-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQBZCpfBlWzTgA92Eh88VW781oxH//P3DPIxt4D2MMUm8cp6a3wviSuNH9zb5JEA F1N/L6VRx1+DonZq8MkPxA== 0000891554-00-001029.txt : 20000412 0000891554-00-001029.hdr.sgml : 20000412 ACCESSION NUMBER: 0000891554-00-001029 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCUFACTS PRE EMPLOYMENT SCREENING INC CENTRAL INDEX KEY: 0001085545 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 134056901 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-14995 FILM NUMBER: 598883 BUSINESS ADDRESS: STREET 1: 6 GREENE ST CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2129660666 MAIL ADDRESS: STREET 1: ACCUFACTS PRE EMPLOYMENT SCREENING INC STREET 2: 6 GREENE ST CITY: NEW YORK STATE: NY ZIP: 10013 10KSB 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------- FORM 10-KSB (Mark One) _X_ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 1999 OR ___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF ACT 1934. From the transition period from ______________ to ______________. Commission file number 001-14995 Accufacts Pre-Employment Screening, Inc. (Name if Small Business Issuer in Its Charter) Delaware 13-4056901 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6 Greene Street NY, NY 10013 (Address of Principal Executive Offices) (Zip Code) (212) 966-0666 (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par OTCBB value $.01 per share Securities registered under Section 12(g) of the Exchange Act: N/A (Title of Class) N/A (Title of Class) Check whether the issuer: (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes [X] No [_] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ____ State issuer's revenues for its most recent fiscal year. $2,283,533 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. $3,375,000, based on 2,700,000 shares of common stock, par value $.01 per share, held by non-affiliates of the Registrant and an average bid and asked price of $1.25 as reported on the OTC Bulletin Board on April 4, 2000. APPLICABLE ONLY TO CORPORATE REGISTRANTS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 6,627,471 shares of common stock, par value $.01 per share, as of March 31, 2000. Transitional Small Business Disclosure (check one): Yes ___ No _X_ 2 FORWARD LOOKING STATEMENTS Accufacts Pre-Employment Screening, Inc., a Delaware corporation (the "Company"), cautions readers that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 10-KSB or that are otherwise made by or on behalf of the Company. For this purpose, any statements contained in the Form 10-KSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "expect," "believe," "anticipate," "intend," or comparable terminology are intended to identify forward-looking statements. Factors that may affect the Company's results include, but are not limited to, the Company's limited operating history, its ability to produce additional products and services, its dependence on a limited number of customers and key personnel, its possible need for additional financing, its dependence on certain industries, and competition from its competitors. The Company is also subject to other risks detailed herein or set forth from time to time in the Company's filings with the Securities and Exchange Commission. PART I Item 1. Description of Business. Business Development Accufacts Pre-Employment Screening, Inc. (the "Company") was originally incorporated in the state of New York on October 6, 1996. On August 31, 1998, the Company was merged into Southern Cargo Company, Inc., a public shell incorporated in the State of Florida in 1993 but which did not commence operations until mid-1998 ("Southern Cargo"). Simultaneously with such acquisition, Southern Cargo changed its name to Accufacts Pre-Employment Screening, Inc., and shortly thereafter reincorporated under the same name in the State of Delaware. On October 13, 1999, the Company acquired all of the operating assets of Maglio, Inc., a Florida corporation engaged in providing pre-employment screening services ("Maglio, Inc."), by merging Maglio, Inc. with and into Maglio-Accufacts Pre-Employment Screening, Inc., a Delaware corporation and wholly-owned subsidiary of the Company ("Maglio-Accufacts"). As used in this Form 10-KSB, the names "Accufacts Pre-Employment Screening, Inc.," "Accufacts" and the "Company" all refer to the existing Delaware corporation, its predecessor business entities and Maglio-Accufacts. The term "business" refers to the business of the Company, its predecessors and subsidiaries. Business of Issuer The Company is engaged in conducting and providing background checks of individuals for potential employers through the use of databases and a national network of agents (engaged on an independent contractor basis) developed by the Company. The background information products and services currently provided by the Company consist of: 3 o criminal history, o pre-employment credit reports, o social security number verification, o driving record history, o pre-employment verification, o education verification, o professional reference verification, o professional license verification, o federal criminal/civil search, o sex offender registration, and o nation fugitive search. The Company believes that employers increasingly are realizing the benefits of conducting thorough background checks of employees as well as the verifying employment applications, not only because of the desire to help assure a better quality employee, but also, in some industries, the concern with negligent hiring lawsuits. The Company has approximately 700 customers located throughout the United States. During each of the fiscal years ended December 31, 1999, 1998 and 1997, sales of the Company's services were made in 50 states, with approximately 35.0%, 50.0% and 60.0%, respectively, of total sales having been made in the State of New York. The Company's business strategy is to accelerate market presence throughout the United States. The Company also intends to enhance its existing products, develop new ones and pursue acquisitions of other companies, assets and/or product lines that either complement or expand its existing business. See "Business." Markets The Company markets its employment background checking products and services throughout the United States. Although any company with employees is a potential customer of Accufacts, the Company believes that companies or businesses with one or more of the following characteristics would typically benefit most from conducting background checks on employees and job-applicants: o High risk of liability for negligent hiring lawsuits relating to the action or inaction of employees; o Physically demanding jobs; o Employees with access to goods and cash of employers; o High employee turnover; and o Desire for better quality employees, not only with respect to competence, but also integrity. Industries in which one or more of these characteristics exist include: 4 o construction; o retail; o manufacturing; o property management, including commercial office buildings, apartments and hotels; o medical, including nursing homes, hospitals and in-home health care providers; o city and county governments, including schools, gaming, temporary and permanent placement agencies; and o accounting firms. Products and Services General. The Company's products and services are designed to verify job applicant background information for employers and consist of database searches through the use of the Company's in-house computer system and manual retrieval and copying of public records by the Company's network courier system. The Company's customers may request and receive records by telephone, mail, facsimile or through the Company's two web sites, www.accufacts.com and www.maglioinc.com, or by using proprietary software developed by Accufacts or a modem-equipped personal computer or terminal to access the Company's on-line order placing network. This network is available 24 hours per day, seven days a week. Accufacts licenses its software to its customers free of charge. The prices to Accufacts' customers of the reports prepared by the Company vary in price from $5.00 to $75.00 per report, depending upon the type and location of the background check requested by the customer. The reports may be viewed on screen or printed in either Accufacts' or the customer's offices. The reports remain in a computer file in Accufacts' host computer system for two years and are available to the customer at no additional cost during that period. The Company's in-house computer host system consists of automated, networked PCs running Window NT, using SQL data bases which automatically read orders out to the Company's agents and/or to third party databases for automatic processing. In addition, the Company operates its Internet-based consumer order entry system with the same automatic computer system, thereby reducing turnaround time and operating costs as compared to the Company's computers. The Company's network agent system currently consists of persons and small companies located throughout the United States. The agents are engaged as independent contractors by written agreements which provide for payment of a fee on a per document, per day or monthly basis. The number of agents in each state or locality depends on the size, population density, numbers of counties, and the organization of the court systems within the state or locality. 5 The Company currently offers the following products and services: Criminal Histories--Searches in selected geographical areas for the presence of a criminal record. This background information is available statewide from 32 states or from all 3,300 counties in the United States on a county-by-county basis. The remaining 18 states do not have an accessible statewide depository for this type of information. This information is retrieved by Accufacts through its network agent system, computer access directly into the states and certain counties or, in some instances, by facsimile, mail and telephone. Motor Vehicle Driving Reports--Confirms driving records. This background information is retrieved by Accufacts through a non-affiliated third party and is available from all 50 states, the District of Columbia, and Puerto Rico. This same information could be obtained directly by the Company from the source or from other non-affiliated third parties. These reports and the credit reports discussed below are the only two products for which Accufacts serves as a broker. Credit Information. This background information is a special form of a common "credit report" designed for employment purposes only. The report complies with current provisions of the Fair Credit Reporting Act, as amended ("FCRA"). See "Government Regulation" below. Accufacts serves as a broker for this information for all three of the major credit bureaus (Equifax, TRW and TransUnion) and retrieves the information from these credit bureaus through software developed and owned by Accufacts . Accufacts customers may order any combination of the three credit bureaus. Social Security Number. This report will verify the issue date, number and name associated with the number. It will also indicate if the number has been reported deceased or not-issued as of a certain date. The report may also reveal other names, including, "also-known-as" or maiden names, and/or addresses previously or currently used by the applicant. Employment Verifications. Pursuant to the client's requirements, this report can include a complete verification of all previous employers, or a review of the most recent two or three positions held. Education Verifications. This report contains the applicant's academic history including: name of institution, dates of attendance, major course of study and the type of degree(s) received by the individual. Professional License Verification. Professional licenses in most states may be verified to include physicians, registered nurses, dentists, chiropractors, physical therapists, attorneys, certified public accountants, etc. Professional/Personal Reference Verification. This report is based on an interview of a co-worker or personal reference as provided by the applicant. The co-worker or personal reference is questioned as to the length and nature of their relationship with the applicant and the applicant's skills and work ethic. 6 Federal Search. This search consists of a check for criminal and civil filings in a Federal District identified by the client, or the district of residence as identified by Accufacts. This search will reveal criminal and civil information that has not been purged, sealed or expunged by the court and generally involves a two to four-year time frame from the date of the search. New York State Sex Offender Registry Search. This is a statewide search of the New York State Sex Offender Registry Database. New York State sex offenders are categorized by the risk that they pose to public safety. For a sex offender to be included in the Registry, he or she must be under the supervision of the New York State Criminal Justice System to include probation, parole or incarceration. Nationwide Search for Outstanding Warrants. This search is conducted through a law-enforcement entity and includes a search of the NCIC database for wanted persons. It should be noted that for a subject to be listed on the NCIC database, a State, Local or Federal Law Enforcement Agency must have entered the subject into the database as a wanted person. Accelerated Market Presence Accufacts intends to continue the acceleration of its market presence throughout the United States by further expanding and refining sales and marketing techniques used by it over the past several years, including the following methods: o Face-to-face selling with prospective customers, primarily larger companies; o in-house telemarketing to existing customers and to prospective customers who have shown an interest in purchasing Accufacts' products and services; o independent resellers; o public relations; o participation in trade shows and seminars; o advertising in trade publications; o maintaining a web page on the Internet; and o mailing of news releases to existing customers and to prospective customers. 7 Acquisitions of Other Companies and/or Product Lines The Company is pursuing the acquisition of other companies, assets and/or product lines that either complement or expand Accufacts' business. Target companies are regional or state background checking companies or companies with complementary products including but not limited to drug testing, skills testing or safety and security products. The Company may use cash or stock or a combination of stock and cash to affect any such acquisitions. The Company has had, and will continue to have, discussions from time-to-time with potential acquisition candidates. On October 13, 1999, the Company acquired Maglio, Inc. buy merging it into Maglio-Accufacts, a wholly-owned subsidiary of the Company. Other than the acquisition of Maglio, Inc. in October 1999, the Company has not consummated any acquisitions nor is any acquisition considered probable as of the date of this Form 10-KSB. No assurance can be given that the Company will be successful in these efforts. Long-Term Customer Relationships The Company is committed to providing quality products and services to its customers. Management believes that the Company's emphasis on building long-term relationships with its customers has played a significant role in Accufacts' success. Management further believes that these relationships are important not only to generate additional sales from existing customers, but also for customer referrals. A large percentage of the Company's sales have been generated by referrals from customers. The Company intends to continue to send monthly newsletters to existing customers; monitor its larger customers daily; and contact each of its customers on a regular basis through telesales. Quality Customer Service and Support In order to offer customers quality service and support, Accufacts has developed and will continue to enhance a client service and support program including: o the availability of a customer service representative twelve hours a day Monday through Friday; o in-house training of all customer service representatives on Accufacts' products; o quality control checks for Accufacts' products; and o minimum acceptable performance guidelines for employees. In addition, Accufacts realizes the importance of long-term employees to the success of its operations and, therefore, strives to provide a positive work environment and benefits package for employees. 8 Marketing and Sales The Company's marketing program consists of direct marketing activities, exhibitions at trade shows, the Internet, public relations activities and in-house telemarketing. All of the leads generated by these marketing activities are referred to new customer telesales representatives for follow-up and, if applicable, obtaining the documentation (including executed User Agreements) needed to open new customer accounts. There are five employees at the Company's headquarters in New York, who are involved in marketing activities, one of whom is the Director of Marketing. Customers The Company currently has approximately 700 customers located throughout the United States. During each of the fiscal years ended December 31, 1999, 1998 and 1997, sales were made in 50 states, with approximately 35.0%, 50.0% and 60.0%, respectively, of total sales having been made in the State of New York. No single customer of Accufacts accounted for more than 10.0% of total Accufacts sales during the fiscal years ended December 31, 1999, 1998 or 1997. Historically, the Company experiences 35.0% of its annual sales in the fourth quarter due to increased hiring by retailers, starting in mid-October and continuing through the holiday season. Government Regulation The Company is a "consumer reporting agency" within the meaning of that term as used in, and therefore is subject to, the provisions of the FCRA, and is regulated by the Federal Trade Commission ("FTC") under the Federal Trade Commission Act. Under the provisions of the FCRA, a consumer reporting agency may furnish a "consumer report" to a customer (other than a consumer or in response to a court order) only if such agency has reason to believe that, among other matters, the customer intends to use the information for a permissible purpose, including in connection with a credit transaction involving the consumer on whom the information is to be furnished or the review or collection of an account of the consumer or the customer otherwise has a legitimate need for the information in connection with a business transaction concerning the consumer. The background checking reports of Accufacts are consumer reports for purposes of the FCRA. In addition, certain of Accufacts' consumer reports are "investigative consumer reports" within the meaning of that term under the FCRA. The FCRA also prohibits disclosure of obsolete information concerning a consumer. Obsolete information generally means information which is more than seven years old. The FCRA requires a consumer reporting agency to maintain reasonable procedures designed to ensure that the prohibitions on the use of obsolete information are not violated, and that the information contained in a consumer credit report is used for a proper purpose. In addition, a consumer reporting agency must follow reasonable procedures to assure maximum accuracy of the information concerning the consumer about whom the report relates. See sub caption "Legal Considerations" below. The FCRA also requires a consumer reporting agency, 9 upon request from a consumer, to disclose all information about that consumer in a consumer report, together with the source and the recipients of the information. In some cases, this information must be delivered to the consumer at no cost, and, in others, the agency may charge a reasonable fee. Accufacts historically has not charged such a fee. The Consumer Credit Reporting Reform Act (CCRRA) of 1996 amended the FCRA and added new requirements on consumer reporting agencies providing consumer reports for employment purposes. The requirements include: o providing customers with a notification of their responsibilities under the FCRA; o obtaining certifications from customers that they are performing certain specific actions as required by the FCRA; o providing the subject of the report with a free copy of the report if adverse action is taken by an employer based on information in the consumer report; and o providing a copy of a "Summary of Your Rights Under the Fair Credit Reporting Act" with each consumer report. The CCRRA also placed new requirements on the resale of consumer reports. A consumer reporting agency providing consumer reports to a reseller must now obtain the identity of the end user of the information for each report. In addition, the consumer reporting agency must receive certifications from resellers that their customers are performing the same specific actions as are required of the consumer reporting agency's direct customers, and ensure that reports are being resold only for permissible purposes. The FCRA provides that an investigative consumer report may not be prepared on any consumer unless such consumer receives notice thereof in writing not later than three days after the date on which the report was first requested, which must include a statement, among others, that the consumer has the right to request complete disclosure of the nature and scope of the investigation requested. The FCRA further provides that if the consumer requests disclosure of the information, the consumer reporting agency must make such disclosure in writing not later than five days after the date on which the request for disclosure was received. A consumer reporting agency may not be held liable for any violation of the FCRA provisions relating to investigative consumer reports if that agency shows by preponderance of the evidence that at the time of the violation, such agency maintained reasonable procedures to assure compliance with those provisions. Of the Company's current products, education/credential confirmations and reference checks are investigative consumer reports for purposes of the FCRA. The FCRA provides for civil liability sanctions against a consumer reporting agency by a consumer for willful or negligent noncompliance with the FCRA and criminal sanctions against officers and directors thereof who knowingly and willfully disclose information in a report to a person not authorized to receive the information. 10 State laws also impact the Company's business. There are a number of states which have laws similar to the FCRA, and some states which have human rights laws more strict than the FCRA. A large number of states also regulate the type of information which can be made available to the public and/or impose conditions to the release of the information. For example, some state laws prohibit access to certain types of information, such as workers' compensation histories or criminal histories, while others restrict access without a signed release from the subject of the report. In addition, many privacy and consumer advocates and federal regulators have become increasingly concerned with the use of personal information, particularly credit reports. Attempts have been made and will continue to be made by these groups to adopt new or additional federal and state legislation to regulate the use of personal information. Federal and/or state laws relating to consumer reporting agencies and/or access and use of personal information, in particular, and privacy and civil rights, in general, amended or enacted in the future could materially adversely impact Accufacts' operations. Legal Considerations Under general legal concepts and, in some instances, by specific state and federal statute, the Company could be held liable to customers and/or to the subjects of background checking reports prepared by the Company for inaccurate information or misuse of the information. The FCRA contains civil liability provisions for willful and negligent noncompliance with its requirements. The FCRA further provides in effect that, except for liability for willful or negligent noncompliance with the FCRA and false information furnished with malice or willful intent to injure a consumer, a consumer reporting agency, any user of information or any person who furnishes information to a consumer reporting agency will not be liable to the consumer for defamation, invasion of privacy or negligence based on information disclosed to such consumer under the provisions of the FCRA. The Company has developed and implemented internal policies designed to help ensure that background information retrieved by it concerning a consumer is accurate and that it otherwise complies with the provisions of the FCRA. In addition, each customer of Accufacts is required to sign an agreement, wherein such customer agrees, among other matters, to accept responsibility for using information provided by Accufacts in accordance with the provisions of the FCRA and all other applicable federal and state laws and regulations including federal and state equal opportunity laws and regulations. Accufacts also has internal checks in place regarding access and release of such information. Additionally, Accufacts requires that all employees sign a written acknowledgment covering the proper procedures for handling confidential information. In Feburary 2000, the Company obtained an errors and omissions insurance policy for its officer, directors and employees in the amount of $5.0 million. Such policy expires on February 13, 2001. Competition The background checking industry is highly fragmented. The Company faces both direct and indirect competition for its products and services. In addition, many companies perform employee background checking in-house. 11 Direct Competition There are a large number of companies engaged in the sale of one or more of the background checking products sold by the Company, and the Company believes that this number will increase. A significant number of these competitors are small companies operating on a local or regional basis; while some are large companies operating on a national scale. To the Company's knowledge, the background checking portion of the business of its larger direct competitors is currently a small portion of their overall operation. Unlike many of its direct competitors, the Company serves as a broker for only two of its products -- credit reports and motor vehicle driving records -- and obtains the data for the remainder of its products from the source. The Company believes that this helps to give it a competitive pricing advantage. The Company also believes that it has a competitive advantage over many of its competitors because of the wide variety of products that it can offer to customers, and because of its newly developed order entry and report retrieval system. Many of the Company's competitors, however, have substantially greater financial and personnel resources than the Company. In addition, it is possible that one or more of the Company's larger direct competitors could expand their background checking product line in the future. Indirect Competition The Company faces indirect competition from a number of companies engaged in, among others, drug, aptitude and attitude testing, handwriting analysis and on-the-job trial employment (employee leasing). These procedures, though often used with background checking, compete with Accufacts' products and services. Most of these competitors operate on a national scale and have substantially greater financial and personnel resources than the Company. In addition, it is possible that one or more of these competitors could expand their product lines in the future to include background checking products and services. Employees The Company has a total of 40 full-time employees, five of whom are involved in marketing, two in finance, 24 in data processing, one in programming, five in customer service and three in management. None of the Company's employees is represented by labor unions or is subject to collective bargaining arrangements. Accufacts considers its relations with its employees to be good. Item 2. Description of Property. The Company maintains its principals offices at a 3,000 square foot facility located at 6 Greene Street, New York, NY 10013 pursuant to a lease agreement, dated April 1, 1997, between the Company and 6 Greene Street Associates, LLC. The lease, as amended, is for five years, expiring May 2003, and the rent is $2,500 per month, or $30,000 per year, including heat, but excluding electrical charges. The Company believes that these facilities are adequate for its current needs. Maglio-Accufacts, the wholly-owned subsidiary of Accufacts, and successor to Maglio, Inc., maintains a 2,960 square foot office located at 2180 West State Road 434, Suite 4150, Longwood, Florida 32779 pursuant to a lease agreement, dated May 28, 1998, as amended, 12 between Maglio, Inc. and CB Sanlando Center, Inc, and assigned to Maglio-Accufacts. The term of the lease agreement is for five years, commencing August 1, 1998 until July 31, 2003, and the monthly rent is (i) $4,440 for the period from August 1, 1999 to September 31, 2000, (ii) $4,564 for the period from August 1, 2000 to July 31, 2001, (iii) $4,687 for the period from August 1, 2001 to July 31, 2002 and (iv) $4,872 for the period from August 1, 2002 to July 31, 2003. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Part II Item 5. Market for Common Equity and Related Stockholder Matters. In August 1998, Southern Cargo acquired all of the assets and assumed all of the liabilities of our Company and changed its name to Accufacts Pre-Employment Screening, Inc. and its state of incorporation from Florida to Delaware. On September 9, 1998, the Company's common stock, par value $.01 per share (the "Common Stock"), commenced being quoted on the OTC Bulletin Board, the "OTCBB," under the symbol "APES." The following table sets forth the high and low bid prices for the Company's Common Stock, commencing September 9, 1998, on a quarterly basis. The quotations represent bid between dealers and do not included retail mark-up, mark-down or commissions, and do not represent actual transactions. - -------------------------------------------------------------------------------- Quarter Low Bid Price* High Bid Price* - -------------------------------------------------------------------------------- Fiscal 1998: - -------------------------------------------------------------------------------- 3rd Quarter (from September 9, 1998) $1.0000 $3.0000 - -------------------------------------------------------------------------------- 4th Quarter $1.1250 $3.1875 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fiscal 1999: - -------------------------------------------------------------------------------- 1st Quarter $1.2500 $4.3750 - -------------------------------------------------------------------------------- 2nd Quarter $1.1250 $5.0000 - -------------------------------------------------------------------------------- 3rd Quarter $1.5625 $2.7500 - -------------------------------------------------------------------------------- 4th Quarter $1.6250 $2.6875 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fiscal 2000: - -------------------------------------------------------------------------------- 1st Quarter $1.3750 $2.5625 - -------------------------------------------------------------------------------- 2nd Quarter (through April 5, 2000) $1.2500 $1.4375 - -------------------------------------------------------------------------------- - ----------- *Source: OTCBB Quarterly Reports. 13 The Company believes that as of March 31, 2000, there were 20 holders of record of 6,627,471 shares of Common Stock, including holders which maintain their ownership in "Street-Name." Dividends The Company has never paid cash dividends on its Common Stock and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. The Company anticipates that for the foreseeable future, earnings will be retained for the development of its business. Accordingly, the Company does not anticipate paying dividends on the Preferred Stock or Common Stock in the foreseeable future. The payment of future dividends will be at the sole discretion of the Company's Board of Directors and will depend upon among other of the Company and general business conditions. Recent Sales of Unregistered Securities The following is a summary of all securities sold by the Registrant within the past three years which were not registered pursuant to the Securities Act of 1933, as amended (the "Act"): o On August 20, 1998, the Company issued an aggregate of 3,750,000 shares of its Common Stock to Philip Luizzo, the President and Chief Executive of Accufacts, in connection with the merger of Accufacts into Southern Cargo. The Company relied upon Section 4(2) promulgated under the Act in that such issuance did not involve a public offering. o On August 26, 1998, the Company issued an aggregate of 500,000 shares of Common Stock to Robert DePalo in consideration for consulting services rendered. The Company relied upon Section 4(2) promulgated under the Act in that such issuance did not involve a public offering. o On August 26, 1998, the Company issued 500,000 shares of Common Stock to the Old Oak Fund, Inc. in consideration for financial consulting services rendered. The Company relied upon Section 4(2) promulgated under the Act in that such issuance did not involve a public offering. o On August 26, 1998, the Company issued 200,000 shares of Common Stock to Tammy Perrotta in consideration for financial advisory services rendered. The Company relied upon Section 4(2) promulgated under the Act in that such issuance did not involve a public offering. o During the period commencing September 15, 1998 until December 18, 1998, the Company sold an aggregate of 500,000 shares of Common Stock in a private placement to sophisticated investors pursuant to Rule 504 of Regulation D promulgated under the Act. o On October 13, 1999, the Company issued an aggregate of 177,471 shares of its Common Stock to Richard J. Maglio, the principal owner of Maglio, Inc., of 14 which 174,971 shares were issued in connection with the acquisition of Maglio, Inc. by Maglio-Accufacts and 2,500 shares in consideration for Mr. Maglio entering into a non-competition agreement with the Company. The Company relied upon Section 4(2) promulgated under the Act in that such issuance did not involve a public offering. o On October 11, 1999, the Company issued to Richard J. Maglio, in connection with the acquisition of Maglio, Inc. by Maglio-Accufacts, an option to purchase up to 50,000 shares of Common Stock of Accufacts at a purchase price of $2.50 per share at any time commencing October 11, 2000 until, and including, October 11, 2002. The Company relied upon Section 4(2) promulgated under the Act in that such issuance did not involve a public offering. Item 6. Management's Discussion and Analysis or Plan of Operation Plan of Operation. Accufacts Pre-Employment Screening, Inc., a Delaware corporation (the "Company"), had revenues of $2,283,533 for the fiscal year ended December 31, 1999, as compared to $1,598,772 for the year ended December 31, 1998, representing an increase of $684,761, or 42.8%. Such increase was due to internal growth, a larger client base and cross-selling additional services attributable to the acquisition of Maglio, Inc., a Florida corporation engaged in providing pre-employment screening services ("Maglio, Inc."), by Maglio-Accufacts Pre-Employment Screening, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, in October 1999 (the "Maglio Acquisition"). General and administrative expenses were $1,008,012 for the fiscal year ended December 31, 1999, as compared to $552,474 for the fiscal year ended December 31, 1998, representing an increase of $455,538, or 82.5%. Such increase was attributable to the Maglio Acquisition, including the commencement of programs to integrate Maglio, Inc.'s operations into the Company's, increased legal and accounting fees and increased marketing expenses due to the Company's increased attendance at industry trade shows and sponsorships. Net losses were $215,566 for the fiscal year ended December 31, 1999, as compared to $124,881 for the fiscal year ended December 31, 1998, representing an increase of $90,685, or 72.6%. Such increase was attributable to increased expenditures in connection with integrating and creating a simplified and automated new infrastructure to connect the Company's Florida and New York offices. By combining the Florida and New York operations, the Company's management believes that it will be able to reduce the amount of time allocated to general and administrative matters as well as reduce costs of revenue, and focus more on marketing. Net cash used in operating activities was $394,927 for the fiscal year ended December 31, 1999, as compared to $106,214 for the fiscal year ended December 31, 1998, representing an increase of $288,713, or 271.8%. Days outstanding in receivables was 62 days for the fiscal year ended December 31, 1999, as compared to 59 days for the fiscal year ended December 31, 1998, representing an increase of 3 days, or 5.1%. This increase was attributable to the gain of a larger client base with longer payment terms. 15 The Company's financing activities included borrowing from a bank, stockholders' loans and private placement offering. The Company's financing activities resulted in net cash provided by financing activities of $681,115 and $199,289 for the years ended December 31, 1999 and 1998, respectively, reflecting an increase of $481,826, or a change of 241.7%. The Company believes it will be able to fund its short-term cash needs through funds from operations and additional capital raising efforts. Liquidity and Capital Resources The Company intends to increase its business through the use of operating profits and borrowings and additional capital raising. The Company believes that its anticipated cash flow operations as well as availability of funds from existing bank facilities and proceeds of the offering completed recently will provide the liquidity to meet its current foreseeable cash needs for at least a year. At December 31, 1999, the Company had total assets $1,510,236, as compared to $447,210 at December 31, 1998, representing an increase of $1,063,026, or 237.8%. At December 31, 1999, the Company had total liabilities of $452,370, as compared to $300,904 at December 31, 1998, representing an increase of $151,466, or 50.3%. The Company had a working capital of $483,889 as of December 31, 1999, as compared to $90,748 as of December 31, 1998, representing an increase of $393,141, or 433.2% The Company currently has a bank source of funding: o Line of credit in the amount of $100,000 ($43,274 of which was outstanding as of December 31, 1999) with an annual percentage rate of 7.75%. o An overdraft protection on Business Checking Account of $25,000 ($0 of which was outstanding as of December 31, 1999) with an annual percentage rate of 13.75%. Year 2000 Issue The Company's in-house systems were Year 2000 compliant and its client software was also Year 2000 compliant. The Company did not experience any software problems attributable to the Year 2000 problem. Item 7. Financial Statements. Consolidated Financial Statements are found immediately following the signature page of this Report on pages F-1 through F-18. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 16 Part III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. The directors and executive officers of Accufacts and Maglio-Accufacts are as follows:
Director of Director of Position with Accufacts Position with Maglio-Accufacts Name Age Accufacts Since Maglio-Accufacts Since - ---- --- ------------- ----------- ---------------- ---------------- Philip Luizzo 34 Chief Executive Officer, 1998 President and 1999 President and Chairman Director Of the Board John C. Svedese 39 Vice President and 1998 Vice President and 1999 Director Director Richard J. Maglio 53 -- -- Vice President of 1999 Operations and Director Anthony J. Luizzo 56 Corporate Secretary and 1998 Corporate Secretary 1999 Director and Director Frank Luizzo 50 Director 1998 Director 1999 Joseph W. Slattery 62 Director 1998 Director 1999
Philip Luizzo, the President, Chief Executive Officer and Chairman of the Board of Directors of Accufacts and the President and a Director of Maglio-Accufacts, has served as the President and Chief Executive Officer of Accufacts and its predecessor, Southern Cargo, since 1994 and as President of Maglio-Accufacts since 1999. For more than two years prior to 1994, Mr. Luizzo was a manager of L.C. Security. Mr. Luizzo earned an undergraduate degree in Finance from The University of Nevada, Las Vegas and has authored a number of articles on background screening for major magazines and professional journals including Security Management Magazine and The Internal Auditing Alert. Mr. Luizzo has lectured to numerous companies and Professional organizations on aspects of conducting background investigations for prospective employees. Philip Luizzo is the son of Anthony J. Luizzo, the Corporate Secretary and a Director of Accufacts' and Maglio-Accufacts, and the nephew of Frank Luizzo, a Director of Accufacts and Maglio-Accufacts. John C. Svedese, the Vice President and a Director of Accufacts and Maglio-Accufacts, has over 12 years experience as a senior investigative auditor for the New York City District Council of Carpenters. Mr. Svedese has been with Accufacts and its predecessor, Southern Cargo, since 1994 and with Maglio-Accufacts since 1999, and is familiar with all aspects of the Company's growth and development. Mr. Svedese monitors the day-to-day operations of Accufacts in the New York City office. In order to maintain Accufacts' high level of personal as well as professional services, he also acts as the business liaison between Accufacts and its clients. Mr. Svedese assists the Board of Education of the City of New York by providing seminars regarding pre-employment screening by corporations to its faculty and students. 17 Richard J. Maglio, the Vice President of Operations and a Director of Maglio-Accufacts since October 1999, served as the President of Maglio, Inc., a business engaged in providing employment background screening services to client companies throughout the United States, since its inception in 1986 until it was merged into Maglio-Accufacts in October 1999. Mr. Maglio earned an undergraduate degree in Human Resources Management from the University of Wisconsin-Oshkosh in 1968. Anthony J. Luizzo, CFE, CST, DABFE, the Corporate Secretary and a Director of Accufacts and Maglio-Accufacts, has been an owner and principal employee of L.C. Consulting Group, Inc. for more than five years. Mr. Luizzo has over 35 years of law enforcement and security management experience as a former detective with the New York City Police Department and as a senior security administrator with the New York City Mayor's Office of Economic Development and Business Services and the NYC Health & Hospitals Corporation. Anthony Luizzo earned a graduate degree in criminology and undergraduate degree in security management from Pacific Western University and held adjunct faculty positions at John Jay College of Criminal Justice Studies and New York University. Mr. Luizzo is presently an adjunct faculty member at Long Island University. Mr. Luizzo is a certified fraud examiner, certified security trainer, certified police instructor, and a board certified forensic examiner. He has written over 25 articles addressing aspects of security and loss prevention management for a wide variety of magazines and professional trade journals including The CPA Journal, Security Management Magazine, The Journal of Health Care Protection Management, and The White Paper. He is the author of "Play it Safe," a retail fraud prevention brochure, and coauthor of Fraud Auditing: A Complete Guide, a workbook for accountants and auditors on conducting fraud audits and investigations published by the Foundation for Accounting Education. Mr. Luizzo has lectured on security management issues to corporations, municipal agencies and professional organizations nationwide. He has conducted over 5,000 security surveys for corporations, hospitals, commercial, institutional and residential complexes, and often testifies as a security expert in litigation involving deficient security. Mr. Luizzo is the President of the New York Chapter of Certified Fraud Examiners. He serves or has served on the Board of Directors of The Associated Licensed Detectives of New York State, The Society of Professional Investigators, and The Academy of Security Educators and Trainers. Anthony Luizzo is the father of Philip Luizzo, the President, Chief Executive Officer and Chairman of the Board of Directors of Accufacts and the President and a Director of Maglio-Accufacts, and the brother of Frank Luizzo, a Director of Accufacts and Maglio-Accufacts. Frank Luizzo, CFE, a Director of Accufacts and Maglio-Accufacts, has, for more than the past two years, been the Director of Operations of several security-related departments at the Hard Rock Hotel and Casino in Las Vegas, Nevada. For more than three years prior thereto, he was the General Manager of United Coin Machine Co. in Las Vegas Nevada which is in the business of managing slot machine route operations. Mr. Luizzo has over 30 years of law enforcement and security management experience as a former Nevada State Trooper and Gaming Agent/Supervisor - Gaming Control Board State of Nevada. Mr. Frank Luizzo is presently the Director of Security for The Hard Rock Hotel and Casino, Las Vegas, Nevada and formerly held positions as General Manager, United Coin Machine Co. and Assistant to the Chairman, Aladdin Hotel and Casino. Mr. Luizzo coauthored an article on "Casino Fraud" featured in Security Management Magazine and was prominently featured in television documentaries on "Gaming Security" for The Discovery Channel and "E" Entertainment. Mr. Luizzo is a member and past president of the Las Vegas Security Chief's Association, a member of the 18 International Association of Financial Crime Investigators, and current president of the Harmon Avenue Business Association. Mr. Frank Luizzo is the uncle of Philip Luizzo, the President, Chief Executive Officer and Chairman of the Board of Accufacts and the President and a Director of Maglio-Accufacts, and the brother of Anthony J. Luizzo, the Corporate Secretary and a Director of Accufacts and Maglio-Accufacts. Joseph W. Slattery, CFE, a Director of Accufacts and Maglio-Accufacts, has been a manager with L.C. Security where he conducts the security board training division for more than the past five years. Mr. Slattery has over 40 years of law enforcement and security management experience as a former Deputy Inspector with the New York City Police Department and as private security consultant/trainer. Mr. Slattery earned an undergraduate/graduate degree in security management from John Jay College of Criminal Justice Studies. Mr. Slattery is a certified fraud examiner and a certified security guard instructor in New York State. Mr. Slattery is a former treasurer for The Captain's Endowment Association - New York City Police Department and a current board member of The New York Chapter of Certified Fraud Examiners. Mr. Slattery has lectured on various aspects of security, loss prevention and fraud prevention management to corporations, municipal agencies and professional organizations nationwide. Throughout his career, he has conducted numerous security surveys of corporate facilities, hospitals, and commercial/industrial entities. All directors hold office until the next annual meeting of stockholders and until their successors have been elected and qualified, subject to death, resignation or removal from office prior to such time. Section 16(a) Beneficial Ownership Reporting Compliance During the fiscal year ended December 31, 1999, Philip Luizzo, the Company's President, Chief Executive Officer and Chairman of the Board; John Svedese, the Vice President and a Director of the Company; Anthony J. Luizzo, the Secretary and a Director of the Company; and Frank Luizzo and Joseph W. Slattery, both of whom are Directors of the Company, did not timely file their initial statements of beneficial ownership of securities on Form 3 with the Securities and Exchange Commission and with the Company. Other than Philip Luizzo, none of the other persons mentioned above beneficially held any securities of the Company at either the required or actual time of filing such Forms 3. Philip Luizzo's initial ownership of 3,750,000 shares of Common Stock of the Company has remained unchanged from the date of filing to the date hereof. Item 10. Executive Compensation. The following summary compensation table sets forth the aggregate compensation paid or accrued by the Company to the Chief Executive Officer and to the four most highly compensated executive officers other than the Chief Executive Officer whose annual compensation exceeded $100,000 for the fiscal year ended December 31, 1999 (collectively, the "Named Executive Officers") for services during the fiscal years ended December 31, 1999, 1998 and 1997: 19 SUMMARY COMPENSATION TABLE
Annual Compensation --------------------------------------------------- Other Annual Fiscal Compensation Name and Principal Position Year Salary ($) Bonus ($) ($)(1) --------------------------- ---- ---------- --------- ------------ Philip Luizzo, President and 1999 $150,000 $ 0 $ 8,400 Chief Executive Officer 1998 $ 49,420 $ 0 $ 0 1997 $ 43,630 $ 0 $ 0
- ---------- (1) Includes a monthly car allowance of $700 per month. Currently, the Directors of the Company are not compensated for serving on the Board of Directors. On October 11, 1999, the Company entered into an employment agreement with Richard J. Maglio, the Vice President of Operations and a Director of Maglio-Accufacts. The term of the employment agreement is for three years, commencing October 11, 1999 until October 11, 2002, during which Mr. Maglio is to be employed as the Vice President of Operations of Maglio-Accufacts. Pursuant to the terms of the employment agreement, Mr. Maglio is to receive an annual base salary of $75,000, which shall be increased by a minimum of 4.0% for each subsequent year, and 3.0% of any profits of the Company in excess of $500,000. Mr. Maglio also received options to purchase up to 50,000 shares of Common Stock of Accufacts at a purchase price of $2.50 per share at any time commencing October 11, 2000 until October 11, 2002. During the term of the employment agreement, Mr. Maglio is entitled to be reimbursed for automobile expenses not exceeding $521 per month and for expenses incurred in connection with his employment. Mr. Maglio's compensation under the foregoing employment agreement was $21,723 for the fiscal year ended December 31, 1999. The Company does not have a stock option plan at this time. Employment Contracts and Termination of Employment and Change-in-Control Arrangements Philip Luizzo is employed as President and Chief Executive Officer of Accufacts under an employment agreement, dated September 1, 1998, as amended. The term of Mr. Luizzo's employment agreement is five years and provides for (i) an annual base salary of $150,000, (ii) 10.0% of any profit in excess of $500,000, (iii) reasonable out-of-pocket expenses and (iv) a monthly car allowance of up to $700. In addition, in the event Mr. Luizzo is terminated without cause or if there is a change-of-control (as defined in the employment agreement) of the Company, Mr. Luizzo is entitled to receive his salary for a period of two years commencing on the date of termination or change-of-control, as the case may be. Also, if the Company terminates the employment agreement without cause, the Company shall purchase Mr. Luizzo's shares in the Company over a period of 6 months at the lesser of (x) market value (average of bid and asked prices) or (y) $1.00 per share. 20 Item 11. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth information concerning the beneficial ownership of the Company's outstanding Common Stock as of March 31, 2000, by (i) each person known by the Company to be the beneficial owner of more than five percent of the outstanding shares of Common Stock, (ii) each Named Executive Officer, (iii) each of the Company's directors and (iv) all executive officers and directors as a group. Unless otherwise indicated below, to the knowledge of Advanced Knowledge all persons listed below have sole voting and investment power with respect to their shares of Common Stock except to the extent that authority is shared by spouses under applicable law.
Amount and Nature of Percentage of Class Name and Address of Beneficial Owner (1) Beneficial Ownership (2) (3) ---------------------------------------- ------------------------ ------------------- Philip Luizzo 3,750,000 56.6% John C. Svedese 0 -- Richard J. Maglio(4) 177,471 2.7% Anthony J. Luizzo 0 -- Frank Luizzo 0 -- Joseph W. Slattery 0 -- All executive officers and directors as a group (six persons) 3,927,471 59.3%
- ---------- (1) Unless otherwise noted, the address for each individual is in care of Accufacts Pre-Employment Screening, Inc., 6 Greene Street, New York, New York 10013. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person (but not those held by any other person) and which are exercisable within 60 days from the date of filing this Form 10-KSB have been exercised. Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (3) Based on 6,627,471 shares of Common Stock as of March 31, 2000. (4) Address for reporting person is c/o Maglio-Accufacts Pre-Employment Screening, Inc., 2180 West State Road 434, Suite 4150, Longwood, Florida 32779. Item 12. Certain Relationships and Related Transactions. None. Item 13. Exhibits, List and Reports on Form 8-K. On October 28, 1999, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K, dated October 13, 1999, regarding the acquisition of all of the operating assets of Maglio, Inc., a pre-employment screening services company based in Longwood, Florida, by merging Maglio, Inc. with and into Maglio-Accufacts. On December 23, 1999, the Company filed with the Securities and Exchange Commission an amendment to the foregoing Form 8-K for the purpose of including financial statements and pro forma financial information required by Item 7 of Form 8-K. 21 Exhibits Exhibit No. Description - ------- ----------- 2.1 Plan and Agreement of Merger of Maglio, Inc. and Maglio-Accufacts Pre-Employment Screening, Inc., dated October 11, 1999, by and among Accufacts Pre-Employment Screening, Inc., Maglio-Accufacts Pre-Employment Screening, Inc. and Maglio, Inc. (1) 2.2 Supplemental Agreement, dated as of October 11, 1999, by and among Accufacts Pre-Employment Screening, Inc., Maglio-Accufacts Pre-Employment Screening, Inc., Maglio, Inc. and Richard J. Maglio (1) 3.1 Articles of Incorporation of Accufacts Pre-Employment Screening, Inc. and Certificate of Merger (2) 3.2 By-laws of Accufacts Pre-Employment Screening, Inc. (2) 3.3 Certificate of Incorporation of Maglio-Accufacts Pre-Employment Screening, Inc. 3.4 By-laws of Maglio-Accufacts Pre-Employment Screening, Inc. 4.1 Specimen of Common Stock Certificate of Accufacts Pre-Employment Screening, Inc. (2) 4.2 Asset Purchase Agreement, dated August 26, 1998, between Southern Cargo, Inc. and Accufacts Pre-Employment Screening, Inc. (2) 4.3 Shareholder Rights and Registration Rights Agreement, dated as of October 11, 1999, by and between Accufacts Pre-Employment Screening, Inc. and Richard J. Maglio (1) 10.1 Employment Agreement, dated September 1, 1998, between the Registrant and Philip Luizzo (2) 10.2 Amendment, dated October 5, 1999, to the Employment Agreement, dated September 5, 1998, between the Registrant and Philip Luizzo (3) 10.3 Employment Agreement, dated September 1, 1998, between the Registrant and John Svedese (2) 10.4 Employment Agreement, dated October 11, 1999, by and among the Registrant, Maglio-Accufacts Pre-Employment Screening, Inc. and Richard J. Maglio 10.5 Lease Agreement, dated April 1, 1997, between the Registrant and 6 Greene Street Associates, LLC., as amended 10.6 Lease Agreement, dated August 28, 1998, between Maglio, Inc. and CB Sanlando Center, Inc. 21.1 List of Subsidiaries 27.1 Financial Data Schedule - ---------- (1) Filed as an exhibit to the Registrant's Current Report on Form 8-K, dated October 13, 1999, filed with the Securities and Exchange Commission on October 28, 1999 (SEC File No.: 001-14995), and is incorporated by reference herein. (2) Filed as an exhibit to the Registrant's Form 10-SB filed with the Securities and Exchange Commission on May 7, 1999 (SEC File No.: 001-14995), and is incorporated by reference herein. (3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Commission on November 15, 1999 (SEC File No.: 001-14995), and is incorporated by reference herein. 22 Signatures In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Accufacts Pre-Employment Screening, Inc. Date: April 11, 2000 By: /s/ Philip Luizzo ----------------- Philip Luizzo President and Chief Executive Officer (Principal Executive Officer) In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Philip Luizzo Date: April 11, 2000 - ----------------------- Philip Luizzo President and Chief Executive Officer (Principal Executive Officer) /s/ John C. Svedese Date: April 11, 2000 - ----------------------- John C. Svedese Vice President and Director /s/ Frank Luizzo Date: April 11, 2000 - ----------------------- Frank Luizzo Director /s/ Joseph W. Slattery Date: April 11, 2000 - ---------------------- Joseph W. Slattery Director /s/ Anthony Luizzo Date: April 11, 2000 - ---------------------- Anthony Luizzo Secretary and Director 23 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY - -------------------------------------------------------------------------------- CONTENTS Page ---- INDEPENDENT AUDITORS' REPORT F-2 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheet F-3 - 4 Statements of Operations F-5 Statements of Changes in Stockholders' Equity F-6 Statements of Cash Flows F-7 - 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - 18 F-1 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Accufacts Pre-Employment Screening, Inc and Subsidiary. We have audited the accompanying consolidated balance sheet of Accufacts Pre-Employment Screening, Inc. and subsidiary as of December 31, 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Accufacts Pre-Employment Screening Inc. and subsidiary as of December 31, 1999, and the results of their consolidated operations and their cash flows for the two years then ended, in conformity with generally accepted accounting principles. /s/ Marcum & Kliegman LLP March 14, 2000 New York, New York F-2 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET December 31, 1999 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 298,331 Accounts receivable, net of allowance for doubtful accounts of $4,836 636,463 ---------- Total Current Assets $ 934,794 PROPERTY AND EQUIPMENT, Net 155,084 OTHER ASSETS Security deposits 8,554 Prepaid expense 68,572 Deferred income tax asset 185,600 Intangible assets, net 157,632 ---------- Total Other Assets 420,358 ---------- TOTAL ASSETS $1,510,236 ==========
The accompanying notes are an integral part of these financial statements. F-3 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET December 31, 1999 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 194,056 Current maturities of capital lease obligations 8,295 Note payable, bank 43,274 Loans payable, stockholder 21,280 Deferred income tax liability 184,000 ----------- Total Current Liabilities $ 450,905 OTHER LIABILITIES Capital lease obligations, less current maturities 1,465 ----------- TOTAL LIABILITIES 452,370 COMMITMENTS STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding -- Common stock, $0.01 par value, 50,000,000 authorized, 6,627,471 issued and outstanding 66,275 Additional paid-in-capital 1,319,821 Accumulated deficit (328,230) ----------- TOTAL STOCKHOLDERS' EQUITY 1,057,866 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,510,236 ===========
The accompanying notes are an integral part of these financial statements. F-4 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- 1999 1998 ----------- ----------- REVENUES $ 2,283,533 $ 1,598,772 COST OF SALES 1,531,924 1,119,043 ----------- ----------- GROSS PROFIT 751,609 479,729 GENERAL AND ADMINISTRATIVE EXPENSES 1,008,012 552,474 ----------- ----------- OPERATING LOSS (256,403) (72,745) OTHER INCOME (EXPENSE) Interest income (expense), net 4,857 (10,031) ----------- ----------- LOSS BEFORE INCOME TAXES (251,546) (82,776) INCOME TAX (BENEFIT) EXPENSE (35,980) 42,105 ----------- ----------- NET LOSS $ (215,566) $ (124,881) =========== =========== Net (Loss) Per Share, Basic and Diluted $ (0.03) $ (0.02) =========== =========== Weighted average number of common shares outstanding 6,228,556 5,181,096 =========== =========== The accompanying notes are an integral part of these financial statements. F-5 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 1999 and 1998 - --------------------------------------------------------------------------------
Common Stock -------------------------- Preferred Stock Shares Additional -------------------------- -------------------------- Paid in Shares Amount Subscribed Issued Amount Capital ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - January 1, 1998 -- -- $ -- 200 $ 5,380 $ -- Issuance of shares resulting from merger 3,750,000 37,500 Recapitalization resulting from merger 999,800 4,620 Issuance of shares for consulting services 1,200,000 12,000 Issuance of shares in connection with the Offering, net of offering costs 125,000 1,250 198,220 Common stock subscribed in connection with the Offering 375,500 3,750 746,250 Stock subscription receivable in connection with the Offering Net loss ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 1998 375,500 6,075,000 64,500 944,470 Stock subscription received (375,000) 375,000 Issuance of shares relating to acquisition 174,971 1,750 370,063 Issuance of shares relating to non-competition agreement 2,500 25 5,288 Net loss ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 1999 -- $ -- -- 6,627,471 $ 66,275 $ 1,319,821 =========== =========== =========== =========== =========== =========== Stock Subscription Accumulated Receivable Deficit Total ----------- ----------- ----------- BALANCE - January 1, 1998 $ -- $ 55,687 $ 61,067 Issuance of shares resulting from merger (37,500) -- Recapitalization resulting from merger (5,970) (1,350) Issuance of shares for consulting services 12,000 Issuance of shares in connection with the Offering, net of offering costs 199,470 Common stock subscribed in connection with the Offering 750,000 Stock subscription receivable in connection with the Offering (750,000) (750,000) Net loss (124,881) (124,881) ----------- ----------- ----------- BALANCE - December 31, 1998 (750,000) (112,664) 146,306 Stock subscription received 750,000 750,000 Issuance of shares relating to acquisition 371,813 Issuance of shares relating to non-competition agreement 5,313 Net loss (215,566) (215,566) ----------- ----------- ----------- BALANCE - December 31, 1999 $ -- $ (328,230) $ 1,057,866 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999 and 1998 - -------------------------------------------------------------------------------- 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(215,566) $(124,881) --------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 44,330 33,358 Increase in accounts receivable (119,593) (60,515) Increase in prepaid expense (68,572) -- Increase in security deposits -- (508) Increase in accounts payable and accrued expenses 6,074 6,332 Increase (decrease) in deferred income taxes (41,600) 40,000 --------- --------- TOTAL ADJUSTMENTS (179,361) 18,667 --------- --------- NET CASH USED IN OPERATING ACTIVITIES (394,927) (106,214) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (23,702) (25,233) Payment for intangible asset (21,000) (19,000) Cash acquired in connection with acquisition 4,348 -- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (40,354) (44,233) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Repayments on capital lease obligations (9,179) (6,395) Net repayments of note payable, bank (54,706) (5,786) Repayments on stockholder's loans (5,000) -- Proceeds from issuance of common stock 750,000 250,000 Payments for the offering costs -- (38,530) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 681,115 199,289 --------- --------- NET INCREASE IN CASH 245,834 48,842 CASH - Beginning 52,497 3,655 --------- --------- CASH - Ending $ 298,331 $ 52,497 ========= ========= The accompanying notes are an integral part of these financial statements. F-7 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued For the Years Ended December 31, 1999 and 1998 - --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION 1999 1998 -------- -------- Cash paid during the years for: Interest $ 6,192 $ 10,066 Income taxes $ 4,529 $ 1,034 Non-cash investment and financing activities: Acquired assets through capital leases $ -- $ 25,334 Subscription receivable for common stock subscribed in connection with the Offering $ -- $750,000 Issuance of shares resulting from merger $371,813 $ 37,500 Issuance of shares for consulting services $ -- $ 12,000 Accounts payable acquired in connection with the merger $ -- $ 1,350 Issuance of shares resulting from collection of stock subscription $750,000 $ -- Issuance of shares relating to a non-competition agreement $ 5,313 $ -- The Company acquired the following assets and liabilities in connection with its acquisition of Maglio, Inc. during the year ended December 31, 1999: Accounts receivable $227,475 Property and equipment 84,296 Security deposit 5,846 Accounts payable (35,632) Notes payable (34,645) -------- Total $247,340 ========
The accompanying notes are an integral part of these financial statements. F-8 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - Summary of Significant Accounting Policies Nature of Business Accufacts Pre-Employment Screening, Inc. ("Accufacts") was incorporated on October 6, 1994 in the State of New York. On August 31, 1998, Accufacts consummated a merger with a public shell, Southern Cargo Company ("Southern"), a Florida corporation. Southern simultaneously with this merger changed its name to Accufacts Pre-Employment Screening Inc. ("APES") and shortly thereafter re-incorporated in the State of Delaware. Under the terms of the merger all of the outstanding shares of Accufacts were acquired by Southern in exchange for 3,750,000 shares of Southern's $.01 par value common stock. This transaction was accounted for as a reverse acquisition whereby Accufacts was the acquirer for accounting purposes. The historical financial statements prior to August 31, 1998 were those of Accufacts. APES and its subsidiary acts as an information service bureau and is engaged primarily in the business of verifying job applicant background information for employers using databases and a national network of agents throughout the United States. Business Combination On October 13, 1999, APES acquired all of the net assets of Maglio, Inc. ("Maglio"), a Florida corporation, by merging Maglio with and into Maglio-Accufacts Pre-Employment Screening, Inc. ("MAPES"), a wholly-owned subsidiary established by APES. The acquisition was accounted for using the purchase method of accounting and was completed by issuing 177,471 shares of APES common stock consisting of 174,971 shares of common stock in consideration for the acquisition and 2,500 share of common stock in consideration for a stockholder of Maglio entering into a non-competition agreement. The purchase price over the fair value of the net assets acquired was $120,125 and is being amortized using the straight-line method over 20 years. The fair value of the non-competition agreement was $5,313 and is being amortized using the straight-line method over the term of the agreement (see Note 3). Principles of Consolidation The Consolidated financial statements include the accounts of APES and MAPES, collectively referred to as the "Company". The operations and financial position of MAPES were included in the consolidated financial statements since October 13, 1999. All significant accounts and transactions have been eliminated in the consolidation. F-9 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - Summary of Significant Accounting Policies, continued Property and Equipment and Depreciation Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the expected useful lives of the assets. Upon retirement or other disposition of depreciable assets, the cost and related accumulated depreciation are eliminated from the accounts, and any gain or loss on disposal is credited to or charged against income. In the event of a trade in, the undepreciated cost of the trade-in is included in the cost of the newly acquired asset. Revenue Recognition Revenues are recorded at the time of performance of service. Cash The Company has cash balance in a bank in excess of the maximum amount insured by the FDIC as of December 31, 1999. Advertising Cost Advertising costs are expensed as incurred. For the years ended December 31, 1999 and 1998, advertising expense was $34,128 and $15,378, respectively. Income Taxes The Company's method of accounting for income taxes is the liability method required by FASB Statement No. 109 "Accounting for Income Taxes". Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes. The Company will file a consolidated federal tax return in 1999. Computer Software The Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 establishes the accounting for costs of software products developed or purchased for internal use, including when such costs should be capitalized. In accordance with SOP 98-1, payroll and payroll-related costs incurred directly associated with the internal-use software project were capitalized by the Company and such capitalized costs are amortized on a straight-line basis over three years. Net Income (Loss) Per Share In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is required to be adopted beginning with the quarter ended December 31, 1997. The Company adopted SFAS 128, which eliminates the presentation of primary and fully diluted earnings per share ("EPS") and requires the presentation of basic and diluted EPS. Net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the periods. Common stock equivalents were not included in the calculation of diluted earnings per share in 1999 and 1998 as such inclusion would be antidiluted. F-10 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - Summary of Significant Accounting Policies, continued Use of Estimates in the Financial Statements 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. Fair Value of Financial Instruments The Company's financial instruments include cash, accounts receivable and accounts payable. Due to the short-term nature of these instruments, the fair value of these instruments approximate their recorded value. The Company has other liabilities, which it believes is stated at estimated fair market value. Impairment of Long-Lived Assets Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Stock-Based Compensation In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was issued. SFAS 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company intends to continue to account for its stock based compensation plans in accordance with the provisions of APB 25. Comprehensive Income During the year ended December 31, 1998, the Company adopted FASB Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The adoption of SFAS 130 and the related required disclosures have no effects on the financial statements for the years ended December 31, 1999 and 1998. F-11 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - Summary of Significant Accounting Policies, continued Reporting of Segments In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", effective for fiscal years beginning after December 15, 1997, with reclassification of earlier periods required for comparative purposes. SFAS No. 131 establishes the criteria for determining an operating segment and establishes the disclosure requirements for reporting information about operating segments. The Company has determined that under SFAS No. 131, it operates in one segment of service and its customers and operations are within the United States. Pensions and Other Benefit Plans In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", effective for fiscal years beginning after December 15, 1997, with restatement of disclosures for earlier periods required for comparative purposes. SFAS No. 132 revises certain employers' disclosures about pension and other post-retirement benefit plans. The Company adopted this standard in 1998 and the implementation of this standard did not have any impact on its financial statements. Start-up Activities Costs In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the Costs of Start-up Activities", and effective for fiscal years beginning after December 15, 1998. SOP 98-5 requires the costs of start-up activities and organization costs to be expensed as incurred. The Company adopted this standard in 1999 and the implement of this standard did not have a material impact on its financial statements. Accounting Developments In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for fiscal years beginning after June 15, 1999, which has been deferred to June 15, 2000 by publishing of SFAS No. 137. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. The Company does not expect that the adoption of this standard will have a material impact on its financial statements. F-12 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 2 - Property and Equipment Property and equipment is comprised of the following at December 31, 1999: Estimated Useful Amount Lives ------------ ----------------- Furniture $ 56,134 7 years Telephone equipment 6,843 Equipment 141,161 5 years Computer software 62,612 3 years --------- 266,750 Less: accumulated depreciation 111,666 --------- Property and equipment, net $ 155,084 ========= Depreciation expense for the years ended December 31, 1999 and 1998 amounted to $38,741 and $31,141 respectively. NOTE 3 - Intangible Assets Intangible assets at December 31, 1999 consists of the following: Estimated Useful Amount Lives ------------ ----------------- Customer lists $ 19,000 5 years Goodwill 141,125 20 years Non-competition covenant 5,313 3 years --------- 165,438 Less: accumulated amortization 7,806 --------- Non-competition covenant, net $ 157,632 ========= Amortization expense for the years ended December 31, 1999 and 1998 amounted to $5,589 and $2,217, respectively. F-13 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4 - Note Payable, Bank The Company has a $75,000 line of credit with a bank through June 30, 2000. The line bears interest at prime plus 2%, is secured by substantially all of the assets of the Company and is personally guaranteed by a stockholder of the Company. The Company also has a $25,000 business checking line of credit with a bank. The credit line bears interest at prime plus 6% and is secured by substantially all of the assets of the Company. There is no outstanding balance under this line at December 31, 1999. NOTE 5 - Loans Payable, Stockholder Loans payable, stockholder represents advances made by a stockholder of the Company through the normal course of business. Such advances are noninterest-bearing with no definitive repayment terms. NOTE 6 - Stockholders' Equity At inception, Accufacts authorized and issued 200 shares of no par value common stock for $5,380. On August 31, 1998, the Company issued 3,750,000 shares of its, $.01 par value, common stock in connection with the merger between Accufacts and Southern which has been accounted for as a recapitalization (see Note 1). In addition, historical stockholders' equity of Accufacts prior to the merger was retroactively restated for the equivalent number of shares received in the merger after giving effect to the difference in par value of Accufacts and Southern. As a result, 999,800 shares of common stock were recapitalized by the Company for the restorative effects of the recapitalization. The Company also issued 1,200,000 of the Company's $.01 par value common stock for consulting services rendered. On September 15, 1998, the Company offered to sell as part of the placement offering pursuant to Rule 504 of Regulation D of the Securities Act of 1933 a minimum of 25,000 shares and a maximum of 500,000 shares of the Company's $.01 par value common stock at an offering price of $2.00 per share (the "Offering"). The Offering was completed on December 18, 1998 whereby 125,000 shares were sold and 375,000 shares were subscribed for. The net proceeds from the sale of the common stock at December 31, 1998 was $199,470, net of direct related costs of $50,530. The stock subscriptions in the amount of $750,000 were received during 1999 and 375,000 shares of common stock were issued. On October 13, 1999, the Company issued 177,471 shares of its $.01 par value common stock in connection with the acquisition of Maglio and for entering into a non-competition agreement with a stockholder of Maglio (see Note 1). F-14 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 7 - Income Taxes Prior to the August 31, 1998 merger, the Company elected to be taxed as an S corporation for federal and state income tax purposes. Pursuant to this election, earnings or losses were subject to tax at the stockholder's level rather than the corporate level. As a result of the August 31, 1998 merger, the S Corporation status was terminated. In addition, the Company also prepares its tax returns on the cash basis and the financial statements on the accrual basis which results in temporary differences. The income tax expense (benefit) for the years ended December 31, 1999 and 1998 consists of the following: 1999 1998 ------------- ------------- Current: Federal $ -- $ -- State 4,320 2,105 Local 1,300 -- -------- ------- Deferred: Federal (16,000) 30,000 State (11,600) 10,000 Local (14,000) -- -------- ------- $(35,980) $42,105 ======== ======= The components of deferred tax asset (liability) at December 31, 1999 consist of the following: Current Cash basis accounting adjustment $ (184,000) Non-Current Net operating loss carryforward 185,600 ---------- Deferred Tax Asset, Net $ 1,600 ========== The following is a reconciliation of income tax computed at the Federal Statutory rate to the provision for taxes: F-15 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 7 - Income Taxes, continued 1999 1998 -------- -------- Federal tax (benefit) computed at statutory rate $(73,292) $(42,460) State and local tax (benefit) net of federal benefit (19,980) 1,389 Cash basis adjustments and tax implications resulting from termination of S corporation status 57,292 83,176 -------- -------- $(35,980) $ 42,105 ======== ======== At December 31, 1999, based upon tax returns filed and to be filed, the Company has net operating loss carryforward for federal tax purposes of approximately $417,000 which will expire in year 2019. NOTE 8 - Commitments Capitalized Lease Obligation The Company obtained equipment under two capital leases expiring through the year 2001. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair values of the asset. The assets are included in property and equipment and are being depreciated over the assets estimated useful lives. Minimum future lease payments under capital leases as of December 31, 1999 for each of the next two years, and in aggregate, are as follows: For the Year Ending December 31, Principal Interest Total --------------------------------------------------------- ----------------- 2000 $8,295 $ 721 $ 9,016 2001 1,465 32 1,497 ------ ----- ------- Total $9,760 753 $10,513 ====== ===== ======= Interest rate on these two capitalized leases are 13.1% and 14.2%, respectively, and is imputed based on the lessor's implicit rate of return. Monthly payments of $499 and $433 are payable through March 2001 and July 2000, respectively. Operating Lease Agreement The Company is obligated under a noncancelable operating lease for office space expiring March 2003. The Company also rents another premises under a noncancelable operating lease which expires July 2003. Rent expense for the years ended December 31, 1999 and 1998 was $43,090 and $26,400, respectively. F-16 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8 - Commitments, continued Operating Lease Agreement, continued Future minimum rental payments under the above noncancelable operating leases as of December 31, 1999 are as follows: For the Year Ending December 31, Amount ---------------------------- ------------------ 2000 $ 82,997 2001 85,377 2002 87,165 2003 41,602 -------- Total $297,141 ======== Employment Agreements On September 1, 1998, the Company entered into two five-year employment agreements with two officers whereby the Company will pay a total salary of $200,000 per annum. At December 31, 1999, total future minimum commitments under these two agreements are $734,000. On October 11, 1999, the company entered into a three-year employment agreement with an executive whereby the Company will pay a total salary of $75,000 per annum plus stock options. At December 31, 1999, total future minimum commitments under this agreement was $209,000. NOTE 9 - Stock Options In October 1999, the Company granted options, to purchase 50,000 shares of its common stock, to an executive at an exercise price of $2.50 per share. These options will be exercisable on the first anniversary of the grant date, therefore as of December 31, 1999, the options are not vested and the proforma net loss and net loss per share are the same as net loss and net loss per share as reported in the accompanying statements of operations. Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair market value for these options was estimated at the date of grant using a Black-Scholes option-pricing model amounted to $1.53 per share with the following weighted-average assumptions for the year ended December 31, 1999: F-17 ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 9 - Incentive Stock Option Plan, continued Expected volatility 1.014 Dividend yield -- Risk-free rate 5.87% Average life 3 year The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because of the Company's employee stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-18 Exhibits Exhibit No. Description - ------- ----------- 3.3 Certificate of Incorporation of Maglio-Accufacts Pre-Employment Screening, Inc. 3.4 By-laws of Maglio-Accufacts Pre-Employment Screening, Inc. 10.4 Employment Agreement, dated October 11, 1999, by and among the Registrant, Maglio-Accufacts Pre-Employment Screening, Inc. and Richard J. Maglio 10.5 Lease Agreement, dated April 1, 1997, between the Registrant and 6 Greene Street Associates, LLC., as amended 10.6 Lease Agreement, dated August 28, 1998, between Maglio, Inc. and CB Sanlando Center, Inc. 21.1 List of Subsidiaries 27.1 Financial Data Schedule EX-3.3 2 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF Maglio-AccuFacts Pre-Employment Screening, Inc. The undersigned incorporator, in order to form a corporation under the General Corporation Law of the State of Delaware, certifies as follows: 1. Name. The name of the corporation is Maglio-AccuFacts Pre- Employment Screening, Inc. (hereinafter called the "Corporation"). 2. Address; Registered Agent. The address of the Corporation's registered office is c/o Corporation Service Company, 1013 Centre Road, City of Wilmington, County of New Castle, State of Delaware 19805; and its registered agent at such address is Corporation Service Company. 3. Nature of Business; Purposes. The nature of the business and purposes to be conducted or promoted by the Corporation are to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. Number of Shares. The total number of shares of stock which the Corporation shall have authority to issue is One Thousand (1,000) with a par value of $.01 per share. All such shares are of one class and are shares of common stock. 5. Name and Address of Incorporator. The name and mailing address of the incorporator is: David E. Tripodi, c/o Frankfurt, Garbus, Klein & Selz, P.C., 488 Madison Avenue, New York, NY 10022. 6. Election of Directors. Members of the Board of Directors may be elected either by written ballot or by voice vote. 7. Adoption, Amendment and/or Repeal of By-Laws. The Board of Directors may from time to time (after adoption by the undersigned of the original by-laws of the Corporation) make, alter or repeal any by-laws of the Corporation; provided, that any by-laws made or amended by the Board of Directors may be amended or repealed, and any by-laws may be made, by the stockholders of the Corporation. -2- 8. Compromise and Arrangements. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. -3- 9. Liability of Directors. The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of sub- section (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. 10. Indemnification. The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law, as amended, indemnify all persons whom it may indemnify pursuant thereto. IN WITNESS WHEREOF, this Certificate has been signed on this 22nd day of September, 1999, and the signature of the undersigned shall constitute the affirmation and acknowledgment of the undersigned, under penalties of perjury, that the Certificate is the act and deed of the undersigned and that the facts stated in the Certificate are true. /s/ David E. Tripodi ----------------------------------- David E. Tripodi, Sole Incorporator -4- EX-3.4 3 BY-LAWS BY-LAWS of MAGLIO-ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. (a Delaware Corporation) ARTICLE I - OFFICES The principal office of the Corporation shall be at 6 Greene Street, New York, NY 10013. The registered office of the Corporation in the State of Delaware shall be c/o The Prentice Hall Corporation Systems, Inc., 1013 Centre Road New Castle County, City of Wilmington, State of Delaware 19805. The Corporation may also have offices at such other places within or without the State of Delaware as the Board of Directors may from time to time determine, or the business of the Corporation may require. ARTICLE II - STOCKHOLDERS Section 1. Place of Meetings. Meetings of Stockholders shall be held at the principal office of the Corporation or at such places within or without the State of Delaware as set forth in the Notice of Meeting or in a duly executed Waiver of Notice thereof. Section 2. Annual Meeting. The annual meeting of the Stockholders shall be held at 10:00 A.M. on the last day of August in each year if not a Saturday, Sunday or legal holiday, and if a Saturday, Sunday or legal holiday, then on the next business day following at the same hour. At such meeting the Stockholders shall elect a Board of Directors and transact such other business as may properly come before the meeting. If the Annual Meeting of Stockholders is not held as herein prescribed, the election of Directors may be held at any meeting thereafter called. Section 3. Special Meetings. Special Meetings of the Stockholders may be called, at any time, by the Board of Directors or the President, and must be called by the President or Secretary at the request, in writing, of a majority of the Board of Directors or at the request, in writing, by ten percent (10%) of the outstanding shares entitled to vote at such special meeting. Section 4. Fixing Record Date. For the purpose of determining the Stockholders entitled to notice of or to vote at any meeting of Stockholders, or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting or for the purpose of determining Stockholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors shall fix, in advance, a date as the record date for any such determination of Stockholders. Such date shall not be more than fifty (50) nor less than ten (10) days before the date of such meeting nor more than fifty (50) days prior to any other action. If no record date is fixed, it shall be determined in accordance with the provisions of law. Section 5. Notice of Meetings of Stockholders. Written notice of meetings of Stockholders shall be given either personally or by mail to each Stockholder entitled to vote at such meeting, not less than ten (10) nor more than fifty (50) days before the date of the meeting. Such notice shall state the place, date and hour of the meeting and, unless it is the Annual Meeting, shall state the purpose or purposes for which it is called and that it is being issued by, or at the direction of the person or persons calling the Meeting. No business other than that specified in the Notice of Meeting shall be transacted at any such Special Meeting. If action is proposed to be taken that might entitle Stockholders to payment for their Shares, the notice shall include a statement of that purpose and to that effect. If mailed, the notice shall be deemed given when deposited in the United States mail, postage prepaid and directed to the Stockholder at the address which appears on the record of Stockholders. Section 6. Waivers. Notice of meetings need not be given to any Stockholder who signs a Waiver of Notice, in person or by proxy, whether before or after the meeting. The attendance of any Stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Section 7. Quorum of Stockholders. The holders of a majority of the shares entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at a meeting of Stockholders for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any Stockholders, and the Stockholders present may adjourn the meeting despite the absence of a quorum. Section 8. Proxies. Every Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Every proxy must be signed by the Stockholder or his attorney-in-fact and be duly notarized. No proxy shall be valid after expiration of eleven (11) months from the date thereof unless otherwise expressly so provided in the proxy. Every proxy shall be revocable at the pleasure of the Stockholder executing it except where an irrevocable proxy is permitted by law. Section 9. Qualifications of Voters. Every Stockholder of record shall be entitled at every meeting of Stockholders to one (1) vote for every share standing in his name on the record of Stockholders, unless otherwise provided in the Certificate of Incorporation. -2- Section 10. Vote of Stockholders. Except as otherwise provided by law or the Certificate of Incorporation: (a) all corporate action shall require the affirmative vote of a majority of shares entitled to vote thereon; and (b) voting at all meetings of Stockholders shall be viva voce, but any qualified voter may demand a vote by ballot, each of which shall state the name of the Stockholder voting and the number of shares voted by him. If such ballot be cast by a proxy, it shall also state the name of such proxy. If a vote by ballot is demanded as aforesaid, two inspectors of election shall be appointed by the presiding officer of the meeting. Section 11. Written Consent of Stockholders. Whenever by a provision of statute or of the Certificate of Incorporation or by these By-Laws, the vote of Stockholders is required or permitted to be taken at a meeting thereof in connection with any corporation action, the meeting and the vote of Stockholders may be dispensed with if all of the Stockholders who would have been entitled to vote upon the action if such meeting were held shall expressly consent in writing to such corporate action being taken. ARTICLE III - DIRECTORS Section 1. Board of Directors. The business of the Corporation shall be managed by its Board of Directors, each of whom shall be at least twenty-one (21) years of age and need not be Stockholders. Section 2. Number of Directors. When there are less than three (3) Stockholders, the number of Directors shall be not less than such number; if there are three (3) or more Stockholders, then there shall be not less than three (3) Directors. The number of Directors may, at any time, be increased or decreased to the extent permitted by law, by vote of a majority of the Shares entitled to vote at any Annual or Special Meeting of Stockholders, if the notice of such meeting or the waiver thereof contains a statement of the proposed increase or decrease. The initial number of Directors of the Corporation shall be six (6). Section 3. Election and Term of Directors. At each Annual Meeting of Stockholders, the Stockholders shall elect Directors to hold office until the next Annual Meeting. Each Director shall hold office until the expiration of the term for which he is elected and until his successor has been elected and qualified or until his prior resignation or removal. Section 4. Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of Directors and vacancies occurring in the Board of Directors for any reason except the removal of Directors without cause may be filled by a vote of a majority of the Directors then in office, even -3- though less than a quorum exists. Vacancies occurring by reason of the removal of Directors without cause shall be filled by a vote of the Stockholders. A Director elected to fill a vacancy caused by resignation, death or removal, shall be elected to hold office for the unexpired term of his predecessor. Section 5. Removal of Directors. Any or all of the Directors may be removed for cause by majority vote of the Stockholders or by action of the Board of Directors. Directors may be removed at any time and without cause by a vote of the Stockholders. Section 6. Resignation. A Director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Board of Directors or such officer, and acceptance of the resignation shall not be necessary to make it effective. Section 7. Quorum of Directors. A majority of the Directors shall constitute a quorum for the transaction of business or of any specified item of business by the Board of Directors. Section 8. Action of the Board of Directors; Validity of Contracts. The vote of a majority of the Directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors. Each Director present shall have one (1) vote, regardless of the number of Shares, if any, which he may hold. No contract or other transaction between this Corporation and any other Corporation shall be impaired, affected or invalidated, nor shall any Directors be liable in any way by reason of the fact that any one or more of the Directors of this Corporation is or are interested in, or is a director or officer, or are directors or officers of such other Corporation, provided that such facts are disclosed or made known to the Board of Directors. Any Director, personally and individually, may be a party to or may be interested in any contract or transaction of this Corporation, and no Director shall be liable in any way by reason of such interest, provided that the fact of such interest be disclosed or made known to the Board of Directors, and provided that the Board of Directors shall authorize, approve or ratify such contract or transaction by the vote (not counting the vote of any such Director) of a majority of a quorum, notwithstanding the presence of any such Director at the meeting at which such action is taken. Such Director or Directors may be counted in determining the presence of a quorum at such meeting. This Section shall not be construed to impair or invalidate or in any way affect any contract or other transaction which would otherwise be valid under the law applicable thereto. Section 9. Place and Time of Meetings. The Board of Directors may hold its meetings at the office of the Corporation or at such other places, either within or without the State of Delaware, as it may from time to time determine. -4- Section 10. Annual Meeting. An Annual Meeting of the Board of Directors shall be held immediately following the Annual Meeting of Stockholders at the place of such Annual Meeting of Stockholders, and no notice of such meeting shall be necessary. Section 11. Notice of Meetings of the Board of Directors; Adjournment. (a) Regular meetings of the Board of Directors may be held without notice at such time and place as it shall, from time to time, determine. Special meetings of the Board of Directors shall be held upon notice to the Directors and may be called by the President upon three (3) days notice to each Director, either personally or by mail or by wire; special meetings shall be called by the President or by the Secretary in a like manner on written request of one (1) Director. Notice of a meeting need not be given to any Director who submits a waiver of notice whether before or after the meeting or who attends the meeting without protesting prior thereto, or at its commencement, the lack of notice to him. (b) A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of the adjournment shall be given to all Directors who were absent at the time of the adjournment, and, unless such time and place are announced at the meeting, to the other Directors. Section 12. Chairman. At all meetings of the Board of Directors, the President, or, in his absence, a Chairman chosen by the Board of Directors shall preside. Section 13. Compensation. No compensation shall be paid to Directors or members of any committee, as such, for their services, but by resolution of the Board of Directors a fixed sum and expenses for attendance, at each regular or special meeting of the Board of Directors or of any such committee, may be authorized. Nothing herein contained shall be construed to preclude any Director or committee member from serving the Corporation in any other capacity and receiving compensation therefor. Section 14. Directors' Annual Report. The Board of Directors shall present at each Annual Meeting of Stockholders a full and clear statement of the business and condition of the Corporation. Section 15. Written Consent of Directors. Whenever, by provision of statute or of the Certificate of Incorporation or by these By-Laws, the vote of the Board of Directors or any committee thereof is required or permitted to be taken at a meeting thereof in connection with any corporate action, the meeting and the vote of the Board of Directors or any committee thereof may be dispensed with if all of the members of the Board of Directors or the committee consent in writing to the adoption of a resolution -5- authorizing the action. The resolution and the written consent thereto by the members of the Board of Directors or the committee shall be filed with the minutes of the proceedings of the Board of Directors or committee. Section 16. Participation of Directors by Conference Telephone. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 17. Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members one or more committees, each consisting of one or more Directors, and each of which, to the extent provided in such resolution, shall have all the authority of the Board. However, no such committee shall have authority as to any of the following matters: (a) the submission to Stockholders of any action as to which Stockholders' authorization is required by law; (b) the filling of vacancies on the Board of Directors or on any committee; (c) the fixing of compensation of any Director for serving on the Board or on any committee; (d) the amendment or repeal of these By-Laws, or the adoption of new By-Laws; or (e) the amendment or repeal of any resolution of the Board of Directors which, by its terms, shall not be so amendable or repeallable. The Board of Directors may designate one or more Directors as alternate members of any such committee who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors and shall keep minutes of its meetings and report the same to the Board of Directors. ARTICLE IV - OFFICERS Section 1. Offices, Election, Term. (a) The Board of Directors may elect or appoint a President, one or more Vice Presidents, a Secretary and a Treasurer, and such other officers as it may determine, who shall have such duties, powers and functions as hereinafter provided. -6- (b) All officers shall be elected or appointed to hold office until the meeting of the Board of Directors immediately following the Annual Meeting of Stockholders. (c) Each officer shall hold office for the term for which he is elected or appointed and until his successor has been elected or appointed and qualified. Section 2. Removal, Resignation, and Salary. (a) Any officer elected or appointed by the Board of Directors may be removed by the Board at any time, with or without cause. (b) In the event of the death, resignation or removal of an officer, the Board of Directors, in its discretion, may elect or appoint a successor to fill the unexpired term. (c) Any two or more offices may be held by the same person except, if there are two or more Stockholders, the offices of President and Secretary. (d) The salaries of all officers shall be fixed by the Board of Directors. (e) The Directors may require any officer to give security for the faithful performance of his duties. Section 3. Duties of the President. The President shall: (a) be the chief executive officer of the Corporation and he shall preside at all meetings of the Stockholders and of the Board of Directors; (b) be responsible for the general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect; and (c) be ex officio a member of all committees. Section 4. Duties of a Vice President. During the absence or disability of the President, the Vice President or, if there are more than one, the Executive Vice President, shall have all of the powers and functions of the President. Each Vice President shall perform such other duties as the Board of Directors shall prescribe. Section 5. Duties of the Secretary. The Secretary shall: (a) attend all meetings of the Board of Directors and of the Stockholders; -7- (b) record all votes and minutes of all proceedings in a book kept for that purpose; (c) give or cause to be given notice of all meetings of Stockholders and of special meetings of the Board of Directors; (d) keep in safe custody the seal of the Corporation and affix it to any instrument when authorized by the Board of Directors or the President; (e) when required, prepare or cause to be prepared and available at each meeting of Stockholders a certified list, in alphabetical order, of the names of Stockholders entitled to vote thereat, indicating the number of shares of each respective class held by each; (f) keep all the documents and records of the Corporation, as required by law or otherwise, in the proper and safe manner; and (g) perform such other duties as may be prescribed by the Board of Directors or the President. Section 6. Duties of an Assistant Secretary. During the absence or disability of the Secretary, the Assistant Secretary or, if there be more than one, the one so designated by the President or by the Board of Directors, shall have all the powers and functions of the Secretary. Section 7. Duties of the Treasurer. The Treasurer shall: (a) have the custody of the corporate funds and securities; (b) keep full and accurate accounts of receipts and disbursements in the corporate books; (c) deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors; (d) disburse the funds of the Corporation as may be ordered or authorized by the Board of Directors and preserve proper vouchers for such disbursements; (e) render to the President and the Board of Directors, at the regular meetings of the Board of Directors, or whenever they require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation; -8- (f) render a full financial report at the Annual Meeting of the Stockholders, if so requested; (g) be furnished by all corporate officers and agents, at his request, with such reports and statements as he may require as to all financial transactions of the Corporation; and (h) perform such other duties as are given to him by these By-Laws or from time to time, are assigned to him by the Board of Directors or the President. Section 8. Delegation of Duties. In the case of the absence of any officer of the Corporation, or for any other reason that the Board of Directors deems sufficient, the Board of Directors may delegate, for any designated period of time, the powers or duties, or any of these, of such officer to any other officer, or to any Director, provided that one person is not given the powers and duties of both the President and Secretary. Section 9. Shares of Other Corporations. Whenever the Corporation is the holder of shares of any other corporation, any right or power of the Corporation as such Stockholder (including the attendance, acting and voting at Stockholders' meetings and execution of waivers, consents, proxies or other instruments) may be exercised on behalf of the Corporation by the President, any Vice President, or such other person as the Board of Directors may authorize. ARTICLE V - CERTIFICATES FOR SHARES Section 1. Certificates. The shares of the Corporation shall be represented by certificates prepared in such form as the Board of Directors may, from time to time, prescribe and shall be signed by the President or Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and sealed with the seal of the Corporation or a facsimile. If the certificates are signed by a transfer agent acting on behalf of the Corporation, and a registrar, the signatures of the officers of the Corporation may be facsimile. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on any such certificate or certificates, shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures have been used thereon, had not ceased to be such officer or officers of the Corporation. Section 2. Transfer of Shares. (a) Upon surrender to the Corporation or the transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it -9- shall be the duty of the Corporation to issue a new certificate; every such transfer shall be entered on the transfer book of the Corporation which shall be kept at its principal office. No transfer shall be made within ten (10) days next preceding the Annual Meeting of Stockholders. (b) The Corporation shall be entitled to treat the holders of record of any share as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by law. Section 3. Lost or Destroyed Certificates. The Board may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. ARTICLE VI - CORPORATE SEAL The seal of the Corporation shall be circular in form and bear the name of the Corporation, the year of its organization and the words "Corporate Seal 1999, Delaware". The seal may be used by causing it to be impressed directly on the instrument or writing to be sealed, or upon adhesive substance affixed thereto. The seal on the certificates for shares or on any corporate obligation for the payment of money may be facsimile, engraved or printed. ARTICLE VII - EXECUTION OF INSTRUMENTS All corporate checks, demands for money, notes of the Corporation, instruments and documents, shall be signed or countersigned, executed, verified or acknowledged by such officer or officers or other person or persons as the Board may, from time to time, designate. ARTICLE VIII - DIVIDENDS Subject to the provisions of the Certificate of Incorporation relating thereto, if any, dividends may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, bonds, property, or in the shares of the capital stock subject to any provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the -10- Corporation available for dividends, such sum or sums as the Directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE IX - FISCAL YEAR The fiscal year of the Corporation shall be fixed by the Board of Directors from time to time. ARTICLE X - BY-LAW CHANGES The By-Laws may be amended, repealed or adopted, by vote of the holders of a majority of the shares at the time entitled to vote in the election of any Directors. By-Laws may also, subject to the provisions of the General Corporate Law, be amended, repealed or adopted by the Board of Directors in the manner required for the authorization by the Board of Directors of any corporate action. If any By-Law regulating an impending election of Directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of Stockholders for the election of Directors, the By-Laws so adopted, amended or repealed, together with a concise statement of the changes made. ----- * ----- The undersigned Incorporator certifies that the foregoing by-laws have been adopted as the first by-laws of the Corporation, in accordance with the requirements of the General Corporation Law of the State of Delaware on this 23rd day of September, 1999. /s/ David E. Tripodi ------------------------------ David E. Tripodi, Incorporator -11- EX-10.4 4 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of October 11, 1999, is by and among AccuFacts Pre-Employment Screening, Inc., a Delaware corporation ("AccuFacts"), Maglio- AccuFacts Pre-Employment Screening, Inc., a Delaware corporation ("Employer"), and Richard J. Maglio ("Executive"). In consideration of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1. Employment. Employer agrees to employ Executive as the Vice-President of Operations of Employer and Executive accepts such employment, under and subject to the terms and conditions hereinafter set forth. 2. Term. Subject to earlier termination as hereafter provided, this Agreement shall have a term of three (3) years commencing on the date first appearing above (the "Effective Date") and ending on the third anniversary of the Effective Date (the "Term"). 3. Duties. During the Term, Executive shall be responsible for the operations of Employer, the transition and integration of Maglio, Inc. into the Employer and such other duties consistent with his status as Vice President of Operations as are given to him from time to time by the Board of Directors. Executive shall devote his best efforts, skills, and abilities to the discharge of his duties hereunder and in promoting the interests of the Employer. In the performance of his duties, he shall cooperate with agents and other employees of the Employer and its affiliates. Executive shall not be engaged in, or be concerned with, any other commercial duties or pursuits which detract from performing his duties provided for herein. 4. Compensation: Salary, Equity Participation and Other Benefits. 4.1 Salary. During the Term, Employer shall pay Executive a base salary in the amount of seventy-five thousand dollars ($75,000) per annum (the "Base Salary"), which shall be payable bi-weekly in arrears, or in such other manner as may be reasonably determined by the Board, but in no event less frequently than monthly, and which shall be subject to all applicable federal and state withholding, payroll and other taxes. Beginning on the first anniversary of the Effective Date, the Base Salary shall be increased by a minimum of 4% of the Base Salary (the "First Anniversary Base Salary"). Beginning on the second anniversary of the Effective Date, the First Anniversary Base Salary shall be increased by a minimum of 4% of the First Anniversary Base Salary (the "Second Anniversary Base Salary"). The Base Salary, the First Anniversary Base Salary, the Second Anniversary Base Salary and fringe benefits shall be reviewed annually by the Board -1- following the close of each full year end of Employer or at such other times as the Board may consider appropriate, and an upward adjustment to the Base Salary, the First Anniversary Base Salary, the Second Anniversary Base Salary and/or the awarding of a bonus or other form of compensation may be made in the sole discretion of the Board. 4.2 Bonus of Profit Participation. Employer shall pay Executive 2% of any profit EBITA of AccuFacts (including AccuFact's subsidiaries) in excess of $500,000.00 as determined by AccuFact's accountants at the end of each fiscal year during the Term. Such amounts, if any, shall be paid as bonuses to Executive no later than April 15 of the following fiscal year. 4.3 Grant of Stock Options. In partial consideration of Executive's covenants hereunder, AccuFacts shall issue to Executive stock options granting the option to purchase fifty thousand (50,000) shares (the "Options") of the common stock, $.01 par value, of AccuFacts. The Options shall be vested and exercisable upon the first anniversary of the Effective Date at a strike price of $2.50 per share and shall expire on the third anniversary of the Effective Date. 4.4 Automobile Lease. During the Term, Executive shall be entitled to the use of an automobile leased or owned by Employer and Employer shall pay or reimburse Executive the direct expenses associated with such automobile (insurance, maintenance and the like). The monthly lease or purchase payments for such automobile shall not exceed $521. 4.5 Fringe Benefits. Executive shall be entitled to participation in such medical plans, insurance (including without limitation, disability insurance) and other benefits as are accorded other employees of Employer generally; provided, however, that in the event that Employer institutes company policies to provide any members of senior management more extensive insurance and other similar plans and benefits than it provides its employees generally, Executive shall be entitled to participate in such plans and benefits. 4.6 Vacation. Executive shall be entitled to three (3) weeks' paid vacation during each calendar year, and a pro-rata portion thereof for any partial calendar year in which Executive's employment hereunder commences or terminates. If the employment of Executive is terminated for any reason, he shall be paid for all accrued and unused vacation time. 4.7 Business Expenses. It is understood that Executive will from time to time incur reasonable expenses in conjunction with his employment. Employer will reimburse him for any such reasonable expenses if he shall present an itemized written account in accordance with Employer's policies. 5. Guaranty. AccuFacts hereby acknowledges and agrees that it will guaranty all obligations of Subsidiary to be performed hereunder. 6. Nondisclosure and Developments. In consideration of his employment by Employer, Executive shall, contemporaneously with his signing of this Agreement, execute a Nondisclosure and Developments Agreement in the form annexed hereto as Exhibit A (the "Nondisclosure Agreement"), the terms and conditions of which are incorporated herein by reference. In the event that Executive has previously executed the Nondisclosure Agreement, then such agreement shall -2- remain in full force and effect in accordance with its terms and all references herein to the Nondisclosure Agreement shall refer to such previously executed agreement. 7. Covenant Not to Compete. (a) In consideration of the Non-Competition Consideration as set forth in the Supplemental Agreement (the "Supplemental Agreement") dated as of even date herewith by and among AccuFacts, Employer, Executive and Maglio, Inc., and for other good and valuable consideration the receipt and sufficiency of which Executive hereby acknowledges, Executive hereby agrees that for the period commencing on the Effective Date and ending on the later of (i) three (3) years following the Effective Date or (ii) two (2) years from the date of termination of the Term hereof (the "Non-Compete Period"), Executive shall not, without the prior written consent of Employer: (i) directly or indirectly, engage, whether as an individual proprietor, partner, stockholder, officer, executive, director, employee, author, consultant, contractor, joint venturer, lender, investor, representative or in any other capacity whatsoever (other than as a holder of not more than one percent (1%) of the total outstanding stock of a publicly held company), with or without pay, or assist any other Person (as such term is defined in the Supplemental Agreement) in engaging in any activity or line of business which is similar to, or competitive with, the Business (as such term is defined in the Supplemental Agreement) as conducted by Employer at any time during the Non-Compete Period (the "Proscribed Business Activities"); (ii) directly or indirectly (1) enter into any kind of arrangement with any person then employed by AccuFacts or Employer with a view to terminating the employment of such person or (2) solicit, engage, or hire any individual who is then employed or was employed by AccuFacts or Employer during the previous six (6) month period; (iii) directly or indirectly, either on its own behalf or on behalf of any other Person: A. attempt in any manner to persuade any customer, client, distributor or supplier of AccuFacts or Employer to cease to do business, or to reduce the amount of business which such customer, client, distributor or supplier has customarily done or contemplates doing, with AccuFacts or Employer; or B. solicit business of any customer, client, distributor or supplier of Employer or render any services of the type usually rendered by AccuFacts or Employer for any such customer, client, distributor or supplier of AccuFacts or Employer. (b) Notwithstanding anything herein to the contrary, for purposes of clarification, the parties hereby acknowledge that the Proscribed Business Activities do not include general business consulting within the field of human resources and executive/professional recruitment or placement, including, as a part of such recruiting or placement, background checks; provided, however, that such background checks not included in the Proscribed Business Activities may not be conducted by Executive with a view towards re-sale and/or separate charging. -3- (c) The provisions of this Section 7 shall be void and of no effect in the event that (i) Executive's employment with Employer is terminated without cause as set forth herein and Executive has not received the Severance Payment in connection with such termination as set forth herein or (ii) Employer has failed to pay Executive the consideration payable to him pursuant to the terms hereof and Executive subsequently terminates this Agreement by reason of such failure. (d) The covenants contained in the preceding paragraphs shall be construed as a series of separate covenants, one for each county, city and state of any geographic area where any business is carried on by AccuFacts or Employer. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in the preceding paragraphs. If, in any judicial proceeding, a court refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or such part) shall be eliminated from this Agreement to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the provisions of this Section 7 are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, permitted by applicable laws. 8. Termination. 8.1 Death. Executive's employment hereunder shall terminate forthwith upon the death of Executive. 8.2 Disability. Executive's employment hereunder shall terminate, at the option of Employer, upon 30 days prior written notice delivered to Executive after the 90 Day Period, in the event that the Board makes a good faith determination that Executive suffers from Disability (as hereinafter defined) so as to be unable to substantially perform his duties hereunder for an aggregate of ninety (90) calendar days during any period of twelve (12) consecutive months (the "90 Day Period"). As used in this Agreement, the term "Disability" shall mean the material inability, in the opinion of a majority of the Board of Directors, set forth in a resolution giving the particulars thereof, of Executive to perform his duties in accordance with the terms of Section 3 hereof due to physical and/or mental infirmity, which opinion is concurred by a physician or psychiatrist reasonably satisfactory to Employer and Executive or his duly appointed representative or guardian. 8.3 Without Cause. Employer may terminate this Agreement at any time during the term without cause, subject to the provisions of Section 9.4 hereof. 8.4 For Cause. At any time during the term of this Agreement, Employer (by vote of a disinterested majority of the Board of Directors) may terminate Executive's employment hereunder for "Cause" upon a good faith finding of the Board of Directors of Cause and notice to Executive setting forth in reasonable detail the nature of such "Cause". The following actions of Executive shall constitute "Cause" for purposes of this Agreement: (i) Executive's embezzlement or substantial and material misuse of Employer's funds for unauthorized purposes; -4- (ii) Executive's conviction by a court of competent jurisdiction of, or plea of guilty or nolo contendere to, any felony involving the possession of controlled substances, homicide, moral turpitude, theft or larceny, including, but not limited to, the theft of Employer's property; (iii) Executive's breach of his covenants set forth in Articles 6 and 7 of this Agreement in a material manner; or (iv) Substantial non-performance by Executive of his duties in accordance with the terms of Section 3 hereof, which non-performance is not the result of illness, disability, death or accident. Termination under clauses (i) through (iii) hereunder may be made forthwith upon the events recited therein. Termination under clause (iv) may be made upon 45 days prior written notice, with Executive having an opportunity to cure his default during such period. 9. Limited Compensation Upon Termination. 9.1 Death. If the Executive's employment shall be terminated by reason of his death, the Employer shall pay to such person as Executive shall designate in a notice filed with Employer, or if no such person shall be designated, to his estate as a lump sum benefit, Executive's Salary earned to the date of his death and, except as otherwise provided in this Agreement, any payments the Executive's spouse, beneficiaries or estate may be entitled to receive pursuant to any pension or employee benefit plan or life insurance policy or similar plan or policy then maintained by the Employer for such purpose, and such payment shall, assuming the Employer is in compliance with the provision of this Agreement, fully discharge the Employer's obligations with respect to Section 4 of this Agreement. 9.2 Disability. During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to Disability, the Executive shall continue to receive his Base Salary until either of (i) the Executive's employment is terminated pursuant to Section 7.2 of this Agreement or (ii) the payments of disability benefits under any disability policy for which Employer has paid the premiums shall become generally available to the Executive. 9.3 For Cause. If the Executive's employment shall be terminated for Cause, the Employer shall pay the Executive his full Salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, and, the Employer shall have no further obligations with respect to Section 4 of this Agreement. 9.4 Without Cause. If the Executive's employment shall be terminated without cause, the Employer shall pay the Executive his full salary through the Date of Termination, at the rate in effect at the time notice of termination is given, and, in addition, Executive will be entitled to continue to receive his then current salary, including any increases thereto as contemplated by Section 4.1 of this Agreement (the "Severance Payment") for a period commencing on the date of his termination and continuing through the end of the Term hereof (the "Severance Period"). Executive shall receive no other bonuses or benefits, other than COBRA and no other rights shall accrue during the Severance Period. -5- 10. Change in Control. (a) Unless he elects to terminate this Agreement pursuant to subsection (c) below, executive understands and acknowledges that the Employer may be merged or consolidated with or into another entity and that such entity shall automatically succeed to the rights and obligations of the Employer hereunder. (b) In the event of a Change of Control (as defined herein), Executive may, at his sole discretion, elect to terminate this Agreement by providing written notice to the Employer at least five business days prior to the anticipated closing of the transaction giving rise to the Change in Control. In such case, the applicable provisions of Section 9.4 will apply as though the Employer had terminated Executive's employment without cause; provided, however, that under such circumstances, the amount of the Severance Payment due shall be paid in a lump sum at the then present value thereof (at a 5% interest rate) and the non-competition provisions of Section 7 shall apply for a period of three years from the effective date of termination. (c) For purposes of applying Section 9.4 under the circumstances described in subsection (b) above, the effective date of termination will be the closing date of the transaction giving rise to the Change of Control and all compensation, severance, reimbursements and lump-sum payments due the Executive must be paid in full by AccuFacts at or prior to such closing. (d) a "Change of Control" shall be deemed to have occurred in the event that, prior to the expiration of this Agreement, (i) there is a sale or acquisition of AccuFacts or Employer, (ii) Philip Luizzo no longer has a "controlling interest" (as such term is defined in the U.S. Securities Exchange Act of 1934, as amended) in AccuFacts, or (iii) there is a sale of substantially all of the assets of AccuFacts or its subsidiaries. (e) Executive must be notified in writing by the Employer at any time that the Employer or AccuFacts anticipates that a Change of Control may take place. 11. Miscellaneous. 11.1 Notices. All notices shall be in writing and given by personal delivery, certified mail, return receipt requested, or by commercial overnight courier, to the recipient's address set forth above or to such other address or addresses as either party may specify in writing to the other. Notice shall be deemed given the date of personal delivery, the fifth business day after mailing, or the next business day after delivery to such courier (unless the return receipt or the couriers records evidence a later delivery). 11.2 No Assignment. This Agreement shall not be assigned by either party without the advance written consent of the other, provided that Employer may assign this Agreement to a successor to all or a substantial portion of its business. This Agreement shall be binding upon and inure to the benefit of the parties, their successors and permitted assigns. 11.3 Entire Agreement. This Agreement (including the Nondisclosure Agreement executed simultaneously) constitutes the entire agreement between the parties with respect to its -6- subject matter, except as provided herein, all other prior agreements, representations, statements, negotiations and undertakings are terminated and superseded hereby. 11.4 Survival. After expiration or termination of this Agreement, all provisions relating to payment shall survive until completion of required payments. In addition to those provisions which specifically provide for survival beyond expiration or termination, all provisions regarding restrictions on competition, assignment of Developments (as defined in the Nondisclosure Agreement), post-termination solicitation of employees or customers of Employer, confidentiality and/or protection of proprietary rights and trade secrets shall survive without any time limits unless and until the expiration of any time period specified elsewhere in this Agreement with respect to the provision in question. Notwithstanding the foregoing, in no event shall any of the Executive's obligations, other than those relating to confidentiality and/or protection of proprietary rights and trade secrets, survive beyond twenty-four (24) months from Executive's termination. 11.5 Governing Law. This Agreement shall be deemed to have been made in State of Florida, and shall be governed by and construed in accordance with the laws of the State of Florida, exclusive of its rules governing choice of law and conflict of laws. Each party hereto irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of this Agreement may be brought in the United States District Court for the Middle District of Florida, Orlando Division or, if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in the County of Orange, Florida; (ii) consents to the jurisdiction or any such court in any such suit, action or proceeding; and (iii) waives any objection which such party may have to the laying of venue of any such suit, action or proceeding in any such court. 11.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to constitute an original instrument. -7- IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed this Employment Agreement on the date first above written. EXECUTIVE /s/ Richard J. Maglio --------------------- Richard J. Maglio ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. By: /s/ Philip Luizzo --------------------- Name: Philip Luizzo Title: President MAGLIO-ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. By: /s/ Philip Luizzo --------------------- Name: Philip Luizzo Title: President As Guarantor of all obligations hereunder of Maglio-AccuFacts Pre-Employment Screening, Inc., pursuant to Section 5 of this Agreement, ACCUFACTS PRE-EMPLOYMENT SCREENING, INC. By: /s/ Philip Luizzo - --------------------- Name: Philip Luizzo Title: President -8- Exhibit A NONDISCLOSURE AND DEVELOPMENTS AGREEMENT In consideration and as a condition of my employment by Maglio-AccuFacts Pre- Employment Screening, Inc. (the "Employer"), the undersigned hereby agrees with the Employer as follows: 1. I will not at any time, during my employment or for a period of seven years after the termination of my employment, reveal to any person or entity any of the trade secrets or confidential information ("Confidential Information") concerning the organization, business or finances of the Employer, including without limitation any names or lists of names of customers, employees, potential employees, independent contractors or any other business contacts developed by me or by other employees or agents of the Employer, or of any third party which the Employer is under an obligation to keep confidential, except as may be required in the ordinary course of performing my duties as an employee of the Employer, and I shall keep secret all matters entrusted to me and shall not use or attempt to use any such information in any manner which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to the Employer. Further, I agree that during the Term of my employment and for seven years thereafter, I shall not make, use or indirectly cause to be used any Confidential Information of any nature relating to any matter within the scope of the business of the Employer or concerning any of its dealings or affairs other than for the benefit of the Employer. I further agree that I shall not, after the termination of my employment, use or directly cause to be used any such Confidential Information of the Employer, it being agreed that all of the foregoing shall be and remain the sole and exclusive property of the Employer and that immediately upon the termination of my employment I shall deliver at the Employer's request, all of the foregoing, and all copies thereof, to the Employer, at its main office. Notwithstanding the foregoing, I shall not be obligated to maintain the confidentiality of any information contemplated under the terms of this Agreement which: a. is already known to me prior to disclosure by the Employer; b. at the time of disclosure is generally available to the public or which after such disclosure becomes generally available to the public through no fault of mine; or c. is acquired by me from a third party without restriction on disclosure or use; or d. is approved for use or disclosure by written authorization of the Employer. 2. If at any time or times during my employment, I shall (either alone or with others) make, conceive, discovery or reduce to practice any invention, modification, discovery, design, development, improvement, process, software program, work of authorship, documentation, formula, data, technique, know-how, secret or intellectual property right whatsoever or any interest therein (whether or not patentable or registrable under copyright or similar statutes or subject to analogous protection) (herein called "Developments") that relates to the then current business of the -1- Employer or any then planned new business as defined in the then current business plan or then current corporate documents of the Employer, or any of the products or services being developed, manufactured or sold by the Employer or which may be used in relation therewith, then: (A) such Developments and the benefits thereof shall immediately become the sole and absolute property of the Employer and its assigns and I hereby assign any rights I may have or acquire in the Developments and benefits and/or right resulting therefrom to the Employer and its assigns without further compensation, (B) to the extent consistent with the Copyright Act of 1976 (the "Copyright Act"), each such Development shall be a "work made for hire" as that term is defined in Section 101 of the Copyright Act, and shall be the sole property of the Employer and the Employer shall be the sole author thereof within the meaning of the Copyright Act, and if any such Development or any portion thereof is not deemed to be a "work made for hire," this Agreement shall operate as an irrevocable assignment of the copyright to the Development throughout the world, (C) I shall promptly disclose to the Employer (or any persons designated by it) each such Development, and (D) I shall communicate, without cost or delay, and without publishing the same, all available information relating thereto (with all necessary plans and models) to the Employer. Upon disclosure of each Development to the Employer, I will, during my employment and at any time thereafter, at the request and cost of the Employer, sign, execute, make and do all such deeds, documents, acts and things as the Employer and its duly authorized agents may reasonably require: (a) to apply for, obtain and vest in the name of the Employer alone (unless the Employer otherwise directs) letters patent, copyrights or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and (b) to defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for revocation of such letters patent, copyright or other analogous protection. In the event the Employer is unable, after reasonable effort, to secure my signature on any letter patent, copyright or other analogous protection relating to a Development, whether because of my physical or mental incapacity or for any other reason whatsoever, I hereby irrevocably designate and appoint the Employer attorney-in-fact, to act for and in my behalf and stead to execute and file any such application or applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyright or other analogous protection thereon with the same legal force and effect as if executed by me. 3. I represent that my performance of all of the terms of this Agreement and as an employee of the Employer does not and will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Employer. I have not entered into, and I agree I will not enter into, any agreement, either written or oral, in conflict herewith. 4. I recognize that the Confidential Information constitutes "trade secrets" under Section 688.002(4), Florida Statutes and that Section 812.081, Florida Statutes, specifically prohibits, and makes a criminal offense, unauthorized possession and use of such Confidential Information by me and/or by any person acting in concert with me. -2- 5. Any waiver by the Employer of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof. 6. I hereby agree that each provision herein shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting and reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. 7. My obligations under this Agreement shall survive the termination of my employment regardless of the manner of such termination and shall be binding upon my heirs, executors, administrators and legal representatives. Notwithstanding the foregoing, in no event shall any of my obligations under this Agreement survive beyond one (1) year from my termination except the covenants set forth in paragraph 1. 8. The term "Employer" shall include AccuFacts Pre-Employment Screening, Inc., and any of its subsidiaries, subdivisions or affiliates. The Employer shall have the right to assign this Agreement in its entirety to its successors and assigns (and its rights in part to any purchaser of any of its products, to the extent relevant to such products), and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by said successors, assigns or purchasers. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, exclusive of its conflict of laws rules. -3- IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the 11th day of October 1999. Richard J. Maglio Name of Executive /s/ Richard J. Maglio ---------------------------------- Signature Address Maglio-AccuFacts Pre-Employment Screening, Inc. By: /s/ Philip Luizzo ---------------------------------- Name: Philip Luizzo Title: President -4- EX-10.5 5 RIDER TO LEASE 6 Greene Street Associates, LLC 329 Canal Street New York, New York 10013 December 21, 1999 Subject: Lease Extension: The current Lease between Accufacts Screening Inc., 6 Greene Street, New York, NY 10013, and 6 Greene Street Associates, LLC, 329 Canal Street, New York, NY 10013, scheduled to end on March 31, 2000, is hereby extended for a term of 36 months (April 1, 2000 to March 31, 2003), at a new annual rental rate of $30,000.00 ($2500.00 per month). All provisions of the current lease remain in effect. Tenant /s/ Philip Luizzo Landlord [illegible] RIDER TO LEASE Lease Dated: Landlord: 6 GREENE STREET ASSOCIATES, LLC Tenant: ACCUFACTS SCREENING INC. THE PROVISIONS OF THIS RIDER ARE INTENDED TO AMPLIFY AND EXPAND UPON THE PROVISIONS OF THE PREPRINTED FORM OF THIS LEASE, BUT IN THE EVENT ANY PROVISION OF THIS RIDER CONFLICTS WITH ANY PROVISION OF THE PREPRINTED FORM, THE PROVISIONS OF THIS RIDER SHALL SUPERSEDE. R1. Certain Remedies. A. Tenant acknowledges that: (i) its agreement to fully and timely pay all installments of Rent is a material inducement for Landlord to enter into this lease; (ii) the aggregate amount of all Rent installments are due and payable in full at the commencement of the term of this lease but Landlord, solely for Tenant's convenience, has permitted said amount to be payable in equal monthly installments during the term of this lease; (iii) upon default in the full and timely payment of any Rent installment, the entire unpaid balance of the aggregate amount of all Rent installments for the then remainder of the term of this lease (as originally reserved) will become due and payable if such installment of Rent shall not be paid in full within ten (10) days of written notice from Landlord advising of Landlord's intent to proceed under this Article R1; and (iv) in no event will Tenant be entitled to credit for any monies received by Landlord for rent and/or use and occupancy for the demised premises or any part thereof until after the expiration of the term of this lease (as originally reserved). Tenant agrees that the provisions of this Article R1: (a) will not constitute or be deemed to be liquidated damages or a penalty; (b) will apply notwithstanding any contrary provision of this lease; and (c) will be in addition to, and not limit, any other rights or remedies available to Landlord pursuant to this lease and otherwise (including, without limitation, those regarding additional rent reserved under this lease). The parties agree that upon the making of this lease this Article fairly reflects their intent with respect to a default by Tenant under this lease. R2. Arrearages. All sums whatsoever not included within Rent payable by Tenant under this lease constitute additional rent and are payable without set off or deduction, whether or not so specified elsewhere in this lease. If the Rent or any additional rent is not paid on or before the tenth day of the month for which such payment is due, there shall be added, as additional rent, a late charge equal to 2% of the unpaid amount. All sums in arrears under this lease will bear interest, at the then maximum annual rate of interest chargeable in New York State, from their respective due dates until received by Landlord, but this in no way limits any claim for damages or any other rights and remedies 1 available to Landlord for any breach or default by Tenant. Tenant's obligations under this lease will survive the expiration or sooner termination of this lease. Acceptance by Landlord of rent from any party other than Tenant shall not be deemed to operate as a consent by Landlord to any assignment or subletting to such party, nor constitute any acceptance of such party as a tenant hereunder, nor vest any rights in such party nor release Tenant from any of its obligations, nor be deemed a modification of any of the provisions of this lease. B. Landlord and Tenant agree that the words "and additional rent" are to be deemed inserted immediately following each reference to "rent" or "Rent" in this lease. Should any dispute arise between Landlord and Tenant with respect to the amount of any additional rent due pursuant to this lease, Tenant shall pay to Landlord, until such dispute is resolved, the amounts deemed by Landlord to be due. C. Notwithstanding anything to the contrary contained in this Article or elsewhere in this lease, the parties further agree that: (i) all references in this lease to expenses to which Landlord is entitled are to be deemed illustrative only and Landlord will be entitled (in addition to all other sums recoverable by Landlord) to all expenses of every nature which it may incur in connection with any default, re-entry, expiration and/or dispossess by summary proceedings or otherwise; and (ii) wherever in this lease Tenant is required to pay to Landlord any monies as "additional rent" such monies will be payable to Landlord at the time(s) specified in this lease for the payment thereof, as if there had not occurred any default, re-entry, expiration and/or dispossess by summary proceedings or otherwise. R3. Rent Restrictions. If any of the fixed annual rent or additional rent payable under this Lease shall be or become uncollectible, reduced or required to be refunded because of any rule, regulation or law, Tenant shall enter into such agreements and take such other legally permissible steps as Landlord may reasonably request to permit Landlord to collect the maximum rents which from time to time during the continuance of such rule, regulation or law may be legally permissible and not in excess of the amounts reserved therefor under this Lease. Upon the termination of such rule, regulation or law, (a) the rents hereunder shall be payable in the amounts reserved herein for the periods following such termination and (b) Tenant shall pay to Landlord, to the maximum extent legally permissible, an amount equal to (i) the rents which would have been paid pursuant to this Lease but for such rule, regulation or law, less (ii) the rents paid by Tenant during the period such rule, regulation or law was in effect. R4. Security. Simultaneously with the execution of this Lease, Tenant shall deposit with Landlord the sum of $2,200.00 as security for the due and faithful payment, as herein provided, of the rent, additional rent, charges and damages payable by Tenant under this lease or pursuant to law and for the due and faithful keeping, observance and performance of all the other covenants, agreements, terms, provisions and conditions of this lease on the part of Tenant to be kept, observed and performed. The security will be deposited into an interest bearing account. If at any time Tenant shall be in default in the payment of any such rent or in the keeping, observance or performance of any such other covenant, agreement, term, provision or condition, Landlord may at its election apply the security so on deposit with Landlord to the payment of any such rent or to the payment of the costs incurred by Landlord in curing such default, as the case may be. If as a 2 result of any such application of all or any part of such security, the amount of cash so on deposit with Landlord shall be less than $2,200.00 , Tenant shall forthwith deposit with Landlord cash in an amount equal to the deficiency. If at the expiration of the term of this lease Tenant shall not be in default in the payment of any such rent, charge or damage or in the keeping, observance or performance of any such other covenant, agreement, term, provision or condition, then Landlord shall, within a reasonable time after the expiration of said term, return to Tenant said security, if any, (with interest earned thereon, less a 1% administrative fee) then on deposit with Landlord pursuant to this Article. Tenant shall not be entitled to any interest on said security so on deposit with Landlord, or on any part thereof, and Landlord may commingle the security deposit with its other assets. In the event of a transfer of Landlord's interest in the building, Landlord shall have the right to transfer the security to the transferee and Landlord shall, without any further agreement between the parties, thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new landlord solely for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber said security or any part thereof and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. R5. Condition of Premises: Tenant's Work. A. Tenant acknowledges and agrees that no materials whatsoever are to be furnished by Landlord and no work whatsoever is to be performed by Landlord in connection with the demised premises or any part thereof and Tenant agrees to accept the demised premises in its "as is" condition as existing on the date of this lease. Landlord shall not be required to perform any work or expend any sums to prepare the demised premises for Tenant's use or occupancy. Landlord in no way warrants the suitability of the demised premises for the Tenant's business and Tenant acknowledges that no representations have been made by Landlord pertaining thereto or with respect to any other matter or thing except as expressly set forth in this lease. Except as expressly set forth in this lease, Landlord shall have no obligation, liability or responsibility of any nature with respect to any installations at any time made in the demised premises by or for Tenant or existing in the demised premises on the date of this lease, including but not limited to, the plumbing, heating, electrical, air conditioning and disposal systems, and Tenant agrees, in addition to its other obligations under this lease, including but not limited to Article 4, to maintain, repair and/or replace, to the extent necessary, all of the foregoing. Landlord's sole obligation shall be to perform structural repairs to the demised premises, provided such repairs are not necessitated by the acts or omissions of Tenant, in which event such repairs shall be made by Tenant. B. Supplementing Article 3 of the preprinted form of this lease, if Landlord consents the performance of any alterations or changes to the demised premises it is hereby agreed, in addition to the requirements of Article 3 of the preprinted form of this lease that: (a) Tenant's Work shall be done (i) in a good and workmanlike manner; (ii) solely in accordance with plans and specifications first approved in writing by Landlord; (iii) at Tenant's sole cost and expense; and (iv) at such times and in such manner as Landlord may from time to time reasonably designate. Tenant shall reimburse Landlord upon demand, for any reasonable costs and expenses incurred by Landlord in connection with Landlord's review of such plans and specifications. 3 (b) Tenant will advise Landlord in writing of the names of any contractors or subcontractors that Tenant proposes to use and shall obtain Landlord's prior written consent to same prior to engaging any such contractors or subcontractors. (c) All alterations shall be performed in accordance with all applicable requirements of law, including but not limited to those imposed by the New York City Building Department, the New York City Fire Department, O.S.H.A. and as otherwise described in Article 6 of this lease. (d) Prior to commencement of Tenant's Work, Tenant shall furnish Landlord with certificates evidencing the existence of the following insurance coverages, in form and content satisfactory to Landlord: workers' compensation insurance and comprehensive general liability insurance, including but not limited to completed operations coverage, products liability coverage, contractual coverage, broad form property damage, independent contractors coverage and personal insurance coverage, naming Landlord as an additional insured, with coverage of not less than $5,000,000 combined single limit. (e) Movement of all men and material shall only be done at the direction, the times and the manner reasonably designated by Landlord. (f) As a condition to the commencement of Tenant's Work, Tenant shall deliver such performance, payment and completion bonds, shall comply with provisions of this Article R11 and shall comply with such other conditions relating to Tenant's Work as shall be reasonably required by Landlord. (g) Except in compliance with all of the aforesaid, Tenant shall make no alterations, installations, additions or improvements in or to the demised premises without Landlord's prior written consent in each instance. (C) Notice is hereby given that Landlord shall not be liable for any labor or materials furnished to or to be furnished to Tenant upon credit and that no mechanic's or other lien for any such labor or materials shall attach to or affect the reversion or other interest of Landlord in and to the demised premises or the building , for work claimed to have been done for or materials claimed to have been furnished to Tenant. Any mechanic's or other lien filed against the demised premises and/or the building shall be discharged by Tenant, at its expense within fifteen days after such filing by payment, filing of a bond or otherwise. R6. Air Conditioning. The operation of any air conditioning systems installed within the demised premises and any replacements thereof shall be maintained and repaired by Tenant, at Tenant's sole cost and expense. Upon the expiration or other termination of this Lease, Tenant shall surrender to Landlord said air conditioning systems and equipment used in connection therewith (including but not limited to ducts and compressors). Nothing herein contained shall be construed so as to require Landlord to furnish any of the aforesaid equipment nor to repair or replace same. R7. Utilities. A. Tenant shall arrange for and pay, when due, for all electricity utilized in the demised premises, as indicated by electric meters measuring same, which meters shall be installed, maintained in good working order and repaired (and replaced, if necessary), by Tenant. Tenant shall make all required security deposits and make all other payments directly to the utility 4 company furnishing such utility. The failure of Tenant to timely make payment of any utility bill shall be a default under this lease. B. No diminution or abatement of rent or additional rent or other compensation or claim of constructive eviction shall be claimed by Tenant as a result of any interruption, suspension or curtailment of any utility, airconditioning units or any other service to the demised premises. R8. Cleaning and Refuse. A. Supplementing and modifying Article 31 of the preprinted form of this Lease, cleaning and refuse collection, removal and disposal shall be arranged and paid for by Tenant and are the sole responsibility of Tenant. Tenant shall maintain the interior and exterior of the demised premises in a clean and orderly fashion and shall not permit the accumulation of any refuse in or about the demised premises. If Tenant shall fail to do any of the foregoing, Landlord shall have the right, but not the obligation, to cause the demised premises to be cleaned and/or rubbish to be collected, removed and disposed of at the sole cost and expense of Tenant, and the amount so expended shall constitute additional rent to be paid by Tenant to Landlord upon demand. B. Tenant shall not suffer or permit the presence of any flammable, combustible or explosive materials in or about the demised premises. R9. Landlord Transfers. If Landlord's interest in the demised premises terminates for any reason, the Landlord named herein shall be entirely relieved of all obligations to Tenant hereunder and Tenant hereby agrees to attorn to any succeeding owner, landlord, mortgagee or other party in interest for the then remaining term of this lease and upon the terms and conditions of this lease. The foregoing is to inure to the benefit of any such owner, landlord, mortgagee or other party in interest and is self operative upon request. However, Tenant agrees to execute and deliver, within 5 days after request, a recordable instrument satisfactory to the owner, landlord, mortgagee or other party in interest, acknowledging such attornment and confirming the terms and conditions of the tenancy hereby created. Nothing contained in this Article is to impair any right privilege or option of such owner, landlord or mortgagee. RlO. Indemnification. Tenant covenants and agrees to indemnify and save harmless, Landlord and any fee owner and any mortgagee and any lessor under any ground or underlying lease, and their respective contractors, agents and employees, licensees and invitees, from and against any and all liability (statutory or otherwise), claims, suits, demands, damages, judgments, costs, interest and expenses (including, but not limited to, counsel fees and disbursements incurred in connection with any action or proceeding), to which they may be subject or which they may suffer by reason of, or by reason of any claim for, any injury to, or death of, any person or persons (including, without limitation, Landlord, its agents, contractors, employees, licensees and invitees) or damage to property (including any loss of use thereof) or otherwise arising from or in connection with the occupancy or use of or from any work, installation or thing whatsoever done in, at or about the demised premises prior to, during, or subsequent to, the term of this lease or arising from any condition of the demised premises or resulting from any default by Tenant in the performance of Tenant's obligations under this lease or from any act, omission or negligence of Tenant or any of Tenant's officers, directors, agents, contractors, employees, subtenants, licensees or invitees. 5 R11. Exculpation. Tenant agrees that Tenant will look solely to the interest of Landlord or its successor in the land and the building for the satisfaction of any judgment or other judicial process requiring the payment of money as a result of any negligence, intentional act, or breach of this lease by Landlord or such successor, and no other assets of Landlord or such successor will be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies in any of such events. R12. Insurance A. Tenant shall at all times during the term of this lease, keep in force, with responsible insurance companies licensed to do business in the State of New York and acceptable to Landlord, a policy of comprehensive general liability and property damage insurance in a single limit of not less than $1,000,000 covering death or injury to any person(s) as well as property damage. Such policy will: (a) include Landlord and such other parties as Landlord may designate as parties insured; (b) under no circumstances be considered anything other than primary insurance; (c) include by endorsement as a part of the policy an agreement insuring Tenant's indemnity and hold harmless obligations under Article R10; and (d) provide that it may not be canceled or changed without at least 15 days, prior notice from the insurer to each party insured thereunder. In addition, Tenant, at its expense, will maintain Workmen's Compensation insurance in accordance with law and appropriate insurance covering damage to Tenant's Property. Tenant will furnish Landlord with either the original policy or, at Landlord's option, a certificate of each of the insurances so carried by Tenant. B. Tenant understands and agrees that Landlord will not be obligated to carry insurance of any kind on any personal property in the demised premises (regardless of whether such property shall be owned by Tenant and including, but not limited to, Tenant's goods, supplies, furnishings, furniture, fixtures, equipment, improvements, betterments, installations or appurtenances). Tenant hereby waives any and all right of recovery which it might otherwise have against Landlord, any fee owner or mortgagee and their respective officers, directors, agents, contractors, servants and employees for loss or damage to such property or any part thereof. C. Tenant covenants, warrants and agrees that in the event the casualty and/or liability insurance rate for the building of which the demised premises form a part shall increase as a result of the use or occupation of the demised premises by Tenant then, and in such event, Tenant shall pay to Landlord the whole increased cost of insurance premiums resulting from such increase in rate. Such sums shall be due and payable upon the rendition of Landlord's billing or notification to Tenant and shall be deemed additional rent and collectible as such. A letter or certificate by the insurance company or broker with whom the insurance coverage is made will be conclusive evidence of the increase amount in premium and rate. R13. Waiver of Subrogation. Each of the parties hereto, their successors, assigns and subtenants, as the case may be, insofar as may be permitted by the terms of the insurance policies carried by it, does hereby waive all claims, causes of action and right of recovery against the other party, its contractors, agents, employees, invitees or licensees for any loss or damage occurring to the demised premises or the improvements, furniture, fixtures, merchandise and personal property of every kind located in and about the demised premises or the building of which the same are a part, resulting from any perils covered by insurance regardless of the cause or origin, including the negligence of either party, its 6 contractors, agents, employees, invitees or licensees to the extent that the same is covered by any policy or policies of insurance, including rental value, interruption of business or similar insurance. If the waiver, as set forth herein, of either Landlord or Tenant, their successors, assigns and subtenants, as the case may be, shall contravene any law with respect to exculpatory agreements, the liability of the party in question shall be deemed not waived but shall be deemed secondary to the insurer or insurers, as the case may be. In the event that the waiver herein granted shall cause the payment of additional premium, the party benefiting from such waiver shall, upon 10 days, written notice of the same, pay such additional premium or this paragraph shall be null and void for so long as such party shall fail to pay such premium. Rl4. Tenant Property. Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to Landlord's agents, nor for the loss of or damage to any property of Tenant by theft or otherwise. Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from any cause, including but not limited to, fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or water leaks or seepage any part of said roof. R15. Brokerage. A. Tenant represents and warrants to Landlord that Paragraph B of this Article lists all brokers with whom Tenant has dealt in connection with this lease, and Tenant agrees to indemnify, defend and save Landlord harmless from and against any and all liabilities, costs and expenses (including, without limitation, attorneys fees and disbursements) arising from the claims of any other brokers based upon alleged dealings with Tenant or anyone acting for or on behalf of Tenant in connection with this lease. B. NONE Rl6. Seeking Consent of Landlord. If Tenant or (with Tenant's authorization), any subtenant requests Landlord's consent or approval to alterations, subletting or any other matter or thing requiring Landlord's consent or approval under this lease, and if in connection with such request Landlord seeks the advice of its attorneys and/or architects, then Landlord, as a condition precedent to granting its consent or approval, may require (in addition to any other requirements of Landlord in connection with such request) that Tenant pay the fees of Landlord's attorneys and/or architects in connection with the consideration of such request and/or the preparation of any documents pertaining thereto. Rl7. Consent of Landlord. Wherever in this lease Landlord's consent or approval is required, if Landlord shall delay or refuse such consent or approval, Tenant in no event shall be entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any claim, for money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord unreasonably withheld or unreasonably delayed its consent or approval. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, for specific performance, injunction or declaratory judgment. R18. Signage. Tenant shall not place any signs, lettering or decorations in, on, behind or in front of the demised premises including any windows of the demised premises, without the Landlord's prior written consent and only after the submission to 7 and approval by Landlord of detailed plans and specifications. R19. No Surrender. No agreement to accept a surrender of this lease shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the demised premises prior to the termination of this lease. The delivery of keys to Landlord or any employee of Landlord or of Landlord's agent shall not operate as a termination of this lease or a surrender of the demised premises. In the event of Tenant at any time desiring to have Landlord sublet the premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purpose without releasing Tenant from any of the obligations under this lease. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this lease or any rules and regulations adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach. No provision of this lease shall be deemed to have been waived by Landlord, unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on the account of the earliest stipulated rent. Any endorsement or statement on any check or any letter accompanying any check or payment shall be without any force or effect and shall be without prejudice to Landlord's right to recover the balance of such rent or pursue any of Landlord's other remedies. R20. Holdover. Supplementing Article 22 of the preprinted form of this lease, if Tenant fails to timely surrender the demised premises at the expiration or earlier termination of this lease, time being of the essence, such holding over shall not constitute a renewal or extension of this Lease. Tenant shall indemnify and hold Landlord harmless from and against all loss, liability and expense including reasonable attorneys fees resulting from a delay on the part of Tenant in so surrendering the demised premises including, without limitation, any claims made by any subsequent tenant. The parties recognize that it would be impossible to accurately measure or foresee the damage sustained by landlord upon the expiration or earlier termination of the term hereof. Accordingly, in addition to Landlord's other rights and remedies, Tenant shall pay to Landlord for each month and for each portion of a month during which Tenant holds over in the demised premises an amount equal to three (3) times the last monthly rent under this lease plus liquidated damages of $50.00 per day. Nothing contained herein shall be deemed to permit Tenant to retain possession of the demised premises after the expiration or earlier termination of this lease. R21. Applicable Law: No Offer. New York State law governs 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. Submission of this document for examination does not constitute an offer to lease, or a reservation of or option for the demised premises, and this document becomes effective only when mutually executed and delivered. R22. Information: Certificates. Tenant agrees that from time to time, within 10 days after Landlord's written request, Tenant will execute, acknowledge and deliver to Landlord a statement certifying to such reasonable information regarding this lease as Landlord may request, including (without limitation) the 8 commencement and expiration dates of the term of this lease, that this lease is unmodified and in full force and effect (or if there have been modifications, that it is in full force and effect as modified and stating the modifications), and the dates to which Rent and all other sums due hereunder from Tenant have been paid in advance, if any, and stating whether or not to the knowledge of the signer of such certificate Landlord is in default under this lease, and, if so, specifying each such default of which the signer has knowledge. Breach of the foregoing will constitute Tenant's acknowledgment, which may be relied on by any mortgagee or person holding or proposing to acquire an interest in the building or this lease, that this lease is unmodified and in full force and effect and will constitute, as to any such person, a waiver of any defaults on Landlord's part which may exist prior to the date of such notice. The foregoing does not limit any other rights and remedies available to Landlord for breach of this Article Rl5. R23. Modifications. If, in connection with obtaining financing or refinancing for the building of which the demised premises form a part, a bank, insurance company or other lender shall request reasonable modifications to this lease as a condition to such financing or refinancing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder (except, to the extent that Tenant may be required to give notices of any default by Landlord to such lender and/or permit the curing of such defaults by such lender together with the granting of such additional time for such curing as may be required for such lender to get possession of the said building) or materially adversely affect the leasehold interest hereby created. In no event shall a requirement that the consent of any such lender be given for any modification of this lease or for any assignment or sublease, be deemed to materially adversely affect the leasehold interest hereby created. R24. Certain Remedies. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under any of the terms or provisions of this Lease, (a) Landlord may remedy such default for the account of Tenant, immediately and without notice in case of emergency, or in any other case if Tenant shall fail to remedy such default with all reasonable dispatch after Landlord shall have notified Tenant in writing of such default and the applicable grace period for curing such default shall have expired; and (b) if Landlord makes any expenditures or incurs any obligations for the payment of money in connection with such default, including, but not limited to, reasonable attorneys fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest at the maximum rate permitted by law, shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord upon rendition of a bill to Tenant therefor. The provisions of this Article R24 shall survive the expiration or other termination of this lease. R25. Use. A. Subject to the restrictions contained in the Certificate of Occupancy for the demised premises in any way which would violate any provisions of the Certificate of Occupancy or in any unlawful manner, Tenant shall use and occupy the demised premises for only the purpose and for no other purpose than as set forth in Article 2 of this Lease. Landlord makes no representation that the Certificate of Occupancy for the building or the demised premises permits the use permitted hereunder. B. Tenant acknowledges that the building of which the demised premises form a part is a mixed use structure for 9 residential and commercial use. Tenant shall take such steps, follow such procedures and install such soundproofing systems and material as shall prevent noise from emanating from the demised premises to (i) other areas in the building; and (ii) to the street outside of the demised premises. R26. Financial Statements. Tenant shall, without charge, at any time and from time to time deliver to Landlord, within ten (10) days of request therefor, copies of the most current financial statements of Tenant of this lease, prepared by an independent certified public accountant, and such further detailed financial information with respect to Tenant and as Landlord may reasonably request. R27. Disputes Among Tenants. In the event of any claim by Tenant to the effect that another tenant in any way infringes upon or violates any of Tenant's rights under this lease, Tenant's sole remedy shall be to commence legal action against such other tenant and Landlord shall in no way or event be required to institute any legal proceedings, take any other steps or otherwise participate in any action or dispute or against the other tenant. R28. Permits and Licenses. Tenant shall, at its sole cost and expense, prior to the opening for business with the public, obtain any and all permits, licenses, approvals and/or certificates of occupancy for the lawful operation of its business, and shall comply with all applicable laws, regulations and codes and all rules and regulations of each and every department, bureau, body or agency, or any governmental or quasi-governmental authority having jurisdiction over the operation, occupancy, maintenance and use of the demised premises. If Tenant fails, for any reason whatsoever, to obtain all licenses, approvals and/or certificates of occupancy, or permits necessary for the operation of Tenant's business, such failure shall not affect Tenant's obligations under this Lease. R29. Miscellaneous. A. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. B. Except as otherwise expressly provided in this Lease, each covenant, agreement, obligation or other provision of this Lease on Tenant's or Owner's part to be performed shall be deemed and construed as a separate and independent covenant of such party, not dependent on any other provision of this Lease. C. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. D. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies at law or in equity. E. If any term, covenant, condition or provision of this Lease or the application thereof to any circumstance or any person, firm or corporation shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Lease shall not be affected thereby and each remaining term, covenant, condition and provision of this Lease shall be valid and shall be enforceable to the fullest extent 10 permitted by law. F. The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of this Lease nor the intent of any provision hereof. R30. Tenants pay brokers Fee's. [ILLEGIBLE] ------------------------------- LANDLORD /s/ Philip Luizzo ------------------------------- TENANT 11 ---------------------------------------- STANDARD FORM OF LOFT LEASE The Real Estate Board of New York, Inc. ---------------------------------------- Agreement of Lease, made as of this day of 1997, between 6 GREENE STREET ASSOCIATES, LLC, 329 Canal Street, New York, NY 10013 party of the first part, hereinafter referred to as OWNER, and ACCUFACTS SCREENING INC., 1870 86th Street, Brooklyn, NY 11214 party of the second part, hereinafter referred to as TENANT, Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner First Floor, Front Loft in the building known as 329-331 Canal Street, a/k/a 6 Greene Street, New York, NY in the Borough of Manhattan, City of New York, for the term of three (3) (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1 day of April nineteen hundred and ninety seven, and to end on the 31 day of March, two thousand and both dates inclusive, at an annual rental rate of twenty six thousand four hundred ($26,400.00) dollars ($2,200.00 per month) which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first monthly installment on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Owner pursuant to the terms of another lease with Owner or with Owner's predecessor in interest, Owner may at Owner's option and without notice to Tenant add the amount of such arrears to any monthly installment of rent payable hereunder and the same shall be payable to owner as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: Rent: 1. Tenant shall pay the rent as above and has hereinafter provided. Occupancy: 2. Tenant shall use and occupy demised premises for general office use (See Rider) and no other purpose provided such use is in accordance with the certificate of occupancy for the building, if any, and for no other purpose. Alterations: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent of Owner, and to the provisions of this article, Tenant, at Tenant's expense, may make alterations, installations, additions or improvements which are nonstructural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises using contractors or mechanics first approved in each instance by Owner. Tenant shall, at its expense, before making any alterations, additions, installations or improvements obtain all permits, approval and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner. Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within thirty days thereafter, at Tenant's expense, by payment or filing the bond required by law or otherwise. All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner on Tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the demised premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this Article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Owner, either be retained as Owner's property or removed from the premises by Owner, at Tenant's expense. Repairs: 4. Owner shall maintain and repair the exterior of and the public portions of the building. Tenant shall, throughout the term of this lease, take good care of the demised premises including the bathrooms and lavatory facilities (if the demised premises encompass the entire floor of the building) and the windows and window frames and, the fixtures and appurtenances therein and at Tenant's sole cost and expense promptly make all repairs thereto and to the building. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails, after ten days notice, to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Owner at the expense of Tenant, and the expenses thereof incurred by Owner shall be collectible, as additional rent, after rendition of a bill or statement therefor. If the demised premises be or become infested with vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant shall give Owner prompt notice of any defective condition in any plumbing, heating system or electrical lines located in the demised premises and following such notice, Owner shall remedy the condition with due diligence, but at the expense of Tenant, if repairs are necessitated by damage or injury attributable to Tenant, Tenant's servants, agents, employees, invitees or licensees as aforesaid. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner, Tenants or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. It is specifically agreed that Tenant shall not be entitled to any set off or reduction of rent by reason of any failure of Owner to comply with the covenants of this or any other article of this lease. Tenant agrees that Tenant's sole remedy at law in such instance will be by way of any action for damages for breach of contract. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty with regard to which Article 9 hereof shall apply. Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. Requirements of Law, Fire Insurance: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter Tenant shall, at Tenant's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, or the Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, whether or not arising out of Tenant's use or manner of use thereof, or, with respect to the building, if arising out of Tenant's use or manner of use of the demised premises of the building (including the use permitted under the lease). Except as provided in Article 30 hereof, nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant shall no do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Owner. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization and other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. If by reason of failure to comply with the foregoing the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a schedule or "make-up" or rate for the building or demised premises issued by a body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to said premises. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to absorb and prevent vibration, noise and annoyance. Subordination: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument or subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall from time to time execute promptly any certificate that Owner may request. Tenant's Liability Insurance Property Loss, Damage, Indemnity: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, ifs agents, servants or employees; Owner or its agents shall not be liable for any damage caused by other tenants or persons in, upon or about said building or caused by operations in connection of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Owner's own acts, Owner shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorney's fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant and any agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Owner by reasons of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld. Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent and other items of additional rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent and other items of additional rent as hereinafter expressly provided shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner (or sooner reoccupied in part by Tenant then rent shall be apportioned as provided in subsection (b) above), subject to Owner's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to Tenant, given within 90 days after such fire or casualty, or 30 days after adjustment of the insurance claim for such fire or casualty, whichever is sooner, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Owner's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent - ---------- [GRAPHIC OMITTED] Rider to be added if necessary. made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owner shall serve a termination notice as provided for herein, Owner shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, including Owner's obligation to restore under subparagraph (b) above, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery with respect to subparagraphs (b), (d) and (e) above, against the other or any one claiming through or under each of them by way of subrogation or otherwise. The release and waiver herein referred to shall be deemed to include any loss or damage to the demised premises and/or to any personal property, equipment, trade fixtures, goods and merchandise located therein. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. If, and to the extent, that such waiver can be obtained only by the payment of additional premiums, then the party benefiting from the waiver shall pay such premium within ten days after written demand or shall be deemed to have agreed that the party obtaining insurance coverage shall be free of any further obligation under the provisions hereof with respect to waiver of subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and/or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. Eminent Domain: 10. If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. Tenant shall have the right to make an independent claim to the condemning authority for the value of Tenant's moving expenses and personal property, trade fixtures and equipment, provided Tenant is entitled pursuant to the terms of the lease to remove such property, trade fixtures and equipment at the end of the term and provided further such claim does not reduce Owner's award. Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner in each instance. Transfer of the majority of the stock of a corporate Tenant or the majority partnership interest of a partnership Tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. Electric Current: [GRAPHIC OMITTED] 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or other risers or wiring installation and Tenant may not use any electrical equipment which, in Owner's opinion, reasonably exercised, will overload such installations or interfere with the use hereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Owner liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. Access to Premises: 13. Owner or Owner's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to any portion of the building or which Owner may elect to perform in the premises after Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Owner to use and maintain and replace pipes and conduits in and through the demised premise and to erect new pipes and conduits therein provided, wherever possible, they are within walls or otherwise concealed. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Owner shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants and may, during said six months period, place upon the demised premises the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the demised premises, Owner or Owner's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom. Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligations thereunder. Vault, Vault Space, Area: 14. No Vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant, if used by Tenant, whether or not specifically leased hereunder. Occupancy: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations, whether or not of record. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, Tenant shall be responsible for and shall procure and maintain such license or permit. Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Owner by sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant or any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rental reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be relet by the Owner for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes vacant or deserted "or if this lease be rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant, or if Tenant shall make default with respect to any other lease between Owner and Tenant; or if Tenant shall have failed, after five (5) days written notice to redeposit with Owner any portion of the security deposited hereunder which Owner has applied to the payment of any rent and additional rents due and payable hereunder or failed to move into or take possession of the premises within thirty (30) days after the commencement of term of this lease, of which fact Owner shall be the sole judge; then in any one or more of such events, upon Owner serving a written fifteen (15) days notice upon Tenant specifying the nature of said default and upon the expiration of said fifteen (15) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said fifteen (15) day period, and if Tenant shall not have diligently commenced during such default within such fifteen (15) days period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written five (5) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said five (5) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such five (5) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given, and the term shall expire as aforesaid; or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required; then and in any of such events Owner may without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the legal representative of Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Owner may cancel and terminate such renewal or extension agreement by written notice. Remedies of Owner and Waiver of Redemption: 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or other wise, (a) the rent, and additional rent, shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the premises or any part or parts thereof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, (c) Tenant or the legal representative of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Owner may incur in connection with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any subsequent month by a similar proceeding. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner in Owner's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws. Fees and Expenses: 19. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, after notice if required and upon expiration of any applicable grace period if any, (except in an emergency), then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder. If Owner, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any action or proceedings, and prevails in any such action or proceeding, then Tenant will reimburse Owner for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within ten (10) days of rendition of any bill or statement to Tenant therefor. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages. Building Alterations and Management: 20. Owner shall have the right at any time without the same constituting an eviction and without incurring liability to tenant therefore to change the arrangement and or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the building and to change the name, number or designation by which the building may be known. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or other Tenant making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of Owner's imposition of any controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. No Representations by Owner: 21. Neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the demised premises or the building except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is" on the date possession is tendered and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. End of Term: 22. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, broom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property from the demised premises. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 34 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. Failure to Give Possession: 24. If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, undertenant or occupants or if the demised premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured or if Owner has not completed any work required to be performed by Owner, or for any other reason, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession or complete any work required) until after Owner shall have given Tenant notice that Owner is able to deliver possession in the condition required by this lease. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such possession and/or occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except the obligation to pay the fixed annual rent set forth in page one of this lease. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. No Waiver: 25. The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. All checks tendered to owner as and for the rent of the demised premises shall be deemed payments for the account of Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to operate as an attornment to owner by the payor of such rent or as a consent by Owner to an assignment or subletting by Tenant of the demised premises to such payor, or as a modification of the provisions of this lease. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Owner commences any proceeding or action for possession including a summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding including a counterclaim under Article 4 except for statutory mandatory counterclaims. Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment, fixtures or other materials if Owner is prevented or delayed from doing so by reason of strike or labor troubles or any cause whatsoever beyond Owner's sole control including, but not limited to, government preemption or restrictions or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions which have been or are affected, either directly or indirectly, by war or other emergency. Bills and Notices: 28. Except as otherwise in this lease provided, a bill statement, notice or communication which Owner may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered if, in writing, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant at the building of which the demised premises form a part or at the last known residence address or business address of Tenant or left at any of the aforesaid premises addressed to Tenant, and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant to Owner must be served by registered or certified mail addressed to Owner at the address first hereinabove given or at such other address as Owner shall designate by written notice. Water Charges: 29. If Tenant requires, uses or consumes water for any purpose in addition to ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the sole judge) Owner may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost of the meter and the cost of the installation, thereof and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense in default of which Owner may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay for water consumed, as shown on said meter as and when bills are rendered, and on default in making such payment Owner may pay such charges and collect the same from Tenant, as additional rent. Tenant covenants and agrees to pay, as additional rent, the sewer rent, charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or a lien upon the demised premises or the realty of which they are part pursuant to law, order or regulation made or issued in connection with the use, consumption, maintenance or supply of water, water system or sewage or sewage connection or system. Sprinklers: 30. Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or the New York Fire Insurance Exchange or any bureau, department or official of the federal, state or city government recommend or require the installation of a sprinkler system or that any changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason of Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, or for any other reason, or if any such sprinkler system installations, modifications, alterations, additional sprinkler heads or other such equipment, become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate set by any said Exchange or by any fire insurance company, Tenant shall, at Tenant's expenses, promptly make such sprinkler system installations, changes, modifications, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or non-structural in nature. Tenant shall pay to Owner as additional rent the sum [GRAPHIC] of $_________, on the first day of each month during the term of this lease, as Tenant's portion of the contract price for sprinkler supervisory service. Elevators, Heat, Cleaning: 31. As long as Tenant is not in default under any of the covenants of this lease beyond the applicable grace period provided in this lease for the curing of such defaults, Owner shall: (a) provide necessary passenger elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b) if freight elevator service is provided, same shall be provided only on regular business days Monday through Friday inclusive, and on those days only between the hours of 9 a.m. and 12 noon and between 1 p.m. and * p.m.; (c) furnish heat, water and other services supplied by Owner to the demised premises, when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 - ------------------------------------------- [GRAPHIC] Space to be filled in or deleted. *4:30 a.m. to 1 p.m.; (d) clean the public halls and public portions of the building which are used in common by all tenants. Tenant shall, at Tenant's expense, keep the demised premises, including the windows, clean and in order, to the reasonable satisfaction of Owner, and for that purpose shall employ the person or persons, or corporation approved by Owner. Tenant shall pay to Owner the cost of removal of any of Tenant's refuse and rubbish from the building. Bills for the same shall be rendered by Owner to Tenant at such time as Owner may elect and shall be due and payable hereunder, and the amount of such bills shall be deemed to be, and be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such rubbish and refuse in the event that Tenant does not wish to have same done by employees of Owner. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgment of Owner, are necessary for the proper operation of the building. Owner reserves the right to stop service of the heating, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements or improvements, in the judgment of Owner desirable or necessary to be made, until said repairs, alterations, replacements or improvements shall have been completed. If the building of which the demised premises are a part supplies manually operated elevator services, Owner may proceed diligently with alterations necessary to substitute automatic control elevator service without in any way affecting the obligations of Tenant hereunder. Security: SEE RIDER Captions: 33. The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof. Definitions: 34. The term "Owner" as used in this lease means only the owner of the fee or of the leasehold of the building, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "rent" includes the annual rental rate whether so expressed or expressed in monthly installments, and "additional rent." "Additional rent" means all sums which shall be due to Owner from Tenant under this lease, in addition to the annual rental rate. The term "business days" as used in this lease, shall exclude Saturdays, Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. Wherever it is expressly provided in this lease that consent shall not be unreasonably withheld, such consent shall not be unreasonably delayed. Adjacent Excavation-Shoring: 35. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said persons shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Owner, or diminution or abatement of rent. Rules and Regulations: 36. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faith fully, and comply strictly with, the Rules and Regulations annexed hereto and such other and further reasonable Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Owner within fifteen (15) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Owner any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Owner shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Glass: 37. Owner shall replace, at the expense of the Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Owner may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for and in the name of Owner. Bills for the premiums therefor shall be rendered by Owner to Tenant at such times as Owner may elect, and shall be due from, and payable by, Tenant when rendered, and the amount therefor shall be deemed to be, and be paid, as additional rent. Estoppel Certificate: 38. Tenant, at any time, and from time to time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any other person, firm or corporation specified by Owner, a statement certifying that this Lease is unmodified in full force and effect (or , if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent and additional rent have been paid, and stating whether or not there exists any default by Owner under this Lease, and , if so, specifying each such default. Directory Board Listing: 39. If, at the request of and as accommodation to Tenant, Owner shall place upon the directory board in the lobby of the building, one or more names of persons other than Tenant, such directory board listing shall not be construed as the consent by Owner to an assignment or subletting by Tenant to such person or persons. Successors and Assigns: 40. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. Tenant shall look only to Owner's estate and interest in the land and building for the satisfaction of Tenant's remedies for the collection of a judgement (or other judicial process) against Owner in the event of any default by Owner hereunder, and no other property or assets of such Owner (or any partner, member, officer or director thereof, disclosed or undisclosed), shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this lease, the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of the demised premises. - ------------------------------------------- [GRAPHIC] Space to be filled in or deleted. SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF In Witness Whereof, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. Witness for Owner: 6 GREENE STREET ASSOCIATES, LLC [CORPORATE SEAL] ------------------------------------------------ [L.S.] - ---------------------------------- ------------------------------------------------ By: Witness for Tenant ACCUFACTS SCREENING INC. [CORPORATE SEAL] ------------------------------------------------ [L.S.] - ---------------------------------- ------------------------------------------------ By: Philip Luzzio, Pres.
EX-10.6 6 MEMORANDUM CONFIRMING TERM MEMORANDUM CONFIRMING TERM THIS MEMORANDUM ("Memorandum") is made as of August 28, 1998 between CB SANLANDO CENTER, INC., a Delaware corporation, ("Landlord"), and Maglio, Inc. ("Tenant"), pursuant to that certain Lease Agreement between Landlord and Tenant dated as of May 28, 1998 (the "Lease") for the premises located at 2180 West State Road 434, Suite 4150, Longwood, Florida 32779 (the "Premises") and more particularly described in the Lease. All initial-capitalized terms used in this Memorandum have the meanings ascribed to them in the Lease. 1. Landlord and Tenant hereby confirm that: (a) The Commencement Date of the Term is August 1, 1998. (b) The Expiration Date of the Term is July 31, 2003; and (c) The date rental commences under the Lease is August 1, 1998 (d) The Rent Schedule referenced in Article 39 is hereby shown as follows: - -------------------------------------------------------------------------------- Annual Rent Monthly Square per Installment Period Feet square foot Annual Rent of Rent - -------------------------------------------------------------------------------- Commencement Date: 7/31/99 2,960.00 $17.50 $51,800.00 $4,316.67 - -------------------------------------------------------------------------------- 8/1/99 - 7/31/2000 2,960.00 $18.00 $53,280.00 $4,440.00 - -------------------------------------------------------------------------------- 8/1/2000 - 7/31/2001 2,960.00 $18.50 $54,760.00 $4,563.33 - -------------------------------------------------------------------------------- 8/1/2001 - 7/31/2002 2,960.00 $19.00 $56,240.00 $4,686.67 - -------------------------------------------------------------------------------- 8/1/2002 - 7/31/2003 2,960.00 $19.75 $58,460.00 $4,871.67 - -------------------------------------------------------------------------------- 2. Tenant hereby confirms that: (a) All commitments, arrangements or understandings made to induce Tenant to enter into the Lease have been satisfied; (b) All space and improvements have been completed and furnished in accordance with the provisions of the Lease; and (c) Tenant has accepted and is in full and complete possession of the Premises. 3. This Memorandum shall be binding upon and inure to the benefit of the parties and their permitted successors and assigns. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date first set forth above. LANDLORD: TENANT: CB SANLANDO CENTER, INC. MAGLIO, INC. C/O: RREEF Management Company, a Delaware Corporation By: /s/ Charleen E. L. Burgio By: /s/ Richard J. Maglio ------------------------- ---------------------- Charleen E. L. Burgio, Richard J. Maglio District Manager Title: President Dated: 8/28, 1998 Dated: 8/24, 1998 [LETTERHEAD THE RREEF FUNDS] TENANT ACCEPTANCE OF PREMISES TENANT (OR LESSEE) NAME: Maglio, Inc. LANDLORD (OR LESSOR) NAME: CB Sanlando Center, Inc. a Delaware Corporation; c/o RREEF Management Company, a Delaware Corporation LEASE REFERENCE DATE: May 28, 1998 TERM OF LEASE: 5 years ADDRESS OF LEASED PREMISES: 2180 W SR 434, STE 4150 Longwood, FL 32779 APPROXIMATE SQUARE FOOTAGE: 2,960 THE ABOVE DESCRIBED PREMISES WERE INITIALLY OCCUPIED AND ACCEPTED BY TENANT ON August 1, 1998. THE ABOVE DESCRIBED LEASE TERM BEGINS August 1, 1998 AND EXPIRES July 31, 2003. BY: ______________________________________________ TITLE: ___________________________________________ DATED: ___________________________________________ [LETTERHEAD THE RREEF FUNDS] June 29, 1998 Mr. Dick Maglio Maglio, Inc. 2180 W. SR 434, Suite 4150 Longwood, Florida 32779 Re: Lease and Lease Termination Dear Dick: Enclosed please find one fully executed original of each of the above documents for your files. We are pleased that you have expanded and renewed your lease, and look forward to a mutually rewarding relationship over the next five years. Please do not hesitate to contact me should you have any questions. Sincerely, /s/ Karen S. Padgett Karen S. Padgett Building Manager ksp enclosure LEASE TERMINATION AGREEMENT THIS AGREEMENT is made as of May 28, 1998, by and between CB SANLANDO CENTER, INC. ("Landlord"), successor in interest to Turner Development Corporation ("Turner"), and MAGLIO INC., formerly known as R.J. Maglio & Associates, Inc. ("Tenant"), with respect to certain premises located in the building (the "Building") commonly known as 2180 Sanlando Center, Longwood, Florida. 1. RECITALS. This agreement is made with reference to the following facts and objectives: (a) Turner and Tenant entered into a written Lease dated August 12, 1991 for Suite 2160 of the Building, as amended by Amendment No. 1 dated August 28, 1991 (changed suite number to 2158), Amendment Number 2 dated April 26, 1994 (changed expiration date to June 30, 1999 and leased premises to suite 4150), Amendment Number 3 dated February 7, 1995 (changed square footage to 2,091) and Amendment Number 4 dated August 4, 1995 and a letter dated January 8, 1997 (advising Landlord that Tenant's name had changed to Maglio, Inc.) said Lease, Amendments and letter collectively, the "Lease"), pursuant to which Turner leased to Tenant leased from Turner, premises consisting of approximately 2,091 square feet in Suite 4150 of the Building (the "Premises"). (b) Landlord acquired all of Turner's right, title and interest in and to the Lease. (c) The term of the Lease is scheduled to expire on June 30, 1999. (d) Landlord and Tenant wish to provide for the earlier termination of the Lease and to stipulate as to the payment due on termination, all on the terms and conditions stated herein. (e) Now, therefore, in consideration of the mutual promises herein contained and the detriments to be suffered by each of the parties, the parties wish to terminate the Lease within the time period provided in this Agreement, and so that Landlord and Tenant can be released and discharged from further performance of the Lease provisions, except as otherwise provided herein. 2. TERMINATION DATE. Provided that Tenant shall have complied with all of its covenants and agreements under the Lease and hereunder the Lease shall terminate as of July 31, 1998 ("Termination Date"), in the same manner and with the same effect as if that date had been originally fixed in the Lease for the expiration of the term, conditioned on the performance by the parties of the provisions of this Agreement. 3. OUTSTANDING RENT AND OTHER CHARGES. Tenant shall pay to Landlord all rent and other charges as specified in the Lease through the Termination Date. Any charges which cannot be ascertained prior to the Termination Date shall be estimated by Landlord and Tenant shall pay such estimated amount. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. 4. OPTIONS. Any options of Tenant to renew the Lease, whether or not exercised prior to the date hereof, are null and void and of no further effect. 5. REPRESENTATION OF PARTIES. Each party represents that it has not made any assignment, sublease, transfer, conveyance, or other disposition of the Lease, or interest in the Lease, or any claim, demand, obligation, liability, action, or cause of action arising from the Lease, and that it has full right, power and authority to enter into this Agreement. 6. ATTORNEY'S FEES. If either party commences an action against the other party arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party reasonable attorney's fees and cost of suit. 7. FURTHER ASSURANCES. Each party agrees to cooperate with the other and to execute and deliver all such further instruments and documents and do all such further acts and things as such party may be reasonably requested to do from time to time by the other party in order to carry out the provisions and objectives of this Agreement. 8. SUCCESSORS. This Agreement shall be binding on and insure to the benefit of the parties and their successors. 9. LANDLORD NOT BOUND. Submission of this Agreement to Tenant shall not be deemed to be an offer. Landlord shall not be bound by this Agreement, and the Lease shall 2 remain in full force and effect without reference to this Agreement, until it has received a copy hereof duly executed by Tenant and has delivered to Tenant a copy hereof duly executed by Landlord, and until such delivery Landlord reserves the right to nullify this Agreement. 10. LIMITATION OF LANDLORD'S LIABILITY. Redress for any claims against Landlord under the Lease or this Agreement shall only be made against Landlord to the extent of Landlord's interest in the Building of which the leased Premises are a part. The obligations of Landlord under the Lease and this Agreement are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof, or any beneficiaries, stockholders, employees, or agents of Landlord or the investment manager. 11. EQUIPMENT REMOVAL. Within fifteen (15) days after the Termination Date, Tenant must, at its sole cost and expense, properly remove all of Tenant's antenna, satellite dish and broadcasting equipment from the roof of the Building and repair and restore the roof of the Building to its original condition, reasonable wear and tear excepted (collectively "Equipment Removal"). 12. MUTUAL RELEASE. Tenant and Landlord shall have, as of the Termination Date, no further obligation to each other under the Lease, except for obligations ("Surviving Obligations") which are expressly provided for herein or which by their nature would survive the 3 scheduled termination of the Lease (including, without limitation and by way of example, indemnification for claims accrued prior to Lease termination), and each party hereby releases the other party from any liability, claims or damages arising out of or related to the Lease, excluding Surviving Obligations. This Agreement is executed as of the day and year first written above. LANDLORD: TENANT: CB SANLANDO CENTER, INC. MAGLIO, INC. By: RREEF Management Company, a Delaware corporation By: /s/ Charleen E. L. Burgio By: /s/ Richard J. Maglio ------------------------- -------------------- Charleen E. L. Burgio, District Manager Title: President Dated: 6/18, 1998 Dated: June 10, 1998 Witnesses: Witnesses: /s/ Karen S. Padgett /s/ Sonia [ILLEGIBLE] - ---------------------------- ------------------------ /s/ Carolyn S. Gaston /s/ Connie Paterson - ---------------------------- ------------------------ 4 LEASE ------------------------- CB SANLANDO CENTER, INC., Landlord and MAGLIO, INC., Tenant TABLE OF CONTENTS Article Page 1. USE AND RESTRICTIONS ON USE ............................................ 1 2. TERM ................................................................... 1 3. RENT ................................................................... 2 4. RENT ADJUSTMENTS ....................................................... 2 5. SECURITY DEPOSIT ....................................................... 3 6. ALTERATIONS ............................................................ 4 7. REPAIR ................................................................. 4 8. LIENS .................................................................. 5 9. ASSIGNMENT AND SUBLETTING .............................................. 5 10.INDEMNIFICATION ........................................................ 6 11.INSURANCE .............................................................. 6 12.WAIVER OF SUBROGATION .................................................. 7 13.SERVICES AND UTILITIES ................................................. 7 14.HOLDING OVER ........................................................... 7 15.SUBORDINATION .......................................................... 8 16.RULES AND REGULATIONS .................................................. 8 17.REENTRY BY LANDLORD .................................................... 8 18.DEFAULT ................................................................ 8 19.REMEDIES ............................................................... 9 20.TENANT'S BANKRUPTCY OR INSOLVENCY ...................................... 11 21.QUIET ENJOYMENT ........................................................ 12 22.DAMAGE BY FIRE, ETC .................................................... 12 23.EMINENT DOMAIN ......................................................... 13 24.SALE BY LANDLORD ....................................................... 13 25.ESTOPPEL CERTIFICATES .................................................. 13 26.SURRENDER OF PREMISES .................................................. 13 27.NOTICES ................................................................ 14 28.TAXES PAYABLE BY TENANT ................................................ 14 29.RELOCATION OF TENANT ................................................... 14 30.DEFINED TERMS AND HEADINGS ............................................. 14 31.TENANT'S AUTHORITY ..................................................... 14 32.COMMISSIONS ............................................................ 15 i 33.TIME AND APPLICABLE LAW ................................................ 15 34.SUCCESSORS AND ASSIGNS ................................................. 15 35.ENTIRE AGREEMENT ....................................................... 15 36.EXAMINATION NOT OPTION ................................................. 15 37.RECORDATION ............................................................ 15 38.LIMITATION OF LANDLORD'S LIABILITY ..................................... 15 39.RENT SCHEDULE .......................................................... 16 40.PARKING ................................................................ 16 41.RADON GAS .............................................................. 16 EXHIBIT A - PREMISES EXHIBIT B - INITIAL ALTERATIONS EXHIBIT C - RULE AND REGULATIONS ii GROSS (BY) OFFICE LEASE REFERENCE PAGE BUILDING: 2180 Sanlando Center 2180 West State Road 434 Longwood, Florida 32779 LANDLORD: CB Sanlando Center, Inc., a Delaware corporation LANDLORD'S ADDRESS: c/o RREEF Management Company 100 South Ashley Drive, Suite 290 Tampa, Florida 33602 LEASE REFERENCE DATE: May 28, 1998 TENANT: Maglio, Inc. TENANT'S ADDRESS: 2180 SR 434, Suite 4150, Longwood, FL 32779 PREMISES IDENTIFICATION: Suites Number 4150 and 4158 (for outline of Premises see Exhibit A) PREMISES RENTABLE AREA: Approximately 2,960 sq. ft. SCHEDULED COMMENCEMENT DATE: August 1, 1998 TERMINATION DATE: July 31, 2003 TERM OF LEASE: Five (5) years beginning on the Commencement Date and ending on the Termination Date (unless sooner terminated pursuant to the Lease) INITIAL ANNUAL RENT (Article 3): See Rent Schedule, Article 39 INITIAL MONTHLY INSTALLMENT OF ANNUAL RENT (Article 3): See Rent Schedule, Article 39 BASE YEAR (DIRECT EXPENSES): 1998 BASE YEAR (TAXES): 1998 TENANT'S PROPORTIONATE SHARE: 1.83% SECURITY DEPOSIT: $5,846.00 iii ASSIGNMENT/SUBLETTING FEE: $500.00 REAL ESTATE BROKER DUE PM Realty Group, Inc., representing Landlord COMMISSION: The Reference Page information is incorporated into and made a part of the Lease. In the event of any conflict between any Reference Page information and the Lease, the Lease shall control. This Lease includes Exhibits A through C, all of which are made a part of this Lease. LANDLORD: TENANT: CB SANLANDO CENTER, INC. MAGLIO, INC. By: RREEF Management Company, a Delaware corporation By: /s/ Charleen E. L. Burgio By: /s/ Richard J. Maglio -------------------------- ----------------------- Charleen E. L. Burgio, Richard J. Maglio District Manager Title: President Dated: 6/18, 1998 Dated: June 10, 1998 Witnesses: Witnesses: /s/ Karen S. Padgett /s/ Sonia [ILLEGIBLE] - ------------------------- --------------------- /s/ Carolyn S. Gaston /s/ Connie Patterson - ------------------------- --------------------- iv LEASE By this Lease Landlord leases to Tenant and Tenant leases from Landlord the Premises in the Building as set forth and described on the Reference Page. The Reference Page, including all terms defined thereon, is incorporated as part of this Lease. 1. USE AND RESTRICTIONS ON USE. 1.1 The Premises are to be used solely for general office purposes. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure, annoy, or disturb them or allow the Premises to be used for any improper, immoral, unlawful, or objectionable purpose. Tenant shall not do, permit or suffer in, on, or about the Premises the sale of any alcoholic liquor without the written consent of Landlord first obtained, or the commission of any waste. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises and its occupancy and shall promptly comply with all governmental orders and directions for the correction, prevention and abatement of any violations in or upon, or in connection with, the Premises, all at Tenant's sole expense. Tenant shall not do or permit anything to be done on or about the Premises or bring or keep anything into the Premises which will in any way increase the rate of, invalidate or prevent the procuring of any insurance protecting against loss or damage to the Building or any of its contents by the fire or other casualty or against liability for damage to property or injury to persons in or about the Building or any part thereof. 1.2 Tenant shall not, and shall not direct, suffer or permit any of its agents, contractors, employees, licensees or invitees to at any time handle, use, manufacture, store or dispose of in or about the Premises or the Building any (collectively "Hazardous Materials") flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, or other similar substances, petroleum products or derivatives or any substance subject to regulation by or under any federal, state and local laws and ordinances relating to the protection of the environment or of the keeping, use or disposition of environmentally hazardous materials, substances, or wastes, presently in effect or hereafter adopted, all amendments to any of them, and all rules and regulations issued pursuant to any of such laws or ordinances (collectively "Environmental Laws"), nor shall Tenant suffer or permit any Hazardous Materials to be used in any manner not fully in compliance with all Environmental Laws, in the Premises or the Building and appurtenant land or allow the environment to become contaminated with any Hazardous Materials. Notwithstanding the foregoing, and subject to Landlord's prior consent, Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials (such as aerosol cans containing insecticides, toner for copiers, paints, paint remover and the like) to the extent customary and necessary for the use of the Premises for general office purposes; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises or the Building and appurtenances/and or the environment. Tenant shall protect, defend, indemnify and hold each and all of the Landlord Entities (as defined in Article 30) harmless from and against any and all loss, claims, liability or costs (including court costs and attorney's fees) incurred by reason of any actual or asserted failure of Tenant to fully comply with all applicable Environmental Laws, or the presence, handling, use or disposition in or from the Premises of any Hazardous Materials (even though permissible under all applicable Environmental Laws or the provisions of this Lease), or by reason of any actual or asserted failure of Tenant to keep, observe, or perform any provision of this Section 1.2. 2. TERM. 2.1 The Term of this Lease shall begin on the date ("Commencement Date") which shall be the later of the Scheduled Commencement Date as shown on the Reference Page and the date that the Landlord shall tender possession of the Premises to Tenant. Landlord shall tender possession of the Premises with all the work, if any, to be performed by Landlord pursuant to Exhibit B to this Lease substantially completed. Tenant shall deliver a punch list of items not completed within 30 days after Landlord tenders possession of the Premises and Landlord agrees to proceed with due diligence to perform its obligations regarding such items. Landlord and Tenant shall execute a memorandum setting forth the actual Commencement Date and Termination Date. 2.2 Tenant agrees that in the event of the inability of Landlord to deliver possession of the Premises on the Scheduled Commencement Date, Landlord shall not be liable for any damage resulting from such inability, but Tenant shall not be liable for any rent until the time when Landlord can, after notice to Tenant, deliver possession of the Premises to Tenant. No such failure to give possession on the Scheduled Commencement Date shall affect the other obligations of Tenant under this Lease, except that if Landlord is unable to deliver possession of the Premises within one hundred twenty (120) days of the Scheduled Commencement Date (other than as a result of strikes, shortages of materials or similar matters beyond the reasonable control of Landlord and Tenant is notified by Landlord in writing as to such delay), Tenant shall have the option to terminate this Lease unless said delay is as a result of: (a) Tenant's failure to agree to plans and specifications; (b) Tenant's request for materials, finishes or installations other than Landlord's standard except those, if any, that Landlord shall have expressly agreed to furnish without extension of time agreed by Landlord; (c) Tenant's change in any plans or specifications; or, (d) performance or completion by a party employed by Tenant. If any delay is the result of any of the foregoing, the Commencement Date and the payment of rent under this Lease shall be accelerated by the number of days of such delay. 2.3 In the event Landlord shall permit Tenant to occupy the Premises prior to the Commencement Date, such occupancy shall be subject to all the provisions of this Lease. Said early possession shall not advance the Termination Date. 3. RENT. 3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time to time by paying the Monthly Installment of Rent then in effect on or before the first day of each full calendar month during the Term, except that the first month's rent shall be paid upon the execution of this Lease. The Monthly Installment of Rent in effect at any time shall be one-twelfth of the Annual Rent in effect at such time. Rent for any period during the Term which is less than a full month shall be a prorated portion of the Monthly Installment of Rent based upon a thirty (30) day month. Said rent shall be paid to Landlord, without deduction or offset and without notice or demand, at the Landlord's address, as set forth on the Reference Page, or to such other person or at such other place as Landlord may from time to time designate in writing. 3.2 Tenant recognizes that late payment of any rent or other sum due under this Lease will result in administrative expense to Landlord, the extent of which additional expense is extremely difficult and economically impractical to ascertain. Tenant therefore agrees that if rent or any other sum is not paid when due and payable pursuant to this Lease, a late charge shall be imposed in an amount equal to the greater of: (a) Fifty Dollars ($50.00), or (b) a sum equal to five percent (5%) per month of the unpaid rent or other payment. The amount of the late charge to be paid by Tenant shall be reassessed and added to Tenant's obligation for each successive monthly period until paid. The provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay rent or other payments on or before the date on which they are due, nor do the terms of this Section 3.2 in any way affect Landlord's remedies pursuant to Article 19 of this Lease in the event said rent or other payment is unpaid after date due. 4. RENT ADJUSTMENTS. 4.1 For the purpose of this Article 4, the following terms are defined as follows: 4.1.1 Lease Year: Each calendar year falling partly or wholly within the Term. 4.1.2 Direct Expenses: All direct costs of operation, maintenance, repair and management of the Building (including the amount of any credits which Landlord may grant to particular tenants of the Building in lieu of providing any standard services or paying any standard costs described in this Section 4.1.2 for similar tenants), as determined in accordance with generally accepted accounting principles, including the following costs by way of illustration, but not limitation: water and sewer charges; insurance charges of or relating to all insurance policies and endorsements deemed by Landlord to be reasonably necessary or desirable and relating in any manner to the protection, preservation, or operation of the Building or any part thereof; utility costs, including, but not limited to, the cost of heat, light, power, steam, gas, and waste disposal; the cost of janitorial services; the cost of security and alarm services; window cleaning costs; labor costs; costs and expenses of managing the Building including management fees; air conditioning maintenance costs; elevator maintenance fees and supplies; material costs; equipment costs including the cost of maintenance, repair and service agreements and rental and leasing costs; purchase costs of equipment other than capital items; current rental and leasing costs of items which would be amortizable capital items if purchased; tool costs; licenses, permits and inspection fees; wages and salaries; employee benefits and payroll taxes; accounting and legal fees; any sales, use or service taxes incurred in connection therewith. Direct expenses shall not include depreciation or amortization of the Building or equipment in the Building except as provided herein, loan principal payments, costs of alterations of tenants' premises, leasing commissions, interest expenses on long-term borrowings, advertising costs or management salaries for executive personnel other than personnel located at the Building. In addition, Landlord shall be entitled to amortize and include as an additional rental adjustment: (i) an allocable portion of the cost of capital improvement items which are reasonably calculated to reduce operating expenses; (ii) fire sprinklers and suppression systems and other life safety systems; and (iii) other capital expenses which are required under any governmental laws, regulations or ordinances which were not applicable to the Building at the time it was constructed. All such costs shall be amortized over the reasonable life of such improvements in accordance with such reasonable life and amortization schedules as shall be determined by Landlord in accordance with generally accepted accounting principles, with interest on the unamortized amount at one percent (1%) in excess of the prime lending rate announced from time to time as such by The Northern Trust Company of Chicago, Illinois. 2 4.1.3 Taxes: Real estate taxes and any other taxes, charges and assessments which are levied with respect to the Building or the land appurtenant to the Building, or with respect to any improvements, fixtures and equipment or other property of Landlord, real or personal, located in the Building and used in connection with the operation of the Building and said land, any payments to any ground lessor in reimbursement of tax payments made by such lessor; and all fees, expenses and costs incurred by Landlord in investigating, protesting, contesting or in any way seeking to reduce or avoid increase in any assessments, levies or the tax rate pertaining to any Taxes to be paid by Landlord in any Lease Year. Taxes shall not include any corporate franchise, or estate, inheritance or net income tax, or tax imposed upon any transfer by Landlord of its interest in this Lease or the Building. 4.2 If in any Lease Year, (i) Direct Expenses paid or incurred shall exceed Direct Expenses paid or incurred in the Base Year (Direct Expenses) and/or (ii) Taxes paid or incurred by Landlord in any Lease Year shall exceed the amount of such Taxes which became due and payable in the Base Year (Taxes), Tenant shall pay as additional rent for such Lease Year Tenant's Proportionate Share of such excess. 4.3 The annual determination of Direct Expenses shall be made by Landlord and if certified by a nationally recognized firm of public accountants selected by Landlord shall be binding upon Landlord and Tenant. Tenant may review the books and records supporting such determination in the office of Landlord, or Landlord's agent, during normal business hours, upon giving Landlord five (5) days advance written notice within sixty (60) days after receipt of such determination, but in no event more often than once in any one year period. In the event that during all or any portion of any Lease Year, the Building is not fully rented and occupied Landlord may make any appropriate adjustment in occupancy-related Direct Expenses for such year for the purpose of avoiding distortion of the amount of such Direct Expenses to be attributed to Tenant by reason of variation in total occupancy of the Building, by employing sound accounting and management principles to determine Direct Expenses that would have been paid or incurred by Landlord had the Building been fully rented and occupied, and the amount so determined shall be deemed to have been Direct Expenses for such Lease Year. 4.4 Prior to the actual determination thereof for a Lease Year, Landlord may from time to time estimate Tenant's liability for Direct Expenses and/or Taxes under Section 4.2, Article 6 and Article 29 for the Lease Year or portion thereof. Landlord will give Tenant written notification of the amount of such estimate and Tenant agrees that it will pay, by increase of its Monthly Installments of Rent due in such Lease Year, additional rent in the amount of such estimate. Any such increased rate of Monthly Installments of Rent pursuant to this Section 4.4 shall remain in effect until further written notification to Tenant pursuant hereto. 4.5 When the above mentioned actual determination of Tenant's liability for Direct Expenses and/or Taxes is made for any Lease Year and when Tenant is so notified in writing, then: 4.5.1 If the total additional rent Tenant actually paid pursuant to Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is less than Tenant's liability for Direct Expenses and/or Taxes, then Tenant shall pay such deficiency to Landlord as additional rent in one lump sum within thirty (30) days of receipt of Landlord's bill therefor; and 4.5.2 If the total additional rent Tenant actually paid pursuant to Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is more than Tenant's liability for Direct Expenses and/or Taxes, then Landlord shall credit the differences against the then next due payments to be made by Tenant under this Article 4. Tenant shall not be entitled to a credit by reason of actual Direct Expenses and/or Taxes in any Lease Year being less than Direct Expenses and/or Taxes in the Base Year (Direct Expenses and/or Taxes). 4.6 If the Commencement Date is other than January 1 of if the Termination Date is other than December 31, Tenant's liability for Direct Expenses and Taxes for the Lease Year in which said Date occurs shall be prorated based upon a three hundred sixty-five (365) day year. 5. SECURITY DEPOSIT. Tenant shall deposit the Security Deposit with Landlord upon the execution of this Lease. Said sum shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant and not as an advance rental deposit or as a measure of Landlord's damage in case of Tenant's default. If Tenant defaults with respect to any provision of this Lease, Landlord may use any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion is so used, Tenant shall within five (5) days after written demand therefor, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount and Tenant's failure to do so shall be a material breach of this Lease. Except to such extent, if any, as shall be required by law, Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant at such time after termination of this Lease when Landlord shall have determined that all of Tenant's obligations under this Lease have been fulfilled. 3 6. ALTERATIONS. 6.1 Except for those, if any, specifically provided for in Exhibit B to this Lease, Tenant shall not make or suffer to be made any alterations, additions, or improvements, including, but not limited to, the attachment of any fixtures or equipment in, on, or to the Premises or any part thereof or the making of any improvements as required by Article 7, without the prior written consent of Landlord. When applying for such consent, Tenant shall, if requested by Landlord, furnish complete plans and specifications for such alterations, additions and improvements. 6.2 In the event Landlord consents to the making of any such alteration, addition or improvement by Tenant, the same shall be made using Landlord's contractor (unless Landlord agrees otherwise) at Tenant's sole cost and expense. If Tenant shall employ any Contractor other than Landlord's Contractor and such other Contractor or any Subcontractor of such other Contractor shall employ any non-union labor or supplier, Tenant shall be responsible for and hold Landlord harmless from any and all delays, damages and extra costs suffered by Landlord as a result of any dispute with any labor unions concerning the wage, hours, terms or conditions of the employment of any such labor. In any event Landlord may charge Tenant a reasonable charge to cover its overhead as it relates to such proposed work. 6.3 All alterations, additions or improvements proposed by Tenant shall be constructed in accordance with all government laws, ordinances, rules and regulations and Tenant shall, prior to construction, provide the additional insurance required under Article 11 in such case, and also all such assurances to Landlord, including but not limited to, waivers of lien, surety company performance bonds and personal guarantees of individuals of substance as Landlord shall require to assure payment of the costs thereof and to protect Landlord and the Building and appurtenant land against any loss from any mechanic's, materialmen's or other liens. Tenant shall pay in addition to any sums due pursuant to Article 4, any increase in real estate taxes attributable to any such alteration, addition or improvement for so long, during the Term, as such increase is ascertainable; at Landlord's election said sums shall be paid in the same way as sums due under Article 4. 6.4 All alterations, additions, and improvements in, on, or to the Premises made or installed by Tenant, including carpeting, shall be and remain the property of Tenant during the Term but, excepting furniture, furnishings, movable partitions of less than full height from floor to ceiling and other trade fixtures, shall become a part of the realty and belong to Landlord without compensation to Tenant upon the expiration or sooner termination of the Term, at which time title shall pass to Landlord under this Lease as by a bill of sale, unless Landlord elects otherwise. Upon such election by Landlord, Tenant shall upon demand by Landlord, at Tenant's sole cost and expense, forthwith and with all due diligence remove any such alterations, additions or improvements which are designated by Landlord to be removed, and Tenant shall forthwith and with all due diligence, at its sole cost and expense, repair and restore the Premises to their original condition, reasonable wear and tear and damage by fire or other casualty excepted. 7. REPAIR. 7.1 Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises, except as specified in Exhibit B if attached to this Lease and except that Landlord shall repair and maintain the structural portion of the Building, including the basic plumbing, air conditioning, heating and electrical systems installed or furnished by Landlord. By taking possession of the Premises, Tenant accepts them as being in good order, condition and repair and in the condition in which Landlord is obligated to deliver them. It is hereby understood and agreed that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant, except as specifically set forth in this Lease. 7.2 Tenant shall, at all times during the Term, keep the Premises in good condition and repair excepting damage by fire, or other casualty, and in compliance with all applicable governmental laws, ordinances and regulations, promptly complying with all governmental orders and directives for the correction, prevention and abatement of any violations or nuisances in or upon, or connected with, the Premises, all at Tenant's sole expense. 7.3 Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. 7.4 Except as provided in Article 22, there shall be no abatement of rent no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or to fixtures, appurtenances and equipment in the Building. Except to the extent, if any, prohibited by law, Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. 4 8. LIENS. Tenant shall keep the Premises, the Building and appurtenant land and Tenant's leasehold interest in the Premises free from any liens arising out of any services, work or materials performed, furnished, or contracted for by Tenant, or obligations incurred by Tenant. In the event that Tenant shall not within ten (10) days following the imposition of any such lien, either cause the same to be released of record or provide Landlord with insurance against the same issued by a major title insurance company or such other protection against the same as Landlord shall accept, Landlord shall have the right to cause the same to be released by such means as it all shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith shall be considered additional rent and shall be payable to it by Tenant on demand. 9. ASSIGNMENT AND SUBLETTING. 9.1 Tenant shall not have the right to assign or pledge this Lease or to sublet the whole or any part of the Premises whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, and shall not make, suffer or permit such assignment, subleasing or occupancy without the prior written consent of Landlord, and said restrictions shall be binding upon any and all assignees of the Lease and subtenants of the Premises. In the event Tenant desires to sublet, or permit such occupancy of, the Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord at least ninety (90) days but no more than one hundred eighty (180) days prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, the relevant terms of any sublease or assignment and copies of financial reports and other relevant financial reports and other relevant financial information of the proposed subtenant or assignee. 9.2 Notwithstanding any assignment or subletting, permitted or otherwise, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent specified in this Lease and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an Event of Default, if the Premises or any part of them are then assigned or sublet, Landlord, in addition to any other remedies provided in this Lease or provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant's obligations under this Lease. 9.3 In addition to Landlord's right to approve of any subtenant or assignee, Landlord shall have the option, in its sole discretion, in the event of any proposed subletting or assignment, to terminate this Lease, or in the case of a proposed subletting of less than the entire Premises, to recapture the portion of the Premises to be sublet, as of the date the subletting or assignment is to be effective. The option shall be exercised, if at all, by Landlord giving Tenant written notice given by Landlord to Tenant within sixty (60) days following Landlord's receipt of Tenant's written notice as required above. If this Lease shall be terminated with respect to the entire Premises pursuant to this Section, the Term of this Lease shall end on the date stated in Tenant's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this Lease for the expiration of the Term. If Landlord recaptures under this Section only a portion of the Premises, the rent to be paid from time to time during the unexpired Term shall abate proportionately based on the proportion by which the approximate square footage of the remaining portion of the Premises shall be less than that of the Premises as of the date immediately prior to such recapture. Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission obligation on the part of Landlord with respect to this Lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are recaptured pursuant to this Section 9.3 and rented by Landlord to the proposed tenant or any other tenant. 9.4 In the event that Tenant sells, sublets, assigns or transfers this Lease, Tenant shall pay to Landlord as additional rent an amount equal to one hundred percent (100%) of any Increased Rent (as defined below) when and as such Increased Rent is received by Tenant. As used in this Section, "Increased Rent" shall mean the excess of (i) all rent and other consideration which Tenant is entitled to receive by reason of any sale, sublease, assignment or other transfer of this Lease, over (ii) the rent otherwise payable by Tenant under this Lease at such time. For purposes of the foregoing, any consideration received by Tenant in form other than cash shall be valued at its fair market value as determined by Landlord in good faith. 9.5 Notwithstanding any other provision hereof, Tenant shall have no right to make (and Landlord shall have the absolute right to refuse consent to) any assignment of this Lease or sublease of any portion of the Premises if at the time either Tenant's notice of the proposed assignment or sublease or the proposed commencement date thereof, there shall exist any uncured default of Tenant or matter which will become a default of Tenant with passage of time unless cured, or if the proposed assignee or sublessee is an entity: (a) with which Landlord is already in negotiation as evidenced by the issuance of a written proposal; (b) is already an occupant of the Building unless Landlord is unable to provide the amount of space required by such occupant; (c) is a governmental agency; (d) is incompatible with the character of occupancy of the Building; or (e) would subject the Premises to a use which would: (i) involve increased personnel or wear upon the Building; (ii) violate any exclusive right granted to another tenant of the Building; (iii) require any addition to or modification of the Premises or the Building in order 5 to comply with building code or other governmental requirements; or, (iv) involve a violation of Section 1.2. Tenant expressly agrees that Landlord shall have the absolute right to refuse consent to any such assignment or sublease and that for the purposes of any statutory or other requirement of reasonableness on the part of Landlord such refusal shall be reasonable. 9.6 Upon any request to assign or sublet, Tenant will pay to Landlord the Assignment/Subletting Fee plus, on demand, a sum equal to all of Landlord's costs, including attorney's fees, incurred in investigating and considering any proposed or purported assignment or pledge of this Lease or sublease of any of the Premises, regardless of whether Landlord shall consent to, refuse consent, or determine that Landlord's consent is not required for, such assignment, pledge or sublease. Any purported sale, assignment, mortgage, transfer of this Lease or subletting which does not comply with the provisions of this Article 9 shall be void. 9.7 If Tenant is a corporation, partnership or trust, any transfer or transfers of or change or changes within any twelve month period in the number of the outstanding voting shares of the corporation, the general partnership interests in the partnership or the identity of the persons or entities controlling the activities of such partnership or trust resulting in the persons or entities owning or controlling a majority of such shares, partnership interests or activities of such partnership or trust at the beginning of such period no longer having such ownership or control shall be regarded as equivalent to an assignment of this Lease to the persons or entities acquiring such ownership or control and shall be subject to all the provisions of this Article 9 to the same extent and for all intents and purposes as though such an assignment. 10. INDEMNIFICATION. None of the Landlord Entities shall be liable and Tenant hereby waives all claims against them for any damage to any property or any injury to any person in or about the Premises or the Building by or from any cause whatsoever (including without limiting the foregoing, rain or water leakage of any character from the roof, windows, walls, basement, pipes, plumbing works or appliances, the Building not being in good condition or repair, gas, fire, oil, electricity or theft), except to the extent caused by or arising form the gross negligence or willful misconduct of Landlord or its agents, employees or contractors. Tenant shall protect, indemnify and hold the Landlord Entities harmless from and against any and all loss, claims, liability or costs (including court costs and attorney's fees) incurred by reason of (a) any damage to any property (including but not limited to property of any Landlord Entity) or any injury (including but not limited to death) to any person occurring in, on or about the Premises or the Building to the extent that such injury or damage shall be caused by or arise from any actual or alleged act, neglect, fault, or omission by or of Tenant, its agents, servants, employees, invitees, or visitors to meet any standards imposed by any duty with respect to the injury or damage; (b) the conduct or management of any work or thing whatsoever done by the Tenant in or about the Premises or from transactions of the Tenant concerning the Premises; (c) Tenant's failure to comply with any and all governmental laws, ordinances and regulations applicable to the condition or use of the Premises or its occupancy; or (d) any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of the Tenant to be performed pursuant to this Lease. The provisions of this Article shall survive the termination of this Lease with respect to any claims or liability accruing prior to such termination. 11. INSURANCE. 11.1 Tenant shall keep in force throughout the Term: (a) a Commercial General Liability insurance policy or policies to protect the Landlord Entities against any liability to the public or to any invitee of Tenant or a Landlord Entity incidental to the use of or resulting from any accident occurring in or upon the Premises with a limit of not less than $1,000,000.00 per occurrence and not less than $2,000,000.00 in the annual aggregate, or such larger amount as Landlord may prudently require from time to time, covering bodily injury and property damage liability and $1,000,000 products/completed operations aggregate; (b) Business Auto Liability covering owned, non-owned and hired vehicles with a limit of not less than $1,000,000 per accident; (c) insurance protecting against liability under Worker's Compensation Laws with limits at least as required by statute; (d) Employers Liability with limits of $500,000 each accident, $500,000 disease policy limit, $500,000 disease--each employee; (e) All Risk or Special Form coverage protecting Tenant against loss of or damage to Tenant's alterations, additions, improvements, carpeting, floor coverings, panelings, decorations, fixtures, inventory and other business personal property situated in or about the Premises to the full replacement value of the property so insured; and, (f) Business Interruption Insurance with limit of liability representing loss of at least approximately six months of income. 11.2 Each of the aforesaid policies shall (a) be provided at Tenant's expense; (b) name the Landlord Entities as additional insureds; (c) be issued by an insurance company with a minimum Best's rating of "A:VII" during the Term; and (d) provide that said insurance shall not be canceled unless thirty (30) days prior written notice (ten days for non-payment of premium) shall have been given to Landlord; and said policy or policies or certificates thereof shall be delivered to Landlord by Tenant upon the Commencement Date and at least thirty (30) days prior to each renewal of said insurance. 6 11.3 Whenever Tenant shall undertake any alterations, additions or improvements in, to or about the Premises ("Work") the aforesaid insurance protection must extend to and include injuries to persons and damages to property arising in connection with such Work, without limitation including liability under any applicable structural work act, and such other insurance as Landlord shall require; and the policies of or certificates evidencing such insurance must be delivered to Landlord prior to commencement of any such Work. 12. WAIVER OF SUBROGATION. So long as their respective insurers so permit, Tenant and Landlord hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage, All Risks or other insurance now or hereafter existing for the benefit of the respective party but only to the extent of the net insurance proceeds payable under such policies. Each party shall obtain any special endorsements required by their insurer to evidence compliance with the aforementioned waiver. 13. SERVICES AND UTILITIES. 13.1 Provided Tenant shall not be in default under this Lease, and subject to the other provisions of this Lease, Landlord agrees to furnish to the Premises during ordinary business hours on generally recognized business days (but exclusive in any event of Sundays and legal holidays), the following services and utilities subject to the rules and regulations of the Building prescribed form time to time: (a) water suitable for normal office use of the Premises; (b) heat and air conditioning required in Landlord's judgment for the use and occupation of the Premises; (c) cleaning and janitorial service; (d) elevator service by nonattended automatic elevators; (e) such window washing as may from time to time in Landlord's judgment be reasonably required; and, (f) equipment to bring to Tenant's meter, electricity for lighting, convenience outlets and other normal office use. To the extent that Tenant is not billed directly by a public utility, Tenant shall pay, upon demand, as additional rent, for all electricity used by Tenant in the premises. The charge shall be at the rates charged for such services by the local public utility. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rental by reason of Landlord's failure to furnish any of the foregoing, unless such failure shall persist for an unreasonable time after written notice of such failure is given to Landlord by Tenant and provided further that Landlord shall not be liable when such failure is caused by accident, breakage, repairs, labor disputes of any character, energy usage restrictions or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall use reasonable efforts to remedy any interruption in the furnishing of services and utilities. 13.2 Should Tenant require any additional work or service, as described above, including services furnished outside ordinary business hours specified above, Landlord may, on terms to be agreed, upon reasonable advance notice by Tenant, furnish such additional service and Tenant agrees to pay Landlord such charges as may be agreed upon, including any tax imposed thereon, but in no event at a charge less than Landlord's actual cost plus overhead for such additional service and, where appropriate, a reasonable allowance for depreciation of any systems being used to provide such service. 13.3 Wherever heat-generating machines or equipment are used by Tenant in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in or for the benefit of the Premises and the cost thereof, including the cost of installation and the cost of operations and maintenance, shall be paid by Tenant to Landlord upon demand as such additional rent. 13.4 Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises, including but not limited to, electronic data processing machines and machines using current in excess of 200 watts or 110 volts, which will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises for normal office use, nor connect with electric current, except through existing electrical outlets in the Premises, or water pipes, any apparatus or device for the purposes of using electrical current or water. If Tenant shall require water or electric current in excess of that usually furnished or supplied for use of the Premises as normal office use, Tenant shall procure the prior written consent of Landlord for the use thereof, which Landlord may refuse, and if Landlord does consent, Landlord may cause a water meter or electric current meter to be installed so as to measure the amount of such excess water and electric current. The cost of any such meters shall be paid for by Tenant. Tenant agrees to pay as additional rent to Landlord promptly upon demand therefor, the cost of all such excess water and electric current consumed (as shown by said meters, if any, or, if none, as reasonable estimated by Landlord) at the rates charged for such services by the local public utility or agency, as the case may be, furnishing the same, plus any additional expense incurred in keeping account of the water and electric current so consumed. 14. HOLDING OVER. Tenant shall pay Landlord for each day Tenant retains possession of the Premises or part of them after termination of this Lease by lapse of time or otherwise at the rate ("Holdover Rate") which shall be 200% of the greater of: (a) the amount of the Annual Rent for the last period prior to the date of such termination plus all Rent Adjustments under Article 4; and, (b) the then market rental value of the Premises as determined by Landlord assuming a new lease of the Premises of the then usual duration and other terms, in either case prorated on 7 a daily basis, and also pay all damages sustained by Landlord by reason of such retention. If Landlord gives notice to Tenant of Landlord's election to that effect, such holding over shall constitute renewal of this Lease for a period from month to month or one year, whichever shall be specified in such notice, in either case at the Holdover Rate, but if the Landlord does not so elect, no such renewal shall result notwithstanding acceptance by Landlord of any sums due hereunder after such termination; and instead, a tenancy at sufferance at the Holdover Rate shall be deemed to have been created. In any event, no provision of this Article 14 shall be deemed to waive Landlord's right of reentry or any other right under this Lease or at law. 15. SUBORDINATION. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to ground or underlying leases and to the lien of any mortgages or deeds of trust now or hereafter placed on, against or affecting the Building, Landlord's interest or estate in the Building, or any ground or underlying lease; provided, however, that if the lessor, mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant's interest in this Lease be superior to any such instrument, then, by notice to Tenant, this Lease shall be deemed superior, whether this Lease was executed before or after said instrument. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver upon demand such further instruments evidencing such subordination or superiority of this Lease as may be required by Landlord. 16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with all the rules and regulations as set forth in Exhibit C to this Lease and all reasonable modifications of and additions to them form time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any such rules and regulations. 17. REENTRY BY LANDLORD. 17.1 Landlord reserves and shall at all times have the right to re-enter the Premises to inspect the same, to supply janitor service and any other service to be provided by Landlord to Tenant under this Lease, to show said Premises to prospective purchasers, mortgagees or tenants, and to alter, improve or repair the Premises and any portion of the Building, without abatement of rent, and may for that purpose erect, use and maintain scaffolding, pipes, conduits and other necessary structures and open any wall, ceiling or floor in and through the Building and Premises where reasonably required by the character of the work to be performed, provided entrance to the Premises shall not be blocked thereby, and further provided that the business of Tenant shall not be interfered with unreasonably. 17.2 Landlord shall have the right at any time to change the arrangement and/or locations of entrances, or passageways, doors and doorways, and corridors, windows, elevators, stairs, toilets or other public parts of the Building and to change the name, number or designation by which the Building is commonly known. In the event that Landlord damages any portion of any wall or wall covering, ceiling, or floor or floor covering within the Premises, Landlord shall repair or replace the damaged portion to match the original as nearly as commercially reasonable but shall not be required to repair or replace more than the portion actually damaged. 17.3 Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, any other loss occasioned by any action of Landlord authorized by this Article 17. Tenant agrees to reimburse Landlord, on demand, as additional rent, for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease. 17.4 For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency to obtain entry to any portion of the Premises. As to any portion to which access cannot be had by means of a key or keys in Landlord's possession, Landlord is authorized to gain access by such means as Landlord shall elect and the cost of repairing any damage occurring in doing so shall be borne by Tenant and paid to Landlord as additional rent upon demand. 18. DEFAULT. 18.1 Except as otherwise provided in Article 20, the following events shall be deemed to be Events of Default under this Lease: 18.1.1 Tenant shall fail to pay when due any sum of money becoming due to be paid to Landlord under this Lease, whether such sum be any installment of the rent reserved by this Lease, any other amount treated 8 as additional rent under this Lease, or any other payment or reimbursement to Landlord required by this Lease, whether or not treated as additional rent under this Lease, and such failure shall continue for a period of five days after written notice that such payment was not made when due, but if any such notice shall be given, for the twelve month period commencing with the date of such notice, the failure to pay within five days after due any additional sum of money becoming due to be paid to Landlord under this Lease during such period shall be an Event of Default, without notice. 18.1.2 Tenant shall fail to comply with any term, provision or covenant of this Lease which is not provided for in another Section of this Article and shall not cure such failure within twenty (20) days (forthwith, if the failure involves a hazardous condition) after written notice of such failure to Tenant. 18.1.3 Tenant shall fail to vacate the Premises immediately upon termination of this Lease, by lapse of time or otherwise, or upon termination of Tenant's right to possession only. 18.1.4 Tenant shall become insolvent, admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make an assignment for the benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the United States or any state thereof. 18.1.5. A court of competent jurisdiction shall enter an order, judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of Tenant, or of the whole or any substantial part of its property, without the consent of Tenant, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the bankruptcy laws of the United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within thirty (30) days from the date of entry thereof. 19. REMEDIES. 19.1 Except as otherwise provided in Article 20, upon the occurrence of any of the Events of Default described or referred to in Article 18, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever, concurrently or consecutively and not alternatively: 19.1.1 Landlord may, at its election, terminate this Lease or terminate Tenant's right to possession only, without terminating the Lease. 19.1.2 Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant's right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Premises in such event and to repossess Landlord of the premises as of Landlord's former estate and to expel or remove Tenant and any others who may be occupying or be within the Premises and to remove Tenant's signs and other evidence of tenancy and all other property of Tenant therefrom without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant waiving any right to claim damages for such re-entry and expulsion, and without relinquishing Landlord's right to rent or any other right given to Landlord under this Lease or by operation of law. 19.1.3 Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all rent, including any amounts treated as additional rent under this Lease, and other sums due and payable by Tenant on the date of termination, plus as liquidated damages and not as penalty, an amount equal to the sum of: (a) an amount equal to the then present value of the rent reserved in this Lease for the residue of the stated Term of this Lease including any amounts treated as additional rent under this Lease and all other sums provided in this Lease to be paid by Tenant, minus the fair rental value of the Premises for such residue; (b) the value of the time and expense necessary to obtain a replacement tenant or tenants, and the estimated expenses described in Section 19.1.4 relating to recovery of the Premises, preparation for reletting and for reletting [ILLEGIBLE] itself; and (c) the cost of performing any other covenants which would have otherwise been performed by Tenant. 19.1.4 Upon any termination of Tenant's right to possession only without termination of the Lease: 19.1.4.1 Neither such termination of Tenant's right to possession nor Landlord's taking and holding possession thereof as provided in Section 19.1.2 shall terminate the Lease or release Tenant, in whole or in part, from any obligation, including Tenant's obligation to pay the rent, including any amounts treated as additional rent, under this Lease for the full Term, and if Landlord so elects Tenant shall pay forthwith to Landlord 9 the sum equal to the entire amount of the rent, including any amounts treated as additional rent under this Lease, for the remainder of the Term plus any other sums provided in this Lease to be paid by Tenant for the remainder of the Term. 19.1.4.2 Landlord may, but need not, relet the Premises or any part thereof for such rent and upon such terms as Landlord, in its sole discretion, shall determine (including the right to relet the premises for a greater or lesser term than that remaining under this Lease, the right to relet the Premises as a part of a larger area, and the right to change the character or use made of the Premises). In connection with or in preparation for any reletting, Landlord may, but shall not be required to, make repairs, alterations and additions in or to the Premises and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with Landlord's expenses of reletting, including, without limitation, any commission incurred by Landlord. If Landlord decides to relet the Premises or a duty to relet is imposed upon Landlord by law, Landlord and Tenant agree that nevertheless Landlord shall at most be required to use only the same efforts Landlord then uses to lease premises in the Building generally and that in any case that Landlord shall not be required to give any preference or priority to the showing or leasing of the Premises over any other space that Landlord may be leasing or have available and may place a suitable prospective tenant in any such other space regardless of when such other space becomes available. Landlord shall not be required to observe any instruction given by Tenant about any reletting or accept any tenant offered by Tenant unless such offered tenant has a creditworthiness acceptable to Landlord and leases the entire Premises upon terms and conditions including a rate of rent (after giving effect to all expenditures by Landlord for tenant improvements, brokers's commissions and other leasing costs) all no less favorable to Landlord than as called for in this Lease, nor shall Landlord be required to make or permit any assignment or sublease for more than the current term or which Landlord would not be required to make or permit under the provisions of Article 19. 19.1.4.3 Until such times as Landlord shall elect to terminate the Lease and shall thereupon be entitled to recover the amounts specified in such case in Section 19.1.3, Tenant shall pay to Landlord upon demand the full amount of all rent, including any amounts treated as additional rent under this Lease and other sums reserved in this Lease for the remaining Term, together with the costs of repairs, alterations, additions, redecorating and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including attorney's fees and broker's commissions), as the same shall then be due or become due from time to time, less only such consideration as Landlord may have received from any reletting of the Premises; and Tenant agrees that Landlord may file suits from time to time to recover any sums falling due under this Article 19 as they become due. Any proceeds of reletting by Landlord in excess of the amount then owed by Tenant to Landlord from time to time shall be credited against Tenant's future obligations under this Lease but shall not otherwise be refunded to Tenant or inure to Tenant's benefit. 19.2 Landlord may, at Landlord's option, enter into and upon the Premises if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible under this Lease and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage or interruption of Tenant's business resulting therefrom. If Tenant shall have vacated the Premises, Landlord may at Landlord's option re-enter the Premises at any time during the last six months of the then current Term of this Lease and make any and all such changes, alterations, revisions, additions and tenant and other improvements in or about the Premises as Landlord shall elect, all without any abatement of any of the rent otherwise to be paid by Tenant under this Lease. 19.3 If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies arising under this Lease, Tenant agrees to pay all Landlord's attorney's fees so incurred. Tenant expressly waives any right to: (a) trial by jury; and (b) service of any notice required by any present or future law or ordinance applicable to landlords or tenants but not required by the terms of this Lease. 19.4 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or any other remedies provided by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in this Lease constitute a forfeiture or waiver of any rent due to Landlord under this Lease or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants contained in this Lease. 19.5 No act or thing done by Landlord or its agents during the Term shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of said Premises shall be valid, unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants contained in this Lease shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants contained in this Lease, Landlord's acceptance of the payment of rental or other payments after the occurrence of an Event of Default shall not be construed as a waiver of such Default, unless Landlord so notifies Tenant in writing. 10 Forbearance by Landlord in enforcing one or more of the remedies provided in this Lease upon an Event of Default shall not be deemed or construed to constitute a waiver of such Default or of Landlord's right to enforce any such remedies with respect to such Default or any subsequent Default. 19.6 To secure the payment of all rentals and other sums of money becoming due from Tenant under this Lease, Landlord shall have and Tenant grants to Landlord a first lien upon the leasehold interest of Tenant under this Lease, which lien may be enforced in equity, and a continuing security interest upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant situated on the Premises, and such property shall not be removed therefrom without the consent of Landlord until all arrearages in rent as well as any and all other sums of money then due to Landlord under this Lease shall first have been paid and discharged. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided in this Lease or by law, all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the property described in this Section 19.6 at a public or private sale upon five (5) days' notice to Tenant. Tenant shall execute all such financing statements and other instruments as shall be deemed necessary or desirable in Landlord's discretion to perfect the security interest hereby created. 19.7 Any and all property which may be removed from the Premises by Landlord pursuant to the authority of this Lease or of law, to which Tenant is or may be entitled, may be handled, removed and/or stored, as the case may be, by or at the direction of Landlord but at the risk, costs and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further payment or credit by Landlord to Tenant. 20. TENANT'S BANKRUPTCY OR INSOLVENCY. 20.1 If at any time and for so long as Tenant shall be subjected to the provisions of the United States Bankruptcy Code or other law of the United States or any state thereof for the protection of debtors as in effect at such time (each a "Debtor's Law"): 20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or receiver of Tenant's assets (each a "Tenant's Representative") shall have no greater right to assume or assign this Lease or any interest in this Lease, or to sublease any of the Premises than accorded to Tenant in Article 9, except to the extent Landlord shall be required to permit such assumption, assignment or sublease by the provisions of such Debtor's Law. Without limitation of the generality of the foregoing, any right of any Tenant's Representative to assume or assign this Lease or to sublease any of the Premises shall be subject to the conditions that: 20.1.1.1 Such Debtor's Law shall provide to Tenant's Representative a right of assumption of this Lease which Tenant's Representative shall have timely exercised and Tenant's Representative shall have fully cured any default of Tenant under this Lease. 20.1.1.2 Tenant's Representative or the proposed assignee, as the case shall be, shall have deposited with Landlord as security for the timely payment of rent an amount equal to the larger of: (a) three months' rent and other monetary charges accruing under this Lease; and (b) any sum specified in Article 5; and shall have provided Landlord with adequate other assurance of the future performance of the obligations of the Tenant under this Lease. Without limitation, such assurances shall include, at least, in the case of assumption of this Lease, demonstration to the satisfaction of the Landlord that Tenant's Representative has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that Tenant's Representative will have sufficient funds to fulfill the obligations of Tenant under this Lease; and in the case of assignment, submission of current financial statements of the proposed assignee, audited by an independent certified public accountant reasonably acceptable to Landlord and showing a net worth and working capital in amounts determined by Landlord to be sufficient to assure the future performance by such assignee of all of the Tenant's obligations under this Lease. 20.1.1.3 The assumption or any contemplated assignment of this Lease or subleasing any part of the Premises, as shall be the case, will not breach any provision in any other lease, mortgage, financing agreement or other agreement by which Landlord is bound. 20.1.1.4 Landlord shall have, or would have had absent the Debtor's Law, no right under Article 9 to refuse consent to the proposed assignment or sublease by reason of the identity or nature of the proposed assignee or sublessee or the proposed use of the Premises concerned. 11 21. QUIET ENJOYMENT. Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, while paying the rental and performing its other covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises for the Term without hindrance or molestation from Landlord subject to the terms and provisions of this Lease. Landlord shall not be liable for any interference or disturbance by other tenants or third persons, nor shall Tenant be released from any of the obligations of this Lease because of such interference or disturbance. 22. DAMAGE BY FIRE, ETC. 22.1 In the event the Premises or the Building are damaged by fire or other cause and in Landlord's reasonable estimation such damage can be materially restored within ninety (90) days, Landlord shall forthwith repair the same and this Lease shall remain in full force and effect, except that Tenant shall be entitled to a proportionate abatement in rent from the date of such damage. Such abatement of rent shall be made pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and occupancy by Tenant of the Premises from time to time. Within forty-five (45) days from the date of such damage, Landlord shall notify Tenant, in writing, of Landlord's reasonable estimation of the length of time within which material restoration can be made, and Landlord's determination shall be binding on Tenant. For purposes of this Lease, the Building or Premises shall be deemed "materially restored" if they are in such condition as would not prevent or materially interfere with Tenant's use of the Premises for the purpose for which it was being used immediately before such damage. 22.2 If such repairs cannot, in Landlord's reasonable estimation, be made within ninety (90) days, Landlord and Tenant shall each have the option of giving the other, at any time within sixty (60) days after such damage, notice terminating this Lease as of the date of such damage. In the event of the giving of such notice, this Lease shall expire and all interest of the Tenant in the Premises shall terminate as of the date of such damage as if such date had been originally fixed in this Lease for the expiration of the Term. In the event that neither Landlord nor Tenant exercises its option to terminate this Lease, then Landlord shall repair or restore such damage, this Lease continuing in full force and effect, and the rent hereunder shall be proportionately abated as provided in Section 22.1. 22.3 Landlord shall not be required to repair or replace any damage or loss by or from fire or other cause to any panelings, decorations, partitions, additions, railings, ceilings, floor coverings, office fixtures or any other property or improvements installed on the Premises or belonging to Tenant. Any insurance which may be carried by Landlord or Tenant against loss or damage to the Building or Premises shall be for the sole benefit of the party carrying such insurance and under its sole control. 22.4 In the event that Landlord should fail to complete such repairs and material restoration within sixty (60) days after the date estimated by Landlord therefor as extended by this Section 22.4, Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, within fifteen (15) days after the expiration of said period of time, whereupon the Lease shall end on the date of such notice or such later date fixed in such notice as if the date of such notice was the date originally fixed in this Lease for the expiration of the Term; provided, however, that if construction is delayed because of changes, deletions or additions in construction requested by Tenant, strikes, lockouts, casualties, Acts of God, war, material or labor shortages, government regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed. 22.5 Notwithstanding anything to the contrary contained in this Article: (a) Landlord shall not have any obligation whatsoever to repair, reconstruct, or restore the Premises when the damages resulting from any casualty covered by the provisions of this Article 22 occur during the last twelve (12) months of the Term or any extension thereof, but if Landlord determines not to repair such damages Landlord shall notify Tenant and if such damages shall render any material portion of the Premises untenantable Tenant shall have the right to terminate this Lease by notice to Landlord within fifteen (15) days after receipt of Landlord's notice; and (b) in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises or Building requires that any insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon this Lease shall end on the date of such damage as if the date of such damage were the date originally fixed in this Lease for the expiration of the Term. 22.6 In the event of any damage or destruction to the Building or Premises by any peril covered by the provisions of this Article 22, it shall be Tenant's responsibility to properly secure the Premises and upon notice from Landlord to remove forthwith, at its sole cost and expense, such portion of all of the property belonging to Tenant or its licensees from such portion or all of the Building or Premises as Landlord shall request. 12 23. EMINENT DOMAIN. If all or any substantial part of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, or conveyance in lieu of such appropriation, either party to this Lease shall have the right, at its option, of giving the other, at any time within thirty (30) days after such taking, notice terminating this Lease, except that Tenant may only terminate this Lease by reason of taking or appropriation, if such taking or appropriation shall be so substantial as to materially interfere with Tenant's use and occupancy of the Premises. If neither party to this Lease shall so elect to terminate this Lease, the rental thereafter to be paid shall be adjusted on a fair and equitable basis under the circumstances. In addition to the rights of Landlord above, if any substantial part of the Building shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, and regardless of whether the Premises or any part thereof are so taken or appropriated, Landlord shall have the right, at its sole option, to terminate this Lease. Landlord shall be entitled to any and all income, rent, award, or any interest whatsoever in or upon any such sum, which may be paid or made in connection with any such public or quasi-public use or purpose, and Tenant hereby assigns to Landlord any interest it may have in or claim to all or any part of such sums, other than any separate award which may be made with respect to Tenant's trade fixtures and moving expenses; Tenant shall make no claim for the value of any unexpired Term. 24. SALE BY LANDLORD. In event of sale or conveyance by Landlord of the Building, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, expressed or implied, contained in this Lease in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. Except as set forth in this Article 24, this Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. If any security has been given by Tenant to secure the faithful performance of any of the covenants of this Lease, Landlord may transfer or deliver any security, as such, to Landlord's successor in interest and thereupon Landlord shall be discharged from any further liability with regard to said security. 25. ESTOPPEL CERTIFICATES. Within ten (10) days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord or mortgagee or prospective mortgagee a sworn statement certifying: (a) the date of commencement of this Lease; (b) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications to this Lease, that this lease is in full force and effect, as modified, and stating the date and nature of such modifications); (c) the date to which the rent and other sums payable under this Lease have been paid; (d) the fact that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (e) such other matters as may be requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Article 25 may be relied upon by any mortgagee, beneficiary or purchaser and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such estoppel certificate. Tenant irrevocably agrees that if Tenant fails to execute and deliver such certificate within such ten (10) day period Landlord or Landlord's beneficiary or agent may execute and deliver such certificate on Tenant's behalf, and that such certificate shall be fully binding on Tenant. 26. SURRENDER OF PREMISES. 26.1 Tenant shall, at least thirty (30) days before the last day of the Term, arrange to meet Landlord for a joint inspection of the Premises. In the event of Tenant's failure to arrange such joint inspection to be held prior to vacating the Premises, Landlord's inspection at or after Tenant's vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. 26.2 At the end of the Term or any renewal of the Term or other sooner termination of this Lease, Tenant will peaceably deliver up to Landlord possession of the Premises, together with all improvements or additions upon or belonging to the same, by whomsoever made, in the same conditions received or first installed, broom clean and free of all debris, excepting only ordinary wear and tear and damage by fire or other casualty. Tenant may, and at Landlord's request shall, at Tenant's sole cost, remove upon termination of this Lease, any and all furniture, furnishings, movable partitions of less than full height from floor to ceiling, trade fixtures and other property installed by Tenant, title to which shall not be in or pass automatically to Landlord upon such termination, repairing all damage caused by such removal. Property not so removed shall, unless requested to be removed, be deemed abandoned by the Tenant and title to the same shall thereupon pass to Landlord under this Lease as by a bill of sale. All other alterations, additions and improvements in, on or to the Premises shall be dealt with and disposed of as provided in Article 6 hereof. 26.3 All obligations of Tenant under this Lease not fully performed as of the expiration or earlier termination of the Term shall survive the expiration or earlier termination of the Term. In the event that Tenant's failure to perform prevents Landlord from releasing the Premises, Tenant shall continue to pay rent pursuant to the provisions of Article 14 until such performance is complete. Upon the expiration or earlier termination of the Term, Tenant shall pay to Landlord the amount, as estimated by Landlord, necessary to repair and restore the Premises as provided in this Lease and/or to discharge Tenant's obligation for unpaid amounts due or to become due to 13 Landlord. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. Any otherwise unused Security Deposit shall be credited against the amount payable by Tenant under this Lease. 27. NOTICES. Any notice or document required or permitted to be delivered under this Lease shall be addressed to the intended recipient, shall be transmitted personally, by fully prepaid registered or certified United States Mail return receipt requested, or by reputable independent contract delivery service furnishing a written record of attempted or actual delivery, and shall be deemed to be delivered when tendered for delivery to the addressee at its address set forth on the Reference Page, or at such other address as it has then last specified by written notice delivered in accordance with this Article 27, or if to Tenant either its aforesaid address or its last known registered office or home of a general partner or individual owner, whether or not actually accepted or received by the addressee. 28. TAXES PAYABLE BY TENANT. In addition to rent and other charges to be paid by Tenant under this Lease, Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within the contemplation of the parties to this Lease: (a) upon, allocable to, or measured by or on the gross or net rent payable under this Lease, including without limitation any gross income tax or excise tax levied by the State, any political subdivision thereof, or the Federal Government with respect to the receipt of such rent; (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of the Premises or any portion thereof, including any sales, use or service tax imposed as a result thereof; (c) upon or measured by the Tenant's gross receipts or payroll or the value of Tenant's equipment, furniture, fixtures and other personal property of Tenant or leasehold improvements, alterations or additions located in the Premises; or (d) upon this transaction or any document to which Tenant is a party creating or transferring any interest of Tenant in this Lease or the Premises. In addition to the foregoing, Tenant agrees to pay, before delinquency, any and all taxes levied or assessed against Tenant and which become payable during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property of Tenant located in the Premises. 29. RELOCATION OF TENANT. Landlord, at its sole expense, on at least ninety (90) days prior written notice, may require Tenant to move from the Premises to other space of comparable size and decor in order to permit Landlord to consolidate the space leased to Tenant with other adjoining space leased or to be leased to another tenant. In the event of any such relocation, Landlord will pay all expenses of preparing and decorating the new premises so that they will be substantially similar to the Premises from which Tenant is moving, and Landlord will also pay the expense of moving Tenant's furniture and equipment to the relocated premises. In such event this Lease and each and all of the terms and covenants and conditions hereof shall remain in full force and effect and thereupon be deemed applicable to such new space except that a revised Reference Page and a revised Exhibit A shall become part of this Lease and shall reflect the location of the new premises. 30. DEFINED TERMS AND HEADINGS. The Article headings shown in this Lease are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease. Any indemnification or insurance of Landlord shall apply to and inure to the benefit of all the following "Landlord Entities", being Landlord, Landlord's investment manager, and the trustees, boards of directors, officers, general partners, beneficiaries, stockholders, employees and agents of each of them. Any option granted to Landlord shall also include or be exercisable by Landlord's trustee, beneficiary, agents and employees, as the case may be. In any case where this Lease is signed by more than one person, the obligations under this Lease shall be joint and several. The terms "Tenant" and "Landlord" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators and permitted assigns, according to the context hereof. The term "rentable area" shall mean the rentable area of the Premises or the Building as calculated by the Landlord on the basis of the plans and specifications of the Building including a proportionate share of any common areas. Tenant hereby accepts and agrees to be bound by the figures for the rentable space footage of the Premises and Tenant's Proportionate Share shown on the Reference Page. 31. TENANT'S AUTHORITY. If Tenant signs as a corporation each of the persons executing this Lease on behalf of Tenant represents and warrants that Tenant has been and is qualified to do business in the state in which the Building is located, that the corporation has full right and authority to enter into this Lease, and that all persons signing on behalf of the corporation were authorized to do so by appropriate corporate actions. If Tenant signs as a partnership, trust or other legal entity, each of the persons executing this Lease on behalf of Tenant represents and warrants that Tenant has compiled with all applicable laws, rules and governmental regulations relative to its right to do business in the state and that such entity on behalf of the Tenant was authorized to do so by any and all 14 appropriate partnership, trust or other actions. Tenant agrees to furnish promptly upon request a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of Tenant to enter into this Lease. 32. COMMISSIONS. Each of the parties represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease, except as described on the Reference Page. 33. TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of its provisions. This Lease shall in all respects be governed by the laws of the state in which the Building is located. 34. SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 9, the terms, covenants and conditions contained in this Lease shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties to this Lease. 35. ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all agreements of the parties to this Lease and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument duly executed by the parties to this Lease. 36. EXAMINATION NOT OPTION. Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound by this Lease until it has received a copy of this Lease duly executed by Tenant and has delivered to Tenant a copy of this lease duly executed by Landlord, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants notwithstanding anything contained in this Lease to the contrary, Landlord may withhold delivery of possession of the Premises from Tenant until such time as Tenant has paid to Landlord any security deposit required by Article 5, the first month's rent as set forth in Article 3 and any sum owed pursuant to this Lease. 37. RECORDATION. Tenant shall not record or register this Lease or a short form memorandum hereof without the prior written consent of Landlord, and then shall pay all charges and taxes incident such recording or registration. 38. LIMITATION OF LANDLORD'S LIABILITY. Redress for any claim against Landlord under this Lease shall be limited to and enforceable only against and to the extent of Landlord's interest in the Building. The obligations of Landlord under this Lease are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of it trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof, or any beneficiaries, stockholders, employees, or agents of Landlord or the investment manager. 15 39. RENT SCHEDULE.
=========================================================================================== Period Square Feet Annual Rent Annual Rent Monthly per square foot Installment of Rent =========================================================================================== Commencement Date--7/31/99 2,960.00 $17.50 $51,800.00 $4,316.67 - ------------------------------------------------------------------------------------------- 8/1/99--7/31/2000 2,960.00 $18.00 $53,280.00 $4,440.00 - ------------------------------------------------------------------------------------------- 8/1/2000--7/31/2001 2,960.00 $18.50 $54,760.00 $4,563.33 - ------------------------------------------------------------------------------------------- 8/1/2001--7/31/2002 2,960.00 $19.00 $56,240.00 $4,686.67 - ------------------------------------------------------------------------------------------- 8/1/2002--7/31/2003 2,960.00 $19.75 $58,460.00 $4,871.67 ===========================================================================================
40. PARKING. Free surface parking is available on a non-assigned, non-exclusive basis, at a ratio of four (4) parking spaces per 1,000 square feet of rentable area. Tenant shall also be entitled to the use of one (1) reserved parking space in the covered garage. 41. RADON GAS. As required by (section) 404,056(6), Florida Statutes, the following notification is made regarding radon gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. LANDLORD: TENANT: CB SANLANDO CENTER, INC. MAGLIO, INC. By RREEF Management Company, a Delaware corporation By: /s/ Charleen E.L. Burgio By: /s/ Richard J. Maglio -------------------------------------- -------------------------- Charleen E.L. Burgio, District Manager Richard J. Maglio Title: President ------------------------- Dated: 6/18 1998 Dated: June 10, 1998 ----------------------, ------------------------ Witnesses: Witnesses: /s/ Karen S. Padgett /s/ ILLEGIBLE - ------------------------- ----------------------------- /s/ Carolyn S. Gaston /s/ Connie Patterson - ----------------------- ------------------------------ 16 EXHIBIT A attached to and made a part of Lease bearing the Lease Reference Date of May 28, 1998 between CB Sanlando Center, Inc., as Landlord and Maglio, Inc., as Tenant PREMISES Exhibit A is intended only to show the general layout of the Premises as of the beginning of the Term of this Lease. It does not in any way supersede any of Landlord's rights set forth in Section 17.2 with respect to arrangements and/or locations of public parts of the Building and changes in such arrangements and/or locations. It is not to be scaled; any measurements or distances shown should be taken as approximate. [DIAGRAM] EXHIBIT B attached to and made a part of Lease bearing the Lease Reference Date of May 28, 1998 between CB Sanlando Center, Inc., as Landlord and Maglio, Inc., as Tenant INITIAL ALTERATIONS 1. Landlord's Work. Landlord shall provide design and construction of the work described in Schedule I attached hereto ("Landlord's Work"). Tenant may not use or occupy the Premises with a number of personnel greater than is contemplated in the approved space plans. As further provided herein, Tenant shall be responsible for the incremental cost of Landlord's Work in excess of the Maximum TI Allowance (defined below). The certificate of Landlord's architect that the work to be done by Landlord pursuant to this Exhibit B has been substantially completed shall be adequate evidence that the Premises have been completed in accordance with the requirements of the Lease and that possession thereof has been deemed delivered to Tenant, for all purposes of the Lease, including the commencement of payment of rent. 2. Cost and Allowance. 2.1 Prior to commencing any of Landlord's Work, Landlord shall submit to Tenant for Tenant's approval a written estimate of the cost of Landlord's Work (an "Estimate"). Landlord may require Tenant to deposit that amount of the amount of the Estimate which exceeds the Maximum TI Allowance with Landlord within five (5) days after Landlord's written request therefor. Such deposit shall be held as security for the payment of, and shall be credited, without interest, against the sums payable by Tenant under this Lease. Landlord shall not be required to commence its work until such payment is received, and, for purposes only of determining if Landlord has timely complied with its construction obligation under Section 2.2, the Scheduled Commencement Date shall be extended one (1) day for each day that such payment is delayed after such five day period. 2.2 This Lease and the rental rates provided for herein are premised on a total cost of Landlord's Work not to exceed $20,720.00 ($7.00 per RSF, the "Maximum TI Allowance"). The "cost of Landlord's Work" includes, without limitation: 2.2.1 All costs and expenses actually incurred by Landlord pertaining to Landlord's Work, including, but not limited to, costs charged by contractors, subcontractors and general and other conditions costs and expenses in connection with preparation of the Premises for occupancy; 2.2.2 All costs and expenses of preparation of the plans for such construction, and site inspection and contract administration by Landlord's consulting architects and/or engineers; 2.2.3 All costs of permits, licenses and other approvals required for the performance of Landlord's Work; and 2.2.4 A construction management fee to Landlord of five percent (5%) of the total of all such costs under the foregoing Paragraphs 2.2.1, 2.2.2 and 2.2.3. 2.3 If the total cost of Landlord's Work exceeds the Maximum TI Allowance, the entire amount of such excess shall be borne by Tenant and shall be paid to Landlord by Tenant upon demand as additional rent under the Lease. 3. Miscellaneous 3.1 Except as set forth in this Exhibit B, Landlord has no other agreement with Tenant and has no obligation to do any work with respect to the Premises. Any other work in the Premises which may be permitted by Landlord pursuant to the terms and conditions of the Lease shall be done at Tenant's sole cost and expense and in accordance with the terms and provisions of the Lease. 3.2 All rights and remedies of Landlord herein created or otherwise existing at law or equity are cumulative, and the exercise of one or more such rights or remedies shall not be deemed to exclude or waive the right to the exercise of any other rights or remedies. All such rights and remedies may be exercised and enforced concurrently and whenever and as often as deemed desirable. 3.3 This Exhibit B shall not be deemed applicable to any additional space added to the original Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions thereto in the event of a renewal or extension of the original term of the Lease, whether by any options under the Lease or otherwise. 4. Recapture of Concessions. Tenant understands and agrees that in entering into this Lease, Landlord is relying upon receipt of all the base rent to become due with respect to all of the Leased Premises over the full term of this Lease for amortization, including an interest factor of ten (10%) per annum (the "Interest Rate") of the Concession Amount. For purposes hereof, the "Concession Amount" shall be defined as the aggregate of the Maximum TI Allowance and the brokers' commissions becoming due by reason of this Lease. Accordingly, Tenant agrees that if this Lease or Tenant's right to possession of the Leased Premises leased hereunder shall be terminated as of any date ("Termination Date") prior to the expiration of the full Term hereof by reason of a default of Tenant, there shall be due and owing to Landlord as of the day prior to the Termination Date, as rent in addition to all other amounts owed by Tenant as of such Date, the amount ("Unamortized Amount") of the Concession Amount determined as set forth below; provided, however, that in the event that such amounts are recovered by Landlord pursuant to any other provision of this Lease, Landlord agrees that it shall not attempt to recover such amounts pursuant to this paragraph. For the purposes hereof, the Unamortized Amount shall be determined in the same manner as the remaining principal balance of a mortgage with the Interest Rate payable in level payments over the same length of time would be determined; to illustrate, according to a standard mortgage amortization table the principle amount outstanding at the end of the fifth year of a loan of $1,000.00 payable in level payments with interest at 8% over ten years will be $598.00 assuming all payments to that point are made as due. SCHEDULE I LANDLORD'S WORK Construction per plans and specifications dated 6-10-98 (accepted by Tenant on 6-11-98) prepared by Scott Bray Design Associates. EXHIBIT C attached to and made a part of Lease bearing the Lease Reference Date of May 28, 1998 between CB Sanlando Center, Inc., as Landlord and Maglio, Inc., as Tenant RULES AND REGULATIONS 1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior written consent of the Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or vendor chosen by Landlord. In addition, Landlord reserves the right to change from time to time the format of the signs or lettering and to require previously approved signs or lettering to be appropriately altered. 2. If Landlord objects in writing to any curtains, blinds, shades or screens attached to or hung in or used in connection with any window or door of the Premises, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything or allow anything to be placed against or near any glass partitions or doors or windows which may appear unsightly, in the opinion of Landlord, from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Building. The halls, passages, exits entrances, shopping malls, elevators, escalators and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access to the Building of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Building and its tenants provided that nothing contained in this rule shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building. 4. The directory of the Building will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenant's property by the janitor or any other employee or any other person. 6. Landlord will furnish Tenant free of charge with two keys to each door in the Premises. Landlord may make a reasonable charge for any additional keys, and Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new or additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 8. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. 9. Tenant shall not place a load upon any floor which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position to all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to any space in the Building to such a degree as to be objectionable to Landlord or to any tenants shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. C-1 10. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. Tenant shall not waste electricity, water or air conditioning. Tenant shall keep corridor doors closed. 11. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. 12. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus and electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule. 13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown into any of them, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it. 14. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 15. Except as approved by Landlord, Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 16. Tenant shall not install, maintain or operate upon the Premises any vending machine. 17. Tenant shall store all its trash and garbage within its Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 18. No cooking shall be done or permitted by any Tenant on the Premises, except by the Tenant of Underwriters' Laboratory approved microwave over or equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 19. Tenant shall not use in any space or in the public halls of the Building any hand trucks except those equipped with the rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building. 20. Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 21. The requirements of Tenant will be attended to only upon appropriate application to the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instruction from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 22. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 23. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 24. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order in and about the Building. Tenant agrees to abide by all such rules and regulations in this Exhibit C stated and any additional rules and regulations which are adopted. C-2 25. No smoking policy: no smoking is permitted in the Building, except in areas, if any, specifically designated for smoking by Landlord. 26. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. C-3 LANDLORD'S CONSENT The undersigned, as landlord under the Lease dated May 28, 1998, by and between Magio, Inc. (Tenant) and CB Sanlando Center, Inc. (Landlord), does hereby consent to the Assignment from Maglio, Inc. to Maglio-Accufacts Pre-Employment Screening, Inc. under the following terms and conditions: 1. No Waiver. Landlord's consent shall not be deemed to be a waiver of any restrictions contained in the Lease concerning further assignment, subleasing or hypothecation of the Lease. 2. Assignor's Liability. Assignor and any guarantor of the Lease obligations shall remain liable for the performance of all provisions of the Lease, to the same extent as provided in the Lease. 3. Broker Fees. Assignor and Assignee shall indemnify, defend and hold Landlord harmless from and against any fees or commissions to any real estate broker or agent in connection with this assignment of lease. 4. Assignment Cost to Transfer. In connection with this assignment, Assignor shall pay to Landlord a fee of $500.00 to defray Landlord's cost in effecting such transfer. 5. Conflicts. In the event of any conflict between the terms and provisions of the Lease and the Assignment, the terms and provisions of the Lease shall control. 6. Landlord's Liability. Redress for any claims against Landlord under the Lease or this Assignment of Lease shall only be made against Landlord to the extent of Landlord's interest in the property to which the Premises are a part. The obligations of Landlord under the Lease and this Assignment of Lease shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, the general partners thereof or any beneficiaries, stockholders, employees or agents of Landlord, or its investment managers. LANDLORD: CB Sanlando Center, Inc. a Delaware corporation By: RREEF Management Company a Delaware corporation By: /s/ Charleen E.L. Burgio ------------------------ Charleen E.L. Burgio Title: District Manager Date: 10/13/99 EX-21.1 7 LIST OF SUBSIDIARIES Exhibit 21.1 LIST OF SUBSIDIARIES - -------------------------------------------------------------------------------- State of Names under which Subsidiary does Name of Subsidiary: Incorporation: Business: - -------------------------------------------------------------------------------- Maglio-Accufacts Pre- Maglio-Accufacts Pre-Employment Employment Screening, Inc. Delaware Screening, Inc. - -------------------------------------------------------------------------------- EX-27 8 FDS
5 The financial data schedule contains summary financial information extracted from the December 31, 1999 balance sheet and income statement and is qualified in its entirety by reference to such financial statements. 12-MOS Dec-31-1999 Jan-1-1999 Dec-31-1999 298,331 0 641,299 4,836 0 934,794 266,750 111,666 1,510,236 450,905 0 0 0 66,275 991,591 1,510,236 2,283,533 2,283,533 1,531,924 1,531,924 1,008,012 0 (4,857) (251,546) (35,980) (215,566) 0 0 0 (215,566) (0.03) (0.03)
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