Data Modeling. The Company's diagnostic and
statistical models are among the most sophisticated in market research and are
redefining the teleservices industry. The Company applies advanced market
research techniques and uses predictive segmentation learning models to improve
teleservices success rates. By focusing on its clients' business issues and the
application of the right analytic tools, the Company can effectively transform
data and analyses into intelligence and insight. This approach holds whether
the Company is designing traditional market research surveys, "data mining"
client databases to optimize marketing efforts or building dynamic models to
guide telemarketers on selecting target prospects and product offerings.
Employee Survey Programs. The Company provides comprehensive
employee-related research services to measure satisfaction, increase staff
retention, reduce hiring and training costs, and improve customer service. Using
proprietary computer software, exclusive multi-industry benchmarking databases
and a combination of quantitative and qualitative methodologies, the Company
works with clients to identify strengths and weaknesses. The Company implements
all stages of program management, from questionnaire design and processing
through reporting, final analysis and recommendations for action.
Public Sector Research. The Company provides research and evaluation
services to local and national governments and to international organizations
such as the United Nations, the World Bank and the World Health Organization.
Among the services provided are cost, cost-benefit & cost effectiveness
analysis; customer satisfaction & loyalty studies; ethnography; experimental &
quasi-experimental research; needs assessments; outcome & impact studies;
performance measurement; policy research; process & implementation studies;
secondary data analysis & data mining; and survey research.
Data Collection & Processing. The Company's telephone interviewing
call centers in North America and Europe combine research expertise and advanced
telecommunications technology. These facilities, staffed with multilingual
interviewers, use Computer Assisted Telephone Interviewing (CATI), which
provides clients with highly efficient and cost effective data and information
collection. The Company also utilizes internet based data collection techniques.
Teleservices. The Company combines its market research expertise in
predictive segmentation modeling and database management with top quality
teleservices to quantify buyer behavior, optimize targeting of its clients'
customers and provide feedback from its clients' customers for "continuous loop"
marketing to improve sales. This breakthrough capability - ORC TeleScienceSM -
applies sophisticated modeling techniques to cutting-edge teleservices to
increase the overall success rate of telemarketing as measured by higher sales
yields and lower costs of customer acquisition.
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Training & Educational Technologies. The Company offers a full
spectrum of training services to help organizations adapt to and capitalize on
changing circumstances. All courses and training services are supported by the
Company's research and management consulting services in the subject areas
offered. It uses adult learning methodologies, instructional system design
(ISD), electronic performance support systems (EPSS) and highly skilled
facilitators who provide interactive, experiential-based training.
The Company is also a leader is applying technology to educational and
learning needs and in developing and producing distance learning programs,
multimedia materials and expert systems.
Information Technologies. The Company offers a variety of technology-
based services and technology products. These include computer security
products, such as Internet firewalls; software testing and quality assurance,
instructional product development for interactive multimedia, computer-based
instruction, decision-support systems, computer-based textbooks, and products
for individuals with special learning needs; and advanced Web services,
including a number of proprietary Web applications, Web-based data collection,
database development and management, and dynamic information retrieval.
Industries
Telecommunications and Information Technology. The Company provides
market knowledge for a range of telecommunications and information technology
companies, from wireless communications companies and telephone carriers to
Internet service providers and computer hardware and software firms. Its
services include market definition, segmentation, new product development,
customer retention, corporate branding, usage analysis, competitive profiling
and market demand analysis for satellite communications products.
Among its services, the Company helps clients determine pricing and
distribution systems, tracks service performance, gauges the success of products
and services, designs and configures new products, predicts customer needs and
defines competitive positions in new markets.
Financial Services. The Company provides market and customer
intelligence to banks, securities brokerage, insurance companies and other
financial institutions across a number of business issues: customer loyalty and
retention, image management, market segmentation and positioning, new product
development, pricing strategy, corporate branding and customer database
management.
By focusing its research efforts on key customer segments - such as
high net worth individuals, corporate treasurers, active investors,
policyholders, etc. - the Company can determine the specific factors that
influence the target groups' decisions, and design strategies to attract, retain
and motivate them effectively.
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Automotive. Utilizing research methodologies developed for its
automotive industry clients, the Company has extensive experience working with a
wide range of companies around the world, including vehicle manufacturers,
original-equipment-manufacturers (OEM) suppliers, dealers, distributors,
trucking companies and heavy equipment manufacturers.
The Company provides sophisticated segmentation research and long-term
studies on retailing sales and service; brand image and equity; product
development, design and performance; and dealer/manufacturer relations. The
Company's exclusive consumer market analysis evaluates and tracks customer needs
as they relate to new vehicle purchase, financing and leasing, buying behavior
and brand loyalty.
Retail and Trade. To shape marketing strategy, the Company's areas of
specialization include understanding the determinants of store choice; customer
loyalty and satisfaction; mystery shopping; segmentation and positioning; store
location, layout, design and product positioning; merchandise performance;
development and appraisal of individual outlets and sites; and diversification
into new markets, both domestic and international.
The Company also works in partnership with manufacturers and suppliers
of consumer goods to understand the needs, behavior and attitudes of customers
at all stages in the distribution channel. The Company's aim is to enhance the
manufacturer/trade/consumer relationship.
Health Care. The Company's services include surveys and evaluations
to determine patient satisfaction, market segmentation and customer acquisition,
competitive analysis, community needs assessment, market segmentation and
corporate positioning. For pharmaceutical companies, HMOs, hospitals, and
health care providers, the Company also conducts loyalty and retention modeling
research as part of its clients' patient and employee satisfaction programs.
Through its innovative methodologies, such as proprietary panels, the
Company establishes ongoing dialogues with difficult-to-reach decision-makers
such as physicians, plan and hospital administrators and benefits managers.
Products
The following products are used by the Company to deliver some of the
services listed above and are also marketed as stand-alone products:
Business Panels. The Company develops business panels to access
executives and professionals. Panels are comprised of executives and
professionals who have agreed in advance to participate in an on-going series of
interviews with the Company for the purpose of gathering customer and market
information.
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The Company owns and operates a number of proprietary panels. The
panels range in size from several hundred to several thousand panelists. These
panels have been created with no predetermined end date.
The creation of a business panel involves considerable planning, time
and expense. Once established, however, it provides a significant amount of
reliable information that can be collected and updated from a relatively
constant source with less time and expense than would be otherwise required. As
such, the Company believes that there are strong financial incentives for
clients to continue using a panel.
Business panels produce up-to-date market intelligence that can be
used by the client for decisions ranging from marketing and sales strategies to
"micro-marketing" plans for specific market niches or segments. Typical issues
addressed by business panels include customer satisfaction, pricing and sales
strategy, market receptivity to new or potential products or services and market
share information.
Shared-Cost Programs. For over 30 years, the Company has conducted
shared-cost telephone survey programs, marketed under the name "CARAVAN," in
which questions from a number of clients are combined in a series of interview
questionnaires. The CARAVAN programs provide multiple clients with high-
quality, timely information at a relatively low cost.
The general public CARAVAN is a weekly shared-cost national survey
combining questions of clients such as advertising agencies, public affairs
departments of large corporations and product managers. Typically, the
information collected from the CARAVAN survey provides measurement and
evaluation of advertising and products.
Developed in 1994, CORPerceptions profiles the image of major
corporations that serve the needs of other business establishments located in 16
countries around the world. Telephone or in-person interviews are completed
annually with approximately 1,200 senior business executives selected from the
largest industrial and services companies within these countries. Industries
profiled include automotive, brokerage services, computer hardware, electronics,
information technology services, and management consulting.
CORPerceptions' sister-study, BrandPerceptions, is an international
brand equity study conducted among 4,250 consumers in 16 countries throughout
Asia Pacific, Europe and North America. As a result of BrandPerceptions, some
of the world's leading companies learn more about consumer awareness,
preference, satisfaction and loyalty toward their brand and competing brands in
the international marketplace.
Customers for Life is a software-based customer retention tool
designed to build and strengthen customer relationships and long-term customer
loyalty. Developed in 1997, Customers for Life is a comprehensive program that
provides the framework for direct customer feedback, real-time trouble shooting,
database management and structured reporting systems.
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Competitive Environment Test (CET) is the Company's system for testing
television and print advertising in a competitive setting. Both evaluative and
diagnostic, CET measures Intrusiveness, the ability to stand out in a "clutter"
situation and register the brand name; Impact, the ability to register the main
idea of the ad/commercial through the "clutter"; Communication, the ability to
deliver the intended message(s); Impression of delivery, the degree to which the
message is delivered clearly and unambiguously, believably, likeable and without
confusion; Image, the degree to which the ad or commercial creates the intended
image about the brand; and Persuasion, the ability to improve interest in
trying/purchasing the brand.
Customer Loyalty Plus (CL+) is the Company's system for measuring and
building customer loyalty. The three-phase approach includes Assessment, which
is designed to provide clients with a customized CL+ score that can be used over
time to evaluate change; Planning, which consists of an action plan aimed at
closing the identified gaps; and Improvement, during which the Company's
professionals design and implement a specialized program tailored to the
client's specific needs. The plan includes training, organization development
and total quality management programs.
Customer Loyalty Plus Equity Valuation Model is the Company's system
for measuring and building brand equity. It is designed to help a client
position its strategic approach to the marketplace of tomorrow, where customer
satisfaction is merely the jumping off point, not the final destination. Steps
in this model include identifying "cost of entry" benefits which, once
satisfied, carry less weight in brand choice, and "leverageable" benefits, which
can provide competitive advantage; isolating "core equity" characteristics that
are very relevant to a client's customers and on which a client is
differentiated; examining a client's opportunity/vulnerability profile based on
how its delivery fares against competitors; profiling which customers are loyal
users, which are vulnerable to competitors, which non-users can be attracted,
and tracking loyalty development over time; and using the Equity Valuation Model
to relate a client's equity to progress in real terms.
Communications & Reaction Test, together with the Competitive
Environment Test, comprises the Company's testing procedure for testing
television and radio commercials, print advertisements and concepts. Conducted
in shopping malls across the United States, the C&R Test measures advertising
comprehension and reaction. It both evaluates the effectiveness of a print or
television commercial and diagnoses its strengths and weaknesses.
e.Tr@ck is the Company's nationally projectable syndicated study of
on-line shoppers. By offering a complete demographic portrait of adult U.S.
residents, including Internet users who do and do not shop online, e.Tr@ck
provides e-commerce companies with vital and actionable consumer insight into
this rapidly evolving market.
OPTI-TEST is the Company's conjoint-based approach for identifying the
best combination of variables, from a range of alternatives, to enhance the
market potential of a product or service. It provides an affordable way to test
a large number of variables, offers a way
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to include qualitative/ situational dimensions; provides a way to link concepts
to emotional benefits; offers several ways to include established brands,
depending on the marketing issue at hand; and provides an evaluative measure for
all combinations, including untested options.
RAd Track is the Company's advanced advertising tracking service for
the radio industry. By gathering critical information from a client's target
audience, such as changes in brand and advertising awareness, RAd Track allows a
client to measure the impact, awareness, recall and overall effectiveness of its
radio ad campaigns. As both a pre- and post-advertising impact study, it can
cover the full range of radio advertising, from local to nationwide campaigns.
It also can measure the impact of the radio-only component of a multimedia
campaign, as well as that of the entire multimedia campaign.
SEL-TEST, which is an efficient way to select the best alternatives or
combination of alternatives from "lots of alternatives," can be used for a
variety of issues, including new products, line extensions/optimization, recipe
ideas, promotion candidates and name appropriateness of individual items in a
line of products.
Marketing
Marketing and Sales-Support Program. In 1999, the Company continued to
develop and implement a comprehensive communications program to support a
systematic business development effort. Elements include advertising, direct
marketing, sales-support materials, media relations, seminars and telemarketing
to gain access to a large number of prospective clients. The Company's web site
allows prospective clients to learn about its products and services at a time of
their choosing.
Clients and Client Relationships
Some of the Company's largest clients in terms of revenues generated
include America Online, Cendant, Department of Human Health Services/Substance
Abuse Mental Health Services, EDS, General Motors, IBM, Morgan Stanley Dean
Witter, Sears, USAID, U.S. Department of Education. In 1999, the Company served
over 1,200 clients. For many clients, the Company performed multiple projects,
sometimes for different subsidiaries or business units of the same client.
In 1999, the Company's largest single client, USAID, accounted for 11%
of the Company's revenues. All revenues generated by the USAID relationship were
for social research studies. USAID has been a Macro client since 1989.
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Competition
Many other firms provide some of the services and products provided by
the Company, typically focusing on consumer markets. However, the Company
believes that no single competitor offers a comparable combination of services
and products.
For business to business market research, the Company believes that it
competes for clients based on a variety of factors, including name recognition,
reputation, expertise in a variety of industries, ability to access executives
and other key constituencies, ability to collect accurate and representative
information, ability to enhance the value of the data collected through analysis
and consulting, technological competence, reliability, promptness and
efficiency. In the Company's experience, rather than price, its typical clients
are interested primarily in the quality and utility of the service received.
For consumer market research services, the Company regularly
experiences significant competition from a large number of competitors,
including marketing and research departments of various companies, advertising
agencies and business consulting firms. Price, reputation, and quality of
service are the dominant considerations.
For public sector research services, the Company competes with a large
number of firms that vary in size as well as with not-for-profit organizations.
The competition varies depending upon the agency for whom the work is being
conducted and the services to be provided. Technical competence and price are
the key differentiators.
For outbound telemarketing services, the Company competes with a large
number of telemarketing companies. Quality of service and the application of
continuous statistical modeling on call lists are the key differentiators.
The Company considers the relationship with its clients as well as its
know-how and expertise as invaluable assets. The Company seeks to safeguard
these assets by requiring each of its senior employees to execute
confidentiality and non-solicitation agreements.
Backlog
As of December 31, 1999, revenues expected to be received by the
Company under its market research client contracts, which are based on budgeted
amounts in those contracts, were $28,289, as compared to $22,971 as of December
31, 1998. All of the 1999 amount is expected to be received by December 31,
2000. Public sector backlog at December 31, 1999 was $195,091. This backlog is
expected to be recognized as revenues over the next five years. The Company's
engagements generally are terminable by the Company's clients at any time, with
the expectation of cost recovery for work completed by the Company.
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Employees
As of December 31, 1999, the Company employed a total of approximately
1,500 full-time employees and maintained a pool of part-time hourly employees in
the United States and the United Kingdom of approximately 1,300 people. The
part-time employees work as telephone interviewers and data processors. Of the
full-time employees, 750 are professionals engaged in direct client service, 500
are telemarketing representatives, and 250 are engaged in support,
administration and executive oversight.
The Company conducts special training programs for all telephone
interviewing staff and regularly monitors such staff to ensure that its high-
quality standards are maintained.
None of the Company's employees are subject to a collective bargaining
agreement, nor has the Company experienced any work stoppages. The Company
believes that its relationship with its employees is excellent.
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Item 2. Properties
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The Company's executive offices are located in approximately 45,000
square feet of leased space in Skillman (Greater Princeton), New Jersey. The
term of the lease expires in August 2003. The Company leases additional
facilities throughout the world. The following table sets forth certain
information relating to these properties:
<TABLE>
<CAPTION>
Operating Unit Location Facility Usage
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<S> <C> <C>
U.S. Market Research Skillman, New Jersey Worldwide Headquarters, Research Location
Maumee, Ohio Research Location
Evanston, Illinois Research Location
Detroit, Michigan Research Location
Tucson, Arizona Telephone Interviewing Facility
Tampa, Florida Telephone Interviewing Facility
U.K. Market Research London, U.K. U.K. Market Research Headquarters, Research
Location, and Telephone Interviewing Facility
Manchester, U.K. Research Location
Asia Market Research Hong Kong Asia Market Research Headquarters and
Research Location
Seoul, Korea Country Headquarters, Research Location
Taipei, Taiwan Country Headquarters, Research Location
Mexico Market Research Mexico City, Mexico Country Headquarters, Research Location
Teleservices Lansing, Illinois ORC ProTel Headquarters, Telemarketing
Facility
Milwaukee, Wisconsin Telemarketing Facility
Topeka, Kansas Telemarketing Facility
St. John Missouri Telemarketing Facility
Dayton, Ohio Telemarketing Facility
Social Research Calverton, Maryland ORC Macro Headquarters, Research Location
Burlington/St. Albans, Telephone Interviewing Facilities and Data
Vermont Collection Centers
New York, New York Research Location
Olympia, Washington Research Location
Bethesda, Maryland Research Location
Plattsburgh, New York Telephone Interviewing Facility
</TABLE>
The Company presently has a combined total of 593 computer assisted
telephone interviewing stations worldwide dedicated to market research and an
additional 405 telemarketing stations. All of these facilities are equipped
with state-of-the-art hardware and software. In a typical telephone interview
or sale, the computer assisted telephone interviewing system prompts
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the interviewer's sequence of questions or responses depending on the previous
answers. All responses are recorded directly into the computer, avoiding the
need for subsequent data entry and enabling prompt analysis of responses. The
interviewees communicate with live interviewers at all times.
Over the past several years the Company has installed database systems
to store information in its Maumee, Tucson, and London centers. These systems
expand the Company's reporting capabilities and transform traditional tabular
formats into graphic output, thereby improving the utility and presentation of
reports as well as the turnaround times.
The Company believes that its properties are sufficient for its
current operational needs.
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Item 3. Legal Proceedings
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The Company is not a party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1999.
Item 4A. Executive Officers of the Registrant
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The current term of office of each of the Company's executive officers
expires at the first meeting of the Board of Directors of the Company following
the 2000 Annual Meeting of Stockholders, or as soon thereafter as each of their
successors is duly elected and qualified.
The following table sets forth certain information concerning the
principal executive officers of the Company as of February 29, 2000.
Name Age Position
- ---- --- --------
John F. Short 55 Chairman, Chief Executive Officer, and
President
Douglas L. Cox 54 Chief Financial Officer
Gregory C. Ellis 43 Chief Operating Officer - ORC
Market Research
Ruth R. Wolf 62 Chief Executive Officer - ORC ProTel
Frank J. Quirk 59 Chief Executive Officer - ORC Macro
Michael T. Errecart 50 President - ORC Macro
Mr. Short joined the Company as its Chief Financial Officer in 1989 and was
appointed Vice Chairman in 1992. In 1998, Mr. Short was appointed President of
the Company. In February 1999, Mr. Short assumed the roles of Chief Executive
Officer and Chairman of the Board.
Mr. Cox joined the Company as its Chief Financial Officer in October 1998.
Prior to joining the Company, Mr. Cox spent ten years as Senior Vice President
and Chief Financial Officer of Elf Atochem North America, Inc. Mr. Cox holds an
MBA, with honors, from the Wharton School of the University of Pennsylvania.
-13-
<PAGE>
Mr. Ellis joined the Company in October 1995 as the Chief Executive Officer
of the Princeton Group. In July 1997 Mr. Ellis was appointed Managing Director
- - ORC Automotive Group, and in December 1997, he was promoted to Chief Operating
Officer - ORC Market Research. Prior to joining ORC, Mr. Ellis was Senior Vice
President and General Manager of Testing, Analytics, and Media Services for AC
Nielsen Company. Mr. Ellis holds a M.S.I.A. degree from Carnegie-Mellon
University's Graduate School of Industrial Administration.
Ms. Wolf joined the Company in 1998 with the acquisition of ProTel, which
she co-founded in 1988. Ms. Wolf was appointed Chief Executive Officer of ORC
ProTel in 1998. Ms. Wolf has over 30 years of experience in telemarketing.
Mr. Quirk joined the Company in 1999 with the acquisition of Macro, where
he had served as its Chief Executive Officer since 1980. Mr. Quirk was
appointed Chief Executive Officer of ORC Macro in 1999. Mr. Quirk holds an MBA
degree from Cornell University.
Dr. Errecart joined the Company in 1999 with the acquisition of Macro,
where he had served as its President since 1998 and Executive Vice President
from 1994 to 1998. Dr. Errecart was appointed President of ORC Macro in 1999.
Dr. Errecart received his Ph.D. in Mathematical Sciences from the Johns Hopkins
University.
-14-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
Market Information
- ------------------
The Company's Common Stock is currently traded on American Stock
Exchange under the symbol "OPI". The table below sets forth the high and low
prices for the Company's Common Stock (the "Common Stock") for each of the four
quarters of 1999 and 1998:
High Low
------------ -----------
1999
----
Fourth Quarter $9.875 $4.313
Third Quarter 6.000 4.250
Second Quarter 5.875 3.875
First Quarter 8.000 3.250
1998
----
Fourth Quarter $6.375 $4.125
Third Quarter 8.625 5.500
Second Quarter 9.375 6.063
First Quarter 6.750 5.063
The closing price of the Common Stock on February 29, 2000 was $9.625
per share. As of February 29, 2000, the Company had 46 holders of record of the
Common Stock (approximately 625 beneficial stockholders).
Dividends
- ---------
The Company has not paid any dividends on the Common Stock. The
Company currently intends to retain its earnings to finance future growth and
therefore does not anticipate paying dividends on the Common Stock in the
foreseeable future.
-15-
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Selected Financial Data
(In Thousands, Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------------------------------
For the Twelve Months Ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Revenues $ 118,621 $ 73,167 $ 56,673 $ 47,273 $ 44,101
Income (loss) from operations (1), (2) 8,463 2,340 2,801 2,425 (1,341)
Extraordinary loss on debt
refinancings, net of tax of $60 and $133 (3) (90) (150) - - -
Net income (loss) $ 2,424 $ (170) $ 1,151 $ 808 $ (1,669)
============ ========== =========== ========== ===========
Weighted average common shares
outstanding 4,244 4,202 4,144 4,169 4,232
Income (loss) before extraordinary
loss per common share $ 0.59 $ (0.00) $ 0.28 $ 0.19 $ (0.39)
Extraordinary loss per common share (0.02) (0.04) - - -
------------ ---------- ----------- ---------- -----------
Net income (loss) per common share $ 0.57 $ (0.04) $ 0.28 $ 0.19 $ (0.39)
============ ========== =========== ========== ===========
Adjusted weighted average common shares
and assumed conversions (4) 4,332 4,202 4,146 4,213 4,232
Income before extraordinary
loss per diluted share $ 0.58 $ (0.00) $ 0.28 $ 0.19 $ (0.39)
Extraordinary loss per diluted share (0.02) (0.04) - - -
------------ ---------- ----------- ---------- -----------
Net income (loss) per diluted share $ 0.56 $ (0.04) $ 0.28 $ 0.19 $ (0.39)
============ ========== =========== ========== ===========
Balance Sheet Data:
Total assets $ 91,966 $ 50,610 $ 32,480 $ 32,772 $ 28,537
Total debt 47,438 18,320 6,652 7,916 7,372
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In the fourth quarter of 1998, the Company took an unusual pre-tax charge
of $2,470 for expenses incurred in relation to a separation agreement
with the Company's former Chairman and CEO and the buy-out of his
pre-existing employment contract.
(2) In the second quarter of 1995, the Company took an unusual pre-tax charge
of $3,489. This charge included a $1,958 write-down of capitalized
production costs; $178 for the disposal of fixed assets: $460 of
intangible assets associated with previous acquisitions; $380 in
severance costs; $414 provision for the abandonment of leases; and other
miscellaneous charges of $99.
(3) In the second quarters of 1999 and 1998, the Company recorded
extraordinary losses of $90 and $150, net of tax benefits of $60 and
$133, respectively, due to the write-off of unamortized loan origination
fees associated with debt refinancings.
(4) Shares attributable to the conversion of convertible debentures are not
included for 1996 as they expired on November 30, 1996, nor in 1995, as
their effect was anti-dilutive.
-16-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Overview
The Company was established in 1938 to apply the principles of general
public opinion polling to marketing issues facing America's largest companies.
The Company has evolved to provide primary market research, social research,
information services, marketing services, including a focus on businesses
selling primarily to other businesses, and model-based telemarketing. The
Company assists clients in evaluating, monitoring and optimizing the
effectiveness of their marketing and sales. The Company's services and products
address issues such as customer loyalty and retention, market demand and
forecasting, corporate image, competitive positioning, public sector primary
research, and model-based telemarketing.
In August 1993 the Company acquired all of the stock of GSR,
substantially increasing the Company's presence in the U.K. and expanding the
international aspects of its business. In April 1994 the Company acquired all
of the stock of SRC. The SRC acquisition gave the Company access to the U.S.
automotive industry. In August 1995 the Company opened a branch office in Hong
Kong and continued to expand internationally with the formation of GSR/SIA in
the U.K. in the latter part of 1996. In purchasing the assets of a division of
an information technology company, GSR/SIA expanded the Company's capabilities
in servicing international clients and introduced the Company to the U.K. public
sector. During 1997, as part of its globalization strategy, the Company acquired
a presence in Korea, Taiwan, and Mexico. In January 1998, the Company acquired
ProTel Marketing, Inc. ("ORC ProTel" or "ProTel"), a high quality telemarketing
company based in Lansing, Illinois. In the fourth quarter of 1998, the Company
took an unusual pre-tax charge for expenses incurred in relation to a separation
agreement with the Company's former Chairman and Chief Executive Officer and the
buy-out of his pre-existing employment contract. In May 1999, the Company
acquired Macro International Inc. ("ORC Macro" or "Macro"), a predominately
public sector research, consulting, and technology company based in the
Washington, D.C. area.
Results of Operations - 1999 compared to 1998
Revenues
Revenues for 1999 increased $45,454, or 62%, to $118,621 in 1999 from
$73,167 in 1998. This increase is principally due to $44,961 in revenues
generated by Macro, the Company's social research business acquired in the
second quarter of 1999 (the "Macro Acquisition"). Revenue increases for the
remainder of the Company were due principally to the improvements in the
Company's teleservices business, where revenue increased by $1,921, or 13%,
offset by a decrease in revenues of $1,428, or 2%, from the Company's market
research business.
-17-
<PAGE>
Cost of Revenues
Cost of revenues increased $31,042, or 69%, to $75,849 in 1999 from
$44,807 in 1998. This increase is principally due to the Macro Acquisition, for
which cost of revenues was $32,284 in 1999. Cost of revenues for the Company's
market research business decreased by $1,677, or 5%, in 1999 while cost of
revenues for the teleservices business increased by $435, or 5%, to $8,709 in
1999 from $8,274 in 1998.
Gross profit as a percentage of revenues for the Company decreased to
36% in 1999 from 39% in 1998 due to the impact of the Macro Acquisition, for
which the gross profit percentage is 28%. The gross profit percentage for the
market research business increased to 39% in 1999 from 37% in 1998 and the gross
profit percentage for the teleservice business increased to 48% in 1999 from 45%
in 1998.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased
$9,094, or 47%, to $28,502 in 1999 from $19,408 in 1998. The Macro Acquisition
accounted for $8,294, or 91%, of the increase while non-acquisition SG&A
increased by $800, or 4%. As a percent of revenues, consolidated SG&A decreased
to 24% in 1999 from 27% in 1998.
The lower gross profit and lower SG&A percentages for the Macro
Acquisition are due to the nature of its business, as approximately 70% of the
Macro Acquisition's business is conducted with government entities.
Consequently, in accordance with the prescribed accounting procedures for
government contractors, the Macro Acquisition's cost of revenues reflect certain
costs attributable to its contract projects which the Company classifies as
general and administrative expenses for its other operating segments.
Therefore, the inclusion of the Macro Acquisition in the operating results of
the Company has, and will continue to have, the effect of lowering, as a
percentage of revenues, the consolidated gross profit and SG&A.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $1,665, or 40%, to
$5,807 in 1999 from $4,142 in 1998. The Macro Acquisition accounted for $1,568,
or 94%, of the total increase. Depreciation and amortization on a consolidated
basis decreased to 5% of revenues in 1999 from 6% in 1998.
Unusual Charge
In 1998, the Company took a fourth quarter pre-tax charge of $2,470
for expenses incurred in relation to an agreement with Dr. Michael R. Cooper
providing for the resignation of Dr. Cooper as a Director, Chairman, and Chief
Executive Officer of the Company and the buy-out of Dr. Cooper's pre-existing
employment contract.
-18-
<PAGE>
Interest Expense
Interest expense increased $2,134, or 114%, to $4,005 in 1999 from
$1,871 in 1998. The increase in interest expense is primarily attributable to
the additional borrowings incurred to fund the Macro Acquisition.
Provision for Income Taxes
The provision for income taxes for 1999 and 1998 was $1,944 and $489,
respectively. The provisions for these years are higher than the amount that
results from applying the federal statutory rate to income primarily because of
amortization of non-deductible goodwill generated from acquisitions throughout
the years and the impact of state taxes.
Extraordinary Loss
The Company recorded extraordinary losses, net of tax benefits, of $90
and $150, in 1999 and 1998, respectively. These non-cash charges were due to the
write-off of unamortized loan origination fees associated with debt refinancings
during each period.
Net Income
Net income (loss) for 1999 and 1998 was $2,424 and ($170),
respectively. The Company's results for the year ended December 31, 1998 were
materially impacted by the non-recurring unusual charge discussed previously.
There was no such non-recurring item in 1999.
Results of Operations - 1998 compared to 1997
Revenues
Revenues for 1998 increased $16,494, or 29%, to $73,167 in 1998 from
$56,673 in 1997. This increase is principally due to $15,921 in revenues
generated by ORC ProTel and ORC Mexico (the "Acquisitions") as well as an
increase in U.S. and U.K. market research revenues of $3,651, or 7%, partially
offset by a decrease in revenues from Asia of $483, and a $2,595 decrease in
revenues due to a management decision to abandon a small start-up telemarketing
business in favor of ProTel.
Cost of Revenues
Cost of revenues increased $10,433, or 30%, to $44,807 in 1998 from
$34,374 in 1997. The cost of revenues for the Company's core business increased
by $1,760, or 5%, in 1998, principally reflecting higher subcontractor costs for
certain large-scale global projects. The gross profit percentage for the core
business decreased to 37% in 1998 from 39% in 1997 reflecting this change in the
business mix. The Acquisitions, for which cost of revenues were $8,673 in 1998
and the gross profit percentage was 45%, offset the impact of the higher costs
for the core business.
Selling, General, and Administrative Expenses
SG&A increased $2,564, or 15%, to $19,408 in 1998 from $16,844 in
1997. As a percent of revenues, consolidated SG&A decreased to 27% in 1998 from
30% in 1997. The
-19-
<PAGE>
Acquisitions for 1998 increased SG&A by $3,701 while SG&A related to the core
business decreased by $1,137 as compared to 1997.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $4,142 in 1998 from
$2,654 in 1997. The Acquisitions accounted for $1,261 of the increase in
depreciation and amortization. Additionally, the Company recorded a write-down
of goodwill of $324 associated with the telemarketing operation that was
discontinued in 1998. Depreciation and amortization on a consolidated basis
increased to 6% of revenues in 1998 from 5% in 1997.
Unusual Charge
In 1998, the Company took a fourth quarter pre-tax charge of $2,470
for expenses incurred in relation to an agreement with Dr. Michael R. Cooper
providing for the resignation of Dr. Cooper as a Director, Chairman, and Chief
Executive Officer of the Company and the buy-out of Dr. Cooper's pre-existing
employment contract.
Interest Expense
Interest expense increased in 1998 to $1,871 from $674 in 1997. The
increase in interest expense is primarily attributable to the debt incurred to
fund the acquisition of ORC ProTel.
Provision for Income Taxes
The provision for income taxes for 1998 and 1997 was $489 and $976,
respectively. The provisions for these years are higher than the amount that
results from applying the federal statutory rate to income primarily because of
amortization of non-deductible goodwill generated from pre-1996 acquisitions and
the impact of state taxes.
In 1998, the Company has recognized for financial reporting purposes
deferred tax assets that consist primarily of the tax benefits arising from the
unusual charge. These deferred tax assets are expected to be realized upon the
reversal of existing taxable temporary differences.
Extraordinary Loss
The Company recorded an extraordinary loss of $150, net of tax
benefits, in the second quarter of 1998. This non-cash charge is due to the
write-off of unamortized loan origination fees associated with the Company's
prior credit facility.
Net Income
Net income (loss) for 1998 and 1997 was ($170) and $1,151,
respectively. The Company's net loss for the year ended December 31, 1998 was
materially impacted by the non-recurring unusual charge and the extraordinary
loss discussed previously. There were no such non-recurring items in 1997.
-20-
<PAGE>
Liquidity and Capital Resources
As of December 31, 1999, working capital was $15,373, which includes a
liability of $2,897 for the payment of the contingent purchase price earned by
ORC ProTel. Net cash generated by operations for 1999 was $6,771 as compared to
$2,846 in 1998.
Investing and financing activities for 1999 included capital
expenditures of $3,563 and payments of $26,383 for the Macro Acquisition and
earn-out payments for previous acquisitions. Net of borrowings for acquisitions,
including assumed debt of $5,249, and cash on hand, the Company decreased its
bank borrowings by $4,484 for the year ended December 31, 1999. The Company
believes that amount available under its debt agreements and its current sources
of capital will be sufficient to fund its long-term obligations and working
capital needs for the foreseeable future.
In May 1999, in connection with the Macro Acquisition, the Company
entered into a credit agreement with a financial institution for a new facility
of $50,000 (the "Senior Facility"). This financial institution later syndicated
the facility to include four additional financial institutions. The Senior
Facility provides $30,000 of term notes and up to $20,000 of revolving credit
for a six-year term and is secured by substantially all of the assets of the
Company. The Senior Facility carries an interest rate at the discretion of the
Company of either the financial institution's designated base rate (8.5% at
December 31, 1999) plus 125 basis points or LIBOR (3-month LIBOR was 6.13% at
December 31, 1999) plus 275 basis points for both revolving credit and term
notes. Principal payments on the term notes are due in escalating quarterly
installments commencing September 30, 1999. As of December 31, 1999, the Company
had approximately $15,846 of additional credit available under the Senior
Facility. Given that the interest rates on the revolving credit facility and the
notes are based on current market rates, the carrying value of the amounts due
under the credit facility approximates their fair value at December 31, 1999.
In May 1999, the Company also issued $15,000 of subordinated
debentures to a financial institution. In exchange for consideration received in
connection with this debt, the Company also issued warrants to purchase a
maximum of 437,029 shares of the Company's common stock at an exercise price of
$5.422 per share. The warrants are exercisable from the date of issuance and
expire in 2007. The subordinated financing has an eight-year term and a coupon
rate of 12%.
All debt outstanding as of May 26, 1999 was repaid with proceeds from
the above borrowings. In conjunction with its new credit facilities, the Company
recorded an after-tax, non-cash charge of $90 for the write-off of unamortized
loan fees. This charge is shown as an extraordinary loss from debt refinancing
in 1999.
-21-
<PAGE>
Inflation and Foreign Currency Exchange
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact
through 2000. As the Company continues to expand its international operations,
exposures to gains and losses from foreign currency fluctuations will increase.
The Company may choose to limit such exposure by the purchase of the forward
foreign exchange contracts.
Readiness for Year 2000
The Company has not experienced any problems with its internal
computer systems or software applications due to the start of the Year 2000. The
Company also did not experience any problems with the computer systems or
software applications of its third party vendors, suppliers or service
providers. The Company will continue to monitor these third parties to determine
the impact, if any, on the Company's business and the actions, if any, required
in the event of non-compliance by any of these third parties. Based on the
Company's assessment of compliance by third parties, there does not appear to be
any material business risk posed by any such non-compliance.
Forward-looking Statements
Certain statements contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this annual
report, are forward-looking statements. The forward-looking statements are
subject to risks and uncertainties, including, but not limited to, competition,
foreign exchange fluctuations, uncertainties of international economies, and
other risk factors discussed in this Annual Report on Form 10-K.
-22-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Market risks relating to the Company's operations result primarily
from changes in interest rates and changes in foreign exchange rates. The
Company utilizes interest rate derivative financial instruments to minimize the
risk and costs associated with its financial activities. The following table
provides information about the derivative financial instruments and other
financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For an interest rate cap, the
table presents notional amounts and weighted-average interest rates or strike
rates by contractual maturity dates. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the contract.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest (Cap) Rate
There- Fair Value
2000 2001 2002 2003 2004 After Total 12/31/99
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt including current
portion:
Variable rate debt $2,027 $3,038 $4,500 $6,000 $8,500 $ 9,253 $33,318 $ 33,318
Average interest rate -
LIBOR+2.75%
Fixed rate debt - 12% $15,000 $15,000 $ 14,020
Interest Rate Derivative Financial
Instruments Related to Debt
Interest rate cap
Notional amount $3,000 $ 3,000 $ 1
Strike rate - 3-month LIBOR 7%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Financial Statements are set forth at Page F-1 at the end of this
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
-23-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Except as set forth under the caption "Executive Officers of the
Registrant" in Part I of this Annual Report on Form 10-K, this information will
be contained in the Company's definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders for 2000, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended December 31, 1999, and is hereby incorporated by
reference thereto.
Item 11. Executive Compensation
----------------------
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders for 2000,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 1999, and is
hereby incorporated by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders for 2000,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 1999, and is
hereby incorporated by reference thereto.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders for 2000,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 1999, and is
hereby incorporated by reference thereto.
-24-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-----------------------------------------------------------------
(a) The following documents are filed as part of this report.
<TABLE>
<CAPTION>
1. Financial Statements Page Reference
-------------------- --------------
<S> <C>
Report of Independent Auditors. F-1
Consolidated Balance Sheets as of December 31, F-2
1999 and 1998.
Consolidated Statements of Operations for F-3
the years ended December 31, 1999, 1998,
and 1997.
Consolidated Statements of Stockholders' F-4
Equity for the years ended December 31, 1999
1998, and 1997.
Consolidated Statements of Cash Flows for F-5
the years ended December 31, 1999, 1998, and 1997.
Notes to Consolidated Financial Statements. F-6
2. Financial Statement Schedule
----------------------------
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable or the required
information is given in the Financial Statements or Notes thereto, and therefore
have been omitted.
(b) Reports on Form 8-K
None.
-25-
<PAGE>
(c) Exhibits
--------
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant -Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (No. 33-68428)
filed with the Securities and Exchange Commission on September 3,
1993 (the "Form S-1").
3.2 Amended and Restated By-Laws of the Registrant - Incorporated by
reference to Exhibit 3.2 to the Form S-1.
4.1 Rights Agreement, dated September 13, 1996, between the
Registrant and StockTrans, Inc. - Incorporated by reference to
Exhibit 1 to the Registrant's Registration Statement on Form 8-A,
filed with the Securities and Exchange Commission on September
27, 1996.
4.2 Amendment to Rights Agreement dated August 8, 1998 - Incorporated
by reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 10-K").
*10.1 Employment Agreement between the Registrant and Michael R.
Cooper - Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K").
*10.2 Agreement and General Release, dated February 12, 1999, between
the Registrant and Michael R. Cooper - Incorporated by reference
to Exhibit 10 to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 16,
1999.
*10.3 Employment Agreement between the Registrant and John F. Short -
Incorporated by reference to Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(the "1999 10-Q").
*10.4 Employment Agreement between the Registrant and Douglas L. Cox
dated October 26, 1998 - Incorporated by reference to Exhibit
10.5 to the 1998 10-K.
*10.5 Employment Agreement between the Registrant and James T.
Heisler -Incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
-26-
<PAGE>
*10.6 Employment Agreement between the Registrant and Gregory C.
Ellis - Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
*10.7 Employment Agreement among Opinion Research Corporation, ORC
ProTel Inc., and Ruth R. Wolf dated January 1, 1998.
*10.8 Employment Agreement between Macro International Inc. and Frank
J. Quirk dated May 20, 1999.
*10.9 Employment Agreement between Macro International Inc. and Michael
T. Errecart dated May 20, 1999.
10.10 1997 Stock Incentive Plan - Incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.11 Lease Agreement dated May 15, 1995 between the Registrant and the
Maumee Woodlands IV Company (Maumee Facility) - Incorporated by
reference to Exhibit 10.15 to the 1995 10-K.
10.12 Lease Agreement dated May 24, 1993 between the Registrant and
Computer Associates International, Inc. (for Princeton facility)-
Incorporated by reference to Exhibit 10.16 to the Form S-1.
10.13 Lease dated December 13, 1998 between Life Assurance Holding
Corporation Limited and O.R.C. International, Ltd. (UK Facility)-
Incorporated by reference to Exhibit 10.17 to the 1998 10-K.
10.14 Lease dated August 27, 1993 between Carrollton Enterprises
Associates Limited Partnership and Macro International, Inc.
10.15 Asset Purchase Agreement between registrant and Pro Tel
Marketing, Inc. - Incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 20, 1998.
10.16 Loan and Security Agreement, dated July 20, 1998, among Chase
Manhattan Bank, the Bank of New York, and First Union National
Bank and Opinion Research Corporation, ORC Inc., and ORC ProTel,
Inc. - Incorporated by reference to Exhibit 10.19 to the 1998
10-K.
-27-
<PAGE>
10.17 Credit Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.1 to the 1999 10-Q.
10.18 Security Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.2 to the 1999 10-Q.
10.19 Guaranty dated May 26, 1999 by ORC Teleservice Corp., ORC ProTel,
Inc., Macro International Inc., and Quantum Research Corporation
for the benefit of Heller Financial, Inc. - Incorporated by
reference to Exhibit 10.3 to the 1999 10-Q.
10.20 Subsidiary Security Agreement dated May 26, 1999 by ORC
Teleservice Corp., ORC ProTel, Inc., Macro International Inc.,
Quantum Research Corporation and Heller Financial, Inc. -
Incorporated by reference to Exhibit 10.4 to the 1999 10-Q.
10.21 Investment Agreement dated May 26, 1999 among Opinion Research
Corporation, Allied Investment Corporation, and Allied Capital
Corporation -Incorporated by reference to Exhibit 10.5 to the
1999 10-Q.
10.22 Subsidiary Guaranty dated May 26, 1999 by ORC Teleservice Corp.,
ORC ProTel, Inc., Macro International Inc., and Quantum Research
Corporation for the benefit of Allied Capital Corporation and
Allied Investment Corporation -Incorporated by reference to
Exhibit 10.6 to the 1999 10-Q.
10.23 Subordinated Debenture for $9.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Capital Corporation -
Incorporated by reference to Exhibit 10.7 to the 1999 10-Q.
10.24 Subordinated Debenture for $5.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Investment
Corporation - Incorporated by reference to Exhibit 10.8 to the
1999 10-Q.
10.25 Registration Rights Agreement dated May 26, 1999 among Opinion
Research Corporation, Allied Capital Corporation and Allied
Investment Corporation - Incorporated by reference to Exhibit
10.9 to the 1999 10-Q.
10.26 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Capital Corporation dated May 26, 1999 - Incorporated by
reference to Exhibit 10.10 to the 1999 10-Q.
-28-
<PAGE>
10.27 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Investment Corporation dated May 26, 1999 - Incorporated
by reference to Exhibit 10.11 to the 1999 10-Q.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP dated March 20, 2000.
27 Financial Data Schedule (EDGAR only).
- --------------------------------------------------------------------------------
* Constitutes a compensatory plan or arrangement required to be filed as an
exhibit to this report
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OPINION RESEARCH CORPORATION
By: /s/ John F. Short
---------------------------------
John F. Short, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 20, 2000 by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ John F. Short Chairman of the Board, Chief Executive Officer,
- ------------------------
John F. Short President and Director
(Principal Executive Officer)
/s/ Douglas L. Cox Chief Financial Officer
- ------------------------
Douglas L. Cox (Principal Financial and Accounting Officer)
/s/ James T. Heisler Executive Vice President and Director
- ------------------------
James T. Heisler
/s/ Stephen A. Greyser Director
- ------------------------
Stephen A. Greyser
/s/ Derek B. Smith Director
- ------------------------
Derek B. Smith
/s/ Lenard B. Tessler Director
- ------------------------
Lenard B. Tessler
/s/ Dale J. Florio Director
- ------------------------
Dale J. Florio
/s/ Gregory C. Ellis Chief Operating Officer - ORC Market Research
- ------------------------
Gregory C. Ellis and Director
-30-
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Opinion Research Corporation
We have audited the accompanying consolidated balance sheets of Opinion Research
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Opinion
Research Corporation and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 10, 2000
F-1
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,808 $ 1,058
Accounts receivable:
Billed 21,107 9,457
Unbilled services 11,853 3,383
--------------- ----------------
32,960 12,840
Less: allowance for doubtful accounts 259 209
--------------- ----------------
32,701 12,631
Prepaid and other current assets 2,034 4,244
--------------- ----------------
Total current assets 37,543 17,933
Property and equipment, net 8,815 5,421
Intangible assets, net 4,217 2,201
Goodwill, net 37,588 23,659
Other assets 3,803 1,396
--------------- ----------------
$ 91,966 $ 50,610
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 3,629 $ 1,688
Accrued expenses 8,329 4,484
Payable for acquisitions 2,897 3,068
Deferred revenues 3,450 2,683
Short term borrowings 2,027 2,623
Other current liabilities 1,838 143
--------------- ----------------
Total current liabilities 22,170 14,689
Long term debt 45,311 15,600
Deferred income taxes 1,232 404
Other liabilities 3,060 3,226
Stockholders' Equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized,
none issued or outstanding - -
Common Stock, $.01 par value, 10,000,000 shares authorized,
4,292,641 shares issued and 4,254,783 outstanding in 1999
and 4,281,747 shares issued and 4,243,889 outstanding in 1998 43 42
Additional paid-in capital 15,475 14,216
Retained earnings 4,931 2,507
Accumulated other comprehensive income (loss) (70) 112
Treasury Stock, at cost, 37,858 shares in 1999 and 1998 (186) (186)
--------------- ----------------
Total stockholders' equity 20,193 16,691
--------------- ----------------
$ 91,966 $ 50,610
=============== ================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 118,621 $ 73,167 $ 56,673
Cost of revenues 75,849 44,807 34,374
--------------- -------------- --------------
Gross profit 42,772 28,360 22,299
Selling, general and administrative expenses 28,502 19,408 16,844
Depreciation and amortization 5,807 4,142 2,654
Unusual charge - 2,470 -
--------------- -------------- --------------
Operating income 8,463 2,340 2,801
Interest expense, net 4,005 1,871 674
--------------- -------------- --------------
Income before income taxes and extraordinary loss 4,458 469 2,127
Provision for income taxes 1,944 489 976
--------------- -------------- --------------
Income (loss) before extraordinary loss 2,514 (20) 1,151
Extraordinary loss on debt refinancings,
net of tax benefit of $60 in 1999 and $133 in 1998 (90) (150) -
--------------- -------------- --------------
Net income (loss) $ 2,424 $ (170) $ 1,151
=============== ============== ==============
Income (loss) before extraordinary loss per common share:
Basic $ 0.59 $ (0.00) $ 0.28
=============== ============== ==============
Diluted $ 0.58 $ (0.00) $ 0.28
=============== ============== ==============
Extraordinary loss on debt refinancings per common share:
Basic $ (0.02) $ (0.04) $ -
=============== ============== ==============
Diluted $ (0.02) $ (0.04) $ -
=============== ============== ==============
Net income (loss) per common share:
Basic $ 0.57 $ (0.04) $ 0.28
=============== ============== ==============
Diluted $ 0.56 $ (0.04) $ 0.28
=============== ============== ==============
Weighted average common shares outstanding:
Basic 4,244,026 4,202,131 4,144,164
Diluted 4,331,700 4,202,131 4,145,866
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
------------------------ paid in Retained comprehensive
Shares Amount capital earnings income (loss)
---------- ---------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,232 $ 42 $ 14,011 $ 1,526 $ 556
Comprehensive income:
Net income - - - 1,151 -
Other comprehensive income:
Foreign currency translation
adjustments - - - - (705)
Comprehensive income
Stock issuance - - (35) - -
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1997 4,232 42 13,976 2,677 (149)
Comprehensive income:
Net loss - - - (170) -
Other comprehensive income:
Foreign currency translation
adjustments - - - - 261
Comprehensive income
Stock issuance 50 - 228 - -
Compensation expense recognized
for stock options - - 12 - -
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1998 4,282 42 14,216 2,507 112
Comprehensive income:
Net income - - - 2,424 -
Other comprehensive income:
Foreign currency translation
adjustments - - - - (182)
Comprehensive income (loss)
Exercise of stock options 148 1 912 - -
Common stock redeemed for the
exercise of stock options (137) - (936) - -
Compensation expense recognized
for warrants issued - - 100 - -
Warrants issued in association with
debt refinancing - - 1,183 - -
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1999 4,293 $ 43 $ 15,475 $ 4,931 $ (70)
========== ========== ============== ============ =================
<CAPTION>
Treasury stock Total
------------------------- stockholders'
Shares Amount equity
---------- ----------- ------------------
<S> <C> <C> <C>
Balance, December 31, 1996 88 $ (490) $ 15,645
Comprehensive income:
Net income - - 1,151
Other comprehensive income:
Foreign currency translation
adjustments - - (705)
------------------
Comprehensive income 446
Stock issuance (50) 304 269
---------- ----------- ------------------
Balance, December 31, 1997 38 (186) 16,360
Comprehensive income:
Net loss - - (170)
Other comprehensive income:
Foreign currency translation
adjustments - - 261
------------------
Comprehensive income 91
Stock issuance - - 228
Compensation expense recognized
for stock options - - 12
---------- ----------- ------------------
Balance, December 31, 1998 38 (186) 16,691
Comprehensive income:
Net income - - 2,424
Other comprehensive income:
Foreign currency translation
adjustments - - (182)
------------------
Comprehensive income (loss) 2,242
Exercise of stock options - - 913
Common stock redeemed for the
exercise of stock options - - (936)
Compensation expense recognized
for warrants issued - - 100
Warrants issued in association with
debt refinancing - - 1,183
---------- ----------- ------------------
Balance, December 31, 1999 38 $ (186) $ 20,193
========== =========== ==================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,424 $ (170) $ 1,151
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 5,807 4,142 2,654
Loss on disposal of fixed assets 9 120 4
Extraordinary loss 150 283 -
Non-cash portion of unusual charge - 198 -
Provision for doubtful accounts 135 226 10
Amortization of original issue discount included in interest expense 260 - -
Amortization of loan fees 169 51 26
Compensation expense recognized for issuance of warrants 100 - -
Deferred income taxes (835) (1,356) (677)
Changes in operating assets and liabilities net of effects
from acquisitions,
Billed accounts receivable, net 3,269 (2,312) 228
Unbilled services (6,509) 707 (1,236)
Other assets 709 (1,137) (405)
Accounts payable (84) 755 (1,033)
Accrued expenses (282) 1,656 980
Advanced billing from customers 777 (1,343) 1,216
Deferred interest payable - - (1,203)
Other liabilities 772 1,026 1,161
-------------- -------------- --------------
Net cash provided by operating activities 6,871 2,846 2,876
-------------- -------------- --------------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired (26,383) (12,131) (1,382)
Proceeds from the sale of fixed assets 107 142 18
Capital expenditures (3,563) (1,882) (1,011)
-------------- -------------- --------------
Net cash used in investing activities (29,839) (13,871) (2,375)
-------------- -------------- --------------
Cash flows from financing activities:
Borrowings under line-of-credit agreement 23,769 43,108 18,010
Repayments under line-of-credit agreement (31,735) (37,125) (17,400)
Issuance of note payable 43,970 20,093 6,151
Repayments of note payable (12,355) (14,194) (7,840)
Repayments under capital lease arrangements (101) (214) (240)
Proceeds from issuance of capital stock/warrants 1,161 228 269
-------------- -------------- --------------
Net cash provided by (used in) financing activities 24,709 11,896 (1,050)
-------------- -------------- --------------
Effect of exchange rate changes on cash and cash equivalents 9 27 (156)
-------------- -------------- --------------
Increase (decrease) in cash and cash equivalents 1,750 898 (705)
Cash and cash equivalents at beginning of period 1,058 160 865
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 2,808 $ 1,058 $ 160
============== ============== ==============
Non-cash investing and financing activities:
Acquisition of equipment under capital lease $ 107 $ - $ 55
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(in thousands, except share and per share amounts)
1. Summary of significant accounting policies
Nature of operations and basis of presentation
Opinion Research Corporation (the "Company" or "ORC") was established in 1938 to
apply the principles of general public opinion polling to marketing issues
facing America's largest companies. The Company has evolved to provide primary
market research, social research, information services, marketing services,
including a focus on businesses selling primarily to other businesses, and
model-based telemarketing. The Company assists clients in evaluating,
monitoring and optimizing the effectiveness of their marketing and sales. The
Company's services and products address issues such as customer loyalty and
retention, market demand and forecasting, corporate image, competitive
positioning, public sector primary research, and model-based telemarketing. The
Company operates in three industry and three geographic segments.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All inter-company transactions are eliminated
upon consolidation.
Revenue recognition
Revenues from professional services are recognized at the time services are
performed on a percentage of completion basis. Invoices to clients are
generated in accordance with the terms of the applicable contract, which may not
be directly related to the performance of services. Unbilled services are
classified as a current asset. Advanced billings from clients in excess of
revenue earned are classified as a current liability. The Company grants credit
primarily to large companies and government agencies and performs periodic
credit evaluations of its clients' financial condition. The Company does not
generally require collateral. Credit losses relating to clients consistently
have been within management's expectations. For the year ended December 31,
1999, one client accounted for 11% of the Company's total revenues. No single
client constituted more than 10% of net accounts receivable at December 31,
1999. As of December 31, 1998, two clients constituted 31% of net accounts
receivable and accounted for 30% of revenues for the year ended December 31,
1998. At December 31, 1997, two clients constituted 27% of net accounts
receivable and 22% of the Company's total revenues.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-6
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Cash equivalents
The Company considers as cash equivalents all highly liquid debt instruments
with an original maturity of three months or less when purchased.
Property and equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets (3-10
years). Leasehold improvements are amortized using the straight-line method
over their estimated useful lives or the remaining life of the lease, whichever
is shorter.
Impairment of long-lived assets
The Company records impairment losses on long-lived assets used in operations or
expected to be disposed when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
Financial instruments
The Company uses interest rate swap and cap agreements to limit the Company's
exposure to interest rate fluctuations. Interest rate differentials to be paid
or received as a result of interest rate swap or cap agreements are accounted
for by recording the net interest received or paid as an adjustment to interest
expense on a current basis. The fair value of the interest rate swap and cap
agreements, as well as gains or losses resulting from market movements, are not
recognized in the financial statements.
Foreign currency translation
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars using the exchange rate in effect at the balance sheet date and revenues
and expenses are translated using a monthly average exchange rate during the
period. The resulting translation adjustments are recorded as a component of
other comprehensive income and are accumulated in stockholder's equity. Because
cumulative translation adjustments are considered a component of permanently
invested unremitted earnings of subsidiaries outside of the United States, no
taxes are provided on such amounts.
F-7
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Stock-based compensation
As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation,
the Company has elected to follow Accounting Principal Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee option plans. Under APB 25, no compensation expense
is recognized at the time of option grant if the exercise price of the Company's
employee stock option equals or exceeds the fair market value of the underlying
common stock on the date of grant.
Income taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse. Recognition of deferred
tax assets is limited to amounts considered by management to be more likely than
not realized in future periods.
Earnings per share
Basic and diluted earnings per share are calculated in accordance with Statement
No. 128, Earnings per Share. Earnings per share amounts for all periods have
been presented in conformity with the requirements of Statement 128.
Comprehensive income
The Company has adopted Statement No. 130, Reporting Comprehensive Income.
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components. Since this Statement requires only
additional disclosure, there will be no effect on the Company's results of
operations or financial position. Statement 130 requires foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
Statement 130.
F-8
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Segments
The Company has adopted Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement 131 establishes annual and interim
reporting standards for the way that public business enterprises report
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. The adoption of Statement 131
did not affect the Company's results of operations or financial position, and
was limited to the presentation of its disclosures. See Note 14.
Computer Software
Effective January 1, 1999, the Company adopted Statement of Position 98-1 ("SOP
98-1"), Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use issued by the American Institute of Certified Public Accountants.
SOP 98-1 requires companies to capitalize certain costs of computer software
developed or obtained for internal use and amortize such costs over the
software's estimated useful life.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board issued Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133. This statement defers the effective
date of Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to all fiscal quarters of all fiscal years beginning after June 15,
2000. Statement 133 establishes a new model for accounting for derivatives and
hedging activities. The Statement requires all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. The Company is currently evaluating the effects of adoption of
Statement 133 on the Company's financial position and results of operations.
Reclassification
Certain amounts in prior years have been reclassified to conform to the 1999
presentation. These reclassifications had no impact on the Company's results of
operations or financial position.
F-9
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisitions
In 1997, the Company completed a stock purchase of a company in Korea and the
asset purchase of companies in Taiwan and Mexico. Additionally, the Company's
two operating units in the U.K. were merged into one unit and renamed O.R.C.
International, Ltd.
In January 1998, ORC ProTel, Inc. ("ProTel"), a newly created subsidiary of the
Company, purchased certain assets (not including cash or accounts receivable)
and assumed certain liabilities of Pro Tel Marketing, Inc. The acquisition was
accounted for as a purchase and accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed. The purchase price was comprised of
a $10,000 cash payment and 400,000 options to purchase common shares of the
Company's stock, with the provision that such options may, at the option of the
holders, be returned to the Company for cash payment of $2,000 on the second
anniversary of the closing. The fair value of these options was $1,691 at the
acquisition date and $2,000 at December 31, 1999. This amount is recorded as
other long-term liabilities in the Company's consolidated financial statements.
In January 2000, these options were returned to the Company for a payment of
$2,000. The fair value of the assets acquired and liabilities assumed was $632
and $143, respectively. The Company incurred $543 of costs related to the
acquisition. Identifiable intangible assets valued at $1,250 are being amortized
using the straight-line method over a period of five years. The excess
consideration paid over the estimated fair value of net assets acquired in the
amount of $10,495 has been recorded as goodwill to be amortized using the
straight-line method over a period of fifteen years.
In addition, over the years 1998 through 2000, the sellers may earn up to an
additional $10,000 of cash payments, contingent upon ProTel achieving certain
targets for revenues and earnings before interest, income taxes, depreciation,
and amortization. Based on 1999 and 1998 operating results, additional payments
totaling $2,897 and $3,068 were made to the principals and broker in March 2000
and 1999, respectively. The additional consideration has been recorded as
goodwill and is being amortized over the remaining life of the original
goodwill.
The Company acquired all of the outstanding shares of stock of Macro
International Inc. ("Macro) pursuant to a Stock Purchase Agreement dated April
30, 1999. The purchase price was comprised of a $22,300 cash payment and
approximately $1,010 of additional costs related to the acquisition. The fair
value of the net assets acquired was $8,742. Identifiable intangible assets
valued at $2,960 are being amortized using the straight-line method over a
period of five years. The excess consideration paid over the estimated fair
value of net assets acquired and identifiable intangible assets of $11,608 has
been recorded as goodwill to be amortized using the straight-line method over a
period of twenty years.
F-10
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisition (continued)
In addition, over the next two years, the sellers may earn up to an additional
$8,700 of cash payments, contingent upon Macro achieving certain future targets
for revenues and earnings before interest, income taxes, depreciation and
amortization. The pro forma adjustments presented do not give effect to any
such contingent payments.
The unaudited pro forma results of operations for the years ended December 31,
1999, 1998 and 1997, which assumes the consummation of the ProTel and Macro
purchases as of January 1, 1997, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $140,714 $134,856 $125,218
Net income (loss) $ 1,874 ($693) $ 790
Net income (loss) per share:
Basic $ 0.44 ($0.16) $ 0.19
Diluted $ 0.43 ($0.16) $ 0.19
</TABLE>
The pro forma net income (loss) includes adjustment for amortization of goodwill
and intangible assets, adjustment of interest expense, and the related income
tax effect of such adjustments.
3. Property and equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Leasehold improvements $ 3,198 $ 2,057
Computer equipment and software 12,334 9,494
Furniture, fixtures, and equipment 4,797 3,959
Equipment under capital lease obligations 276 366
-------------- --------------
20,605 15,876
Less accumulated depreciation & amortization 11,790 10,455
-------------- --------------
Property and equipment, net $ 8,815 $ 5,421
============== ==============
</TABLE>
F-11
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Property and equipment (continued)
Depreciation expense of $3,053, $2,337, and $1,628 was charged to earnings for
the years ended December 31, 1999, 1998, and 1997.
4. Intangible assets
Intangible assets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Intangible assets $ 9,098 $ 6,214
Less accumulated amortization 4,881 4,013
-------------- --------------
Intangible assets, net $ 4,217 $ 2,201
============== ==============
Goodwill $42,245 $26,507
Less accumulated amortization 4,657 2,848
-------------- --------------
Goodwill, net $37,588 $23,659
============== ==============
</TABLE>
Amortization expense of goodwill and intangible assets for the years ended 1999,
1998 and 1997 was $2,754, $1,805, and $1,026, respectively.
5. Income taxes
For financial reporting purposes, income (loss) before income taxes and
extraordinary loss consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
United States $4,373 $ 675 $2,343
Foreign 85 (206) (216)
-------------- --------------- --------------
$4,458 $ 469 $2,127
============== =============== ==============
</TABLE>
F-12
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Income taxes (continued)
The provision (benefit) for income taxes excluding extraordinary loss consists
of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Current:
Federal $1,010 $ 1,610 $1,520
State 274 230 117
Foreign 86 5 (14)
-------------- --------------- --------------
Total current 1,370 1,845 1,623
-------------- --------------- --------------
Deferred:
Federal 379 (1,084) (496)
State 167 (245) (146)
Foreign 28 (27) (5)
-------------- --------------- --------------
Total deferred 574 (1,356) (647)
-------------- --------------- --------------
$1,944 $ 489 $ 976
============== =============== ==============
</TABLE>
The difference between tax expense and the amount computed by applying the
statutory federal income tax rate (34%) to income before income taxes and
extraordinary loss is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Statutory rate applied to pre-tax income $1,516 $ 159 $ 723
Add (deduct):
State income taxes, net of federal benefit 291 (10) 77
Foreign operating losses for which a tax
benefit has not been recorded 85 48 55
Effect of non-deductible goodwill amortization 251 106 107
Effect of other non-deductible expenses 36 120 46
Tax credits (100) - -
Other (135) 66 (32)
----------- ------------ ------------
$1,944 $ 489 $ 976
=========== ============ ============
</TABLE>
F-13
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Income taxes (continued)
The Company's deferred tax liabilities and assets consists of the following
temporary differences:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Deferred tax liabilities:
Intangibles ($1,026) $ -
Capitalized production costs (378) (669)
-------------- ---------------
Total deferred tax liabilities (1,404) (669)
-------------- ---------------
Deferred tax assets:
Reserves for doubtful accounts 90 149
Fixed assets (65) 55
Compensation 431 1,186
Net operating loss carryforwards - 35
Valuation allowance (95) (34)
Other (91) 209
-------------- ---------------
Total deferred tax assets 270 1,600
-------------- ---------------
Net deferred tax assets (liabilities) ($1,134) $ 931
============== ===============
</TABLE>
At December 31, 1999 and 1998, the Company has net short-term deferred tax
assets in the amount of $98 and $1,335, respectively, which are reported in the
balance sheet in prepaid and other current assets. At December 31, 1999 and
1998, unremitted earnings of foreign subsidiaries were approximately $654 and
$240, respectively. Since it is the Company's intention to indefinitely reinvest
these earnings, no U.S. taxes have been provided. Determination of the amount of
unrecognized deferred tax liability on these unremitted earnings is not
practicable.
Income taxes paid in the U.S. in 1999, 1998, and 1997 were $968, $1,959, and
$841, respectively. Income taxes of $39, $27 and $0 were paid in the U.K. in
1999, 1998, and 1997, respectively.
6. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Working capital facilities $ 4,253 $ 6,973
Notes payable 43,085 11,250
-------------- --------------
Total debt 47,338 18,223
Less current maturities 2,027 2,623
-------------- --------------
Long-term portion $45,311 $15,600
============== ==============
</TABLE>
F-14
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt (Continued)
In May 1999, in connection with the acquisition of Macro, the Company entered
into a credit agreement with a financial institution for a new facility of
$50,000 (the "Senior Facility"). This financial institution later syndicated the
facility to include four additional financial institutions. The Senior Facility
provides $30,000 of term notes and up to $20,000 of revolving credit for a six-
year term and is secured by substantially all of the assets of the Company. The
Senior Facility carries an interest rate at the discretion of the Company of
either the financial institution's designated base rate (8.5% at December 31,
1999) plus 125 basis points or LIBOR (3-month LIBOR was 6.13% at December 31,
1999) plus 275 basis points for both revolving credit and term notes. Principal
payments on the term notes are due in escalating quarterly installments
commencing September 30, 1999. As of December 31, 1999, the Company had
approximately $15,846 of additional credit available under the Senior Facility.
Given that the interest rates on the revolving credit facility and the notes are
based on current market rates, the carrying value of the amounts due under the
credit facility approximates their fair value at December 31, 1999.
In May 1999, the Company also issued $15,000 of subordinated debentures to a
financial institution. In exchange for consideration received in connection with
this debt, the Company also issued warrants to purchase a maximum of 437,029
shares of the Company's common stock at an exercise price of $5.422 per share.
The warrants are exercisable from the date of issuance and expire in 2007. The
subordinated financing has an eight-year term and a coupon rate of 12%. The fair
market value of $14,020 at December 31, 1999 is included in the notes payable in
the previously presented debt table.
All debt outstanding as of May 26, 1999 was repaid with proceeds from the above
borrowings. In conjunction with its new credit facilities, the Company incurred
costs of $2,154, which are recorded as other long-term assets in the Company's
consolidated financial statements and are being amortized over the term of the
facilities. The Company also recorded an after-tax, non-cash charge of $90 for
the write-off of unamortized loan fees from the previous credit facility. This
charge is shown as an extraordinary loss from debt refinancing.
Aggregate maturities of debt for the years ending December 31 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 2,027
2001........................................................ 3,038
2002........................................................ 4,500
2003........................................................ 6,000
2004........................................................ 8,500
Thereafter.................................................. 24,253
</TABLE>
F-15
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Debt (Continued)
The Company paid interest of $2,123, $1,527, and $679 during the years ended
December 31, 1999, 1998, and 1997, respectively. Also during 1997, the Company
paid $1,203 of deferred interest associated with the repayment of its
subordinated debt.
7. Leases
Future minimum payments required under capital and operating leases that have
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------- --------------
<S> <C> <C>
2000.............................................. $ 40 $ 5,754
2001.............................................. 27 5,341
2002.............................................. 27 5,193
2003.............................................. 27 4,507
2004.............................................. - 2,076
Thereafter........................................ - 2,552
------------- --------------
Total minimum lease payments...................... $121 $25,423
==============
Less amounts representing interest................ 21
-------------
Capitalized lease obligations..................... $100
=============
</TABLE>
At December 31, 1999, the current portion of capital lease obligations of $31
was recorded in the balance sheet in other current liabilities. Rent expense
under operating leases was $4,768, $2,641, and $2,178, for the years ended
December 31, 1999, 1998 and 1997, respectively. Real estate taxes, insurance and
maintenance expenses generally are obligations of the Company and, accordingly,
are not included as part of rental payments. It is expected that, in the normal
course of business, leases that expire will be renewed or replaced by leases on
similar properties.
8. Interest Rate Instruments
At December 31, 1999, the Company had an interest rate cap agreement outstanding
for a notional amount of $3,000. This agreement will expire in 2001.
F-16
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Interest Rate Instruments (continued)
In 1998, the Company entered into interest rate cap and interest rate swap
agreements to reduce its exposure to fluctuations in interest rates. As of
December 31, 1998, selected information related to such agreements was as
follows:
<TABLE>
<CAPTION>
Notional Amount Maturity Fair Value
------------------- ---------- --------------
<S> <C> <C> <C>
Interest Rate Cap $ 3,000 2001 $ 2
Interest Rate Swap $11,250 2003 $29
</TABLE>
The interest rate cap agreement required a premium payment to the counterparty
based upon the notional principal amount. The interest rate cap agreement
entitles the Company to receive from the counterparty the amounts, if any, by
which the selected market interest rate exceeds the strike rate stated in the
agreement. The Company utilized an interest rate swap agreement to reduce the
impact on interest expense of fluctuating interest rates on its variable rate
debt. Under the Company's interest rate swap agreement, the Company paid a fixed
rate of interest and received a 3-month LIBOR floating rate. The swap agreement
was liquidated in May 1999.
9. Pension
The Company maintains a defined contribution pension and profit sharing plan
covering substantially all employees ("ORC Plan") except Macro, which maintains
a separate profit sharing/401k plan ("Macro Plan"). Under both plans, employees
may contribute up to 15% of their annual salary but not to exceed the maximum
allowable under the Internal Revenue Code. The respective Board of Directors may
elect to match employees' contributions or contribute to the profit sharing
plan. ORC Plan assets include 206,625 and 310,625 shares of common stock of the
Company as of December 31, 1999 and 1998, respectively. The Company contributed
$250, $95, and $104 to the ORC Plan in 1999, 1998, and 1997, respectively. In
1999, the Company contributed $765 to the Macro Plan.
10. Stockholders' equity
In December 1997, the Company sold 50,000 shares to a senior executive of the
Company for a fair market value of $269. In November 1998, 50,000 shares were
sold to a second senior officer for $228, the fair market value at the time of
the transaction.
F-17
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options
The 1993 Stock Incentive Plan provided for the grant of up to 375,000 options to
purchase common stock to directors and key employees of the Company. The
exercise price of options granted to employees under this plan was at least
equal to the fair market value of the stock on the date of grant. These options
vested equally over a three year period. The plan terminates in August 2003.
The 1994 Stock Incentive Plan provided for the grant of up to 350,000 options to
purchase common stock to directors and key employees of the Company. No employee
could be granted options to acquire more than 100,000 shares of Company common
stock in any one calendar year. The options granted under the 1994 plan had an
exercise price that was at least equal to the fair market value of the stock on
the grant date and were exercisable for seven years. Options granted under this
plan vested equally over a period of three years. The plan terminates on April
25, 2004.
As amended in 1996, each Non-employee Director on the date of the Annual Meeting
of Stockholders is automatically granted options to acquire the "formula number"
of shares of common stock. The option exercise price for these options will be
equal to the fair market value of the underlying shares on the date of the
grant. The options granted under this provision will be non-qualified stock
options. The Non-employee Directors' options will become exercisable on the
first anniversary of the date of grant provided the Non-employee Director is a
member of the Board of Directors on that date.
For 1999, all outside directors were granted the "formula number" of 5,000
shares. In addition, each director who chaired a committee was granted options
to purchase an additional 5,000 shares of the Company's common stock. The
"formula number" for 1998 and 1997 was 15,000 shares for those Non-employee
Directors who have served as a member of the Board of Directors for a period of
three full years or more, and 5,000 shares for all other Non-employee Directors.
Non-employee Directors' options terminate seven years from the date of grant or
90 days after the optionee ceases to serve as a member of the Board of Directors
for any reason. Any options of a Non-employee Director that are not exercisable
when he or she ceases to serve as a member of the Board of Directors will
terminate as of the termination of the Non-employee Director's service on the
Board of Directors.
On June 17, 1997 the shareholders of the Company approved the merger of the 1993
and 1994 Stock Incentive Plans into the 1997 Stock Incentive Plan. This merger
was undertaken in order to simplify administration and record keeping otherwise
required in operating the plans separately. The 1997 Stock Incentive Plan was
also amended to increase the number of shares available for grant from 725,000
to 875,000.
F-18
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options (continued)
On June 9, 1998, the 1997 Stock Incentive Plan was amended to increase the
number of shares available for grant from 875,000 to 1,125,000 and to revise the
date of grant of formula options for non-employee Directors from the date of the
annual meeting to January 2 of each year. The 1997
Stock Incentive Plan terminates on April 16, 2007. Stock option transactions for
the 1997 Stock Incentive Plan (and its predecessors) were as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
-------------- ------------------
<S> <C> <C>
Outstanding balance at December 31, 1996 690,292 $6.01
1997
----
Granted 595,206 $5.55
Canceled (327,458) $6.22
--------------
Outstanding Balance at December 31, 1997 958,040 $5.65
1998
----
Granted 236,000 $5.60
Canceled (24,334) $5.61
--------------
Outstanding Balance at December 31, 1998 1,169,706 $5.64
1999
----
Granted 50,000 $5.35
Canceled (117,332) $5.56
Exercised (147,582) $6.18
--------------
Outstanding Balance at December 31, 1999 954,792 $5.55
==============
</TABLE>
Included above in the 1997 figures are 307,706 options that were issued in 1993
and 1994, cancelled in December 1997, and reissued in December 1997. The
reissued options retained all of the original attributes except for expiration
dates which are six years from the date of grant for options initially granted
in 1993 and seven years for those options originally granted in 1994. All
reissued options have an exercise price equal to or greater than the market
value of the stock on the date of grant.
F-19
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options (continued)
Additionally, in December 1997, 200,000 non-plan options were granted to three
senior executives. These non-plan options were issued with an exercise price
equal to the market value of the stock at the date of grant. These options have
a vesting period of three years and a life of seven years. As of December 31,
1999, 140,000 were issued and outstanding. These options are included in the
previously presented option table.
Options exercisable at December 31, 1999, 1998 and 1997 were 736,960, 733,708,
and 533,791, respectively. Exercise prices for options outstanding as of
December 31, 1999 for the plan ranged from $3.63 to $8.00 per share. The
weighted average remaining term of the outstanding options is 4.64 years.
In accordance with the provisions of SFAS No. 123, the Company applies APB 25
and related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation expense. If the Company had elected
to recognize compensation expense based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123, net income (loss) and earnings
(loss) per share would have been adjusted to the pro forma amounts indicated in
the table below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) - as reported....................... $2,424 ($170) $1,151
Net income (loss) - pro forma......................... $2,239 ($514) $ 593
Earnings (loss) per share - as reported............... $ .56 ($.04) $ .28
Earnings (loss) per share - pro forma................. $ .52 ($.12) $ .14
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Expected dividend yield............................... 0% 0% 0%
Expected stock price volatility....................... 63.1% 42.3% 40.2%
Risk-free interest rate............................... 5.4% 5.5% 5.5%
Expected life of options.............................. 7 years 7 years 7 years
</TABLE>
The weighted average fair value of options granted during 1999 and 1998 was
$3.56 and $2.97 per share, respectively.
F-20
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options (continued)
As of December 31, 1999, the Company has 692,029 warrants issued and outstanding
with a weighted average exercise price of $5.36. These warrants are immediately
exercisable.
12. Earnings per share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1999 1998 1997
------------- ------------ ------------
(000's omitted, except per share data)
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary loss $2,514 ($20) $1,151
------------- ------------ ------------
Numerator for basic and diluted earnings per share $2,514 ($20) $1,151
============= ============ ============
Denominator:
Denominator for basic earnings per share,
Weighted-average shares 4,244 4,202 4,144
Effect of dilutive stock options 88 - 2
------------- ------------ ------------
Denominator for diluted earnings per share
Adjusted weighted-average shares 4,332 4,202 4,146
------------- ------------ ------------
Basic earnings per share $ .59 $ .00 $ .28
============= ============ ============
Diluted earnings per share $ .58 $ .00 $ .28
============= ============ ============
</TABLE>
13. Split-dollar life insurance
The Company has entered into certain agreements with trusts established in the
names of two officers of the Company. Under these agreements, the Company pays
certain premiums on life insurance policies on the officers, to which the trusts
are the beneficiaries. The Company has been assigned certain rights to the
assets of the trusts as collateral for the premiums paid on these life insurance
policies. The amounts paid by the Company for the premiums on these policies
were $57 and $123 for the year ended December 31, 1999 and 1998, respectively.
These amounts are recorded in other assets in the accompanying consolidated
balance sheets. In the event the policies are terminated, the officers have
guaranteed the repayment of the amounts due from their respective trusts, and
have pledged certain of their personal assets to the Company to collateralize
such guarantees (See Note 15).
F-21
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Segments
The Company identifies its segments based on the Company's geographic locations
and industries in which the Company operates. The Company currently has four
reportable segments: U.S. Market Research, U.K. Market Research, Teleservices,
and Social Research, the business segment operated by Macro. There were no
significant intersegment events which materially affected the financial
statements. The Company measures segment profits as operating profit, which is
defined as income before interest expenses and income taxes. Information on
segments and a reconciliation to consolidated total, are as follows:
<TABLE>
<CAPTION>
U.S. Market U.K. Market Social Total
Research Research Teleservices Research Segments Other Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
- -----------------------------
Revenues from external customers $36,915 $15,411 $16,907 $44,961 $114,194 $ 4,427 $118,621
Depreciation and amortization 1,906 750 1,442 1,568 5,666 141 5,807
Operating income 3,227 174 1,965 2,815 8,181 282 8,463
Interest expense 4,005 4,005
Income (loss) before income taxes
and extraordinary loss $ 2,514
Total assets $22,163 $ 9,829 $20,072 $37,559 $ 89,623 $ 2,343 $ 91,966
Capital expenditures $ 632 $ 1,414 $ 1,094 $ 438 $ 3,578 $ 92 $ 3,670
Year Ended December 31, 1998:
- -----------------------------
Revenues from external customers $40,144 $14,349 $14,986 - $ 69,479 $ 3,688 $ 73,167
Depreciation and amortization 1,798 632 1,568 - 3,998 144 4,142
Unusual charge (2,470) (2,470)
Operating income 3,561 253 1,083 - 4,897 (2,557) 2,340
Interest expense 1,871 1,871
Income (loss) before income taxes
And extraordinary loss $ 469
Total assets $24,044 $ 8,832 $16,259 - $ 49,135 $ 1,769 $ 50,904
Capital expenditures $ 1,134 $ 421 $ 269 - $ 1,824 $ 58 $ 1,882
Year Ended December 31, 1997:
- -----------------------------
Revenues from external customers $36,726 $14,116 $ 2,377 - $ 53,219 $ 3,454 $ 56,673
Depreciation and amortization 1,870 647 52 - 2,569 85 2,654
Operating income (loss) 2,856 (136) (264) - 2,456 345) 2,801
Interest expense 674 674
Income before income taxes $ 2,127
Total assets $21,182 $ 8,794 $ 1,528 - $ 31,504 $ 976 $ 32,480
Capital expenditures $ 635 $ 177 $ 154 - $ 966 $ 45 $ 1,011
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Segments (continued)
International long-lived assets are $6,444, $5,960 and $5,335 in 1999, 1998, and
1997, respectively. In 1999, revenues from one customer of the Company's Social
Research segment represented $12,592 of the Company's total revenues. In 1998
and 1997, revenues from one client of the Company's Teleservices and U.S. Market
Research segment represented $13,441 and $9,720 of the Company's total revenues,
respectively. Revenues in the "other" category were generated from the
Company's Asia and Mexico operations. As these segments are not significant,
results are not presented separately.
15. Unusual charge
In the fourth quarter of 1998, the Company took a fourth quarter pre-tax charge
of $2,470 for expenses incurred in relation to an agreement with its former
Chief Executive Officer providing for his resignation as a Director, Chairman,
and Chief Executive Officer of the Company and the buy-out of his pre-existing
employment contract. Included in the pre-tax charge of $2,470 was a write-off
of $186 related to the termination of a split-dollar life insurance policy for
this former officer and the cancellation of the repayment guarantee.
16. Extraordinary losses
The Company recorded extraordinary losses, net of tax benefits, of $90 and $150
in 1999 and 1998, respectively. These non-cash charges resulted from the write-
off of unamortized loan origination fees in connection with debt refinancings
during each period.
F-23
<PAGE>
Schedule II - Valuation and Qualifying Accounts
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
(in Thousands of Dollars)
- ------------------------------------------------------------------------------
Rule 12-09. Valuation and Qualifying Accounts
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
-------------------------------------
Balance at Charged to Charged to Balance
Description beginning costs other accounts Deductions - at end
of period and expenses - describe describe of period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Deducted from asset account:
Allowance for Doubtful Accounts $ 209 $ 151 $ 101 (1) $ 259
Accumulated Amortization:
Capitalized Production Costs 1,009 67 1,076
Goodwill 2,848 1,809 4,657
Intangible Assets 3,004 801 3,805
------------ ------------- ----------- -----------
Totals $ 7,070 $ 2,828 $ 101 $ 9,797
============ ============= =========== ===========
Year ended December 31, 1998:
Deducted from asset account:
Allowance for Doubtful Accounts $ 170 $ 291 $ 252 (1) $ 209
Accumulated Amortization:
Capitalized Production Costs 931 78 1,009
Goodwill 1,636 1,212 2,848
Intangible Assets 2,489 515 3,004
------------ ------------- ----------- -----------
Totals $ 5,226 $ 2,096 $ 252 $ 7,070
============ ============= =========== ===========
Year ended December 31, 1997:
Deducted from asset account:
Allowance for Doubtful Accounts $ 162 $ 153 $ 145 (1) $ 170
Accumulated Amortization:
Capitalized Production Costs 560 371 931
Goodwill 1,194 442 1,636
Intangible Assets 2,276 213 2,489
------------ ------------- ----------- -----------
Totals $ 4,192 $ 1,179 $ 145 $ 5,226
============ ============= =========== ===========
</TABLE>
- ------------------------------------------------------------------------------
(1) Uncollectible accounts written-off
S-1
<PAGE>
OPINION RESEARCH CORPORATION
Annual Report on Form 10-K
EXHIBIT INDEX
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant -Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (No. 33-68428)
filed with the Securities and Exchange Commission on September 3,
1993 (the "Form S-1").
3.2 Amended and Restated By-Laws of the Registrant - Incorporated by
reference to Exhibit 3.2 to the Form S-1.
4.1 Rights Agreement, dated September 13, 1996, between the
Registrant and StockTrans, Inc. - Incorporated by reference to
Exhibit 1 to the Registrant's Registration Statement on Form 8-A,
filed with the Securities and Exchange Commission on September
27, 1996.
4.2 Amendment to Rights Agreement dated August 8, 1998 - Incorporated
by reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 10-K").
*10.1 Employment Agreement between the Registrant and Michael R.
Cooper -Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K").
*10.2 Agreement and General Release, dated February 12, 1999, between
the Registrant and Michael R. Cooper - Incorporated by reference
to Exhibit 10 to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 16,
1999.
*10.3 Employment Agreement between the Registrant and John F. Short -
Incorporated by reference to Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(the "1999 10-Q").
*10.4 Employment Agreement between the Registrant and Douglas L. Cox
dated October 26, 1998 - Incorporated by reference to Exhibit
10.1 to the 1998 10-K.
<PAGE>
*10.5 Employment Agreement between the Registrant and James T.
Heisler -Incorporated by reference to Exhibit 10.6 to 1994 10-K.
*10.6 Employment Agreement between the Registrant and Gregory C.
Ellis - Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
*10.7 Employment Agreement among Opinion Research Corporation, ORC
ProTel Inc., and Ruth R. Wolf dated January 1, 1998.
*10.8 Employment Agreement between Macro International Inc. and Frank
J. Quirk dated May 20, 1999.
*10.9 Employment Agreement between Macro International Inc. and Michael
T. Errecart dated May 20, 1999.
10.10 1997 Stock Incentive Plan - Incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.11 Lease Agreement dated May 15, 1995 between the Registrant and the
Maumee Woodlands IV Company (Maumee Facility) - Incorporated by
reference to Exhibit 10.15 to the 1995 10-K.
10.12 Lease Agreement dated May 24, 1993 between the Registrant and
Computer Associates International, Inc. (for Princeton facility)
- Incorporated by reference to Exhibit 10.16 to the Form S-1.
10.13 Lease dated December 13, 1998 between Life Assurance Holding
Corporation Limited and O.R.C. International, Ltd. (UK Facility)
- Incorporated by reference to Exhibit 10.17 to the 1998 10-K.
10.14 Lease dated August 27, 1993 between Carrollton Enterprises
Associates Limited Partnership and Macro International, Inc.
10.15 Asset Purchase Agreement between registrant and Pro Tel
Marketing, Inc. -Incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 20, 1998.
10.16 Loan and Security Agreement, dated July 20, 1998, among Chase
Manhattan Bank, the Bank of New York, and First Union National
Bank and Opinion Research Corporation, ORC Inc., and ORC ProTel,
Inc. - Incorporated by reference to Exhibit 10.19 to the 1998 10-
K.
10.17 Credit Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.1 to the 1999 10-Q.
<PAGE>
10.18 Security Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.2 to the 1999 10-Q.
10.19 Guaranty dated May 26, 1999 by ORC Teleservice Corp., ORC ProTel,
Inc., Macro International Inc., and Quantum Research Corporation
for the benefit of Heller Financial, Inc. - Incorporated by
reference to Exhibit 10.3 to the 1999 10-Q.
10.20 Subsidiary Security Agreement dated May 26, 1999 by ORC
Teleservice Corp., ORC ProTel, Inc., Macro International Inc.,
Quantum Research Corporation and Heller Financial, Inc. -
Incorporated by reference to Exhibit 10.4 to the 1999 10-Q.
10.21 Investment Agreement dated May 26, 1999 among Opinion Research
Corporation, Allied Investment Corporation, and Allied Capital
Corporation. -Incorporated by reference to Exhibit 10.5 to the
1999 10-Q.
10.22 Subsidiary Guaranty dated May 26, 1999 by ORC Teleservice Corp.,
ORC ProTel, Inc., Macro International Inc., and Quantum Research
Corporation for the benefit of Allied Capital Corporation and
Allied Investment Corporation. -Incorporated by reference to
Exhibit 10.6 to the 1999 10-Q.
10.23 Subordinated Debenture for $9.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Capital Corporation. -
Incorporated by reference to Exhibit 10.7 to the 1999 10-Q.
10.24 Subordinated Debenture for $5.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Investment Corporation.
- Incorporated by reference to Exhibit 10.8 to the 1999 10-Q.
10.25 Registration Rights Agreement dated May 26, 1999 among Opinion
Research Corporation, Allied Capital Corporation and Allied
Investment Corporation. - Incorporated by reference to Exhibit
10.9 to the 1999 10-Q.
10.26 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Capital Corporation dated May 26, 1999 - Incorporated by
reference to Exhibit 10.10 to the 1999 10-Q.
10.27 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Investment Corporation dated May 26, 1999 - Incorporated
by reference to Exhibit 10.11 to the 1999 10-Q.
<PAGE>
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP dated March 20, 2000.
27 Financial Data Schedule (EDGAR only).
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 1st day
of January, 1998, by and among ORC PROTEL, INC., a Delaware Corporation (the
"Company"), OPINION RESEARCH CORPORATION, a Delaware Corporation ("ORC") and
Ruth Wolf (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, ORC and the Company have recently purchased telemarketing
assets for the Company's use and have entered into certain agreements relating
thereto; and
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background in the telemarketing business to the management and operation of the
Company, and wishes to employ the Executive as a senior executive officer of the
Company; and
WHEREAS, the parties desire by this Agreement to set forth the terms
and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties.
---------------------
(a) The Company hereby employs the Executive as a senior executive
officer on the terms and conditions provided in this Agreement and the Executive
agrees to accept such employment subject to the terms and conditions of this
Agreement. The Executive shall serve as the Company's Chief Executive Officer
(CEO), shall serve as a member of the Board of Directors of the Company (the
"Board"), and shall serve as one of the members of the "World-Wide Managing
Board" of ORC. The Executive shall have responsibility for the day-to-day
<PAGE>
decisions on the management and operation of the business and the management of
the employees and the facilities of the Company, execute the policy and
direction of the Company, as well as such other executive duties and
responsibilities, as shall from time to time be determined by the Board.
(b) The Executive agrees to devote her best efforts and substantially
all of her time, attention, energy and skill to performing her duties hereunder.
Provided that such activities shall not violate any provision of this Agreement
or materially interfere with the performance of her duties hereunder, nothing
herein shall prohibit the Executive (i) from engaging in charitable, civic,
fraternal, or trade group activities, (ii) from writing academic, trade or
mainstream papers or other publishable books, or (iii) from investing her assets
in other entities or business ventures.
(c) Without the Company's prior consent, the Executive shall not
obtain goods or services or otherwise deal on behalf of the Company with any
business or entity in which the Executive or a member of her family has a
financial interest or from which the Executive or a member of her immediate
family may derive a financial benefit as a result of such transaction, except
that this prohibition shall not apply to any public company in which the
Executive or a member of her family owns less than one percent of the
outstanding stock.
2. Term. The term of this Agreement shall commence on the date
----
hereof and shall terminate on December 31, 2000 (the "Term"), unless extended by
mutual agreement of the parties or earlier terminated in accordance with the
terms of this Agreement.
3. Compensation. As compensation for performing the services required by
------------
this Agreement, the Company shall pay to the Executive an annual salary ("Annual
Salary") of One Hundred Fifty Thousand Dollars ($150,000) payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable
<PAGE>
federal, state, and local taxes. The Executive shall not be entitled to
additional compensation for serving on the Board or any other ORC board on which
the Executive may be asked to serve. The Executive's Annual Salary shall not be
reduced during the Term of this Agreement. The Executive's performance and
automobile allowance shall be reviewed annually by the Chairman of ORC no later
than March for the preceding year, it being understood that there shall be no
obligation to increase Executive's compensation as a result of such review.
4. Executive Benefits. During the term of this Agreement the Executive
------------------
and his eligible dependents shall have the right to participate in any
retirement plans (qualified and non-qualified), pension, insurance, health,
disability or other benefit plan or program that has been or is hereafter
adopted by the Company (or in which the Company participates), according to the
terms of such plan or program.
5. Vacation and Leaves of Absence. The Executive shall be entitled to 20
------------------------------
vacation days during each calendar year, prorated for 1997 based on the number
of days during which the Executive was employed by the Company. Any vacation
days that are not taken in a given calendar year shall not accrue or carry over
from year to year. Upon any termination of this Agreement for any reason
whatsoever, accrued and unused vacation for the year in which this Agreement
terminates will be paid to the Executive within 10 days of such termination
based on her Annual Salary in effect on the date of such termination. In
addition, the Executive may be granted leaves of absence with or without pay for
such reasons as the Board in its sole and absolute discretion may determine, and
is entitled to the same sick leave and holidays provided to other senior
executive officers of the Company.
6. Expenses.
--------
(a) Business Expenses. The Executive shall be promptly reimbursed
-----------------
against presentation of vouchers or receipts for all reasonable and necessary
expenses (other than
<PAGE>
expenses related to the use of an automobile) incurred by him in connection with
the performance of business-related duties.
(b) Automobile Expense. During the term of this Agreement, in order
------------------
to facilitate the performance of the Executive's duties hereunder, and otherwise
for the convenience of the Company, the Company shall provide the Executive with
an automobile allowance of $7,500 per year, prorated for 1997 based on the
number of days during which the Executive was employed by the Company.
7. Corporate Structure and Operation. For the term of this agreement:
---------------------------------
(a) The Shareholders of the Company will cause the Company to have a
six member Board, of which Ruth Wolf, Allen Wolf and Janice Katz will be three.
(b) As long as the Company is managed diligently, in conformance with
good business practices and is meeting expected levels of financial performance,
consistent with the strategic direction and policies instituted by the Chairman
and Vice-Chairman of ORC, the Company will be directed and controlled by its
Board in all matters without interference from ORC.
(c) A difference of opinion between any shareholder of the Company and
the Executive on policy or the method or manner in which to operate, manage or
guide the Company will not be deemed "cause" for purposes of Paragraph 8 below.
8. Termination and Termination Benefits.
------------------------------------
(a) Termination by the Company For Cause. The Company may terminate
------------------------------------
this Agreement prior to its expiration date for "cause". In such event, the
Executive shall be paid for her services hereunder only her Annual Salary up to
the effective date of such termination. For purposes of this Section 8(a),
"cause" shall mean (i) an act of dishonesty by the Executive constituting a
felony or resulting or intended to result in gain to, or personal enrichment of,
the Executive at Company's expense, (ii) the engaging by the Executive in
misconduct which is
<PAGE>
demonstrably injurious to the Company, (iii) the refusal of the Executive
substantially to perform her duties hereunder, (iv) the violation of any
reasonable express direction of the Board or of any reasonable rule, regulation,
policy or plan established by the Company from time to time which governs the
Executive in the performance of her work, (v) the use by the Executive of any
illegal substance, or the use by the Executive of alcohol or any controlled
substance to an extent that it interferes with the performance of the
Executive's duties under this Agreement, and (vi) the substantial breach by the
Executive of her obligations in this Agreement.
(b) Disability. The Company may terminate this Agreement due to
----------
illness, physical or mental disability, or other incapacity, in accordance with
the Company's disability practices and policies in effect from time to time.
(c) Termination by the Executive. The Executive may terminate this
----------------------------
Agreement upon 30 days' written notice to the Company (during which period the
Executive shall, if requested in writing by the Company, continue to perform her
duties as specified under this Agreement). In such event, the Executive shall
be paid only her Annual Salary for her services hereunder up to the effective
date of such notice.
(d) Death Benefit. Notwithstanding any other provision of this
-------------
Agreement, this Agreement shall terminate on the date of the Executive's death.
In such event the Executive's estate shall be paid her Annual Salary for the
remainder of the month in which such termination occurs.
9. Prior Agreements, Conflicts of Interest. The Executive represents
---------------------------------------
to Company (a) that there are no restrictions, agreements or understandings,
oral or written, to which the Executive is a party or by which the Executive is
bound that prevent or make unlawful the Executive's execution or performance of
this Agreement; (b) none of the information supplied by the Executive to Company
or any representative of Company in connection with the Executive's employment
by Company misstated a material fact or omitted information necessary to make
the
<PAGE>
information supplied not materially misleading; and (c) except for those
relationships set forth in Schedule 6(r) of the Asset Purchase Agreement of even
date herewith, the Executive does not have any business or other relationship
that creates a conflict between the interests of the Executive and the Company.
10. ORC as Surety. It is hereby agreed that ORC shall guarantee the
-------------
obligations of the Company to the Executive as surety.
11. Miscellaneous.
-------------
(a) Integration; Amendment. This Agreement constitutes the entire
----------------------
agreement between the parties hereto with respect to the employment matters set
forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by all parties hereto.
(b) Severability. If any part of this Agreement is contrary to,
------------
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to require
-------
performance by the other party of any provision of this Agreement, even if
known, shall not affect the right of such party to require performance of that
provision or to exercise any right, power, or remedy hereunder, and any waiver
by any party of any breach of any provision of this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power, or remedy
under this Agreement. No notice to or demand on any party in any case shall, of
itself, entitle such party to the other or further notice or demand in similar
or other circumstances.
(d) Burden and Benefit. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors and,
assigns.
<PAGE>
(e) Governing Law; Headings. This Agreement and its construction,
-----------------------
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of Illinois. Headings and titles herein
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as Federal Express, or by other messenger
or by facsimile transmission and followed promptly by mail) or four days
following the day when deposited in the United States mails, registered or
certified mail, postage prepaid, return receipt requested, addressed as set
forth below:
If to the Executive:
Ruth Wolf
1320 Prestwick Drive
Schereville, IN 46375
With a copy to:
Roy W. Sears, Esq.
Eckhart, McSwain, Silliman & Sears
21 S. Clark Street, Suite 3160
Chicago, IL 60603
Fax #: 312-236-0646
If to the Company or ORC:
Opinion Research Corporation
23 Orchard Road
Skillman, New Jersey 08558
Attention: Dr. Michael R. Cooper, CEO
Fax #: 908-281-5105
With a copy to:
David Gitlin, Esq.
Wolf, Block, Schorr and Solis-Cohen LLP
<PAGE>
Twelfth Floor Packard Building
S.E. Corner 15th and Chestnut Streets
Philadelphia, PA 19102-2678
Fax #: 215-977-2346
Any party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
ORC PROTEL, INC.
By: /s/ Michael R. Cooper
----------------------------------
OPINION RESEARCH CORPORATION
By: /s/ Michael R. Cooper
----------------------------------
EXECUTIVE
/s/ Ruth R. Wolf
-------------------------------------
Ruth Wolf
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 20th day of
May, 1999, by and between Macro International Inc., a Delaware Corporation (the
"Company") and Frank J. Quirk (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company believes that it would benefit from the application of
the Executive's particular and unique skill, experience and background in the
management and operation of the Company, and wishes to employ the Executive as a
senior executive officer of the Company; and
WHEREAS, the parties desire by this Agreement to set forth the terms and
conditions of the employment relationship between the Company and the Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties.
---------------------
(a) The Company hereby employs the Executive as a senior executive
officer on the terms and conditions provided in this Agreement and the Executive
agrees to accept such employment subject to the terms and conditions of this
Agreement. The Executive shall serve as the Company's Chairman and Chief
Executive Officer ("CEO") and shall serve as a member of the Board of Directors
of the Company (the "Board"). The Executive shall have responsibility for the
day-to-day decisions on the management and operation of the business and the
management of the employees and the facilities of the Company, execute the
policy and direction of the Company, as well as such other executive duties and
responsibilities, as shall from time to time be determined by the Board.
Notwithstanding the foregoing, it is agreed that all decisions concerning any
additions, deletions or modifications to the Company's employee benefit plans or
programs shall be made only with the approval of the Board.
<PAGE>
(b) The Executive agrees to devote his best efforts and substantially
all of his time, attention, energy and skill to performing his duties hereunder.
Provided that such activities shall not violate any provision of this Agreement
or the Agreement Not To Compete of even date herewith (the "Non-Compete
Agreement") or materially interfere with the performance of his duties
hereunder, nothing herein shall prohibit the Executive (i) from engaging in
charitable, civic, fraternal, or trade group activities, (ii) from writing
academic, trade or mainstream papers or other publishable books, or (iii) from
investing his assets in other entities or business ventures.
(c) Without the Company's prior consent, the Executive shall not
obtain goods or services or otherwise deal on behalf of the Company with any
business or entity in which the Executive or a member of his family has a
financial interest or from which the Executive or a member of his immediate
family may derive a financial benefit as a result of such transaction, except
that this prohibition shall not apply to any public company in which the
Executive or a member of his family owns less than three percent of the
outstanding stock.
2. Term. This Agreement shall be effective upon, and the term of this
----
Agreement shall commence upon, the consummation of closing of the Stock Purchase
Agreement (as hereinafter defined), and shall terminate on the third (3rd)
anniversary of the date of said closing (the "Initial Term"), unless earlier
terminated in accordance with the terms of this Agreement. For purposes of this
Agreement, the "Stock Purchase Agreement" shall mean the proposed Stock Purchase
Agreement between Opinion Research Corporation, as the buyer, and all or
substantially all of the stockholders of the Company, as the sellers, which is
being circulated for signature contemporaneously with the execution of this
Agreement. In the event the Stock Purchase Agreement is terminated pursuant to
its terms and conditions prior to the consummation of closing thereunder, this
Agreement shall thereupon be of no further force or effect. This Agreement may
be extended for an additional term (the "Extended Term") by mutual agreement of
the parties.
<PAGE>
3. Compensation.
------------
(a) As compensation for performing the services required by this
Agreement, the Company shall pay to the Executive an annual salary ("Base
Compensation") of Two Hundred Twenty Thousand Dollars ($220,000), payable in
equal installments pursuant to the Company's customary payroll procedures in
effect for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive shall not be entitled to additional compensation
for serving on the Board. The Executive's Base Compensation shall not be
reduced during the Term of this Agreement. The Executive's compensation shall
be reviewed annually by the Chief Executive Officer of Opinion Research
Corporation, the Company's sole shareholder, no later than December 1 of each
year, it being understood that there shall be no obligation to increase
Executive's compensation as a result of such review.
(b) In addition to Base Compensation, the Executive may receive
additional compensation ("Incentive Compensation"). The Incentive Compensation
for the first year of the Initial Term shall be pursuant to the Macro
International Inc. Management Incentive Plan, adopted effective May 1, 1998.
The Incentive Compensation for any subsequent year shall be pursuant to such
short-term and/or long term incentive compensation programs established from
time to time by the Board.
4. Executive Benefits. During the term of this Agreement the Executive
------------------
and his eligible dependents shall have the right to participate in any
retirement plans (qualified and non-qualified), pension plans, life, health and
disability insurance, cafeteria plans, or other benefit plan or program that has
been or is hereafter adopted by the Company (or in which the Company
participates) for officers, according to the terms of such plan or program.
5. Vacation and Leaves of Absence. The Executive shall be entitled to 20
------------------------------
vacation days during each calendar year. Vacation days will accrue, and unused
vacation days may be
<PAGE>
carried over to subsequent years, in accordance with the Company's vacation
policy in effect on the date of this Agreement. Upon any termination of this
Agreement for any reason whatsoever, accrued and unused vacation for prior years
and for the year in which this Agreement terminates will be paid to the
Executive within 10 days of such termination based on his Base Compensation in
effect on the date of such termination. In addition, the Executive may be
granted leaves of absence with or without pay for such reasons as the Board in
its sole and absolute discretion may determine, and shall be entitled to the
same sick leave and holidays provided to other senior executive officers of the
Company.
6. Expenses. The Executive shall be promptly reimbursed against
--------
presentation of vouchers or receipts for all reasonable and necessary expenses
incurred by him in connection with the performance of business-related duties.
7. Termination and Termination Benefits.
------------------------------------
(a) Termination by the Company for Cause. The Company may terminate
------------------------------------
this Agreement prior to its expiration date for "Cause." In such event, the
Executive shall be paid for his services hereunder only his Base Compensation up
to the effective date of such termination. For purposes of this Section 7(a),
Cause shall mean (i) an act of dishonesty by the Executive constituting a felony
or resulting or intended to result in gain to, or personal enrichment of, the
Executive at the Company's expense, (ii) the engaging by the Executive in
misconduct which is demonstrably injurious to the Company, (iii) the refusal of
the Executive substantially to perform his duties hereunder, (iv) the violation
of any reasonable express direction of the Board or of any reasonable rule,
regulation, policy or plan established by the Company from time to time which
governs the Executive in the performance of his work, (v) the use by the
Executive of any illegal substance, or the use by the Executive of alcohol or
any controlled substance to an extent that it interferes with the performance of
the Executive's duties under this Agreement, and (vi) the substantial breach by
the Executive of his obligations in this
<PAGE>
Agreement or in the Non-Compete Agreement; provided, however, that, with respect
to Sections 7(a)(iii), (iv) and (vi), such refusals, violations, and/or breaches
remain uncured for a period of 15 days after written notice thereof is received
by the Executive.
(b) Termination by the Executive. The Executive may terminate this
----------------------------
Agreement upon 30 days' written notice to the Company (during which period the
Executive shall, if requested in writing by the Company, continue to perform his
duties as specified under this Agreement). In such event, the Executive shall be
paid only his Base Compensation for his services hereunder up to the effective
date of such termination. In addition, the Executive may terminate the Agreement
for "Good Cause". For purposes of this Section 7(b), Good Cause shall mean (i) a
significant reduction in the level of, or a material adverse change in, the
authority, duties and responsibilities of the Executive as a senior executive
officer of the Company, or (ii) the failure of the Company to pay to the
Executive his Base Compensation or Incentive Compensation (except in the event
of a dispute as to the calculation of such Incentive Compensation), provided
that such failure shall remain uncured for a period of 15 days after written
notice thereof is received by the Company. In the event this Agreement is
terminated for Good Cause by the Executive, the Company shall be deemed in
breach of this Agreement and the Executive, in addition to the Executive's
rights under the Agreement Not To Compete, shall be entitled to such damages
with respect thereto as to which he may be entitled at law or in equity with
respect thereto.
(c) Disability. The Company may terminate this Agreement due to the
----------
Executive's illness, physical or mental disability, or other incapacity, in
accordance with the Company's disability practices and policies in effect from
time to time; provided, however, that no such termination may occur unless and
until the Executive has not performed his duties under this Agreement due to
such illness, disability or other incapacity for at least six months. However,
prior to such a termination of this Agreement, the Executive shall not be
entitled to his
<PAGE>
Base Compensation during any period during which the Executive is receiving sick
pay or short-term disability payments from the Company, or long-term disability
insurance payments under the Company's long term disability insurance plan.
(d) Death. This Agreement shall terminate on the date of the
-----
Executive's death. In such event the Executive's estate shall be paid his Base
Compensation for the remainder of the month in which such termination occurs.
8. Prior Agreements, Conflicts of Interest. The Executive represents
---------------------------------------
to the Company (a) that there are no restrictions, agreements or understandings,
oral or written, to which the Executive is a party or by which the Executive is
bound that prevent or make unlawful the Executive's execution or performance of
this Agreement; (b) none of the information supplied by the Executive to the
Company or any representative of the Company in connection with the Executive's
employment by the Company misstated a material fact or omitted information
necessary to make the information supplied not materially misleading; and (c)
the Executive does not have any business or other relationship that creates a
conflict between the interests of the Executive and the Company.
9. Company Property. All materials or data of any kind furnished to the
----------------
Executive by the Company, or developed by the Executive on behalf of the
Company, or at the direction of the Company, or for the use of the Company, or
otherwise in connection with the Executive's employment hereunder, are and shall
remain the sole and confidential property of the Company. If the Company
requests the return of such materials at any time during, at or after the
termination of the Executive's employment, the Executive shall immediately
deliver the same to the Company.
<PAGE>
10. Miscellaneous.
-------------
(a) Integration; Amendment. This Agreement, together with the
----------------------
Non-Compete Agreement, constitutes the entire agreement between the parties
hereto with respect to the employment matters set forth herein. No amendments or
additions to this Agreement shall be binding unless in writing and signed by all
parties hereto.
(b) Severability. If any part of this Agreement is contrary to,
------------
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to
-------
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy hereunder, and any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right, power, or
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to the other or further notice or demand in
similar or other circumstances.
(d) Burden and Benefit. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors and,
assigns.
(e) Governing Law; Headings. This Agreement and its construction,
-----------------------
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of Delaware. Headings and titles herein
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as Federal Express, or by other messenger
or by facsimile transmission and followed promptly by
<PAGE>
mail) or four days following the day when deposited in the United States mails,
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
If to the Executive:
Frank J. Quirk
2110 Forest Hill Road
Alexandria, Virginia 22307
Telephone: 703-329-1620
Telecopier: 703-329-1618
With a copy to:
Christopher C. Roberts, Esq.
Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
11921 Rockville Pike, 3rd Floor
Rockville, Maryland 20852-2743
Telephone: 301-230-5208
Telecopier: 301-230-2891
If to the Company:
- - Macro International Inc.
11785 Beltsville Drive
Suite #300
Calverton, Maryland 20705
Attention: President
Telephone: 301-582-0200
Telecopier: 301-572-0991
and to
Opinion Research Corporation
23 Orchard Road
Skillman, NJ 08558
Attention: President
Telephone: 908-281-5100
Telecopier: 908-281-5105
<PAGE>
With a copy to:
David Gitlin, Esquire
Until July 4, 1999:
Wolf, Block, Schorr and Solis-Cohen LLP
Twelfth Floor Packard Building
111 South 15th Street
Philadelphia, PA 19102-2678
Telephone: 215-977-2284
Telecopier: 215-977-2740
After July 4, 1999:
Wolf, Block, Schorr and Solis-Cohen LLP
1650 Arch Street
Philadelphia, PA 19103
Telephone: 215-977-2284
Telecopier: 215-977-2740
Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
MACRO INTERNATIONAL INC.
By: /s/ Michael T. Errecart
--------------------------------------
Name: Michael T. Errecart
Title: President
EXECUTIVE:
/s/ Frank J. Quirk
--------------------------------------(SEAL)
Frank J. Quirk
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 20th day of
May, 1999, by and between Macro International Inc., a Delaware Corporation (the
"Company") and Michael T. Errecart (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company believes that it would benefit from the application of
the Executive's particular and unique skill, experience and background in the
management and operation of the Company, and wishes to employ the Executive as a
senior executive officer of the Company; and
WHEREAS, the parties desire by this Agreement to set forth the terms and
conditions of the employment relationship between the Company and the Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties.
---------------------
(a) The Company hereby employs the Executive as a senior executive
officer on the terms and conditions provided in this Agreement and the Executive
agrees to accept such employment subject to the terms and conditions of this
Agreement. The Executive shall serve as the Company's President and shall serve
as a member of the Board of Directors of the Company (the "Board"). The
Executive shall have responsibility for the day-to-day decisions on the
management and operation of the business and the management of the employees and
the facilities of the Company, execute the policy and direction of the Company,
as well as such other executive duties and responsibilities, as shall from time
to time be determined by the Board. Notwithstanding the foregoing, it is agreed
that all decisions concerning any additions, deletions or modifications to the
Company's employee benefit plans or programs shall be made only with the
approval of the Board.
<PAGE>
(b) The Executive agrees to devote his best efforts and substantially
all of his time, attention, energy and skill to performing his duties hereunder.
Provided that such activities shall not violate any provision of this Agreement
or the Agreement Not To Compete of even date herewith (the "Non-Compete
Agreement") or materially interfere with the performance of his duties
hereunder, nothing herein shall prohibit the Executive (i) from engaging in
charitable, civic, fraternal, or trade group activities, (ii) from writing
academic, trade or mainstream papers or other publishable books, or (iii) from
investing his assets in other entities or business ventures.
(c) Without the Company's prior consent, the Executive shall not
obtain goods or services or otherwise deal on behalf of the Company with any
business or entity in which the Executive or a member of his family has a
financial interest or from which the Executive or a member of his immediate
family may derive a financial benefit as a result of such transaction, except
that this prohibition shall not apply to any public company in which the
Executive or a member of his family owns less than three percent of the
outstanding stock.
2. Term. This Agreement shall be effective upon, and the term of this
----
Agreement shall commence upon, the consummation of closing of the Stock Purchase
Agreement (as hereinafter defined), and shall terminate on the third (3rd)
anniversary of the date of said closing (the "Initial Term"), unless earlier
terminated in accordance with the terms of this Agreement. For purposes of this
Agreement, the "Stock Purchase Agreement" shall mean the proposed Stock Purchase
Agreement between Opinion Research Corporation, as the buyer, and all or
substantially all of the stockholders of the Company, as the sellers, which is
being circulated for signature contemporaneously with the execution of this
Agreement. In the event the Stock Purchase Agreement is terminated pursuant to
its terms and conditions prior to the consummation of closing thereunder, this
Agreement shall thereupon be of no further force or effect. This Agreement may
be extended for an additional term (the "Extended Term") by mutual agreement of
the parties.
<PAGE>
3. Compensation.
------------
(a) As compensation for performing the services required by this
Agreement, the Company shall pay to the Executive an annual salary ("Base
Compensation") of Two Hundred Ten Thousand Dollars ($210,000), payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive shall not be entitled to additional compensation
for serving on the Board. The Executive's Base Compensation shall not be
reduced during the Term of this Agreement. The Executive's compensation shall
be reviewed annually by the Chief Executive Officer of Opinion Research
Corporation, the Company's sole shareholder, no later than December 1 of each
year, it being understood that there shall be no obligation to increase
Executive's compensation as a result of such review.
(b) In addition to Base Compensation, the Executive may receive
additional compensation ("Incentive Compensation"). The Incentive Compensation
for the first year of the Initial Term shall be pursuant to the Macro
International Inc. Management Incentive Plan, adopted effective May 1, 1998.
The Incentive Compensation for any subsequent year shall be pursuant to such
short-term and/or long term incentive compensation programs established from
time to time by the Board.
4. Executive Benefits. During the term of this Agreement the Executive
------------------
and his eligible dependents shall have the right to participate in any
retirement plans (qualified and non-qualified), pension plans, life, health and
disability insurance, cafeteria plans, or other benefit plan or program that has
been or is hereafter adopted by the Company (or in which the Company
participates) for officers, according to the terms of such plan or program.
5. Vacation and Leaves of Absence. The Executive shall be entitled to 20
------------------------------
vacation days during each calendar year. Vacation days will accrue, and unused
vacation days may be
<PAGE>
carried over to subsequent years, in accordance with the Company's vacation
policy in effect on the date of this Agreement. Upon any termination of this
Agreement for any reason whatsoever, accrued and unused vacation for prior years
and for the year in which this Agreement terminates will be paid to the
Executive within 10 days of such termination based on his Base Compensation in
effect on the date of such termination. In addition, the Executive may be
granted leaves of absence with or without pay for such reasons as the Board in
its sole and absolute discretion may determine, and shall be entitled to the
same sick leave and holidays provided to other senior executive officers of the
Company.
6. Expenses. The Executive shall be promptly reimbursed against
--------
presentation of vouchers or receipts for all reasonable and necessary expenses
incurred by him in connection with the performance of business-related duties.
7. Termination and Termination Benefits.
------------------------------------
(a) Termination by the Company for Cause. The Company may
------------------------------------
terminate this Agreement prior to its expiration date for "Cause." In such
event, the Executive shall be paid for his services hereunder only his Base
Compensation up to the effective date of such termination. For purposes of this
Section 7(a), Cause shall mean (i) an act of dishonesty by the Executive
constituting a felony or resulting or intended to result in gain to, or personal
enrichment of, the Executive at the Company's expense, (ii) the engaging by the
Executive in misconduct which is demonstrably injurious to the Company, (iii)
the refusal of the Executive substantially to perform his duties hereunder, (iv)
the violation of any reasonable express direction of the Board or of any
reasonable rule, regulation, policy or plan established by the Company from time
to time which governs the Executive in the performance of his work, (v) the use
by the Executive of any illegal substance, or the use by the Executive of
alcohol or any controlled substance to an extent that it interferes with the
performance of the Executive's duties under this Agreement, and (vi) the
substantial breach by the Executive of his obligations in this
<PAGE>
Agreement or in the Non-Compete Agreement; provided, however, that, with respect
to Sections 7(a)(iii), (iv) and (vi), such refusals, violations, and/or breaches
remain uncured for a period of 15 days after written notice thereof is received
by the Executive.
(b) Termination by the Executive. The Executive may terminate this
----------------------------
Agreement upon 30 days' written notice to the Company (during which period the
Executive shall, if requested in writing by the Company, continue to perform his
duties as specified under this Agreement). In such event, the Executive shall be
paid only his Base Compensation for his services hereunder up to the effective
date of such termination. In addition, the Executive may terminate the Agreement
for "Good Cause". For purposes of this Section 7(b), Good Cause shall mean (i) a
significant reduction in the level of, or a material adverse change in, the
authority, duties and responsibilities of the Executive as a senior executive
officer of the Company, or (ii) the failure of the Company to pay to the
Executive his Base Compensation or Incentive Compensation (except in the event
of a dispute as to the calculation of such Incentive Compensation), provided
that such failure shall remain uncured for a period of 15 days after written
notice thereof is received by the Company. In the event this Agreement is
terminated for Good Cause by the Executive, the Company shall be deemed in
breach of this Agreement and the Executive, in addition to the Executive's
rights under the Agreement Not To Compete, shall be entitled to such damages
with respect thereto as to which he may be entitled at law or in equity with
respect thereto.
(c) Disability. The Company may terminate this Agreement due to the
----------
Executive's illness, physical or mental disability, or other incapacity, in
accordance with the Company's disability practices and policies in effect from
time to time; provided, however, that no such termination may occur unless and
until the Executive has not performed his duties under this Agreement due to
such illness, disability or other incapacity for at least six months. However,
prior to such a termination of this Agreement, the Executive shall not be
entitled to his
<PAGE>
Base Compensation during any period during which the Executive is receiving sick
pay or short-term disability payments from the Company, or long-term disability
insurance payments under the Company's long term disability insurance plan.
(d) Death. This Agreement shall terminate on the date of the
-----
Executive's death. In such event the Executive's estate shall be paid his Base
Compensation for the remainder of the month in which such termination occurs.
8. Prior Agreements, Conflicts of Interest. The Executive represents
---------------------------------------
to the Company (a) that there are no restrictions, agreements or understandings,
oral or written, to which the Executive is a party or by which the Executive is
bound that prevent or make unlawful the Executive's execution or performance of
this Agreement; (b) none of the information supplied by the Executive to the
Company or any representative of the Company in connection with the Executive's
employment by the Company misstated a material fact or omitted information
necessary to make the information supplied not materially misleading; and (c)
the Executive does not have any business or other relationship that creates a
conflict between the interests of the Executive and the Company.
9. Company Property. All materials or data of any kind furnished to the
----------------
Executive by the Company, or developed by the Executive on behalf of the
Company, or at the direction of the Company, or for the use of the Company, or
otherwise in connection with the Executive's employment hereunder, are and shall
remain the sole and confidential property of the Company. If the Company
requests the return of such materials at any time during, at or after the
termination of the Executive's employment, the Executive shall immediately
deliver the same to the Company.
<PAGE>
10. Miscellaneous.
-------------
(a) Integration; Amendment. This Agreement, together with the
----------------------
Non-Compete Agreement, constitutes the entire agreement between the parties
hereto with respect to the employment matters set forth herein. No amendments or
additions to this Agreement shall be binding unless in writing and signed by all
parties hereto.
(b) Severability. If any part of this Agreement is contrary to,
------------
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to
-------
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy hereunder, and any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right, power, or
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to the other or further notice or demand in
similar or other circumstances.
(d) Burden and Benefit. This Agreement shall be binding upon and
------------------
inure to the benefit of the parties hereto and their respective successors and,
assigns.
(e) Governing Law; Headings. This Agreement and its construction,
-----------------------
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of Delaware. Headings and titles herein
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as Federal Express, or by other messenger
or by facsimile transmission and followed promptly by
<PAGE>
mail) or four days following the day when deposited in the United States mails,
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
If to the Executive:
Michael T. Errecart
2854 Harbor Road
Shelburne, Vermont 05482
Telephone: 802-985-2329
With a copy to:
Christopher C. Roberts, Esq.
Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
11921 Rockville Pike, 3rd Floor
Rockville, Maryland 20852-2743
Telephone: 301-230-5208
Telecopier: 301-230-2891
If to the Company:
- - Macro International Inc.
11785 Beltsville Drive
Suite #300
Calverton, Maryland 20705
Attention: President
Telephone: 301-582-0200
Telecopier: 301-572-0991
and to
Opinion Research Corporation
23 Orchard Road
Skillman, NJ 08558
Attention: President
Telephone: 908-281-5100
Telecopier: 908-281-5105
<PAGE>
With a copy to:
David Gitlin, Esquire
Until July 4, 1999:
Wolf, Block, Schorr and Solis-Cohen LLP
Twelfth Floor Packard Building
111 South 15th Street
Philadelphia, PA 19102-2678
Telephone: 215-977-2284
Telecopier: 215-977-2740
After July 4, 1999:
Wolf, Block, Schorr and Solis-Cohen LLP
1650 Arch Street
Philadelphia, PA 19103
Telephone: 215-977-2284
Telecopier: 215-977-2740
Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
MACRO INTERNATIONAL INC.
By: /s/ Frank J. Quirk
-----------------------------------
Name: Frank J. Quirk
Title: Chairman/CEO
EXECUTIVE:
/s/ Michael T. Errecart
-------------------------------------(SEAL)
Michael T. Errecart
<PAGE>
EXHIBIT 10.14
AGREEMENT OF LEASE
BETWEEN CARROLLTON ENTERPRISES ASSOCIATES LIMITED PARTNERSHIP
(LANDLORD) AND
MACRO INTERNATIONAL INC. (TENANT)
DATED AUGUST 27, 1993
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE TITLE PAGE NO.
1. DEMISED PREMISES................................................ 1
2. LEASE TERM...................................................... 4
3. FIXED RENT...................................................... 5
4. ADDITIONAL RENT................................................. 6
5. SECURITY DEPOSIT................................................ 9
6. USE OF DEMISED PREMISES......................................... 9
7. CONSTRUCTION.................................................... 9
8. ALTERATIONS OR IMPROVEMENTS BY TENANT........................... 13
9. ADDITIONAL UTILITY RENT......................................... 14
10. LANDLORD'S ADDITIONAL COVENANTS................................. 16
11. TENANT'S AFFIRMATIVE COVENANTS.................................. 17
12. NEGATIVE COVENANTS.............................................. 20
13. ASSIGNMENT AND SUBLETTING....................................... 21
14. SELF HELP....................................................... 22
15. EMINENT DOMAIN.................................................. 22
16. CASUALTY DAMAGE................................................. 23
17. INSURANCE; INDEMNIFICATION OF LANDLORD; WAIVER OF SUBROGATION... 24
18. DEFAULT......................................................... 25
19. REMEDIES OF LANDLORD............................................ 26
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT....................... 27
21. TENANT'S ACCEPTANCE LETTER - ESTOPPEL CERTIFICATES.............. 28
22. HOLDOVER BY TENANT.............................................. 28
23. ENERGY REBATES.................................................. 28
24. SURRENDER OF DEMISED PREMISES................................... 29
25. SUBORDINATION................................................... 29
26. BROKERS......................................................... 30
27. NOTICES......................................................... 30
28. MISCELLANEOUS................................................... 31
</TABLE>
1
<PAGE>
List of Exhibits
----------------
Exhibit "A": Plan of Demised Premises [Paragraph 1.1]
Exhibit "B": Landlord's Work [Paragraph 7.1]
Exhibit "C": Tenant's Work [Paragraph 7.2]
Exhibit "D": Rules and Regulations [Paragraph 11.10]
Exhibit "E": Tenant's Acceptance Letter [Paragraph 2.1]
Exhibit "F": Definitions [Paragraph 1.2.2]
Exhibit "G": Non-Disturbance Agreement (Lender) [Paragraph 10.2]
Exhibit "H": Sign [Paragraph 1.6]
Exhibit "I": HVAC Cost Schedule [Paragraph 9.1]
Exhibit "J": Non-Disturbance Agreement (Ground Lessor) [Paragraph
10.2]
2
<PAGE>
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE ("Lease") is made this 27th, day of August, 1993,
------
by and between CARROLLTON ENTERPRISES ASSOCIATES LIMITED PARTNERSHIP, a Maryland
limited partnership ("Landlord"), and MACRO INTERNATIONAL INC., a Delaware
corporation authorized to do business in the State of Maryland ("Tenant").
Intending to be legally bound, Landlord and Tenant agree as set forth
below.
1. DEMISED PREMISES.
1.1. Original Space. Landlord, for the term and subject to the
--------------
provisions and conditions hereof, leases to Tenant, and Tenant rents from
Landlord, the space (the "Demised Premises") containing 72,392 rentable square
feet (including building core factor of twelve percent (12%)), as shown on
Exhibit "A" attached hereto and made a part hereof, on the third, fourth, fifth,
- -----------
sixth floors consisting of 65,494 rentable square feet and on the seventh floor,
approximately one-half of the seventh floor consisting of 6,898 rentable square
feet in the building (the "Building") known as Calverton Building #5, erected on
certain land (the "Land") located at 11735 Beltsville Drive in the Calverton
Office Park (the "Office Park"), Beltsville, Maryland 20705. Tenant shall have
the right in common with others to rights of ingress and egress thereto, and to
the extent applicable, the elevators and common lobbies and passageways,
stairways, vestibules, emergency systems, parking areas, and entrances.
1.2. Additional Space.
----------------
1.2.1. Tenant shall have the option to lease up to the
remainder of the seventh floor of the Building on the same terms and conditions
as Tenant is leasing the original space by giving Landlord written notice of its
intention to exercise its option on or before September 30, 1993, specifically
identifying the additional space it wishes to acquire. The "Term" for such
additional space and the "Lease Commencement Date" shall be the same as provided
for below with respect to the original space being leased by Tenant.
1.2.2. Beginning in the seventy-third (73rd) month of the
"Initial Lease Term" (defined below), Tenant shall have an option to lease up to
an additional 14,000 rentable square feet in the Building at the then
"Additional Premises Fair Market Value" (as defined in Exhibit "F" of this
-----------
Lease), provided Tenant gives Landlord written notice of its intention to
exercise its option for such additional space on or before the beginning of the
sixty-first (61st) month of the Initial Lease Term. Landlord agrees to provide
Tenant with an improvement allowance of Thirteen Dollars ($13.00) per rentable
square foot for the additional space. Landlord shall use reasonable efforts to
provide as much of the additional space in the largest blocks of space
possible, adjacent to the Demised Premises originally leased hereunder.
1.2.3. After the thirty-sixth (36th) month of the Initial
Lease Term, Tenant shall have the continuing right of first refusal with respect
to all other space in the Building, up to an aggregate of 30,000 rentable square
feet, during the Initial Lease Term and all "Option Lease Terms" (as defined
below), as such space becomes available for leasing by the Landlord, provided
that (i) at the time that Landlord gives Tenant notice that such space is
available, there shall have not occurred any Event of Default which remains
uncured, (ii) this Lease is then in full force and effect, and (iii) at least
three (3) years of the "Term" (as defined below) remain (or if less than three
(3) years of the Term remain, Tenant has given notice of its intention to extend
this Lease). The exercise of Tenant's right of first refusal shall be further
subject to the following conditions:
1
<PAGE>
(a) As any such space becomes available for leasing, Landlord shall notify
Tenant of the availability of such space. Tenant shall then have thirty (30)
days to notify Landlord in writing that it wishes to lease all or a portion of
the available space.
(b) If Tenant fails to notify Landlord in writing within any applicable
thirty (30) day period that it wishes to exercise its option for all or a
portion of such space, Landlord shall be free to lease such space to a third
party, until such space becomes available once again.
(c) If Tenant agrees by reply notice to lease all or a portion of the
available space, then, subject to the provisions of Paragraph 1.2.6., it shall
promptly enter into a modification of this Lease with Landlord to incorporate
the subject space into this Lease at the then Additional Fair Market Value for
the Fixed Rent (for comparable buildings in the area of Northern Prince George's
County that is, from the western border to Route 50), but otherwise upon
substantially the terms and conditions set forth in this Lease.
(d) Tenant shall be provided with access to all additional space in this
Paragraph 1.2 at least ninety (90) days prior to the Lease Commencement Date as
defined in Paragraph 2.1 for such space for the purpose of performing
renovations and/or construction (each date that occurs ninety (90) days after
the date that Tenant has taken possession of each such additional space for
purposes of performing renovations and/or construction shall hereinafter be
referred to as an "Additional Premises Lease Commencement Date").
1.2.4. During first thirty six (36) months of the Initial
Lease Term, Tenant shall have the right of first refusal (to be exercised as
above) for all space on the seventh and eighth floors of the Building at the
then Additional Premises Fair Market Value.
1.2.5 In the event that Tenant exercises any option to lease
any additional space pursuant to the provisions of Paragraphs 1.2.2, 1.2.3 or
1.2.4 above, and in connection with the exercise of any such option, Tenant
elects to lease less than all of the space then being offered to Tenant, then
the portion of such space which Tenant elects not to so lease shall constitute a
leasable unit or units, which leasable unit or units shall be mutually agreed
upon by Landlord and Tenant.
1.2.6 Notwithstanding anything in this Lease to the contrary,
in the event that Tenant leases any additional space pursuant to the provisions
of Paragraphs 1.2.2, 1.2.3 or 1.2.4 of this Lease, then, (a) Tenant shall pay to
Landlord Fixed Rent for such additional space, which Fixed Rent shall be the
then Additional Premises Fair Market Value of such additional space, (b) except
as otherwise provided in Paragraph 1.2.2, Landlord will provide Tenant with the
then Additional Premises Fair Market Value concessions then being offered to
tenants of similar space, in comparable office buildings located in the Northern
Prince George's County, Maryland area (which is considered to be from the
western border of Prince George's County to Maryland Route 50), including,
without limitation, rental abatements and/or concessions and build- out
allowances, and (c) the "base year operating expenses" (as defined in Paragraph
4.1) and the "Base Year Amount" (as defined in Paragraph 4.2) for "Taxes" (as
defined in Paragraph 4.2.1) with respect to each such additional space shall be
the then Additional Premises Fair Market Value. In the event that Landlord and
Tenant are unable to agree upon any of the items set forth in clauses (a), (b)
or (c) of the sentence which immediately precedes this sentence, then such item
or items shall be determined by arbitration in accordance with the provisions of
Exhibit "F" of this Lease.
1.2.7 The terms of this Lease shall be expressly excluded for
purposes of determining the Additional Premises Fair
2
<PAGE>
Market Value with respect to any of the matters set forth in Section 1.2.6
above.
1.3. Contraction. If Tenant does not intend to use and occupy up to
-----------
ten percent (10%) of the Demised Premises beyond the sixtieth (60th) month, it
shall so notify Landlord not less than six (6) months before the aforesaid
effective date of said contraction. In that case, Tenant shall quit and
surrender up to said ten percent (10%) of the Demised Premises (it being
understood that the precise amount and location of such square footage to be so
surrendered shall be a leasable unit which shall be mutually determined by
Landlord and Tenant) to Landlord on or before the aforesaid effective date of
said contraction. Upon such surrender the parties shall promptly enter into an
appropriate amendment of the Lease to reduce the Demised Premises, the Fixed
Rent, Additional Rent, and all other mutually agreed upon matters.
1.4. Parking Landlord shall provide Tenant with 3.2 parking spaces
-------
per 1,000 rentable square feet leased. Fifteen (15) of these spaces shall be
located in an area immediately adjacent to the Building and shall be reserved
exclusively for Tenant's use. All parking shall be without charge during the
Term.
1.5. Roof Rights Landlord shall provide roof access from the Demised
-----------
Premises to, and space on, the roof on a pro rata basis for installation,
maintenance and/or replacement by Tenant (at Tenant's expense) of microwave,
communication, computer room condenser, or other similar equipment as Tenant may
require during the Term as well as fiber and/or optic cable on or with Demised
Premises. Landlord reserves the right to reasonably approve such installation.
Tenant shall indemnify and hold Landlord harmless from all damage, liability and
expense to the roof or the Building which is caused by Tenant's use of the roof
for the purposes set forth in this Paragraph 1.5.
1.6. Signage (a) (i) Prior to the Lease Commencement Date,
-------
Landlord shall complete construction of a prominent monument sign at the
Beltsville Drive entrance to the Building. Tenant, at Landlord's cost, shall be
granted primary and dominant signage rights on this monument substantially in
accordance with the drawings attached hereto as Exhibit "H". It is expressly
-----------
understood and agreed that, (x) except as expressly provided to the contrary in
Paragraph 1.6(a)(ii) below, Tenant's sign panel shall be placed in the top
position on the monument and all other sign panels that are located on the
monument shall be located beneath Tenant's sign panel, (y) no sign panel, that
is placed on the monument shall be larger than Tenant's sign panel, and (z) all
sign panels that are placed on the monument shall be consistent in design and
color with Tenant's sign panel.
(ii) In the event (x) Tenant exercises its contraction right
specified in Paragraph 1.3 above, (y) such contraction of the Demised Premises
under Paragraph 1.3 results in Tenant leasing less than 72,000 square feet in
the Building, and (z) a tenant or occupant which occupies more than 72,000
square feet in the Building desires to have its sign panel located on the top
position on the monument sign, then Landlord shall have the right, upon five (5)
days prior written notice to Tenant, and at Landlord's sole cost and expense, to
(A) grant such other occupant or tenant the right to place its sign panel on the
top position of the monument sign, and (B) place Tenant's sign panel on the
second most uppermost position on the monument sign. Despite the foregoing, in
the event that (i) Landlord has granted any tenant or occupant (other than
Tenant) the right to place its sign panel on the top position of the monument
sign, and (ii) any such tenant or occupant, for any reason, does not thereafter
continue to lease and retain at least 10,000 rentable square feet more than
Tenant's then total rentable square footage, then, from and after the date that
such tenant or occupant no longer leases and retains at least 10,000 rentable
square feet more than Tenant's total rentable square footage, (x) such tenant or
occupant shall automatically lose its right to place its sign panel on the top
position of the
3
<PAGE>
monument sign, (y) Landlord, at its sole cost and expense, shall remove such
other occupant's or tenant's sign panel from the top position on the monument
sign and (z) Tenant may, at Tenant's cost, place its sign panel on the top
position of the monument sign.
(b) Tenant, at Landlord's sole cost and expense, shall also receive
(i) at least six (6) lines of building standard lobby directory signage, and
(ii) suite entry signage for the Demised Premises. In the event Tenant leases
any additional space, Landlord, at Tenant's sole cost and expense, shall provide
Tenant with additional suite entry signage.
(c) Until such time that the Building is seventy-five percent (75%)
leased, Landlord will not give building signage to any other tenant or occupant
which does not lease and retain at least 10,000 rentable square feet more than
Tenant's total rentable square footage leased in the Building at that time. At
such time as the Building is 75% leased, if no other tenant or occupant has
received building signage, as restricted by this Paragraph, Tenant may, at
Tenant's cost, have a sign(s) installed on the facade of the Building subject to
Landlord's reasonable approval of design and structure. Said building signage
shall be exclusive to Tenant. In the event (i) Tenant has a sign installed on
the facade of the Building, and (ii) Tenant exercises its contraction right
specified in Paragraph 1.3 above, and (iii) such contraction of the Demised
Premises under Paragraph 1.3 results in Tenant leasing less than 72,000 square
feet in the Building, and (iv) a tenant or occupant which occupies more than
72,000 square feet in the Building desires such signage, then Tenant, at
Landlord's option, shall lose such building signage rights. Despite the
foregoing, in the event that at any time after the Building is seventy-five
percent (75%) leased, (i) Landlord has granted any tenant or occupant (other
than Tenant) building signage in accordance with this Paragraph, and (ii) in the
event that any such tenant or occupant, for any reason, does not thereafter
continue to lease and actually occupy at least 10,000 rentable square feet more
than the number of rentable square feet that Tenant was leasing in the Building
as of the date Tenant received written notice from Landlord that Landlord had
granted such tenant or occupant such Building signage (the number of rentable
square feet so leased by Tenant at such time shall hereinafter be referred to as
the "Designated Square Footage") then, from and after the date that such tenant
or occupant no longer leases, or no longer actually occupies, at least 10,000
rentable square feet more than the Designated Square Footage, (x) such tenant or
occupant shall automatically lose its building signage rights, and (y) Tenant
may, at Tenant's cost, have a sign(s) installed on the facade of the Building
subject to Landlord's reasonable approval of design and structure. It is
expressly understood and agreed that if Tenant loses and then regains its
building signage rights, and Tenant desires to use the same building signage
that it previously used, then such building signage shall automatically be
deemed approved by Landlord.
(d) Upon the expiration of the Term or sooner termination thereof,
Tenant shall have no further right (i) to place a sign on the monument sign
described in Paragraph 1.6 of this Lease, and (ii) to maintain a sign on the
facade of the Building.
2. LEASE TERM.
2.1. Initial Lease Term. The "Initial Lease Term" of this Lease
-------------------
Agreement shall be a period of ten (10) "Lease Years" (as defined in Exhibit
"F"). Subject to the provisions of Paragraph 7.4 below, and subject to "Force
Majeure" (as defined in Paragraph 7.5.1) the Initial Lease Term shall commence
on December 1, 1993 (the "Lease Commencement Date). Tenant may occupy the
Demised Premises for purposes of planning and construction as of the date of
execution of this Lease, which occupancy shall be upon all of the terms of this
Lease, except for the payment of Fixed Rent, Additional Rent and any amount
under Paragraph 4 of this Lease. Landlord and Tenant shall confirm in writing
the Lease Commencement
4
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Date and the termination date of the Lease and Tenant's acceptance of the
Demised Premises in the form attached hereto as Exhibit "E".
-----------
2.2. Option Lease Term. Tenant shall have the privilege of renewing
------------------
this Lease for two (2) additional five (5) year terms ("Option Lease Term"),
provided written notice of intention to so renew is given to Landlord no later
than six (6) months prior to the expiration of the then existing Initial Lease
Term or Option Lease Term. The Fixed Rent for such Option Lease Term shall be
calculated as provided in Paragraph 3.3. below.
2.3 Term. The word "Term" shall be defined as the Initial Lease Term
----
and any Option Lease Term, if any.
3. FIXED RENT.
3.1. Monthly Fixed Rent. Fixed rent (the "Fixed Rent") is payable by
------------------
Tenant beginning on the Lease Commencement Date in monthly installments each
equal to one-twelfth (1/12th) of the annual Fixed Rent (the "Annual Fixed Rent")
which shall be as follows:
Lease Year Annual Fixed Per Square
Rental Foot
1 $1,212,566 $16.75
2 1,236,455 17.08
3 1,260,345 17.41
4 1,284,958 17.75
5 1,310,295 18.10
6 1,335,632 18.45
7 1,361,694 18.81
8 1,387,755 19.17
9 1,415,264 19.55
10 1,442,773 19.93
Monthly installments shall be payable without prior notice or demand, and
without any setoff or deduction whatsoever (subject to (a) the Refurbishment
Allowance provided in Paragraph 3.4 hereof, and (b) the provisions of Paragraph
7.5 hereof), in advance, on the first business day of each month at such place
as Landlord may direct. In addition, if the Initial Lease Term commences on a
day other than the first day of a calendar month, Tenant shall pay to Landlord,
on or before the Lease Commencement Date, a pro rata portion of the monthly
installment of rent (including Fixed Rent and any Additional Rent as herein
provided), such pro rata portion to be based on the actual number of calendar
days remaining in such partial month after the Lease Commencement Date. If the
Initial Lease Term or Option Lease Term shall expire on other than the last day
of a calendar month, such monthly installment of Fixed Rent and Additional Rent,
as hereinafter defined, shall be prorated for each calendar day of such partial
month.
3.2. Late Fee Rent. As Late Fee rent, in the event that Tenant fails
-------------
to pay its Fixed Rent, Operating Expense Rent, Tax Rent, or any other financial
charges, and such failure continues for a period of five (5) days after the date
Tenant receives written notice of such failure, then, such amount shall bear
interest at the "Default Rate" (as defined in Paragraph 20 below) until the date
such amount is paid to Landlord. Despite the foregoing, in the event that
Landlord gives Tenant at least two (2) notices under this Paragraph 3.2 during
any Lease Year, then for the balance of such Lease Year only, (a) Landlord shall
not be obligated to give Tenant any further written notice under this Paragraph
3.2., and (b) if Tenant fails to timely pay any amount that is due under the
Lease, interest at the Default Rate shall commence to accrue on such amount as
of the date such amount was due under the Lease.
5
<PAGE>
Landlord and Tenant understand and agree that memos written on rental
checks or any other payment forms delivered to Landlord do not and shall not,
throughout the Initial Lease Term and any Option Lease Terms hereunder,
constitute satisfaction of any current or outstanding debt of Tenant pursuant to
this Lease, and, provided further that any such memo shall not preclude Landlord
from recovering any balance of any sum or sums due under this Lease. In
addition, a letter or similar type statement accompanying any rental check or
payment form delivered to Landlord pursuant to this Lease shall also have no
force or effect under this Lease as such may relate to the satisfaction of any
debt of Tenant hereunder.
3.3. Option Lease Term Fixed Rent. The Fixed Rent shall be adjusted
----------------------------
on the first month of each Option Lease Term, to ninety-five percent (95%) of
the Fair Market Value, and the base year operating expenses and Base Year Amount
for Taxes shall be adjusted on the first month of each Option Lease Term to Fair
Market Value, all as determined by agreement of Landlord and Tenant or by
arbitration in accordance with the provisions of Exhibit "F" of this Lease. The
-----------
terms of this Lease shall be expressly excluded for purposes of determining Fair
Market Value with respect to any of the matters set forth in this Paragraph 3.3.
3.4. Refurbishment Allowance. Tenant shall receive a credit (the
-----------------------
"Refurbishment Allowance") from Landlord for Fixed Rent in the sixty-first month
of the Initial Lease Term of $1.54 per rentable square foot of Demised Premises
leased at that time and $.71 per rentable square foot of Demised Premises leased
at that time for the sixty-second month in consideration of refurbishments and
improvements to the Demised Premises, to be undertaken by Tenant at any time
after the fifty-third month of the Initial Lease Term, but prior to the
expiration of the sixty-seventh month of the Initial Lease Term. All
refurbishments shall be performed in accordance with the provisions of Paragraph
8 below.
4. ADDITIONAL RENT
4.1. Operating Expense Rent.
----------------------
4.1.1. Tenant agrees to pay its proportionate share, as
described below, of any increases in direct operating expenses, as defined
below, over the base year's operating expenses. The base year shall be the
calendar year of 1994. Tenant's proportionate share shall be 33.15% (total
rentable square feet of Demised Premises divided by the total rentable square
feet in the Building, including the Demised Premises) subject to expansions and
contractions of Tenant's Demised Premises from time to time. Landlord shall,
within sixty (60) days after the end of each calendar year of the Term, furnish
to Tenant a statement setting forth the actual direct operating expenses for
such calendar year and Tenant's proportionate share of increases in said direct
operating expenses over the base year direct operating expenses. Tenant shall
then remit that amount owed and due to Landlord, in full, within fifteen (15)
days after receipt of said statement. In the event any such statement reflects
that the amount paid by Tenant during any such calendar year exceeds the amount
actually owed by Tenant during such calendar year, then, Tenant shall receive a
credit for the full amount of such overpayment, which credit shall be applied,
until exhausted in full, against the next installment(s) of increases in direct
operating expenses due hereunder. In the event any such overpayment occurs
during the last year of the Term, then simultaneously with its delivery of such
statement to Tenant, Landlord shall remit the full amount of such overpayment to
Tenant. Tenant shall have the right, upon reasonable prior notice, during
normal business hours, to audit direct operating expenses for the current Lease
Year and for three (3) lease years which immediately precede the then current
Lease Year.
Thereafter, Tenant shall remit, on the first day of each and every month,
during that particular calendar year following Tenant's receipt of Landlord's
statement above, one twelfth
6
<PAGE>
(1/12th) of all above mentioned increases. This procedure shall continue
throughout the Term.
4.1.2. Direct operating expenses for the Building are defined
as meaning any and all expenses incurred by the Landlord in connection with the
servicing, operation, maintenance and repair of the entire Building and entire
related exterior appurtenances and shall include, janitorial supplies, utilities
(gas, electric, sewer, water), char service, maintenance, gardening,
landscaping, planting, replanting, and replacing flowers and shrubbery;
cleaning, maintaining, and repair of fences, elevators, lobby areas, stairways
and restrooms; public liability, property damage, fire insurance with such
extended coverage and vandalism endorsements as Landlord may, from time to time,
deem reasonably necessary; and any other insurance Landlord may deem reasonably
necessary; repairs, painting, decorating and striping, lighting (including cost
of electricity and maintenance and replacements of fixtures and bulbs); policing
and regulating automobile and pedestrian traffic; sanitary control; removal of
rubbish, garbage and other refuse; security; water and repair maintenance of any
water fountain, plumbing or sanitary services; doors, glass, wallpaper, drywall,
floors, ceiling; replacement of paving, curbs and walkways; improvements
required by regulation or law or installed to reduce or minmize increases in
operating expenses; drainage; heating and air conditioning; music program
services and loud speaker system, including electricity therefor; cost of
personnel to implement all of the aforementioned (including workmen's
compensation insurance covering personnel); and fifteen percent (15%) of all of
the foregoing costs to cover the Landlord's administrative overhead costs;
business taxes and licenses; but shall not include real estate taxes as
hereinafter defined, debt service on the Building, or costs or charges
attributable to the provision of labor, materials or services performed in
connection with preparing, improving or altering space for any new or renewal
tenant.
Direct operating expenses shall not include any of the following: any
leasing or mortgage brokerage commission or fee paid or payable by the Landlord;
mortgage interest; "Taxes" (as defined below), provided, however, that WSSC
front foot benefit charges may be included in direct operating expenses so long
as the same charges are not also included in Taxes; franchise or income taxes
imposed on Landlord; costs incurred in renovating or otherwise improving,
decorating, painting or redecorating space for tenants or other occupants or
vacant space (including relet and/or prime space); ground rent; any operating
expense of Landlord which is otherwise paid or reimbursed in full by Tenant or
any other tenant of the Building pursuant to this Lease or any other lease
pertaining to space within the Building; depreciation and amortization, except
for improvements required by regulation or law or installed to reduce or
minimize increases in operating expenses; any and all loss, claim, damage, award
or other amount paid or payable by Landlord (including all attorneys' fees,
court costs, and other costs incurred in connection therewith) as a result or
arising out of (1) the violation or breach by Landlord or any tenant or occupant
of the Building of the terms and conditions of any lease of space in the
Building, or (2) any act of negligence or willful misconduct by Landlord, or
Landlord's agents, employees and assigns; the cost of any repairs or other work,
to the extent paid or reimbursed by insurance proceeds or covered by any
warranty; legal expenses and other costs and expenses incurred in connection
with (a) leasing space in the Building or (b) negotiations or disputes with
present or prospective tenants or other occupants of the Building; any expenses
or costs which are shared between or among the Building and other buildings,
unless Landlord provides Tenant with prior written notice that such expense or
cost will be shared, and Tenant agrees that the expense or cost is being
allocated to the Building on a commercially reasonable basis (it being
understood and agreed that Landlord intends to share the cost of landscaping and
snow removal between the Building and other buildings); expenses of a capital
nature, including without limitation capital improvements, capital repairs,
capital equipment
7
<PAGE>
and capital tools, all as determined in accordance with generally accepted
accounting principles, consistently applied, in each case; overhead and profit
increments paid to subsidiaries and affiliates of Landlord for services in the
building to the extent the same significantly exceeds the cost of such services
rendered by unaffiliated third parties on a competitive basis; Landlord's
general overhead and general administrative expenses, except for the costs of
accounting and computer services relating to the operation of the Building; any
compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord; advertising and promotional expenses; rentals
and other related expenses incurred in leasing air conditioning systems,
elevators or other equipment ordinarily considered to be capital in nature
except (1) equipment which is used in providing janitorial or similar services
which are provided, inter alia, to Tenant and which is not affixed to the
----- ----
Building, (2) equipment the depreciation of the cost of which would be included
as an operating expense, and (3) maintenance costs (including maintenance
contract charges) for any capital equipment in the Building; excluding the
fifteen percent (15%) administrative fee set forth in the last sentence of
Paragraph 4.1.2 above, any management and/or administrative fee of any kind or
nature whatsoever; any other expense which, under generally accepted accounting
principles, consistently applied, would not be rendered as a normal maintenance
or operating expense.
4.2. Tax Rent
--------
4.2.1. Tenant agrees to pay its proportionate share, as
described above, of any increases in taxes as defined below, over the "Base Year
Amount" (as defined below). As used herein, the term "Base Year Amount" shall
mean the greater of (a) the 1994/95 Prince George's County Fiscal Year Taxes for
the Building and the Land, and (b) the product of ninety-seven cents ($.97)
multiplied by the total number of rentable square feet in the Building
(including the Demised Premises). Notwithstanding the actual Building Taxes,
the cumulative tax increase Tenant shall pay as Tax Rent shall not exceed thirty
percent (30%) of the Base Year Amount for the years 1995/96, 1996/97 or 1997/98.
By way of example only, in the event that the Base Year Amount were equal to One
Dollar ($1.00) per rentable square foot of the Building, and the actual Building
Taxes for years 1995/96 were One and 15/100ths Dollars ($1.15) per rentable
square foot of the Building, the actual Building Taxes for years 1996/97 were
One and 33/100ths Dollars ($1.33) per rentable square foot of the Building, and
the actual Building Taxes for years 1997/98 were One and 40/100ths Dollars
($1.40) per rentable square foot of the Building, then, in year 1995/96,
Tenant's Tax Rent would be equal to the product of fifteen cents ($.15)
multiplied by the number of rentable square feet in the Demised Premises, in
year 1996/97, Tenant's Tax Rent would be equal to the product of thirty cents
($.30) multiplied by the number of rentable square feet in the Demised Premises,
and in year 1997/98, Tenant's Tax Rent would be equal to the product of thirty
cents ($.30) multiplied by the number of rentable square feet in the Demised
Premises.
4.2.2. For the purpose of this Paragraph, the term "Taxes"
shall include all real estate taxes, assessments, taxes on the rents received
from such real estate, and other governmental impositions and charges of every
kind and nature whatsoever, extraordinary as well as ordinary, foreseen and
unforeseen, and each and every installment thereof, which shall or may during
the Term be levied, assessed, imposed, become due and payable, or a lien upon,
or arise in connection with the use, occupancy or possession of , or become due
or payable out of or for the Building or any part thereof, or any land, building
or other improvements therewith. The term "Taxes" shall not include any charge,
such as a water meter charge and the sewer rent based thereon, which is measured
by the consumption by the actual user of the item or service for which the
charge is made. A tax bill or copy thereof, submitted by Landlord to Tenant,
shall be conclusive evidence of the amount of tax or installment thereof.
Tenant's
8
<PAGE>
proportionate share (herein called "Tax Rent") shall be determined by
multiplying the said taxes for the Prince George's County fiscal year in
question by Tenant's proportionate share. Nothing herein contained shall be
construed to include as Tax Rent, any inheritance, estate, succession, transfer,
gift, franchise, corporation, income or profit tax or capital levy that is or
may be imposed upon Landlord; provided, however, that, if, at any time during
the Term, the methods of taxation prevailing at the commencement of the Term
shall be altered so that in lieu of, in addition to, or as a substitute for the
whole or any part of the taxes now levied, assessed or imposed, or (i) license
fee measured by the rents receivable by Landlord from the Building or any
portion thereof, or (ii) a tax or license fee (or any other fee or charge)
imposed upon Landlord which is otherwise measured by or based in whole or in
part upon the Building or any portion thereof, then the same shall be included
in the computation of Tax Rent hereunder. Tenant shall not institute any
proceedings with respect to the assessed valuation of the Building, or any part
thereof, for the purpose of securing a tax refund or reduction. Landlord shall
have no obligation to contest, object or litigate the levying or imposition of
any real estate taxes and may settle, compromise, consent to, waive or otherwise
determine, in its discretion, any real estate taxes without consent or approval
of Tenant. In the event that Landlord does such, Tenant shall pay the reasonable
expenses incurred by Landlord in obtaining, or attempting to obtain, any
reduction of Tax Rent. Such expenses shall be paid within thirty (30) days after
billed by Landlord to Tenant. Tenant, at all times, shall be responsible for,
and shall pay before delinquency, all taxes levied or assessed by any
governmental authority on any leasehold interest, any investment of Tenant in
the Demised Premises, or any personal property of any kind owned, installed or
used by Tenant, in or with respect to, or on Tenant's right to occupy the
Demised Premises.
5. SECURITY DEPOSIT. INTENTIONALLY DELETED.
6. USE OF DEMISED PREMISES. Tenant covenants and agrees to use and
occupy the Demised Premises for general office purposes and other uses
incidental to and associated with office buildings only in conformity with the
laws of the appropriate governing authority. Tenant shall not use or permit any
use of the Demised Premises which creates any safety or environmental hazard, or
which would: (i) be dangerous to the Demised Premises, the Building or other
tenants, or (ii) be disturbing to other tenants of the Building, or (iii) cause
any increase in the premium cost for any insurance which Landlord may then have
in effect with respect to the Building generally. Landlord shall not knowingly
permit any other tenant in the Building to create such a hazard.
7. CONSTRUCTION.
7.1. Landlord's Work. Landlord shall, at its sole cost and expense,
---------------
perform the work described on Exhibit "B" hereto (the "Landlord's Work") (a) in
-----------
such a manner as to comply with the requirements of Exhibit "B", (b) in
-----------
accordance with all terms, provisions and requirements of the Americans With
Disabilities Act, and (c) in accordance with all applicable requirements of any
governmental authority. In addition to the Landlord's Work contained in Exhibit
-------
"B", Landlord shall, as part of Landlord's Work, provide, at its sole cost and
- ---
expense, a reasonably constructed and equipped first-class health/exercise
facility which will be designed and constructed on the first (1st) floor prior
to Tenant's Lease Commencement Date. Said facility shall be approximately 1,000
rentable square feet and shall include, among other things, padded floor
covering, two (2) showers, toilet and sink facilities for both sexes, at least
five (5) lockers for each sex and security card access. Landlord shall
thereafter maintain, in a first-class manner, this facility for the Term as a
direct operating expense of the building. Non-exclusive use of said facility
shall be provided to Tenant and its employees, agents and contractors free of
charge throughout the Term. Tenant shall have
9
<PAGE>
the reasonable right to suggest certain functional types of equipment Landlord
procures for the health facility.
7.2. Tenant's Work. Tenant shall, within thirty (30) days from the
-------------
date of this Lease, prepare and submit to the Landlord for approval, four (4)
duplicate sets of preliminary plans and specifications prepared by its own
architect and/or engineers, with regard to Tenant's Work. If Landlord shall,
within five (5) business days after the date of such submittal, notify Tenant in
writing of any reasonable objection to such preliminary plans and
specifications, Tenant shall make the necessary revisions and resubmit the same
to the Landlord for approval. If Landlord has any reasonable objection to such
revised and resubmitted plans and specifications, then, within three (3)
business days after the date that Tenant resubmits the preliminary plans and
specifications to Landlord for its approval, Landlord shall notify Tenant in
writing of such reasonable objection. Landlord's approval will be evidenced by
an endorsement to that effect on two (2) sets of preliminary plans and
specifications, one set to be retained by Landlord and one set by Tenant. After
approval of Tenant's preliminary plans and specifications, Tenant shall prepare
and submit to Landlord four (4) duplicate sets of complete final plans and
specifications (collectively, the "Plans") covering the Tenant's Work, prepared
in conformity with the approved preliminary plans and specifications of Tenant,
all of which shall have been initialed by the parties hereto and attached to and
made a part of this Agreement as Exhibit "C". From and after the date of this
Lease and continuing until such time that Tenant has completed the Tenant's
Work, (i) at least one (1) of the Building's elevators shall be dedicated for
Tenant's sole and exclusive use, and (ii) Tenant shall have unlimited access at
all times to the lobby of the Building.
7.3. Tenant's Work; Time for Commencement. All of Tenant's Work shall
------------------------------------
be accomplished by Tenant, at Tenant's sole cost and expense, in substantial
conformity with the Plans. The actual cost (as charged by the utility company)
of supplying temporary utilities to the Demised Premises during the performance
of Tenant's Work shall be paid by Tenant to Landlord within fifteen (15) days
after Tenant's receipt of an invoice, which shall be accompanied by a copy of
the actual bill from the utility company with respect to such electricity usage.
Tenant will commence construction of Tenant's Work at a time and in a manner
which will not unreasonably interfere with the construction or completion of the
Building or the use thereof by any other tenant thereof, and will perform and
complete (i) that portion of the Tenant's Work which affects the major Building
systems in compliance with such reasonable rules and regulations as Landlord and
Landlord's Architect and contractor or contractors may make and (ii) the
Tenant's Work in accordance with all applicable requirements of any governmental
authority. Any contractor or subcontractor used by Tenant (which may be non-
union) to perform Tenant's Work must first be approved by Landlord in writing.
Such approval will not be unreasonably withheld, delayed or conditioned. If
Landlord does not object, in writing, to any proposed contractor or
subcontractor within three (3) business days after Tenant's request to approve
same, such contractor or subcontractor, as applicable, shall be deemed
automatically approved by Landlord. Tenant's Work will be commenced within
thirty (30) days after the later to occur of the following: (i) Landlord's
approval of final plans and specifications or (ii) Landlord's written notice to
Tenant that the Building or the Demised Premises will, within thirty (30) days
after said notice, be completed to such an extent that Tenant's Work can, in
accordance with good construction practice, be commenced.
7.4. Remedies for Tenant's Failure or Delay to Submit Plans or Perform
-----------------------------------------------------------------
Work. If Tenant unreasonably fails or omits to make timely submission to
- ----
Landlord of any plans or specifications, or unreasonably delays to any extent in
submitting or supplying information, or unreasonably delays in giving
authorizations or in performing or completing Tenant's Work, or in any other
manner
10
<PAGE>
unreasonably delays or interferes with the performance of Landlord's Work,
Landlord, in addition to any other right or remedy at law or in equity, which it
may have, may, in its sole discretion, give written notice to Tenant
(notwithstanding that such a notice is not otherwise required hereunder) that
the Term will be deemed to have commenced on the date, to be therein specified
(which in no event shall be earlier than December 1, 1993), when the same would
have commenced if Tenant had made timely submission or supply of plans and
specifications or other information or approval of any thereof, and on and after
the date so specified Landlord shall be entitled to be paid the Rent and any
other charges which are payable hereunder by Tenant during the Term. Despite the
foregoing, in the event that any such failure, omission or delay by Tenant is
caused as a result of any delay which is caused (i) by Landlord, including,
without limitation, any failure by Landlord to timely grant or withhold its
consent to any plans or specifications that have been submitted by Tenant, (ii)
by any failure by Tenant to obtain, after good faith, diligent efforts, any
"Basic Governmental Approval" (as hereinafter defined), or (iii) as a result of
Force Majeure, then, in any such event (x) Landlord shall have no right to
accelerate the commencement of the Term and the Term shall not be deemed to have
commenced on the date specified by Landlord, and (y) the provisions of the
immediately preceding sentence shall be of no further force or effect. As used
herein, the term "Basic Governmental Approval" shall collectively mean all
governmental permits, approvals and/or waivers which are necessary to perform
the Tenant's Work, excluding those permits, approvals and/or waivers which are
being sought by Tenant in connection with non-essential, specialty items of
construction to be performed to the Demised Premises (such as special kitchens),
which non-essential, specialty items, if any, shall be designated by Landlord,
within three (3) business days after the date it approves Tenant's preliminary
plans and specifications. In the event that Landlord fails to designate any non-
essential, specialty items within such three (3) business day period, then, the
term "Basic Governmental Approval" shall mean all governmental permits,
approvals and/or waivers which are necessary to perform the Tenant's Work.
7.5. Completion of Demised Premises.
------------------------------
7.5.1. Tenant agrees to accept possession of the Demised
Premises subject to the work to be performed by Landlord described in Exhibit
-------
"B" hereto. Landlord shall use its best efforts to have the Demised Premises
- ---
Substantially Completed (as defined in Paragraph 7.5.3 below) by Wednesday,
September 1, 1993 (the "Scheduled Substantial Completion Date"), except for
delays due to strikes, lockout, civil commotion, warlike operation, invasion,
rebellion, hostilities, military or usurped power, governmental regulations or
controls, inability to obtain labor or materials despite due diligence, act of
God, or other cause beyond the reasonable control of the party hereto which is
so delayed (collectively, "Force Majeure"). In connection with the construction
or supervision of the Demised Premises there shall be no fees or charges by
Landlord unless the same are expressly stated in this Paragraph 7.
7.5.2. (a) Landlord hereby agrees to provide Tenant an
improvement allowance (the "Improvement Allowance"), which Improvement Allowance
shall be equal to Twenty Eight and No/100 Dollars ($28.00) per rentable square
foot and which may be used for all design and construction of Tenant's Work to
improve the Building Shell and Core (including the cost of supplying temporary
utilities to the Demised Premises), but excluding the purchase of furniture or
other equipment not attached to the Demised Premises in a permanent manner and
not reverting to Landlord at the end of Tenant's occupancy.
(b) The first Twenty Six and No/100 Dollars ($26.00)
per rentable square foot of the Improvement Allowance shall be paid immediately
by Landlord within ten (10) days after Tenant periodically delivers to Landlord
any written
11
<PAGE>
notice, together with appropriate invoices for the amount due for leasehold
improvements and receipt of lien waivers or releases from contractors and
materialmen for the previous requisition. In the event the cost of Tenant's
improvements to the Demised Premises (the "Stated Cost") is less than the
product of Twenty Six and No/100 Dollars ($26.00) multiplied by the number of
rentable square feet contained in the Demised Premises (such product shall be
referred to as the "Construction Portion of the Allowance"), then the full
amount of such difference shall be applied to Fixed Rent payable in the initial
month(s) of the Initial Lease Term.
(c) The last Two and No/100 Dollars ($2.00) per
rentable square foot of the Tenant's Improvement Allowance shall be applied in
equal amounts to rents due for the twelve (12) month period beginning after
exhaustion of all rent abatements pursuant to Paragraph 7.5.2(b) above.
(d) Tenant's Improvement Costs in excess of Twenty
Eight and No/100 Dollars ($28.00) per rentable square foot, if any, shall be
paid by Tenant with evidence of payment and appropriate materialman/contractor,
lien waivers/releases supplied to Landlord.
(e) Notwithstanding anything in this Lease to the
contrary, in the event that Landlord fails to timely pay to Tenant any amount
that is due to Tenant under Paragraph 7.5, then Tenant's obligation to commence
paying monthly installments of Fixed Rent shall be delayed, on a day-by-day
basis, for each day that occurs between the date Landlord was first obligated to
pay to Tenant any such amount under Paragraph 7.5 and the date Landlord actually
pays to Tenant the full amount that Landlord owes to Tenant under Paragraph 7.5.
(f) Landlord represents and warrants to Tenant
that Landlord has previously purchased diffusers and ceiling grid (collectively,
the "Purchased Materials") for the construction of the Demised Premiss. Provided
that the Purchased Materials are in good condition and repair, then, (i) Tenant
shall purchase the Purchased Materials from Landlord at the "Stipulated Costs"
(as defined below), and (ii) the "Stipulated Costs" shall be deducted from the
Improvement Allowance. As used herein, the term "Stipulated Costs" shall mean
the sum of (i) the product of the number of diffusers installed in the Demised
Premises as part of the Tenant's Work multiplied by Fifty-three and No/100
-------------
Dollars ($53.00), plus (ii) the product of the number of usable square feet
----
contained in the Demised Premises multiplied by twenty-five cents ($.25).
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Notwithstanding anything to this Lease to the contrary, except for the Purchased
Materials, (a) Tenant shall have no obligation to purchase any materials,
including, without limitation, ceiling tiles, from Landlord in connection with
the build-out of the Demised Premises or any additional space leased by Tenant
hereunder, and (b) no amounts shall be deducted from the Improvement Allowance
with respect to any materials or improvements of any kind or nature whatsoever
that Landlord may have purchased in connection with the construction of the
Demised Premises.
7.5.3. The Demised Premises shall be deemed to be
substantially completed ("Substantially Completed" or "Substantial Completion")
when all work specified to be done in Exhibit "B" hereto has been completed,
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except for minor items which will not interfere with Tenant's construction or
intended use of the Demised Premises, as identified in a "punch list" (as that
term is commonly used in the construction industry) created pursuant to an
inspection of the Demised Premises by Landlord and Tenant, or their designated
representatives.
7.5.4. Excluding latent defects, and any items that are set
forth on the punch list and which remain unfinished, Landlord's Work shall be
deemed approved by Tenant in all respects when the Term commences. Items of
Landlord's Work which are not completed, or do not conform to Exhibit "B", and
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as to which Tenant shall have given written notice to Landlord, prior to the
Lease
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Commencement Date, or occupancy in the premises to complete its work, shall be
completed by Landlord within a reasonable time. It is understood and agreed that
the failure of Tenant to give any such timely notice of incomplete items of
Landlord's Work, to Landlord, shall be conclusively deemed approval of
Landlord's Work as of the Lease Commencement Date. Any disagreement which may
arise between Landlord and Tenant, with reference to the Landlord's Work or
Tenant's Work, shall be resolved by the mutual decision of Landlord's and
Tenant's architects (and if they cannot agree by a third architect chosen by
said architects), which decision shall be final and conclusively binding. Each
party shall bear the costs of its architect and the cost of the third architect
shall be shared equally by Landlord and Tenant.
7.6. Ownership of Improvements. Except for Tenant's office furniture,
-------------------------
furnishings and trade fixtures, all installations, alterations, additions or
improvements upon the Demised Premises, made by either party, including without
limitation of the generality of the foregoing, all pipes, ducts, conduits,
wiring, paneling, decorations, partitions, railings, mezzanine floors, galleries
and the like, shall, unless Landlord otherwise elects by giving Tenant notice
prior to its approval of Tenant's Work or Tenant's subsequent alterations in
Paragraph 8, become the property of Landlord and shall remain upon and be
surrendered with the Demised Premises as a part thereof at the expiration or
other termination of the Term.
7.7. Changes and Additions to Buildings. Landlord hereby reserves the
----------------------------------
right, at any time, and from time to time, to make alterations or additions to
the Building in which the Demised Premises are contained and to build adjoining
the same. Landlord also reserves the right to construct other buildings or
improvements in the Office Park at any time, and from time to time, and to make
alterations thereof or additions thereto, and to build additional stories on any
such building or buildings and to build adjoining the same, and to construct
double-deck or elevated or subterranean parking facilities, and to substitute at
any time, and from time to time, for any parking area or part thereof, other
parking areas equal to or greater in area and within the same distance from the
Building.
8. ALTERATIONS OR IMPROVEMENTS BY TENANT. During the Term, Tenant shall
not make any alterations, additions, improvements, non-cosmetic changes or other
changes to the Demised Premises without the prior written approval of Landlord,
which approval shall not be unreasonably withheld, delayed or conditioned, and
then only in accordance with plans and specifications previously approved in
writing by Landlord, which approval shall not be unreasonably withheld, delayed
or conditioned, and subject to such conditions as Landlord may require,
including, without limitation, that Tenant be required to pay for increased
cost, if any, to Landlord occasioned thereby or attributed thereto. Unless
Landlord otherwise elects by giving notice prior to its approval of such
alterations, all such alterations shall become the property of Landlord and
shall remain upon and be surrendered with the Demised Premises as a part thereof
at the expiration or other termination of the Term.
9. ADDITIONAL UTILITY RENT.
9.1. Landlord shall furnish water, lavatory supplies, fluorescent tube
replacements, automatically operated elevator service and "air conditioning"
(heating, cooling and ventilating, at the temperature level required by the
local, state, federal, or other governing authorities in the Demised Premises)
from 8:00 a.m. to 6:00 p.m., Monday through Friday and on Saturdays from 9:00
a.m. to 1:00 p.m. (except legal holidays listed below). If there are no
temperature levels specified by any governing authorities, such temperature
levels shall be at the reasonable discretion of the Landlord consistent with the
operation of first class office buildings in Northern Prince George's County.
Legal holidays
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excepted, for purposes of this Lease, shall consist of the following:
New Year's Day
Washington's Birthday
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Day
Circulating air will not be available other than by "air conditioning" at
any time other than the hours and days above specified. Tenant agrees that it
shall not use the heating, ventilating, or air conditioning systems, other than
at the time above specified. In the event that Tenant wishes to use such, at a
time not above specified, Tenant shall give Landlord at least a six (6) hour
advance notice during a regular business day, in writing, as to the day and time
it will need such services. Tenant shall pay charges (the "After Hours HVAC
Charges") for such heating, ventilating and air conditioning which is being
provided at any time other than the hours and days above specified (the "After
Hours HVAC Usage"), which After Hours HVAC Charges shall be calculated in
accordance with the schedule that is attached to and made a part of this Lease
as Exhibit "I" (the "HVAC Cost Schedule").
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Except as provided in Paragraphs 4.1.1 and 9.3, Landlord, at its sole cost,
shall furnish electric current in the Demised Premises twenty-four (24) hours
per day, three hundred sixty-five (365) days per year.
Landlord shall not be liable for failure to furnish, or for suspension or
delay in furnishing, any of such services caused by breakdown, unscheduled
repair work or strike, riot, civil commotion, or any cause or reason whatever
beyond the control of Landlord.
9.2. Landlord may, at Landlord's expense, install meters to measure
the electricity consumed on the Demised Premises. In the event Landlord
installs such meters, and such meters reflect that Tenant's use of electricity
(excluding electricity used in connection with providing heating, ventilation,
and air conditioning to the Demised Premises) throughout the entire Demised
Premises, as averaged over the total rentable square footage of the Demised
Premises, exceeds 5.0 watts per square foot (the amount by which (i) Tenant's
use of electricity throughout the entire Demised Premises, as averaged over the
total rentable square footage of the Demised Premises exceeds (ii) 5.0 watts per
square foot shall hereinafter be referred to as the "Excess Electricity Usage"),
Landlord may bill Tenant for the Excess Electricity Usage in accordance with
Paragraphs 9.3 and 9.4 below.
9.3. Tenant agrees to pay, within ten (10) days after being billed by
Landlord, additional rent for the Excess Electricity Usage (such additional rent
shall hereinafter be referred to as the "Excess Electrical Charges"), which
Excess Electrical Charges shall be determined in accordance with Paragraph 9.4
below.
9.4 The Excess Electrical Charges shall be equal to the product of
(i) the Excess Electricity Usage multiplied by (ii) the dollar amount charged by
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the electric company to provide the Excess Electricity Usage.
9.5 Upon Tenant's request, Landlord shall provide Tenant (or its
designee) access to, and permit Tenant (or its designee) to copy, (a) all
documentation used to determine the Excess Electrical Charges and After Hours
HVAC Charges, and (b) the after hours activation log or use log that is
maintained in connection with the use of the heating, ventilating and air
conditioning system of the Building.
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9.6 The HVAC Cost Schedule has been established based upon Landlord's
estimate of the actual amount that will be charged to Landlord by the utility
company for supplying electricity for the After Hours HVAC Usage (the actual
amount that is charged by the utility company for supplying such After Hours
HVAC Usage shall hereinafter be referred to as the "Actual Cost") plus an
----
administrative fee equal to fifteen percent (15%) of the Actual Cost. In the
event that the Actual Cost increases during any Lease Year of the Term, then
Landlord shall have the right, upon thirty (30) days' prior written notice to
Tenant, to increase the applicable amounts set forth on the HVAC Cost Schedule.
Any such increase shall be equal to the product of (a) the applicable After
Hours HVAC Charges per hour that is then set forth on the HVAC Cost Schedule
multiplied by (b) the percentage increase in the Actual Cost during the period
- -------------
which commences on the Lease Commencement Date, or the date that the HVAC Cost
Schedule was most recently modified, as applicable, and which ends on the date
that the rates charged by the utility company was last increased. In no event
shall the HVAC Cost Schedule be increased, in accordance with the foregoing
provisions, more than once during any Lease Year.
9.7 It is the express intent of the parties that the After Hours HVAC
Charges be computed so as to equal the sum of the Actual Cost plus fifteen
percent (15%) of the Actual Cost. In the event that at any time after the first
Lease Year, Tenant believes that After Hours HVAC Charges being charged under
this Lease exceed the Actual Cost plus fifteen percent (15%) of the Actual Cost,
then Tenant shall have the right, at its sole cost and expense, to select an
electrical contractor to perform an energy audit of the Building to determine
whether the HVAC Cost Schedule accurately reflects the Actual Cost plus fifteen
----
percent (15%) of the Actual Cost. If Tenant's electrical engineer's audit
reflects that the HVAC Cost Schedule has not been computed so as to equal the
sum of the Actual Cost plus fifteen percent (15%) of the Actual Cost, then the
HVAC Cost Schedule shall, upon thirty (30) days' prior written notice to
Landlord, be revised in accordance with the audit performed by the Tenant's
electrical engineer such that the HVAC Cost Schedule is computed so as to equal
the sum of the Actual Cost plus fifteen percent (15%) of the Actual Cost.
Despite the foregoing, if, within thirty (30) days after the date that Landlord
receives any such notice from Tenant under this Paragraph 9.7, Landlord delivers
a written notice to Tenant disputing Tenant's electrical engineer's findings,
then, Landlord and Tenant shall mutually select an independent electrical
engineer (the "Independent Engineer"), whereupon (i) the Independent Engineer
shall perform an audit of the Building, (ii) the Independent Engineer shall
recalculate the HVAC Cost Schedule such that the HVAC Cost Schedule is computed
so at to equal the sum of the Actual Cost plus fifteen percent (15%) of such
Actual Cost, (iii) upon either party's request (which shall not be made more
than once during any Lease Year), the parties shall enter into a written
agreement to modify the HVAC Cost Schedule in accordance with clause (ii) above,
which modification shall be effective prospectively and not retroactively, and
(iv) the parties shall equally share the cost of the Independent Engineer.
10. LANDLORD'S ADDITIONAL COVENANTS
10.1. Quiet Enjoyment. Landlord covenants that Tenant, on paying the
---------------
Rent and performing Tenant's obligations in this Lease, shall peacefully and
quietly have, hold and enjoy the Demised Premises and appurtenances throughout
the Term without hindrance, ejection or molestation by any person lawfully
claiming under Landlord, subject to the other terms and provisions of this Lease
and to all mortgages and underlying leases of record to which this Lease may be
or become subject and subordinate.
10.2. Non-Disturbance Agreement. (a) Attached hereto as Exhibit G
------------------------- ---------
is a Non-Disturbance Agreement from Citizens Bank of Maryland, Landlord's
present lender, providing that if by dispossession, foreclosure, or otherwise,
lender, or any successor in interest, comes into possession of the Building,
becomes the
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<PAGE>
owner of the Building, or takes over the rights of Landlord in the Demised
Premises, it will not disturb the possession, use, or enjoyment of the Demised
Premises by Tenant, its successors or assigns, or disaffirm this Lease or
Tenant's rights or estate hereunder and that it will perform all of Landlord's
obligations under this Lease, so long as all Tenant's obligations are fully
performed in accordance with the terms of this Lease. Landlord covenants that it
shall provide from all future lenders a Non-Disturbance Agreement, which shall
be acceptable to Tenant in its reasonable business judgment. Landlord represents
and warrants to Tenant that except for the mortgage or deed of trust referenced
in the first sentence of this Paragraph 10.2(a), no deeds of trust or mortgages
encumber the Building or any part hereof as of the date of this Lease.
(b) Attached hereto as Exhibit "J" is a Non-Disturbance Agreement from
Carrollton Properties Limited Partnership, the present ground lessor under the
ground lease entered into by Landlord with respect to the Land and Building,
providing that if by dispossession, foreclosure, or otherwise, ground lessor, or
any successor in interest, comes into possession of the Building, becomes the
owner of the Building, or takes over the rights of Landlord in the Demised
Premises, it will not disturb the possession, use, or enjoyment of the Demised
Presises by Tenant, its successors or assigns, or disaffirm this Lease or
Tenant's rights or estate hereunder and that it will perform all of Landlord's
obligations under this Lease, so long as all Tenant's obligations are fully
performed in accordance with the terms of this Lease. Landlord covenants that
it shall provide from all future ground lessors a Non-Disturbance Agreement,
which shall be acceptable to Tenant in its reasonable business judgment.
10.3 Landlord's Liability. In the event of a sale or transfer of all or
--------------------
any protion of the Building or any undivided interest therein, or in the event
of the making of a lease of all or substantially all of the Building, or in the
event of a sale or transfer of the leasehold estate under any such lease, the
grantor, transferor or lessor, as the case may be, shall thereafter be entirely
relieved of all terms, covenants, and obligations thereafter to be performed by
Landlord under this Lease, provided (a) all such obligations up until such
transfer have been fully performed by such Landlord, and (b) the transferee
specifically obligates itself in writing to perform all of the terms, covenants
and obligations to be performed by "Landlord" under this Lease.
10.4 Americans With Disabilities Act. Landlord shall indemnify and hold
-------------------------------
Tenant harmless from any and all claims, suits, actions or judgments arising out
of the Building's failure or alleged failure to comply with the Americans With
Disabilities Act during Term, including, without limitation, any failure by
Landlord to maintain the Building and the public and common areas that are
located on or about the Building in accordance with the Americans With
Disabilities Act. The provisions of the sentence which immediately precedes
this sentence shall not be applicable with respect to any construction work
which is performed by Tenant to the Demised Premises.
Notwithstanding any provision to the contrary, Tenant shall look solely to
the estate and property of Landlord in and to the entire Building (or the
proceeds received by Landlord on a sale or refinancing of such estate and
property) in the event of any claim against Landlord arising out of or in
connection with this Lease, the relationship of Landlord and Tenant or Tenant's
use of the Demised Premises shall be limited to such estate and property of
Landlord (or sale or refinancing proceeds). No other properties or assets of
Landlord or its partners shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) or for the satisfaction of any other remedy of Tenant arising out of or
in connection with this Lease, the relationship of Landlord and Tenant or
Tenant's use of the Demised Premises.
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10.5 Ownership of Building and Land. Landlord represents and warrants to
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Tenant that Landlord is (a) the fee simple owner of the Building, and (b) that
Landlord is ground leasing the Land pursuant to a ground lease which is in full
force and effect. Landlord represents and warrants to Tenant that Landlord has
the full right, power and authority to grant the estate demised herein, to
execute and deliver this Lease, and to perform its obligations under this Lease,
all without notice to, or the consent of, any other person or entity whose
consent Landlord has not already obtained.
10.6 Binding Commitments. Landlord represents and warrants to Tenant that
-------------------
Landlord has not made, and shall not make without Tenant's prior written
consent, any commitments or representation to any applicable governmental
authority, or to any adjoining or surrounding property owner which would in any
manner be binding upon Tenant or interfere with Tenant's right or ability to
conduct its business in the Demised Premises.
10.7 Maintenance. Throughout the Term, Landlord shall maintain the
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Building and all public and common areas located on or about the Building in a
first-class condition and repair, in accordance with all governmental laws,
codes, rules, regulations, statutes and orders, including, without limitation,
the Americans With Disabilities Act.
11. TENANT'S AFFIRMATIVE COVENANTS. Tenant covenants, at its sole cost
and expense, at all times during the Term:
11.1. To store all trash and refuse in appropriate containers within
the Demised Premises, for the daily disposal thereof, by an agency designated by
Landlord, Tenant agrees that it will keep the hallways in front of the Demised
Premises free and clean of all trash and debris. In the event that Tenant does
not perform as required in this covenant, Landlord may do so after reasonable
notice and an opportunity to cure, and charge Tenant for Landlord's actual cost
in performing the same. Tenant shall submit payment of such charges on the
latter to occur of (i) the date that its next Fixed Rent payment is due or (ii)
the date that occurs thirty (30) days after the date that Landlord sends a
written notice to Tenant requesting payment of such charges.
11.2. That it shall keep the Demised Premises and the fixtures and
equipment therein in a clean, safe and sanitary condition, will take good care
thereof, will suffer no waste or injury thereto, and will, at the expiration or
other termination of the Term, surrender the same, broom clean, in the same
order and condition in which they are on the commencement of the Term, ordinary
wear and tear and damage by the elements, fire, and other casualty excepted;
Tenant shall maintain and repair any interior portion damaged by Tenant, its
employees, agents or invitees and not "covered" by the insurance on the
Building, and upon such termination of this Lease, Landlord shall have the right
to reenter and resume possession of the Demised Premises. In the event that
after Landlord's good faith, diligent efforts to collect insurance proceeds with
respect to any such damage, the applicable insurance provider refuses to pay any
amounts in connection with such damage, then such damage shall not be deemed
"covered" by the insurance on the Building.
11.3. To pay promptly when due the entire cost of any work to the
Demised Premises, including equipment, facilities and fixtures therein,
undertaken by Tenant when permitted to do so under the provisions of this Lease,
so that the Demised Premises shall at all times be free of liens for labor and
materials; to procure all necessary approvals before undertaking any such work;
to do all such work in a good and workmanlike manner acceptable to Landlord,
employing materials of good quality; and to comply with any requirement relating
thereto. To pay the cost of any non-standard items including, but not limited
to, light bulbs, tubes, ballasts and batteries which are not designated as
"standard fixtures" on Exhibit "C" hereto.
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11.4. To defend and save Landlord harmless and indemnified,
absolutely and forever, from all injury, loss, claims or damage (including
attorneys' fees and disbursements) to any person or property, arising from, or
out of, or related to, the use or occupancy of the Demised Premises or the
conduct or operation of Tenant's business.
11.5. That it will not do or permit to be done in the Demised
Premises, or the Building or bring or keep anything therein, which shall in any
way increase the rate of fire or other insurance in said Building, or on the
property kept therein, or obstruct, or interfere with the rights of other
tenants, or in any way injure or annoy them, or those having business with them
or conflict with them, or conflict with the fire laws or regulations, or with
any insurance policy upon said Building or any part thereof provided said policy
is consistent with policies normally obtained by prudent office building
landlords, or with any statutes, rules or regulations enacted or established by
the Federal Government or any other governmental authority. Increases in the
rate of fire insurance or other insurance as stated by any insurance company, or
by the applicable Insurance Rating Bureau to be due to activity or equipment in
or about the Demised Premises beyond the scope of use permitted in Paragraph 6,
such statement shall be conclusive evidence that the increase in such rate is
due to such activity or equipment, as a result thereof, Tenant shall be liable
for such increase and shall reimburse Landlord immediately upon demand therefor.
11.6. That Landlord and Landlord's agents and employees shall not be
liable for, and Tenant hereby absolutely and irrevocably waives all claims for
loss or damage to any person or property sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence (unless caused
by, or resulting from the negligence or willful act of Landlord, its agents,
representatives, servants or employees) in or upon the Demised Premises, or any
other part of the Building, including, but not limited to claims for damage
resulting from: (i) any equipment or appurtenances owned by Tenant becoming out
of repair; (ii) any defect in, or wiring or installation by Tenant of gas,
water, plumbing heating, air conditioning, electrical, lighting or other
systems, apparatus, conduits, mechanisms or units, steam pipes, stairs, porches,
railings or walks; and (iii) the bursting, leaking or running of any tank, tub,
washstand, water closet, waste pipe, drain or any other pipe, drain or any other
pipe or tank in, upon, or about the Building, or the Demised Premises; (iv) the
escape of steam or hot water; (v) water, snow or ice being upon or coming
through the roof, skylight, trap door, stairs, doorways, or any other place upon
or near the Building or the Demised Premises or otherwise; (vi) the falling of
any fixture, plaster, tile or stucco; (vii) any act, omission, or negligence of
other tenants, licensees or of any other persons or occupants of the Building
(viii) Landlord's failure to keep any part of the Building in repair before
notice of the need for repair; (ix) damage to, or loss by theft or otherwise, or
property of Tenant or others; (x) injury done or occasioned by wind; (xi) broken
glass; (xii) the backing up of any sewer pipe or downspout; and (xiii) all
property of the Tenant, kept in or on the premises, shall be kept at Tenant's
risk only, and Tenant shall save Landlord harmless from any and all claims
arising out of any damage to the same, including subrogation claims by Tenant's
insurance carrier.
11.7. That Landlord's agents shall have the right to enter upon the
Demised Premises, upon reasonable prior notice, at all reasonable times (subject
to any security requirements), to examine the same and to make such repairs,
alterations, improvements or additions to Landlord's Work in the Demised
Premises, or to the Building, or any other portion or portions of the Building,
above, below, adjacent to or proximate to the Demised Premises or otherwise in
the Building, as may be necessary, and Landlord shall be allowed to take all
materials into and upon the Demised Premises that may be required therefor
without the same constituting an eviction of Tenant, in whole or in part, and
the
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Rent shall in no wise abate while such repairs, alterations, improvements or
additions are being made by reason of loss or interruption of the business of
Tenant due to the prosecution of any such work, provided such work shall be
performed diligently and with a minimum of disruption to Tenant's normal level
of operation. Landlord and Landlord's agents and independent contractors
designated by Landlord and the local utility companies, as the case may be,
shall also have the right to run utility lines, pipes, conduits or duct work,
where necessary or desirable, through column space or other parts of the Demised
Premises and shall have the right to repair, alter, replace or remove the same.
All such installations and work shall be done in a manner which does not
interfere unnecessarily with Tenant's use and occupancy of the Demised Premises.
Landlord or Landlord's agent shall also have the right to enter upon the Demised
Premises, upon reasonable prior notice, at any reasonable time (subject to any
security requirements) to show them to prospective purchasers or lessees of the
Building. During the six (6) months prior to the expiration of the Term,
Landlord may, at any time, and from time to time, upon reasonable prior notice,
show the Demised Premises to prospective tenants. If, during the last month of
the Term, Tenant shall have removed all of Tenant's property therefrom, Landlord
may immediately enter and alter, renovate and redecorate the Demised Premises
without elimination or abatement of Rent or other compensation to Tenant and
such action shall have no effect upon this Lease.
11.8. Forthwith, (but in any event, within ten (10) days after notice
to Tenant of the filing thereof) to cause to be discharged of record any
mechanics' lien at any time filed against, or with respect to the Demised
Premises, for any work, labor, services, or materials claimed to have been
performed at, or furnished to the Demised Premises for or on behalf of Tenant,
or anyone holding the Demised Premises through or under Tenant. Nothing in this
Lease contained shall be construed as a consent on the part of Landlord to
subject Landlord's interest in the Demised Premises to any lien or liability
under applicable law.
11.9. Upon the expiration or other termination of the Term, at
Tenant's sole cost and expense, to quit and surrender to Landlord the Demised
Premises, broom clean, in good order and condition, ordinary wear and tear and
damage by casualty excepted; to remove all property of Tenant; and to repair all
damages to the Demised Premises caused by such removal and restore the Demised
Premises to the condition in which they were prior to the installation of the
property so removed, subject to ordinary wear and tear and damage by casualty.
Any property not so removed shall be deemed to have been abandoned by Tenant and
may be retained or disposed of by Landlord, as Landlord, in its sole discretion,
shall desire. If the last day of the Term falls on a Sunday, the Term shall
expire on the business day immediately preceding such Sunday. Tenant's
obligation to observe or perform the terms of this Paragraph 11.9 shall survive
the expiration or termination of the Term. Immediately upon the failure of
Tenant to perform any covenant of this Paragraph, Landlord after notice to
Tenant and a reasonable opportunity to cure shall be entitled to receive from
Tenant the then cost of performance of such covenant, such damages to be paid in
addition to and separate and independent from damages accruing by reason of the
breach of any other covenant of the Lease.
11.10. Tenant, its agents and employees, shall abide by and observe
the Rules and Regulations attached hereto as Exhibit "D" provided that the same
-----------
are uniformly applied to all tenants of the Building. Tenant, its agent and
employees, shall abide by and observe such other reasonable rules and
regulations as may be promulgated, from time to time, by Landlord for the
operation and maintenance of the Building, provided that the same are uniformly
applied to all tenants of the Building, in conformity with common practice and
usage in similar buildings and are not inconsistent with the provisions of this
Lease and that a copy thereof is sent to Tenant. Nothing contained in this
Lease shall be construed to
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impose upon Landlord any duty or obligation to enforce such rules and
regulations, or the terms, conditions or covenants contained in any other Lease,
as against any other tenants, and Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its employees, agents, business
invitees, licensees, customers or clients.
12. NEGATIVE COVENANTS. Tenant covenants at all times during the Term and
such further time as Tenant occupies the Demised Premises or any part thereof:
12.1. Not to permit commercial or piped in music to be played in the
Demised Premises without the prior written reasonable consent of Landlord.
12.2. Not to, without on each occasion obtaining the prior written
consent of the Landlord: install awnings in or on the Demised Premises; nor
attach interior signs, placards or other advertising media or other objects to
the windows, floors, valance or ceiling or locate the same, either outside of,
or within the Demised Premises, in such manner as to obstruct the view of
Tenant's office from the outside other than insubstantially. Tenant shall not
place signs or advertisements on any of the windows located in the Demised
Premises which are visible from the exterior of the Demised Premises.
12.3. Not to place a load upon any floor of the Demised Premises
which exceeds the floor load per square foot area which such floor was designed
to carry (that is, sixty (60) pounds of live load capacity per square foot and
twenty (20) pounds of dead load capacity per square foot). If Tenant shall
desire a floor load in excess of that for which the floor, or any portion of the
Demised Premises is designed, upon submission to Landlord of plans showing the
location of, and the desired floor live load for the area in question, Landlord
shall strengthen and reinforce the same, at Tenant's sole cost and expense, so
as to carry the load desired. Business machines and mechanical equipment used
by Tenant which cause vibration or noise that may be transmitted to the Building
or to any leased space to such a degree as to be reasonably objectionable to
Landlord, or to any other tenant in the Building shall be placed and maintained
by Tenant, at its sole cost and expense, in settings of cork, rubber or spring-
type vibration eliminators sufficient to cause such vibration or noise to be
eliminated.
13. ASSIGNMENT AND SUBLETTING.
13.1. Tenant shall not assign, pledge, mortgage or otherwise transfer
or encumber this Lease, nor sublet all or any part of the Demised Premises or
permit the same to be occupied or used by anyone other than Tenant or its
employees without Landlord's prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned. It will not be unreasonable for
Landlord to withhold its consent if the financial responsibility, or business of
a proposed assignee or subtenant is reasonably unsatisfactory to Landlord, or if
Landlord reasonably deems such business not to be consonant with that of other
tenants in the Building, or if the intended use by the proposed assignee or
subtenant conflicts with any commitment made by Landlord to any other tenant in
the Building. Landlord shall not have any rights to recapture or reacquire any
space sublet or assigned by Tenant.
13.2. Tenant's request for consent to any sublet or assignment shall
be in writing and shall contain the name, address, and description of the
business of the proposed assignee or subtenant, its most recent financial
statement and other evidence of financial responsibility, its intended use of
the Demised Premises, and the terms and conditions of the proposed assignment or
subletting. Within fifteen (15) days from receipt of such request, Landlord
shall grant or refuse consent and a failure to so respond shall be deemed a
consent.
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13.3. Each assignee hereunder shall assume and be deemed to have
assumed this Lease and shall be and remain liable jointly and severally with
Tenant for all payments and for the due performance of all terms, covenants,
conditions and provisions herein contained on Tenant's part to be observed and
performed. No assignment shall be binding upon Landlord unless the assignee
shall deliver to Landlord an instrument in form and substance satisfactory to
Landlord containing a covenant of assumption by the assignee, but the failure or
refusal of assignee to execute and deliver the same shall not release assignee
from its liability as set forth herein. Fifty percent (50%) of any profit or
additional consideration or rent in excess of the Fixed Rent or Additional Rent
payable by Tenant hereunder which is payable to Tenant as a result of any
assignment or subletting shall be paid to Landlord as Additional Rent when
received by Tenant. Profits shall be defined herein as gross sublease revenues
less all usual and customary transaction costs (including but not limited to,
vacancy, leasing fees, legal fees, marketing costs, tenant improvements, etc.
and less Tenant's Fixed Rent and Additional Rents. Tenant shall not enter into
any lease, sublease, license, concession or other agreement for the use,
occupancy or utilization of the Demised Premises or any portion thereof, which
provides for a rental or other payment for such use, occupancy or utilization
based in whole or in part on the income or profits derived by any person from
the property leased, used, occupied or utilized (other than an amount based on a
fixed percentage or percentages of receipts or sales). Any such purported
lease, sublease, license, concession or other agreement shall be absolutely void
and ineffective as a conveyance of any right or interest in the possession, use
or occupancy of any part of the Demised Premises.
13.4. Any consent by Landlord hereunder shall not constitute a waiver
of strict future compliance by Tenant with the provisions of this Paragraph 13.4
or a release of Tenant from the full performance by Tenant of any of the terms,
covenants, provisions, or conditions in this Lease contained.
13.5. EXCEPTIONS. Notwithstanding anything in this Lease to the
contrary, (a) Tenant shall have the express right to permit its prime
contractors, subcontractors, teaming partners, clients and others affiliated
with Tenant (collectively, the "Related Users") to occupy space on a month to
month basis in the Demised Premises from time to time without first obtaining
the approval of the Landlord, (b) in the event that Tenant permits any of the
Related Users to so occupy space in the Demised Premises, the provisions of
Paragraphs 13.1, 13.2, 13.3 and 13.4 shall not be applicable to any such
occupancy, and (c) Tenant may sublease space in the Demised Premises to its
subsidiaries, parent corporation, if any, and other entities in which Tenant has
a controlling interest without first obtaining the consent of the Landlord. The
foregoing provisions of this Paragraph 13.5 shall not constitute a release of
Tenant from the full performance by Tenant of any of the terms, covenants,
provisions or conditions that are contained in this Lease.
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14. SELF HELP. Notwithstanding anything in this Lease to the contrary,
in the event Landlord refuses or neglects to promptly commence and complete
repairs or maintenance to the Demised Premises, the Building and/or the common
or public areas in and about the Building, then Tenant may, but shall be under
no obligation to do so, upon thirty (30) days prior written notice to Landlord
and to any lender whose name and address have been furnished to Tenant, make or
complete any such repairs or maintenance and Landlord shall pay the cost thereof
to Tenant on demand. Despite the foregoing, Tenant shall not commence making or
completing any such repair or maintenance until it has given Landlord and
Landlord's lender (if applicable) an additional five (5) days prior written
notice of Tenant's intent to make or complete such repairs, which notice shall
not be given prior to the expiration of the initial thirty (30) day period. In
the event Landlord fails to pay such cost to Tenant on demand, then such amount
shall bear interest at the "Default Rate" (as defined in Paragraph 20) from the
date Tenant incurs such cost until the date of payment by Landlord.
15. EMINENT DOMAIN. If the whole or more than twenty percent (20%) of the
Demised Premises (or use or occupancy of the Demised Premises) shall be taken or
condemned by any governmental or quasi-governmental authority for any public or
quasi-public use or purpose (including sale under threat of such a taking), or
if the Landlord elects to convey title to the condemnor by a deed in lieu of
condemnation, or if all or any portion of the Land or Building are so taken,
condemned or conveyed and as a result thereof, in Landlord's or Tenant's
judgment, the Demised Premises cannot be used for Tenant's permitted use as set
forth herein, then this Lease shall cease and terminate as of the date when
title vests in such governmental or quasi-governmental authority and the Fixed
Rent and Additional Rent shall be abated on the date when such title vests in
such governmental or quasi-governmental authority. If less than twenty percent
(20%) of the Demised Premises is taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose
(including sale under threat of such a taking), the Fixed Rent and Tenant's
proportionate share shall be equitably adjusted (on the basis of the number of
square feet before and after such event) on the date when title vests in such
governmental or quasi-governmental authority and the Lease shall otherwise
continue in full force and effect. In any case, Tenant shall have no claim
against Landlord for any portion of the amount that may be awarded as damages as
a result of any governmental or quasi-governmental taking or condemnation (or
sale under threat of such taking or condemnation); and all rights of Tenant to
damages therefor are hereby assigned by Tenant to Landlord. The foregoing shall
not, however, deprive Tenant of any separate award for moving expenses,
dislocation damages or for any other award which would not reduce the award
payable to Landlord.
16. CASUALTY DAMAGE.
16.1. In the event of damage to or destruction of the Demised
Premises caused by fire or other casualty, or any such damage or destruction to
the Building or the facilities necessary to provide services and normal access
to the Demised Premises in accordance herewith, Landlord, after receipt of
written notice thereof from Tenant, shall undertake to make repairs and
restorations with reasonable diligence as hereinafter provided, unless this
Lease has been terminated by Landlord or Tenant as hereinafter provided. If (i)
the damage is of such nature or extent that, in Landlord's prudent business
judgment, more than one hundred and eighty (180) days would be required (with
normal work crews and hours) to repair and restore the part of the Demised
Premises or Building which has been damaged, or (ii) the Demised Premises or the
Building is so damaged that, in Landlord's sole judgment, it is uneconomical to
restore or repair the Demised Premises or the Building, as the case may be, or
(iii) less than two (2) years then remain on the current Term, unless Tenant
exercises its option, if any then remain unexercised, as per Paragraph 2.2,
Landlord shall so advise Tenant promptly, and either
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party, in the case described in clause (i) above, or Landlord, in the cases
described in clauses (ii) or (iii) above, within thirty (30) days after any such
damage or destruction, shall have the right to terminate this Lease by written
notice to the other, as of the date specified in such notice, which termination
date shall be no later than thirty (30) days after the date of such notice.
16.2. In the event of fire or other casualty damage, provided this
Lease is not terminated pursuant to the terms of this Paragraph 16 and is
otherwise in full force and effect, Landlord shall proceed promptly and
diligently to restore the Demised Premises to substantially its condition prior
to the occurrence of the damage. Landlord shall not be obligated to repair or
restore any alterations, additions, fixtures or equipment which Tenant may have
installed (whether or not Tenant has the right or the obligation to remove the
same or is required to leave the same on the Demised Premises as of the
expiration or earlier termination of this Lease) unless Tenant, in a manner
satisfactory to Landlord, assures payment in full of all costs as may be
incurred by Landlord in connection therewith.
16.3. Landlord shall not insure any improvements or alterations to
the Demised Premises in excess of Exhibit "B", tenant improvements, or any
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fixtures, equipment or other property of Tenant. Tenant shall, at its sole
expense, insure the value of its leasehold improvements, fixtures, equipment and
personal property located in or on the Demised Premises, for the purpose of
providing funds to Landlord to repair and restore the Demised Premises to
substantially its condition prior to occurrence of the casualty occurrence. If
there are any such alterations, fixtures or additions and Tenant does not assure
or agree to assure payment of the cost of restoration or repair as aforesaid,
Landlord shall have the right to restore the Demised Premises to substantially
the same condition as existed prior to the damage, excepting such alterations,
additions or fixtures.
16.4. The validity and effect of this Lease shall not be impaired in
any way by the failure of Landlord to complete repairs and restoration of the
Demised Premises or of the Building within one hundred and eighty (180) days
after commencement of the work, even if Landlord had in good faith notified
Tenant that the repair and restoration could be completed within such period,
provided that Landlord commences such work promptly and proceeds diligently with
such repair and restoration. In the case of damage to the Demised Premises
which is of a nature or extent that Tenant's continued occupancy is in the
judgment of Landlord substantially impaired, then the Fixed Rent and Additional
Rent otherwise payable by Tenant hereunder shall be equitably abated or adjusted
for the duration of such impairment. Tenant shall be responsible to repair all
of Tenants' leasehold improvements and all equipment, fixtures and personal
property located in or on the Demised Premises subject to Article 8 and/or
Exhibit "C" and to such other reasonable conditions as Landlord may require. No
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compensation or claim, or diminution of rent will be allowed, or paid by
Landlord, by reason of inconvenience, annoyance, or injury to business, arising
from the necessity of repairing the Demised Premises or any portion of the
Building.
17. INSURANCE; INDEMNIFICATION OF LANDLORD; WAIVER OF SUBROGATION.
17.1. (a) Tenant agrees, at its sole cost and expense, to maintain
comprehensive general liability insurance naming Landlord as an additional
insured, which insurance shall protect Landlord and Tenant from liability with
respect to accidents occurring on the Leased Premises or arising out of the use
thereof. Tenant shall maintain in full force and effect, at its own expense,
comprehensive general liability insurance (including a contractual liability and
fire legal liability insurance endorsement) naming as an additional insured
Landlord and Landlord's managing agent, if any, against claims for bodily
injury, death or property damage in amounts no less than
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$1,000,000.00 (or such higher limits as may be reasonably determined by Landlord
from time to time) and business interruption insurance in an amount equal to
Tenant's gross income for twelve (12) months. All policies shall be issued by
companies having a Best's financial rating of A or better and a size class
rating of XII (12) or larger otherwise acceptable to Landlord. At or prior to
the Lease Commencement Date, Tenant shall deposit the policy or policies of such
insurance, or certificates thereof, with Landlord and shall deposit with
Landlord renewals thereof at least fifteen (15) days prior to each expiration.
Said policy or policies of insurance or certificates thereof shall have attached
thereto an endorsement that such policy shall not be canceled without at least
thirty (30) days prior written notice to Landlord and Landlord's managing agent,
if any, that no act or omission of Tenant shall invalidate the interest of
Landlord under said insurance and expressly waiving all rights of subrogation as
set forth below. At Landlord's request, Tenant shall provide Landlord with a
letter from an authorized representative of its insurance carrier stating that
Tenant's current and effective insurance coverage complies with the requirements
contained herein.
(b) (i) Landlord agrees, at its sole cost and expense,
to maintain comprehensive general liability insurance naming Tenant as an
additional insured, which insurance shall protect Landlord and Tenant from
liability with respect to accidents occurring within the Building (excluding the
Demised Premises), and those occurring on or about the common and public areas
of the Building. Landlord shall maintain in full force and effect, at its own
expense, comprehensive general liability insurance (including a contractual
liability and fire legal liability insurance endorsement), naming as an
additional insured Tenant, against claims for bodily injury, death or property
damage in amounts no less than the amount Tenant is then required to maintain
under Paragraph 17.1(a) above.
(ii) Landlord agrees, at its own cost and expense, to
maintain fire and extended coverage insurance in so-called "all-risk" form upon
the Building. Such coverage shall include damage done by fire and/or other
casualty typically covered under an all risk policy for comparable office
buildings in the vicinity of the Building. Such insurance shall be in an amount
equal to one hundred percent (100%) of the full replacement value of the
Building.
(iii) All policies obtained by Landlord under
Paragraph 17.1(b) shall be issued by companies having a Best's financial rating
of A or better and a size class rating of XII (12) or larger otherwise
acceptable to Landlord. At or prior to the Lease Commencement Date, Landlord
shall deposit certificates of such insurance with Tenant and shall deposit with
Tenant renewals thereof at least fifteen (15) days prior to each expiration.
Said certificates of insurance shall have attached thereto an endorsement that
such policy shall not be canceled without at least thirty (30) days prior
written notice to Tenant, that no act or omission of Landlord shall invalidate
the interest of Tenant under said insurance and expressly waiving all rights of
subrogation as set forth below. At Tenant's request, Landlord shall provide
Tenant with a letter from an authorized representative of its insurance carrier
stating that Landlord's current and effective insurance coverage complies with
the requirements contained herein.
(iv) The reasonable cost of the insurance maintained
by Landlord under Paragraph 17(b) hereof shall be included as an operating
expense of the Building.
17.2. Landlord and Tenant hereby release the other from any and all
liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
covered by insurance then in force, even if any such fire or other casualty
occurrence shall have been caused by the fault or negligence of the other party,
or
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anyone for whom such party may be responsible. This release shall be applicable
and in full force and effect, however, only to the extent of and with respect to
any loss or damage occurring during such time as the policy or policies of
insurance covering said loss shall contain a clause or endorsement to the effect
that this release shall not adversely affect or impair said insurance or
prejudice the right of the insured to recover thereunder. To the extent
available, Landlord and Tenant further agree to provide such endorsements for
said insurance policies agreeing to the waiver of subrogation as required
herein.
18. DEFAULT. Any other provisions in this Lease notwithstanding, it shall
be an event of default ("Event of Default") under this Lease if: (i) Tenant
fails to pay any installment of Fixed Rent, Additional Rent or other sum payable
by Tenant hereunder when due and such failure continues for a period of ten (10)
days after notice, or (ii) Tenant fails to observe or perform any other covenant
or agreement of Tenant herein contained and such failure continues after written
notice given by or on behalf of Landlord to Tenant for more than fifteen (15)
days, provided, however, in the event such covenant or agreement is not capable
of completion within said fifteen (15) day period, then the period of time for
such remedial action shall be extended so long as Tenant commences such action
to correct within said fifteen (15) day period and diligently pursues the same
to completion, or (iii) Tenant uses or occupies the Demised Premises other than
as permitted hereunder, or (iv) Tenant assigns or sublets, or purports to assign
or sublet, the Demised Premises or any part thereof other than in the manner and
upon the conditions set forth herein, or (v) Tenant abandons the Demised
Premises or without Landlord's prior written consent, Tenant removes or attempts
to remove or manifests an intention to remove all of Tenant's property from the
Demised Premises other than in the ordinary and usual course of business, or
(vi) Tenant files a petition commencing a voluntary case, or has filed against
it a petition commencing an involuntary case, under the Federal Bankruptcy Code
(Title 11 of the United States Code), as now or hereafter in effect, or under
any similar law, or files or has filed against it a petition or answer in
bankruptcy or for reorganization or for an arrangement pursuant to any state
bankruptcy law or any similar state law, and, in the case of any such
involuntary action, such action shall not be dismissed, discharged or denied
within one hundred fifty (150) days after the filing thereof, or Tenant consents
or acquiesces in the filing thereof, or (vii) if Tenant is a banking
organization, Tenant files an application for protection, voluntary liquidation
or dissolution applicable to banking organizations, or (viii) a custodian,
receiver, trustee or liquidator of Tenant or of all or substantially all of
Tenant's property or of the Demised Premises shall be appointed in any
proceedings brought by or against Tenant and, in the latter case, such entity
shall not be discharged within one hundred fifty (150) days after such
appointment or Tenant consents to or acquiesces in such appointment, or (ix)
Tenant shall make an assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due. The notice
and grace period provisions in clauses (i) and (ii) above shall have no
application to the Events of Default referred to in clauses (iii) through (ix)
above.
19. REMEDIES OF LANDLORD.
19.1. In case of an Event of Default set forth in Paragraph 18,
reentry by Landlord, termination of this Lease, and/or dispossession by summary
proceedings or otherwise, (i) the Rent shall become due thereupon and be paid by
Tenant up to the time of such default, reentry, termination or dispossession,
whichever shall later occur; (ii) Landlord may relet the Demised Premises or any
part of parts thereof, either in the name of Landlord or otherwise, for a term
which may, at Landlord's sole option, be less than or exceed the period which
would otherwise have constituted the balance of the Term, upon such terms and
conditions as Landlord, in its sole discretion may determine, including without
limitation concessions of free rent; and (iii)
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Tenant or the legal representative of Tenant shall also pay Landlord, in monthly
installments, as fixed and liquidated damages (but not as a penalty) for the
failure of Tenant to observe and perform Tenant's said covenants herein
contained, for each month of the period which would otherwise have constituted
the balance of the then Term, any deficiency between (x) the sum of (a) one
monthly installment of Fixed Rent, (b) the Tax Rent that would have been payable
for the month in question but for such reentry or termination, and (c) the
current monthly Operating Expense Rent, and (y) the net amount, if any, of the
rents collected on account of the lease or leases of the Demised Premises for
each month of the period which would otherwise have constituted the balance of
the then Term. In computing such liquidated damages, there shall be added to
said deficiency such expenses as Landlord (in its prudent business judgment) may
incur in connection with any such reletting, including, without limitation,
court costs, attorneys' fees and disbursements, brokerage fees and any other
costs incurred in connection with putting and keeping the Demised Premises in
good order, or for preparing the same for reletting as hereinafter provided; all
of which shall be considered as Additional Rent. Notwithstanding anything herein
to the contrary, any such liquidated damages shall be paid in monthly
installments by Tenant on the day specified in this Lease for the monthly
payment of Fixed Rent and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Landlord
to collect the deficiency for any subsequent month by a similar proceeding.
Landlord, at Landlord's sole option, may make such alterations, repairs,
replacements and/or decorations in the Demised Premises, as Landlord's sole
judgment considers advisable and necessary for the purpose of reletting the
Demised Premises; and the making of such alterations and/or decorations shall
not operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to relet the Demised Premises, or, in the event that the Demised
Premises are relet, for failure to collect the rent thereof under such
reletting.
19.2. Notwithstanding the provisions of Paragraph 19.1 hereof, in the
event of any such default, reentry, termination and/or dispossession, Landlord
shall have the right in its sole discretion, to elect, in place and instead of
holding Tenant so liable, as set forth in Paragraph 19.1 hereof, forthwith to
recover against Tenant the fixed and liquidated damages provided in Paragraph 19
hereof.
19.3. In the event of a breach or threatened breach by Tenant of any
covenant or provision hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity not otherwise herein
provided. Mention in this Lease of any particular right or remedy shall not
preclude Landlord from invoking any other right or remedy.
19.4. Tenant hereby expressly waives, for and on behalf of itself and
all parties claiming through, under, or as Tenant, the services of notice of
intention to reenter or to institute legal proceedings to that end.
19.5. In the event either party defaults in any of the terms and
provisions of this Lease, the defaulting party agrees to pay to the non-
defaulting party, upon demand, all sums expended by the non-defaulting party in
connection with said default including, but not limited to, all court costs and
reasonable attorneys' fees. In the event the non-defaulting party has
instituted legal action against the defaulting party for collection of sums due
hereunder, then the non-defaulting party shall be entitled to collect attorneys'
fees of up to fifteen percent (15%) of the amount of the judgment, plus costs.
If Landlord is the non-defaulting party, then all of the above costs incurred by
Landlord in the paragraph shall be considered Additional Rent.
19.6. Survival of Tenant's Obligations. No expiration or termination
--------------------------------
of this Term pursuant to Paragraph 18
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above or by operation of law or otherwise (except as expressly provided herein),
and no repossession of the Demised Premises or any part thereof pursuant to
Paragraph 18 above or otherwise shall relieve Tenant of its liabilities and
obligations hereunder, all of which shall survive such expiration, termination
or repossession, and Landlord may, at its option, sue for and collect all rent
and other charges due hereunder at any time as and when such charges accrue.
19.7. Waiver of Redemption. Tenant hereby expressly waives any and
--------------------
all rights of redemption granted by or under any present or future law in the
event this Lease is terminated, or in the event of Landlord obtaining possession
of the Demised Premises, or Tenant is evicted or dispossessed for any cause, by
reason of violation by Tenant of any of the provisions of this Lease.
19.8. Not Exclusive Right. No right or remedy herein conferred upon
-------------------
or reserved to Landlord is intended to be exclusive of any other right or remedy
herein or by law provided, but each shall be cumulative and in addition to every
other right or remedy given herein or now or hereafter existing at law or in
equity or by statute.
20. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If Tenant defaults in the
making of any payment or in the doing of any act herein required to be made or
done by Tenant and the same shall continue for at least ten (10) days after
notice of such default from Landlord to Tenant, in the Event of a Default as set
forth in Paragraph 18(i) hereof, and fifteen (15) days in the Event of a Default
as set forth in Paragraph 18(ii) hereof, then Landlord may, but shall not be
required to, make such payment or do such act, and charge the amount of
Landlord's expense, with interest accruing and payable thereon at an annual rate
(the "Default Rate") equal to the sum of the prime rate of interest published in
the Eastern Edition of the Wall Street Journal as the "Prime Rate", plus two
-------------------
percent (2.0%), from the date paid or incurred by Landlord to the date of
payment thereof by Tenant; provided, however, that nothing herein contained
shall be construed or implemented in such a manner as to allow Landlord to
charge or receive interest in excess of the maximum legal rate then allowed by
law. Such payment and interest shall constitute Additional Rent hereunder due
and payable (i) within the next twenty (20) days or (ii) with the next monthly
installment of Fixed Rent; but the making of such payment or the taking of such
action by Landlord shall not operate to cure such default by Tenant or to estop
Landlord from the pursuit of any remedy to which Landlord would otherwise be
entitled.
21. TENANT'S ACCEPTANCE LETTER - ESTOPPEL CERTIFICATES. Each of the
parties agree that it will, at any time and from time to time, within ten (10)
days following written notice by the other party hereto specifying that it is
given pursuant to this Paragraph, execute, acknowledge and deliver to the party
who gave such notice, a written instrument stating whether this Lease has been
modified and whether the Lease is in full force and effect, the date to which
the Rent and any other payments due hereunder from Tenant have been paid in
advance, if any, and stating whether or not to the reasonable knowledge of the
signer of such certificate that the other party is not in default in the
performance of any covenant, agreement or condition contained in this Lease, and
if so, specifying each such default. In the event that Tenant fails to execute
any such certificate within the applicable ten (10) day period, then Landlord
shall have the right to give Tenant a second written notice which states that if
Tenant fails to execute and deliver such certificate within ten (10) days after
its receipt of such second notice, Landlord shall have the right to sign such
certificate on Tenant's behalf as Tenant's attorney-in-fact. In the event that
Tenant fails to execute any such instrument within ten (10) days after its
receipt of any such second notice, then Tenant shall be deemed to have appointed
Landlord as its attorney-in-fact for the sole purpose of executing such
certificate.
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22. HOLDOVER BY TENANT. In the event that Tenant remains in possession of
the Demised Premises after the expiration of the Term, and without the execution
of a new Lease, Tenant understands and agrees that Tenant shall be deemed to be
occupying said Demised Premises as a tenant from month to month, at a monthly
rental equal to 125% the sum of (i) the monthly installment of Fixed Rent
payable during the last month of the Term, (ii) the Operating Expense Rent
payable for 1/12th of the then current operating expense, (iii) the Tax Rent
payable for 1/12th of the then current tax expense and (iv) all other sums due
hereunder, subject to all the other conditions, provisions and obligations of
this Lease, insofar as the same are applicable to a month-to-month tenancy.
Without limiting any rights and remedies of Landlord resulting by reason of the
wrongful holding over by Tenant, or creating any right in Tenant to continue in
possession of the Demised Premises, all Tenant's obligation with respect to the
use, occupancy and maintenance of the Demised Premises shall continue during
such period of unlawful retention.
23. ENERGY REBATES. (a) In the event Tenant, in the exercise of its sole
discretion, elects to cause to be installed in the Demised Premises any energy
efficient light fixtures, energy efficient light bulbs and/or other related
equipment and machinery (collectively, the "Energy Efficient Equipment"), and
the installation of such Energy Efficient Equipment in the Demised Premises
would enable either Landlord or Tenant to receive any sums of money
(collectively, the "Energy Rebates") from any governmental entity or utility
company, then, (i) upon Tenant's request, Landlord, at no cost to Tenant, shall
either sign all applications or documents which are needed to process and/or
obtain the Energy Rebates, or shall permit Tenant to execute and process such
applications and documents in Landlord's name, (ii) Landlord will, at no cost to
Tenant, cooperate with Tenant in obtaining such Energy Rebates, including,
without limitation, supplying all information that is in Landlord's or
Landlord's agents' or contractors' possession and which is needed to obtain or
apply for Energy Rebates, and (iii) in the event that the Energy Rebates, or any
portion of the Energy Rebates, is paid to Landlord, then Landlord shall pay the
full amount of the same to Tenant within ten (10) days after Landlord's receipt
thereof. Despite the foregoing, if Landlord incurs substantial costs in
assisting Tenant under this Paragraph 23(a), then Tenant shall reimburse
Landlord for the reasonable, actual, administrative costs that are so incurred
by Landlord.
(b) It is expressly understood and agreed that in the event the Energy
Efficient Equipment reduces the amount of electricity consumed in the Demised
Premises, then Landlord shall not be obligated to pay to Tenant the "Savings
Cost" (as defined below). The "Savings Cost" shall mean the product of (i) [the
difference between (x) the amount of electricity that would have been consumed
in the Demised Premises if the Energy Efficient Equipment had not been
installed, and (y) the amount of electricity that was actually consumed in the
Demised Premises], multiplied by (ii) the dollar amount charged by the utility
-------------
company to supply electricity to the Building.
24. SURRENDER OF DEMISED PREMISES. Tenant shall, at the end of the Term,
or any extension thereof, promptly surrender the Demised Premises in good order
and condition and in conformity with the applicable provisions of this Lease,
excepting only reasonable wear and tear.
28
<PAGE>
25. SUBORDINATION. Subject to the provision of Paragraph 10.2, this Lease
is, and all of Tenant's rights hereunder are subject and subordinate to any
ground or underlying lease that now exists, or may hereafter be placed on the
Building or any part thereof, and subject to the provisions of Paragraph 10.2,
the same shall be subject and subordinate to any mortgages or deeds of trust
that now exist or may hereafter be placed upon the Building, or any part
thereof, and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements, modifications, consolidations and
extensions thereof. Subject to the provisions of Paragraph 10.2, Tenant will
attorn to and recognize the lessee or the transferee of lessee's interest under
any such ground or underlying lease, or the purchaser at any foreclosure sale or
at any sale under a power of sale contained in any such mortgage or deed of
trust, as the case may be, as Landlord under this Lease for the balance then
remaining of the Term, subject to all of the terms of this Lease, and Tenant
shall execute and deliver whatever instrument may reasonably be required to
acknowledge such subordination and agreement to attorn in recordable form. In
the event that Tenant fails to execute any such instrument within ten (10) days
after Landlord's written request, then Landlord shall have the right to give
Tenant a second written notice which states that if Tenant fails to execute and
deliver such certificate within ten (10) days after its receipt of such second
notice, Landlord shall have the right to sign such certificate on Tenant's
behalf as Tenant's attorney-in-fact. In the event that Tenant fails to execute
any such instrument within ten (10) days after its receipt of any such second
notice, then Tenant shall be deemed to have appointed Landlord as its attorney-
in-fact for the sole purpose of executing such certificate. Subject to the
provisions of Paragraph 10.2, any mortgagee or trustee under any such mortgage
or deed of trust, or the lessor under any such ground or underlying lease, may
elect that this Lease shall have priority over its mortgage, deed of trust or
lease, and upon notification of such election by such mortgagee, trustee or
lessor to Tenant, this Lease shall be deemed to have priority over said
mortgage, deed of trust or ground or underlying lease whether this Lease is
dated prior to, or subsequent to the date of said mortgage, deed of trust or
lease, and Tenant covenants and agrees, by its execution thereof, to execute an
instrument or instruments so providing, in recordable form, at any time so
requested by Landlord.
26. BROKERS. The parties agree that THE MICHAEL COMPANIES (the "Broker")
and BARRUETA & ASSOCIATES (the "Cooperating Broker") are the real estate broker
and cooperating broker, respectively, who have brought the parties together in
connection with the transactions contemplated hereby (and Landlord shall be
responsible for all brokerage commissions to be paid to Broker and Cooperating
Broker on the terms and conditions set forth in a separate agreement between
Landlord and Broker and Cooperating Broker). Each party represents and warrants
to the other that he, she or they have not made any agreement or taken any
action which may cause anyone (other than Broker or Cooperating Broker) to
become entitled to a commission as a result of the transactions contemplated by
this Lease, and each will indemnify and defend the other from any and all
claims, actual or threatened, for compensation by any such third person (other
than Broker or Cooperating Broker) by reason of such party's breach of his, her
or their representation or warranty contained in this Paragraph 26.
29
<PAGE>
27. NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed to have been given (i) if hand delivered or sent by
an express mail or delivery service or by courier, then if and when delivered to
the respective parties at the below addresses (or at such other address as a
party may hereafter designate for itself by notice to the other party as
required hereby), or (ii) if mailed, then on the next business day following the
date on which such communication is deposited in the United States mails, by
first class certified mail, return receipt requested, postage prepaid, and
addressed to the respective parties at the below addresses (or at such other
address as a party may hereafter designate for itself by notice to the other
party as required hereby). All notices and communications to Tenant may also be
given by leaving same at the Demised Premises during the business hours set
forth in Paragraph 9 hereof.
If to Landlord:
11720 Beltsville Drive, Suite 1000
Beltsville, Maryland 20705
With a copy to:
Nylen & Gilmore, P.A.
4061 Powder Mill Road
Suite 300
Calverton, Maryland 20705
Attn: Edward W. Nylen, Esquire
If to Tenant:
if prior to occupancy to:
8630 Fenton Street, Suite 300
Silver Spring, Maryland 20910
if after occupancy:
11735 Beltsville Drive
Beltsville, MD 20705
With a copy to:
Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
11921 Rockville Pike, Third Floor
Rockville, Maryland 20852
Attn: Christopher C. Roberts, Esq.
<PAGE>
28. MISCELLANEOUS.
28.1. Successors and Assigns. The obligations of this Lease shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; provided that Landlord and each successive
owner of the Building and/or the Land shall be liable only for obligations
accruing during the period of its ownership or interest in the Building and/or
Land and from and after the transfer by Landlord or such successive owner of its
ownership or other interest in the Building, Tenant shall look solely to the
successors in title for the performance of Landlords' obligations hereunder
arising thereafter.
28.2. Waivers. No delay or forbearance by Landlord in exercising any
-------
right or remedy hereunder or in undertaking or performing any act or matter
which is not expressly required to be undertaken by Landlord shall be construed,
respectively, to be a waiver of Landlord's rights or to represent any agreement
by Landlord to undertake or perform such act or matter thereafter.
28.3. Waiver of Trial by Jury. It is understood and agreed by and
-----------------------
between Landlord and Tenant that the respective parties hereto shall, and do
hereby waive trial by jury in any action, proceeding or counterclaim brought by
any party hereto on any matters not relating to personal injury or property
damage, but otherwise arising out of or in any way connected with this Lease,
the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Demised Premises, and any statutory emergency or any other statutory remedy.
28.4. Time of the Essence. All times, wherever specified herein for
-------------------
the performance by Landlord or Tenant of their respective obligations hereunder,
are of the essence of this Lease.
28.5. Binding Effect of Lease. The covenants, agreements and
-----------------------
obligations herein contained, except as herein otherwise specifically provided,
shall extend to, bind and inure to the benefit of the parties hereto and their
respective personal representatives, heirs, successors and permitted assigns.
Notwithstanding the foregoing, however, the provisions of this Paragraph shall
not, in any event be construed to affect, modify or change the prohibitions upon
assignment or subletting by Tenant hereunder. Each covenant, agreement,
obligation or other provision herein contained, shall be deemed and construed as
a separate and independent covenant of the party bound by, undertaking or making
the same, not dependent on any other provision of this Lease unless otherwise
expressly provided herein. Further, if any provision of this Lease or the
application thereof, for any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby and each provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
28.6. Applicable Law and Construction. The laws of the State in
-------------------------------
which the Building is located shall govern the validity, performance and
enforcement of this Lease. The invalidity or unenforceability of any provision
of this Lease shall not affect or impair any other provision hereof. The
submission of this document to Tenant for examination does not constitute an
offer to lease, or a reservation of or option to lease, and becomes effective
only upon execution and delivery thereof by Landlord and Tenant. All
negotiations, considerations, representations and understandings between the
parties are incorporated in this Lease. Whenever herein the singular number is
used, the same shall include the plural and the neuter gender shall include the
masculine and feminine genders.
28.7. Corporate/Partnership Authority. If Tenant is a corporation,
-------------------------------
each person signing this Lease on behalf of Tenant
31
<PAGE>
represents and warrants that he/she has full authority to do so and that this
Lease is fully and completely binding on the corporation. If at any time during
the Term hereunder or Tenant shall change its corporate name, by operation of
law or otherwise, Tenant shall deliver to Landlord a copy of a certificate of
name change filed with the State of Tenant's jurisdiction evidencing such name
change, or such other evidence of Tenant's name change and authority as is
reasonably acceptable to Landlord. Such evidence shall be delivered to Landlord
within ten (10) days of Tenant's official name change, or, if not so delivered,
then upon ten (10) days request from Landlord. If Landlord is a partnership,
each person or entity signing this Lease for Tenant represents and warrants that
he/she or it is a general partner of the partnership, that he/she or it has full
authority to sign for the partnership and that this Lease is completely and
fully binding on the partnership. Landlord shall give written notice to Tenant
of any general partner's withdrawal or addition, and, in the event of a name
change of the partnership, the same conditions regarding a name change of a
corporate Tenant, as stated above, shall apply.
28.8. Amendment and Modification. This Lease, including all Exhibits
--------------------------
hereto, each of which is incorporated in this Lease, contains the entire
agreement between the parties hereto, and shall not be amended, modified or
supplemented unless by agreement in writing signed by both Landlord and Tenant.
28.9. Headings and Terms. The title and headings and table of
------------------
contents of this Lease are for convenience of reference only and shall not in
any way be utilized to construe or interpret the agreement of the parties as
otherwise set forth herein. The term "Landlord" and term "Tenant" as used
herein shall mean, where appropriate, all persons acting by or on behalf of the
respective parties, except as to any required approvals, consents or amendments,
modifications or supplements hereunder when such terms shall only mean the
parties originally named on the first page of this Lease as Landlord and Tenant,
respectively, and their agents so authorized in writing.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement of Lease
to be executed on the day and year first above written.
WITNESS/ATTEST LANDLORD:
--------
CARROLLTON ENTERPRISES
ASSOCIATES LIMITED PARTNERSHIP,
a Maryland limited partnership
/s/ Sally P. McCash By: /s/ Albert W. Turner
- ---------------------------- ----------------------------------
Sally P. McCash General Partner
TENANT:
------
MACRO INTERNATIONAL INC.,
a Delaware corporation
/s/ Steven Fulton By: /s/ Frank Quirk
- ----------------------------- ----------------------------------
Frank Quirk, President
32
<PAGE>
SECRETARY'S CERTIFICATE
(Corporate Tenant)
I, Steve Fulton, Assistant Secretary of Macro International Inc., a
Delaware Corporation, do hereby certify that the foregoing and annexed Lease was
executed and delivered pursuant to, and in strict conformity with, the
provisions of a resolution of the Board of Directors of said corporation, passed
at a regularly called meeting of said Board of Directors, in lieu of a meeting,
in conformity with the laws of the state of incorporation of said corporation.
August 27, 1993 /s/ Steve Fulton
- ---------------------------- -------------------------------
Date Steve Fulton
Assistant Secretary
33
<PAGE>
EXHIBIT "A"
[Paragraph 1.1]
To Lease dated: ______________
Tenant's Initial: _____________ Landlord's Initial: ___________
Site Plan and Floor Layout
Showing Tenant's Demised Premises
34
<PAGE>
EXHIBIT "B"
LANDLORD'S WORK
---------------
[Paragraph 7.1]
To Lease dated: ______________
Tenant's Initial: _____________ Landlord's Initial: ___________
Tenant, at its sole cost and expense, shall prepare a set of plans and
specifications, as referred to in Article III, Section 3.2. Landlord, at
Landlord's sole cost and expense, except as otherwise expressly specified in
this Exhibit "B", and in the foregoing Lease, shall furnish and install in and
to the Demised Premises the following Building Shell and Core:
1. All necessary exterior walls and core walls to be finished in a manner
consistent with existing finish levels. The core walls for which Landlord shall
be responsible are the walls enclosing fire vestibules, columns, floor openings,
stairs and stair openings, restrooms, mechanical rooms, telephone and equipment
rooms, vertical penetration and base building elevator shafts.
2. A Building HVAC system (befitting those typically found in first class
office buildings), including all the equipment in mechanical rooms, all piping,
plumbing and electrical wiring and all supply, exhaust and other lines, ducts
and shafts necessary for distribution to the mechanical room of each floor and
the primary distribution ducts in the Premises connected to the main building
ducts.
3. Complete building electrical systems, including, but not limited to,
all necessary pipes, conduit and electrical connections necessary to supply
power of at least five (5) watts per square foot of floor space to the
electrical closet on each floor. Tenant shall not incur additional costs for
electrical power usage unless Tenant's usage exceeds five (5) watts per rentable
square foot.
4. All necessary fire and life-safety systems required in the base
building to meet all applicable codes.
5. All necessary facilities and modes of ingress and egress in the base
building to meet all provisions of the Americans with Disabilities Act.
6. Sprinkler risers and a main loop, and sprinkler piping shall be
installed by Landlord.
7. Complete men's and women's restrooms with building standard finishes,
and water fountains.
8. Building standard window coverings on all exterior windows.
9. Telephone risers and board to a telephone room on each floor.
10. Finished concrete floors, broom clean, throughout the Premises.
Floors level to within industry standard tolerances ready for tenant build-out.
11. Finished elevator lobbies on each floor per building standard
specifications.
12. Finished common areas on each multi-tenanted floor per building
standard specifications, it being understood and agreed that Landlord shall not
be obligated to so finish the common areas on the seventh floor of the Building
until the earlier to occur of the following: (a) the date upon which Tenant has
given Landlord a written notice under Paragraph 2.1 of the Lease that it desires
to lease some, but not all, of the remaining space located on the seventh floor
of the Building, or (b) the date on which the time
B-1
<PAGE>
for giving such notice under Paragraph 2.1 of the Lease has passed without the
Tenant having exercised its right to lease any additional space on the seventh
floor.
13. First-class security card system which prevents parties other than
Tenant (and its employees) from gaining after-hours access to the Demised
Premises from the elevators located in the Building. Landlord, at its sole cost
and expense, shall provide Tenant with one security access card for each of
Tenant's employees, provided the total number of cards to be so provided by
Landlord at its sole cost and expense shall not exceed 325. If Tenant requests
any additional cards, such cards shall be supplied by Landlord to Tenant at
Landlord's actual cost.
Notwithstanding anything in the Lease or this Exhibit "B" to the contrary,
-----------
to the extent that as of the date of this Lease, Landlord has not purchased or
installed any of the items set forth above on this Exhibit "B", Tenant shall
-----------
have the right, in the exercise of its sole discretion, to waive the performance
by Landlord of any item or items set forth on this Exhibit "B". If Tenant so
-----------
notifies Landlord, in writing, that Tenant will not require Landlord to perform
any such item, then Tenant shall receive a credit, equal to the full cost that
Landlord would have incurred for causing such item to be constructed or
performed, including all material costs, labor costs and profit and overhead.
In the event that Landlord and Tenant are unable to mutually agree upon the
amount of such credit, then (a) Landlord's architect and Tenant's architect
shall mutually select a party to determine the amount of such credit, (b) such
party's determination of the amount of the credit shall be binding upon Landlord
and Tenant, and (c) Landlord and Tenant shall pay the cost of their respective
architects and the costs of the party selected by such architects shall be
equally shared by Landlord and Tenant.
B-2
<PAGE>
EXHIBIT "C"
TENANT'S WORK
-------------
[Paragraph 7.2]
To be attached in accordance with the provisions of Paragraph 7.2.
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
---------------------
[Paragraph 11.10]
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls, or other parts of the Building not occupied by
any Tenant shall not be obstructed or encumbered by any Tenant, or used for any
purpose other than ingress and egress to and from the Demised Premises, and if
the Demised Premises are situated on the ground floor of the Building the Tenant
thereof shall, at said Tenant's own expense, keep the sidewalks and curb
directly in front of said Demised Premises clean and free from ice and snow.
Landlord shall have the right to control and operate the public portions of the
Building, and the facilities furnished for the common use of the tenants, in
such manner as Landlord deems best for the benefit of the tenants general. No
tenant shall permit the visit to the Demised Premises of persons in such numbers
or under such conditions as to interfere with the use and enjoyment by other
tenants of the entrances, corridors, elevators and other public portions or
facilities of the Building.
2. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of the Landlord. No drapes,
blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Landlord. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Landlord.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside or inside
of the Demised Premises, or Building, without the prior consent of the Landlord.
In the event of the violation of the foregoing by any Tenant, Landlord may
remove same without any liability and may charge the expense incurred by such
removal to the Tenant or Tenants violating this rule. Interior signs on doors
shall be inscribed, painted or affixed for each Tenant by the Landlord at the
expense of such Tenant, and shall be a size, color and style acceptable to the
Landlord. Such consent shall not be unreasonably withheld.
4. No show case or other articles shall be put in front of, or affixed
to, any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules without the prior written consent of the Landlord.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweeping rubbish, rags or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by the Tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
6. There shall be no marking, drilling into or in any way defacing any
part of the Demised Premises or the Building. No boring, cutting or stringing
of wires shall be permitted. Tenant shall not construct, maintain, use or
operate within the Demised Premises or elsewhere, within or on the outside of
the Building, any electric device, wiring or apparatus in connection with a loud
speaker system or any muzak or other internal music system.
D-1
<PAGE>
7. No bicycles, vehicles or animals, birds or pets of any kind shall be
brought into or kept in or about the premises, and no cooking shall be done or
permitted by any Tenant on said premises. No Tenant shall cause or permit any
unusual or objectionable odors to be produced upon or permeate from the Demised
Premises. Nothing herein shall prevent Tenant from constructing and utilizing a
lounge containing a small stove, sink and refrigerator in the Demised Premises;
however, Tenant must obtain Landlord's approval which will not unnecessarily be
withheld.
8. No space in the Building shall be used for manufacturing, or for the
sale of merchandise, goods or property of any kind at auction; however, Tenant
must obtain Landlords' prior approval which will not unnecessarily be withheld.
9. No Tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises or those having business with them whether by the use of any musical
instrument, radio, talking machine, unmusical noise, whistling, singing, or in
any other way. No Tenant shall throw anything out of the doors or windows or
down the corridors or stairs.
10. No inflammable, combustible or explosive fluid, chemical or substance
shall be brought or kept upon the Demised Premises.
11. The doors leading to the corridors or main halls shall be kept closed
during business hours except as they may be used for ingress or egress. Each
Tenant shall, upon the termination of his tenancy, restore to Landlord all keys
of stores, offices, storage, and toilet rooms either furnished to, or otherwise
procured by such Tenant, and in the event of the loss of any keys so furnished,
such Tenant shall pay to Landlord the cost thereof.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Landlord or its Agent may determine from time to time and in the
elevator designated for such use. The Landlord reserves the right to inspect
all freight to be brought into the Building and to exclude from the Building all
freight which violates any of these Rules and Regulations or the Lease of which
these Rules and Regulations are a part.
13. Any person employed by any Tenant to do janitor work within the
Demised Premises must obtain Landlord's consent and such person shall, while in
the Building and outside of said Demised Premises, comply with all instructions
issued by the Superintendent of the Building. No Tenant shall engage or pay any
employees on the Demised Premises, except those actually working for such Tenant
on said premises.
14. The Landlord reserves the right to exclude from the Building, at all
times, any person who is not known or does not properly identify himself to the
building management or watchman on duty. Landlord may, at his option, require
all persons admitted to or leaving the Building between the hours of 6:00 p.m.
and 8:00 a.m., Monday through Saturday, Sundays and legal holidays to register.
Each Tenant shall be responsible for all persons for whom he authorizes entry
into or exit out of the Building, and shall be liable to the Landlord for all
acts of such persons.
15. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purposes.
16. Each Tenant, before closing and leaving the Demised Premises, at any
time, shall see that all windows are closed, all lights turned off and all doors
locked.
D-2
<PAGE>
17. The requirements of Tenants will be attended to only upon application
at the office of the Building. Employees shall not perform any work or do
anything outside of the regular duties, unless under special instruction from
the management of the Building.
18. Canvassing, soliciting and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent same.
19. No water cooler, plumbing or electrical fixtures shall be installed by
any Tenant. However, Tenant may request Landlord's prior approval which will
not unnecessarily be withheld.
20. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
21. Access plates to under-floor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around access plates. Landlord hereby
consents to the installation of wall receptacles as mutually approved. Tenant
must obtain Landlord's prior approval which will not unnecessarily be withheld.
22. Mats, trash or other objects shall not be placed in the public
corridors.
23. The Landlord does not maintain suite fixtures which are non-standard;
such as wallpaper, special lights, etc. Notwithstanding anything in the Lease
or in this Exhibit "D" to the contrary, Landlord, at its sole cost and expense,
shall perform or cause to be performed daily (a) maintenance and cleaning of all
bathrooms that are located in the Demised Premises, and (b) sweeping and mopping
of the floors of all kitchens that are located in the Demised Premises.
However; should the need for repairs arise, the Landlord will arrange for the
work to be done at the Tenant's expense.
24. Drapes installed by the Landlord for the use of the Tenant, or drapes
installed by the Tenant, which are visible from the exterior of the Building,
must be cleaned by the Tenant at least once a year, without notice, at said
Tenant's own expense.
25. The Landlord will furnish and install light bulbs for "standard
fixtures", which "standard fixtures" are specified in Exhibit "C". For special
fixtures, Tenant will stock his own bulbs, which will be installed by the
Landlord when so requested by the Tenant.
26. Violation of these Rules and Regulations or any amendments thereto,
shall constitute a breach of this Lease, at the option of the Landlord.
27. The Landlord may, upon request by any Tenant, waive the compliance by
such Tenant of any of the foregoing Rules and Regulations, provided that (i) no
waiver shall be effective unless signed by Landlord or Landlord's authorized
agent, (ii) any such waiver shall not relieve such Tenant from the obligation to
comply with such Rules and Regulations in the future, unless expressly consented
to by Landlord, and (iii) no waiver granted to any Tenant shall relieve any
other Tenant from the obligation of complying with the foregoing Rules and
Regulations, unless such other Tenant has received a similar waiver in writing
from Landlord.
D-3
<PAGE>
EXHIBIT "E"
TENANT'S ACCEPTANCE LETTER
--------------------------
[Paragraph 2.1]
Date: August 27, 1993
------------------
Carrollton Enterprises Associates
Limited Partnership
11720 Beltsville Drive
Suite 1000
Beltsville, Maryland 20705
RE: Calverton Office Park Building
Gentlemen:
With reference to our Lease of the above described premises, of which
Carrollton Enterprises Associates Limited Partnership is now the owner and
Landlord, and the undersigned is Tenant, said Tenant certifies as follows:
1. The Term of this Lease shall begin on the ___ day of _____________,
19___, and expires on the ____ day of _____________, 19___.
2. Tenant's Fixed Rent shall be as follows:
Lease Year Annual Fixed Per Square
---------- ------------ ----------
Rental Foot
1 $1,212,566 $16.75
2 1,236,455 17.08
3 1,260,345 17.41
4 1,284,958 17.75
5 1,310,295 18.10
6 1,335,632 18.45
7 1,361,694 18.81
8 1,387,755 19.17
9 1,415,264 19.55
10 1,442,773 19.93
3. That, no rental has been paid in advance.
4. That, except as set forth below, (i) all conditions under said Lease
to be performed by the Landlord prerequisite to the full effectiveness of the
Lease have been satisfied, (ii) the construction of the Demised Premises has
been approved by Tenant, and (iii) on this date there are no existing defenses
or offsets which the Tenant had against the enforcement of said Lease by the
Landlord: ____________________________________________________
5. That, said Lease is in full force and effect and has not been
modified, supplemented or amended in any way, except as follows:
_____________________________________________________
Very truly yours,
______________________________
COPY TO BE PROVIDED UPON EXECUTION TO MORTGAGEE, CITIZENS BANK OF MARYLAND,
14401 Sweitzer Lane, Laurel, Maryland 20707, Attn: John Howell
<PAGE>
EXHIBIT "F"
Definitions
[Paragraph 1.2.2]
FLOOR SPACE:
- -----------
All measurements shall be in accordance with the 1989 Washington Board of
Realtors standard method of measurement (the "Standard Method") and subject to
mutual certification by Landlord's and Tenant's architects. Notwithstanding
anything in the Lease to the contrary, in the event that Tenant leases any
additional space pursuant to the provisions of Paragraphs 1.2.2, 1.2.3 or 1.2.4
of the Lease, and in the event that Tenant's architect disagrees with Landlord's
architect's measurement of such additional space, then (a) Landlord's architect
and Tenant's architect shall mutually select a third (3rd) architect to measure
the space, (b) the determination of the third (3rd) architect with respect to
the measurement of the space, which measurement shall be made based upon the
Standard Method, and which shall be binding upon the parties hereto, and (c) and
all payments due under the Lease which are based in whole or part upon rentable
square footage shall be appropriately adjusted with respect to such additional
space, including, without limitation, all payments that are due by Tenant under
Paragraphs 3 and 4 of this Lease. Each party shall bear the cost of its
architect, and the cost of the third architect shall be shared equally by
Landlord and Tenant.
OCCUPY:
- ------
The use of control of the Demised Premises by the Tenant, including all
times at or after which the Tenant commences its work as delineated in Exhibit
"C" hereto.
FLOOR RATIO:
- -----------
The Floor Space divided by the aggregate Floor Space in the Office
Building.
LEASE YEAR:
- ----------
A period of twelve (12) consecutive calendar months, the first Lease Year
to commence on the first day of the first month following the Commencement Date
(or on the Commencement Date, if it shall be the first day of the month) and
each succeeding Lease Year to commence on the anniversary date of the first
Lease Year.
RENT:
- ----
The Annual Fixed Rent, Monthly Fixed Rent, Late Fee Rent, Additional Fixed
Rent, Operating Expense Rent, Tax Rent, Insurance Rent, Additional Utility Rent,
Security Deposit, and any other amounts payable by Tenant to Landlord under this
Lease Agreement.
BASEBALL ARBITRATION PROVISIONS:
- -------------------------------
FAIR MARKET VALUE:
- -----------------
The current rental value as agreed on by Landlord and Tenant of comparable
buildings to the Building in the Northern Prince George's County, Maryland area,
which is considered to be from the western border of Prince George's County to
Maryland Route 50. If Landlord and Tenant are unable to agree on Fair Market
Value within a reasonable time, both parties will submit to "Baseball
Arbitration". Baseball Arbitration shall be defined as:
(a) Rent for Option Lease Term. During each Option Lease Term, if
exercised, Annual Fixed Rent shall be computed as an amount equal to
ninety-five percent (95%) of the fair market rental rate of the
Demised Premises based on
F-1
<PAGE>
its use during the last Lease Year of the then-current term, but
calculated as if the Demised Premises were vacant with Landlord's
standard building fit-up installed.
Landlord and Tenant shall employ the procedure and timetable described
below for the purpose of computing the fair market rental rate of the
Demised Premises and the Annual Fixed Rent promptly payable during
each Option Lease Term:
(i) Landlord's Notice. No later than the one hundred seventieth
(170th) day prior to the expiration of the then-current term
(the "Expiration"), Landlord shall send to Tenant notice of
its proposed Annual Fixed Rent for the Demised Premises
during the Option Lease Term.
(ii) Tenant's Notice. No later than the one hundred sixty-fifth
(165th) day prior to Expiration, Tenant shall send to
Landlord notice of its proposed Annual Fixed Rent for the
Demised Premises. In the event Tenant does not send Landlord
notice of its proposed Annual Fixed Rent as required above,
then the Annual Fixed Rent proposed by Landlord pursuant to
(i) above shall be deemed the Annual Fixed Rent for such
Option Lease Term.
(iii) First Negotiation. In the event the parties negotiate and
agree to an Annual Fixed Rent and have executed a written
agreement establishing same on or before the one hundred
sixtieth (160th) day prior to Expiration, then said Annual
Fixed Rent shall be binding upon the parties commencing with
the first (1st) Lease Year of such Option Lease Term.
(iv) Tenant's Appraiser. In the event the parties have failed to
execute such an agreement by said date, then Tenant shall
engage an appraiser, who is a member of the American
Institute of Real Estate Appraisers (an "MAI Appraiser"), on
or before the one hundred fifty-fifth (155th) day prior to
Expiration, and shall notify Landlord thereof. In the event
Tenant does not engage an MAI Appraiser as required above,
then the Annual Fixed Rent last proposed by Landlord shall
be deemed the Annual Fixed Rent for the Option Lease Term.
(v) Tenant's Appraiser's Determination. Not later than the one
hundred forty-fifth (145th) day prior to Expiration, Tenant
shall deliver to Landlord a copy of its appraiser's
determination of the fair market rental as aforesaid. In the
event Tenant does not deliver a copy of aforesaid, then the
Annual Fixed Rent last proposed by Landlord shall be deemed
the Annual Fixed Rent for the Option Lease Term.
(vi) Second Negotiation. In the event the parties negotiate and
agree to an Annual Fixed Rent, and have executed a written
agreement establishing the same on or before the one hundred
fortieth (140th) day prior to Expiration, then said Annual
Fixed Rent shall be binding upon the parties commencing with
the first (1st) Lease Year of such Option Lease Term.
F-2
<PAGE>
(vii) Landlord's Appraiser. In the event the parties have failed
to execute such an agreement by said date, then Landlord
shall engage an MAI Appraiser, on or before the one hundred
thirty-fifth (135th) day prior to Expiration, and shall
notify Tenant thereof. In the event Landlord does not engage
an MAI Appraiser as required above, then the Annual Fixed
Rent proposed by Tenant's appraiser shall be deemed the
Annual Fixed Rent for the Option Lease Term.
(viii) Landlord's Appraiser's Determination. Not later than the one
hundred twenty-fifth (125th) day prior to Expiration,
Landlord shall deliver to Tenant a copy of its appraiser's
determination of the fair market rental as aforesaid. In the
event Landlord does not deliver a copy as aforesaid, then
ninety-five percent (95%) of the Annual Fixed Rent last
proposed by Tenant's appraiser shall be deemed the Annual
Fixed Rent for the Option Lease Term.
(ix) Third Negotiation. In the event the parties negotiate and
agree to an Annual Fixed Rent, and have executed a written
agreement establishing the same on or before the one hundred
twentieth (120th) day prior to Expiration, then said Annual
Fixed Rent shall be binding upon the parties commencing with
the first (1st) Lease Year of such Option Lease Term.
(x) Third Appraiser. In the event the parties have failed to
execute such an agreement by said date, then the two (2) MAI
Appraisers shall choose a third (3rd) MAI Appraiser. In the
event that said two (2) MAI Appraisers cannot agree on the
choice of a third (3rd) MAI Appraiser and notify the parties
thereof by the one hundred fifteenth (115th) day prior to
Expiration, then the President of the Prince George's County
Board of Realtors shall choose a third (3rd) MAI Appraiser
on or before the one hundred fifth (105th) day prior to
Expiration.
(xi) Third Appraiser's Determination. Not later than the
ninetieth (90th) day prior to Expiration, the third (3rd)
appraiser shall determine the sum equal to ninety five
percent (95%) of the fair market rental rate of the Demised
Premises based on its use during the last Lease Year of the
then-current term, but calculated as if the Demised Premises
were vacant with Landlord's standard building fit-up
installed, by selecting as such fair market rental rate
either (A) ninety-five percent (95%) of the fair market
rental rate proposed by Tenant's MAI Appraiser or (B)
ninety-five percent (95%) of the fair market rental rate
proposed by Landlord's MAI Appraiser and submitting such
determination to each party in writing. Based on said third
(3rd) MAI Appraiser's determination, Landlord and Tenant
shall promptly thereafter execute a written agreement
establishing the aforesaid Annual Fixed Rent, which rent
shall be binding upon the parties commencing with the first
(1st) Lease Year of such Option Lease Term.
F-3
<PAGE>
(b) Extension of Time for Performance. In the event that any of the dates
set forth in Paragraph (a) above occurs on a Saturday, Sunday, or
holiday, then the time for performance shall be extended to the next
business day.
(c) Base Year Operating Expenses and Taxes. Notwithstanding anything in
the Lease or in this Exhibit "F" to the contrary, if Landlord and
Tenant are unable to mutually agree upon the base year for operating
expenses and Base Year Amount for Taxes during any Option Lease Term,
then the same procedure as described in (a) above shall be used to
determine such amounts.
(d) Tenant's Revocation Right. Notwithstanding anything to the contrary
contained in Paragraph a above, Tenant shall have the right to revoke
its exercise of the option to extend by giving Landlord notice of such
revocation within four (4) days after the date the third (3rd) MAI
Appraiser submits its determination of the fair market rental rate of
the Demised Premises to the parties, or four (4) days after Landlord
or Tenant, as the case may be, fails to meet its obligations under
paragraph a(ii), (iv), (v), (vii), or (viii) above. If Tenant shall
failure to so exercise such right of revocation within such four (4)
day period, such right shall be totally extinguished and the Lease
shall be extended, as described in paragraph a above. In the event
Tenant shall so exercise such right of revocation, Tenant shall
surrender the Demised Premiss to Landlord upon the expiration of the
then-current term, and Landlord shall be relieved of all liability
created by such option to extend and any subsequent option to extend.
(e) Cost of Appraisers. Each party shall bear the cost of its appraiser
and the cost of the third appraiser shall be shared equally by
Landlord and Tenant.
ADDITIONAL PREMISES FAIR MARKET VALUE:
- -------------------------------------
The current rental value as agreed on by Landlord and Tenant of comparable
buildings to the Building in the Northern Prince George's County, Maryland area,
which is considered to be from the western border of Prince George's County to
Maryland Route 50. If Landlord and Tenant are unable to agree on Additional
Premises Fair Market Value within a reasonable time, both parties will submit to
"Baseball Arbitration". Baseball Arbitration shall be defined as:
(a) Rent for Additional Space. During the Term with respect to any
additional space leased by Tenant under Paragraphs 1.2.2, 1.2.3 or 1.2.4 of this
Lease (the "Additional Premises"), Annual Fixed Rent shall be computed as an
amount equal to the fair market rental rate of the Additional Premises based on
its use during the last Lease Year of the then-current term, but calculated as
if the Additional Premises were vacant with Landlord's standard building fit-up
installed.
Landlord and Tenant shall employ the procedure and timetable described below for
the purpose of computing the fair market rental rate of the Additional Premises
and the Annual Fixed Rent promptly payable during the Term with respect to such
Additional Premises.
(i) Landlord's Notice. No later than ninety (90) days prior to the
Additional Premises Lease Commencement Date (the
"Commencement"), Landlord shall send to Tenant a notice of its
proposed Annual Fixed Rent for the Additional Premises during
the Term .
(ii) Tenant's Notice. No later than eighty (80) days prior to the
Commencement, Tenant shall send to Landlord notice of its
proposed Annual
F-4
<PAGE>
Fixed Rent for the Additional Premises. In the event Tenant
does not send Landlord notice of its proposed Annual Fixed Rent
as required above, then the Annual Fixed Rent for the
Additional Premises for the Lease Term.
(iii) First Negotiation. In the event the parties negotiate and agree
to an Annual Fixed Rent and have executed a written agreement
establishing same on or before the seventy-fifth (75th) day
prior to the Commencement, then said Annual Fixed Rent shall be
binding upon the parties commencing with the first (1st) day,
but Tenant commences to pay Annual Fixed Rent with respect to
such Additional Premises (the "Additional Premises Rent
Commencement Date").
(iv) Tenant's Appraiser. In the event the parties have failed to
execute such an agreement by said date, then Tenant shall
engage an appraiser, who is a member of the American Institute
of Real Estate Appraisers (an "MAI Appraiser"), on or before
the seventieth (70th) day prior to the Commencement, and shall
notify Landlord thereof. In the event Tenant does not engage an
MAI Appraiser as required above, then the Annual Fixed Rent
last proposed by Landlord shall be deemed the Annual Fixed Rent
for the Additional Premises for the Term.
(v) Tenant's Appraiser's Determination. Not later than the sixtieth
(60th) day prior to the Commencement, Tenant shall deliver to
Landlord a copy of its appraiser's determination of the fair
market rental as aforesaid. In the event Tenant does not
deliver a copy of aforesaid, then the Annual Fixed Rent last
proposed by Landlord shall be deemed the Annual Fixed Rent for
the Additional Premises for the Term.
(vi) Second Negotiation. In the event the parties negotiate and
agree to an Annual Fixed Rent, and have executed a written
agreement establishing the same on or before the fifty-fifth
(55th) day prior to the Commencement, then said Annual Fixed
Rent shall be binding upon the parties commencing upon the
Additional Premises Rent Commencement Date.
(vii) Landlord's Appraiser. In the event the parties have failed to
execute such an agreement by said date, then Landlord shall
engage an MAI Appraiser, on or before the fifty-fifth (55th)
day prior to the Commencement, and shall notify Tenant thereof.
In the event Landlord does not engage an MAI Appraiser as
required above, then the Annual Fixed Rent proposed by Tenant's
appraiser shall be deemed the Annual Fixed Rent for the
Additional Premises for the Term.
(viii) Landlord's Appraiser's Determination. Not later than the forty-
fifth (45th) day prior to the Commencement, Landlord shall
deliver to Tenant a copy of its appraiser's determination of
the fair market rental as aforesaid. In the event Landlord does
not deliver a copy as aforesaid, then the Annual Fixed Rent
last proposed by Tenant's appraiser shall be deemed the Annual
Fixed Rent for the Additional Premises for the Term.
F-5
<PAGE>
(ix) Third Negotiation. In the event the parties negotiate and agree
to an Annual Fixed Rent, and have executed a written agreement
establishing the same on or before the fortieth (40th) day
prior to the Commencement, then said Annual Fixed Rent shall be
binding upon the parties commencing upon the Additional
Premises Rent Commencement Date.
(x) Third Appraiser. In the event the parties have failed to
execute such an agreement by said date, then the two (2) MAI
Appraisers shall choose a third (3rd) MAI Appraiser. In the
event that said two (2) MAI Appraisers cannot agree on the
choice of a third (3rd) MAI Appraiser and notify the parties
thereof by the thirtieth (30th) day prior to the Commencement,
then the President of the Prince George's County Board of
Realtors shall choose a third (3rd) MAI Appraiser on or before
the twentieth (20th) day prior to the Commencement.
(xi) Third Appraiser's Determination. Not later than the tenth
(10th) day prior to the Commencement, the third (3rd) appraiser
shall determine the fair market rental rate of the Additional
Premises based on its use during the last Lease Year of the
then-current term, but calculated as if the Additional Premises
were vacant with Landlord's standard building fit-up installed,
by selecting as such fair market rental rate either (A) the
fair market rental rate proposed by Tenant's MAI Appraiser or
(B) the fair market rental rate proposed by Landlord's MAI
Appraiser and submitting such determination to each party in
writing. Based on said third (3rd) MAI Appraiser's
determination, Landlord and Tenant shall promptly thereafter
execute a written agreement establishing the aforesaid Annual
Fixed Rent, which rent shall be binding upon the parties
commencing with the Additional Premises Rent Commencement Date.
(b) Extension of Time for Performance. In the event that any of the dates
set forth in Paragraph (a) above occurs on a Saturday, Sunday, or
holiday, then the time for performance shall be extended to the next
business day.
(c) Base Year Operating Expenses and Taxes; Concessions. Notwithstanding
anything in the Lease or in this Exhibit "F" to the contrary, if
Landlord and Tenant are unable to mutually agree upon the base year
for operating expenses, the Base Year Amount for Taxes, or the amount
of concessions to be granted to Tenant by Landlord (including, without
limitation, rental abatement and build-out allowances) with respect to
any Additional Premises leased by Tenant hereunder, then the same
procedure as described above shall be used to determine such amounts.
(d) Costs of Appraisers. Each party shall bear the cost of its appraiser
and the cost of the third appraiser shall be shared equally by
Landlord and Tenant.
F-6
<PAGE>
EXHIBIT "G"
NON-DISTURBANCE AGREEMENT (LENDER)
----------------------------------
[Paragraph 10.2]
<PAGE>
EXHIBIT "H"
MONUMENT SIGN
-------------
[Paragraph 1.6]
<PAGE>
EXHIBIT "I"
HVAC COST SCHEDULE
------------------
[Paragraph 9.1]
Number of Floors After Hours HVAC Charges
---------------------------------------------------
1 Floor $20.00 per hour
2 Floors $33.98 per hour
3 Floors $47.28 per hour
4 Floors $58.65 per hour
5 Floors $70.72 per hour
<PAGE>
EXHIBIT "J"
NON-DISTURBANCE AGREEMENT (GROUND LESSOR)
-----------------------------------------
[Paragraph 10.2]
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Exhibit (21) Subsidiaries of the Registrant
Name of Incorporation State or Other Date of
or Organization Jurisdiction Incorporation
- --------------------- -------------- --------------
Macro International Inc. Delaware March 17, 1972
ORC, Inc. Delaware December 16, 1991
European Information Centre Limited United Kingdom December 20, 1991
ORC Holdings, Ltd. United Kingdom July 17, 1996
ORC Korea, Ltd. Korea November 30, 1996
ORC International Holdings, Inc. Cayman Islands March 18, 1997
ORC TeleService Corp. Delaware March 26, 1997
Opinion Research Corporation,
S.A. de C.V. Mexico, D.F. July 10, 1997
ORC ProTel, Inc. Delaware November 20, 1997
O.R.C. International, Ltd. United Kingdom December 15, 1997
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-63485) pertaining to the 1997 Stock Incentive Plan of Opinion
Research Corporation of our report dated February 10, 2000, with respect to the
consolidated financial statements and schedule of Opinion Research Corporation
included in its Annual Report (Form 10-K) for the year ended December 31, 1999,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1999 and the related consolidated
Statements of Income and Cash Flows for the Twelve Months Ended December 31,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,808
<SECURITIES> 0
<RECEIVABLES> 32,960
<ALLOWANCES> 259
<INVENTORY> 0
<CURRENT-ASSETS> 37,543
<PP&E> 8,815
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,966
<CURRENT-LIABILITIES> 22,170
<BONDS> 45,311
0
0
<COMMON> 43
<OTHER-SE> 15,475
<TOTAL-LIABILITY-AND-EQUITY> 91,966
<SALES> 0
<TOTAL-REVENUES> 118,621
<CGS> 0
<TOTAL-COSTS> 75,849
<OTHER-EXPENSES> 34,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,005
<INCOME-PRETAX> 4,458
<INCOME-TAX> 1,944
<INCOME-CONTINUING> 2,514
<DISCONTINUED> 0
<EXTRAORDINARY> (90)
<CHANGES> 0
<NET-INCOME> 2,424
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.56
</TABLE>
