SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-11873
K2 DESIGN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3886065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 BROAD STREET, 7TH FLOOR, NEW YORK, NY 10004
(Address of principal (Zip Code)
executive offices)
ISSUER'S TELEPHONE NUMBER: (212) 547-5234
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
(Title of Class)
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(Title of Class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained is 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. Yes No X
State issuer's revenues for its most recent fiscal year: $4,077,792.
As of January 31, 1997, there were outstanding 3,645,421 shares of Common
Stock (the "Common Stock") and 1,000,000 Redeemable Common Stock Purchase
Warrants (the "Warrants"). Based on the prices of the Common Stock on that
date, the approximate aggregate market value of Common Stock held by non-
affiliates was $11,512,861.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Definitive Proxy Statement, which
statement will be filed not later than 120 days after the end of the fiscal
year covered by this Report, are incorporated by reference in Part III hereof.
Certain exhibits are incorporated by reference to the Registrant's
Registration Statement on Form SB-2 and the amendments thereto, as listed in
response to Item 13(a)(2).
Transitional Small Business Disclosure Format (check one): Yes ______ No X
[The remainder of this page is intentionally blank.]
<PAGE>
THE BUSINESS SECTION AND OTHER PARTS OF THIS REPORT CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -- FACTORS
AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK" COMMENCING ON PAGE 17.
PART I
ITEM 1. BUSINESS
GENERAL
The Company's primary business is providing interactive marketing and
communications services to commercial organizations. Commencing after the
Company's initial public offering ("IPO") on July 26, 1996, the Company began
to develop its vision to become a full-service interactive marketing and
communications firm, largely in response to and in anticipation of demands from
its customers for services complementary to the Company's core Web site design
services. Complementary services the Company now provides include, among
others, development of CD-ROM discs, media placement on Web sites, consulting
services regarding Web site usage and user characteristics, development and
maintenance of Company-owned Web site advertising networks, live Internet
broadcasts and the development of brand strategies and print collateral
systems. In 1996 and 1995, approximately 65% and 80% of the Company's
revenues, respectively, were derived from development of World Wide Web sites
("Web sites"). Since its inception, the Company, alone and with others, has
designed and created more than 50 Web sites, including for the customers of MCI
Telecommunications Corporation ("MCI"), a subsidiary of MCI Communications
Corporation, and for Toys `R' Us Corporation, America Online Incorporated and
International Business Machines, Inc., among others. Accordingly, management
believes that the Company is a recognized provider of Web site development
services.
The Company believes that its core Web site expertise positions it to
effectively transition into a full service integrated, interactive marketing
and communication services firm because Web sites are increasingly being
utilized as a new medium for advertisement, promotion and technical support of
an organization's products and services.{*} Web sites can provide commercial
organizations benefits in addition to those available through conventional
media, including the ability to engage and entertain consumers, provide
in-depth information, reduce selling and operating costs, expand distribution
channels, promote major sporting and entertainment events and monitor
popularity of content and make timely changes in response to real-time
feedback. Web sites also offer businesses the ability to obtain certain
information about visitors to their sites.
The Company was founded in 1993 and initially operated a traditional
graphic design business. In August 1994 the Company shifted its principal
business to Web site design and creation but did not begin to generate
significant revenues therefrom until 1995. The Company's principal offices are
located at The New York Information Technology Center, 55 Broad Street, New
York, New York 10004 and its telephone number is (212) 547-5234. The Company's
Web site is located at http://www.k2design.com.
K2 SERVICES
The Company provides its customers with an integrated variety of
interactive media services as described by the Company's marketing slogan, "We
Build, We Market, We Measure Success." K2's core creative development team
provides a combination of marketing, communications, advertising, production,
programming and design services. K2 strives to provide comprehensive
integrated interactive marketing services by combining the aesthetic nuances of
its design staff, the technological command of its software development
personnel and the media experience of its on-line marketing teams.
To be effective, it is essential that an interactive project, whether a
Web site or a CD-ROM, be more than merely attractive and that both the product
and the information therein be easily accessible and intuitively organized. As
a provider of these services, the Company must combine creative and technical
expertise to meet its customers' needs. The Company's services add value to a
customer's project at every stage, from concept development through
completion. The Company's assignments vary significantly in their size and
complexity and the scope of services rendered by the Company in connection with
projects has ranged from limited consulting services to complete creative and
technical design and construction of multi-level Web sites, including the
capture of live video feeds and audio feeds from remote locations. Should a
customer so desire, the Company also offers numerous integrated services in
addition to those discussed above, including traditional graphic design
services, strategic marketing services, traditional media placement, logo
design for the Web site or a particular product, brochures, point-of-sale
displays and other collateral marketing materials and print advertisement
design and layout.
The Company recently began to offer media placement services intended to
increase traffic on Web sites. These services principally comprise the
identification, negotiation for and purchase of, hypertext links from other
heavily trafficked Web sites. Due to the limited information and experience
regarding Web advertising and a general unfamiliarity with the concept of
interactive advertising, advertisers require assistance with the design and
placement of advertisements on the Internet. The Company believes that if
businesses increasingly embrace the Web as an advertising vehicle, their
participation will stimulate the creation and expansion of the information and
resources, available on the Web which in turn, is expected to stimulate an
increase in the utilization of the Web by businesses.{*} The Company believes
that advertisers will seek to advertise on Web sites that offer a high volume
of traffic and feature flexible advertisement programs capable of reaching
targeted audiences.{*} However, the Internet as an advertising medium is still
evolving and, consequently, advertisers seek demonstration of its effectiveness
to justify its use.
Today, the Company provides four different interactive services: Creative
development, media buying for Web sites, media selling from Web site
advertising networks maintained by the Company, and consulting services
regarding Web site usage and user characteristics.
CREATIVE DEVELOPMENT
Comprised of personnel experienced in advertising, programming and
entertainment, the Company's core creative development team provides
integrated new media services and solutions. When first working with new
customers, the Company will follow a three-step creative and development
process: strategic concept development, production and testing. During the
conceptual phase the Company will conduct a needs assessment briefing with
the customer in order to determine the customer's objectives and functional
specifications of the product, media plan and other requirements. The
creative approach is then developed incorporating the marketing strategy,
design, copy and programming. During the implementation phase, all artwork
and copy are developed and digitized. The content is then produced
utilizing various development tools and programming languages. Product
testing on all anticipated computer configurations takes place at various
stages of the implementation process. Testing may continue after the
product, or project, launch through the Company's reporting and tracking
consulting team. This will be used to determine the project's effectiveness
and whether further development is needed.
MEDIA BUYING FOR WEB SITES
K2 NetMedia<trademark> offers customers full service traditional and new
media planning services aimed at maximizing the effectiveness of a Web
presence. This team plans and executes advertising campaigns, as well as
promotions, advertisements and marketing initiatives. NetMedia<trademark>
integrates the core development team's production, award winning creative,
and strategic marketing experience to provide customers with a diversified
communications plan. The team's staff is experienced in all media:
television, radio, cable, print, outdoor and direct. However, to date, the
NetMedia<trademark> team has principally engaged in media purchasing on the
Web and in print. The URL for K2 NetMedia<trademark> is
http://www.k2design.com/net.html.
MEDIA SELLING FROM WEB SITE ADVERTISING NETWORKS
To maximize advertisers' return on investment and expand distribution,
CLIQNOW!<trademark> develops branded content networks that bundle together
several theme-related Web sites. By bundling theme-related sites, these
networks deliver increased ad-views to advertisers as compared to the
individual sites on a stand-alone basis. To date, three networks have been
developed: CLIQGolf!<trademark>, CLIQFinancial!<trademark> and
CLIQCollege!<trademark> although only CLIQGolf!<trademark> has been launched.
The Company maintains a distinctive product identity and a separate physical
location for the CLIQ networks in order to preserve the independence of this
media selling business from the media buying business conducted by K2
NetMedia<trademark>. The URLs for CLIQNow!<trademark> and CLIQGolf! are
http://www.cliqnow.com and http://www.cliqgolf.com.
CONSULTING
VisiTrac<trademark> TSP (Tracking Solutions Provider) provides a customized
solution for measuring return on investment of a Web site and assessing the
characteristics of visitors to that site. These services are intended to
fill the gap between various "off the shelf" Web based reporting packages
and the particular needs of specific businesses, particularly since the
Company believes that there are no universally useful and reliable
techniques used to measure a Web site's productivity and value. While there
are many measurement packages available on the market, the Company
recognizes the need to provide each customer with a unique Web site Activity
Tracking and Statistics (WATS) solution to suit its specific business model.
Accordingly, Company personnel continually monitor product development and
innovations to provide objective market expertise in tracking and
measurement. Company consultants assist customers in choosing the optimal
package for their needs. VisiTrac<trademark> TSP services also include
publication of the VT Quarterly, a quarterly training and industry analysis
publication. The URL for VisiTrac<trademark> is http://www.visitrac.com.
K2 STRENGTHS
CREATIVE EXPERTISE
The Company believes that, in addition to the creative elements required in
traditional graphic design, superior interactive advertising assignments
require that the end product be easy-to-use with intuitive interfaces,
seamlessly integrated technologies and an engaging look and feel. Management
believes that the Company's creative developers are fully capable across the
spectrum of expertise required to meet customers' creative needs. In order to
maintain high levels of creativity and quality, the Company intends to recruit
the best talent available.{*} However, competition for creative personnel is
especially intense and there can be no assurance that the Company will attract
or retain adequate creative talent to accomplish these goals.
TECHNOLOGICAL EXPERTISE
The Company believes the creative application of leading technologies is
also crucial to the success of its business. The Company's nine technical
programming personnel are skilled in various computer operating systems, tools
and languages, including C/C++, Macromedia products, Basic, FORTRAN, UNIX,
Perl, Java, VRML, Real Audio and Video, Windows NT, Netscape server platforms
and SUN and UNIX operating systems, among others. These programmers are
responsible for providing complex computer programming for special features on
CD-ROM products and Web sites as well as periodically assessing new
technologies in order to identify and deploy, directly and through independent
contractors, those that are most promising for enhancing the Company's
business.
FOCUS ON CUSTOMERS' BUSINESS OBJECTIVES
The Company has made understanding customers' business challenges the
primary focus which guides its customer services. The Company often works with
customers' management to determine how best to integrate Web sites into the
customers' business goals.
K2 STRATEGY
CAPITALIZE ON ACCOMPLISHMENTS AND MARKET OPPORTUNITIES
The Company believes that the proliferation of the Internet will continue to
provide substantial opportunities to the Company and that its successfully
completed projects will continue to enhance its marketing efforts.{*} The
Company's management does not, however, believe that the Company's primary
business will always be limited to the Internet.{*} The Company produces
digital content which may be carried over a variety of emerging technologies
such as Vertical Blanking Interval, digital satellite and interactive
television.{*} Although there is no assurance that any of these technologies
will achieve acceptance in the marketplace, the Company believes its services
could be utilized over these channels as well.
LEVERAGE DEVELOPMENT EFFORTS
In the course of developing customized Web sites for certain customers, the
Company may gain technical know-how that can be applied in other efforts. This
knowledge is preserved by the Company in order to facilitate access by the
entire production staff, potentially reducing future development costs.{*}
DEPLOY LEADING TECHNOLOGIES
The Company's objective is to apply both proven and emerging technologies as
they become available in order to maximize the effectiveness of its Web site
services. The Company has formed non-exclusive relationships with key
technology providers in an effort to gain access to, and influence the features
of, their technologies in development.
CHANNEL MARKETING
The Company will continue to focus on developing strategic relationships
with Channel Sources (defined below) that seek to augment their businesses by
making available the Company's services to their own customer base. See "--
Marketing; Channel Sources."
MARKETING
GENERAL
The Company markets its services directly and seeks to form strategic
marketing relationships with third parties. The Company's marketing efforts
have expanded as the scope of its services has increased. As of December 31,
1996, the Company has eight employees dedicated to sales and marketing and two
of the Company's executive officers spend a portion of their time marketing the
Company's services. The Company also seeks to attract new customers through
other methods, including referrals from existing customers, and the Company
advertises its services in certain trade and business publications. The
Company also seeks to cross-sell its various services, which are complementary
to each others, to its customers and prospective customers through sales
presentations that encourage customers to utilize all of the Company's
services.
CHANNEL SOURCES
The Company's marketing efforts to date have substantially focused on
developing strategic relationships with other companies, such as advertising
agencies and Internet service providers ("Channel Sources") that seek to
augment their businesses by making available Web site design and creation
services provided by the Company and other third parties. The Company
therefore targets advertising agencies that do not offer Web site related
services, providers of other Internet services (e.g., access, connectivity and
Web site hosting) and other businesses whose customers are likely to require
the services that the Company provides.
RELATIONSHIP WITH MCI
To date, the Company's only significant continuing Channel Source
relationship has been and continues to be with MCI. In 1996 and 1995, sales to
MCI and to referrals from MCI, were approximately $355,000 and $180,000,
respectively, and accounted for approximately nine percent and 15% of the
Company's revenues, making MCI the Company's fifth and second largest source of
revenues in the respective years.
The Company's ongoing referral relationship with MCI relates to an Internet
initiative of MCI commenced in February 1996 pursuant to which MCI salespersons
offer comprehensive Web site services to their customers and potential
customers. In connection with this initiative, MCI co-markets the Company's
services and after pre-screening an interested customer, introduces that
customer to the Company. Executives of the Company have participated in
presentations made to MCI salespersons in the northeastern United States
regarding the mechanics of the program and the Company's role in the program
and the Company has been advised that it is considered by MCI to be a "best of
breed" vendor. In December 1996, the Company signed an agreement with MCI that
names the Company a Creative Vendor eligible to participate in MCI's select
vendor program. That agreement may be terminated by MCI at any time.
EXPAND SCOPE OF SERVICES AND GEOGRAPHIC SALES OFFICES
The Company seeks to expand both the breadth and depth of its creative and
technical service abilities. The Company seeks to achieve these objectives
both by continuing to expand the scope of the services that it currently offers
and adding new sales offices. To date, all services have been rendered from
the New York office regardless of the customer's location. The Company
recently opened a sales office in Baltimore, Maryland to service the
Washington, D.C. area. The Company may also acquire products, technologies or
businesses that may expand the scope of services offered by the Company and
geographic locations of the Company. Recently, the Company modified its
earlier intentions and determined not to open an additional sales office in
Germany, but is still evaluating whether to maintain a relationship with other
businesses in Germany that have referred business to the Company in the past.
CUSTOMERS
The Company's four largest sources of revenues during 1996 were America
Online Incorporated (http://www.aol.com/about/devstudio/,
http://www.primehost.com/), Toys `R' Us Corporation (http://www.toysrus.com),
Chase Manhattan Bank and International Business Machines Corp.
(http://www.chess.ibm.part.org, http://www.informarket.ibm.com and
http://www.distributor.ihost.com), which accounted for approximately 20%, 15%,
14% and 12%, respectively, of the Company's revenues during that year. The
Company has continued to provide services to these customers in the first
quarter of 1997.{*} Referrals from MCI also accounted for approximately nine
percent of the Company's services in 1996. In 1995, the Company's three
largest sources of revenues were J. Walter Thompson (relating to one project
for the benefit of Bell Atlantic) MCI and Prudential Securities, which
accounted for approximately 18%, 15% and 12%, respectively, of the Company's
revenues during that year.
As of December 31, 1996, the Company has completed more than 50 Web site
design and creation projects, each generating gross revenue ranging from $1,500
to more than $700,000, in addition to consulting engagements and interactive
projects other than on the World Wide Web. One additional customer with whom
the Company established a relationship since then, among others, is Wavephore,
Inc. for which the Company is providing extensive and varied services.
These services have included traditional and interactive strategic product
branding and advertising services and Web site development for the launch of
its consumer product technology known as WaveTop, as well as the design of
Wavephore's annual report.
Because the Company's projects are generally completed in a relatively short
period of time, the Company has not experienced significant backlog.
TRADEMARKS
The Company applied to the U.S. Patent and Trademark Office for several
trademarks, which are all in examination but have not yet been published for
opposition. There can be no assurance that any of these trademarks will be
granted. Trademarks for which the Company has applied include K2<trademark>,
K2 Design<trademark> and Visitrac<trademark>.
GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to Web site service
companies and marketing and communications firms. However, due to the
increasing media attention focused on the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing and characteristics and quality
of products and services. The adoption of any such laws or regulations may
decrease the growth of the Internet, which could in turn decrease the demand
for the Company's services and products and increase the Company's cost of
doing business or cause the Company to modify its operations, or otherwise have
an adverse effect on the Company's business, operating results or financial
condition. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain. The Company cannot predict the impact, if any, that future
regulation or regulatory changes may have on its business. In addition, Web
site developers such as the Company face potential liability for the actions of
customers and others using their services, including liability for infringement
of intellectual property rights, rights of publicity, defamation, libel and
criminal activity under the laws of the U.S. and foreign jurisdictions. Any
imposition of liability could have a material adverse effect on the Company.
The Communications Decency Act of 1996 (the "1996 Act"), which became
effective on February 8, 1996, imposes criminal liability on persons sending or
displaying in a manner available to minors indecent material on an interactive
computer service such as the Internet. The 1996 Act also imposes criminal
liability on an entity knowingly permitting facilities under its control to be
used for those activities. Two separate three-judge panels comprised of judges
from the Second and Third Circuit Courts of Appeal recently preliminarily
enjoined the enforcement of portions of the 1996 Act pending review by the
United States Supreme Court. If upheld, the interpretation and enforcement of
these provisions are uncertain and the penalties imposed by the 1996 Act
include fines and imprisonment. This legislation may decrease demand for
Internet access, chill the development of Internet content, or have other
adverse effects on Web site service providers such as the Company. In
addition, in light of the uncertainty of the interpretation and application of
this law, there can be no assurance that the Company would not have to modify
its operations to comply with the statute. The impact of the 1996 Act on the
Company and its business cannot be predicted.
COMPETITION
The markets for the Company's services are highly competitive and are
characterized by pressures to incorporate new capabilities and accelerate
completion schedules. The Company expects competition for its services to
intensify in the future, partly because there are no substantial barriers to
entry into the Company's business. The Company faces competition from a number
of sources, including potential customers that perform interactive marketing
and communications services and Web site development services in-house. These
sources also include other Web site service boutique firms, communications,
telephone and telecommunications companies, computer hardware and software
companies such as Microsoft Corporation and Adobe Systems Incorporated,
established online services companies, advertising agencies, direct access
Internet and Internet-services and access providers as well as specialized and
integrated marketing communication firms such as CKS Group, Inc. and Eagle
River Interactive, Inc., all of which are entering the Web site design and
creation market in varying degrees and are competing with the Company. Many of
the Company's competitors or potential competitors have longer operating
histories, longer customer relationships and significantly greater financial,
management, technological, development, sales, marketing and other resources
than the Company. The Company's ability to retain relationships with Channel
Sources and its existing customers and generate new customers and relationships
with Channel Sources depends to a significant degree on the quality of its
services and its reputation, as compared with the quality of services provided
by and the reputations of, the Company's competitors. The Company also
competes on the basis of creative reputation, price, reliability of services
and responsiveness. There can be no assurance that the Company will be able to
compete and its inability to do so would have a material adverse impact on the
Company's business, financial condition and operating results.
EMPLOYEES
As of December 31, 1996, the Company has 52 employees, of which 48 are
full-time employees and the remaining four are part-time employees. Full-time
employees include nine salespeople, 13 account managers and producers, five
media sales and 15 creative and production personnel, in addition to executive
management and support staff.
ITEM 2. PROPERTIES
The Company's chief executive offices occupy approximately 5,800 square feet
of an office building known as The New York Information Technology Center, 55
Broad Street, New York, New York at an annual rent ranging from $86,955 to
$98,549, payable in equal monthly installments, plus the Company's allocable
share of certain real property taxes and building operating expenses in excess
of fixed levels as provided in the lease. The lease has a five-year term and
expires April 30, 2001.
The Company maintains additional office space in New York City consisting of
1,976 square feet of office space located at 50 Broad Street, New York, New
York at an annual rent ranging from $34,580 to $38,532, payable in equal
monthly installments, plus the Company's allocable share of certain real
property taxes and building operating expenses in excess of fixed levels as
provided in the lease. The lease has a term of five years, three months and
expires January 31, 2002. The Company is also negotiating a lease for an
additional approximately 13,000 square feet of office space near its principal
offices in New York City. As presently contemplated, the Company estimates
annual rent for this additional space in the range of $200,000 to $250,000.{*}
There can be no assurances that this lease will be executed on these terms, if
at all.
The Company also maintains additional sales office space in Baltimore,
Maryland consisting of 1,897 square feet, at an annual rent of $30,127, payable
in equal monthly installments, plus the Company's allocable share of certain
real property taxes and building operating expenses in excess of fixed levels
as provided in the lease. The lease has a term of three years and expires
November 30, 1999, excluding the Company's option to extend for an additional
three years.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings as of
the date hereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its stockholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 1996.
**FOOTNOTES**
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ SmallCap<trademark>
Market ("NASDAQ") under the symbol "KTWO".
The following table sets forth, for the periods indicated, the range of high
and low bid prices of the Common Stock as reported by NASDAQ from July 26,
1996, the effective date of the Company's registration statement in connection
with its initial public offering, through December 31, 1996. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
July 1996 (commencing July 26, 1996) 7 1/2 5 61/64
August 1996 7 3/4 6 1/4
September 1996 7 3/4 6 1/2
Fiscal Quarter Ended
December 31, 1996 6 1/2 5 3/4
</TABLE>
The approximate number of recordholders of the Common Stock at December 31,
1996 was 53, not including beneficial owners whose shares are held by banks,
brokers and other nominees.
The Company has not paid any dividends. The Company does not expect to pay
cash dividends on its Common Stock in the foreseeable future as any earnings
are expected to be retained to finance the Company's operations. Declaration
of dividends in the future will remain within the discretion of the Company's
Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
The Company was formed in January 1996 by the then-existing stockholders of
K-2 Design, Inc., a New York corporation (the "Predecessor"). In connection
with the formation of the Company, such stockholders each exchanged all of
their shares of the Predecessor's common stock, which constituted all of the
outstanding capital stock of the Predecessor, for 473,870 shares of the
Registrant's Common Stock, or 1,895,480 such shares in the aggregate. This
exchange was not a sale as defined by Section 2(3) of the Act and was,
accordingly, exempt from the registration requirements of the Securities Act of
1933 (the "Act").
In March 1996, the Company consummated a private placement in which it sold
200,000 shares of Common Stock for an aggregate of $250,000 ($1.25 per share)
and in May 1996, the Company consummated a second private placement in which it
sold an additional 400,002 shares of Common Stock for an aggregate of $700,000
($1.75 per share). Only accredited investors purchased Common Stock in these
private placements. With respect to the private placements, Donald & Co.
Securities Inc. acted as Placement Agent and received $47,000 in commissions
and $9,500 in non-accountable expenses. Since these offerings were made to a
limited number of offerees all of whom are accredited and otherwise in
compliance with Rule 506 promulgated under Regulation D of the Act, they were
exempt from registration by reason of Section 4(2) of the Act.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's Consolidated Financial Statements, the
accompanying notes thereto and other financial information appearing elsewhere
in this Report. This section and other parts of this Report contain forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such a difference include, but
are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Factors Affecting Operating Results and Market Price of Stock" commencing on
page 17.
OVERVIEW
The Company was founded in 1993 as a general partnership and initially
operated a traditional graphic design business. The Company was hired to
design a graphical user interface in March 1994 for Sierra Magazine Online, a
proprietary online service, and in August 1994 for NetMarket Inc., the first
company to perform a secure online transaction on the Internet, at which time
the Company shifted its principal business to Web site design and creation.
After the Company's initial public offering ("IPO") on July 26, 1996, the
Company began to develop its vision to become a full-service interactive
marketing and communications firm, largely in anticipation of demands from its
customers for additional complementary services. Complementary services the
Company now provides include, among others, development of CD-ROM discs, media
placement on Web sites, consulting services regarding Web site usage and user
characteristics, and development and maintenance of Company-owned Web site
advertising networks, live Internet broadcasts and the development of brand
strategies and print collateral systems.
As a result of the expansion of the Company's services beyond Web site
design and creation, the Company incurred significant expenses in 1996 in
anticipation of future revenues. Since the Company has engaged in Web site
design and creation only for approximately two years, and has been providing
various other services for less than one year, the Company has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Management therefore believes that period-to-period comparisons of
the Company's results of operations are not indicative of future results.
In January 1995, the Company was reorganized as a New York corporation that
elected to be treated as an S corporation for tax purposes. In January 1996,
the Company was reorganized as a Delaware holding company and the New York
corporation became a wholly-owned operating subsidiary thereof and thus ceased
to be an S corporation for tax purposes. For financial reporting purposes, the
Company's Consolidated Financial Statements include the Company and its
wholly-owned subsidiary.
RESULTS OF OPERATIONS
GENERAL
Project-based work for which the Company has been engaged has generally been
completed within 16 weeks, although certain past, current and future projects
have taken and are expected to take longer to complete. Revenues are
recognized on a percentage of completion basis. Provisions for any estimated
losses on uncompleted projects are made in the period in which such losses are
determinable. A portion of the Company's revenues have been generated on a
fixed fee for service basis. The Company also provides ongoing services to
certain customers, including one customer for which the Company is agency-of-
record.
The Company has increased and is currently increasing its expense levels to
accommodate its past growth and anticipated growth in its business. These
expenses are related to, among other things, a substantial increase in the
number of employees, the relocation of the Company's principal office and the
opening of two additional offices, and investing in equipment. The Company's
failure to expand its business in an efficient manner could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, there can be no assurance that the Company's revenues
will continue to grow at a rate that will support its increasing expense
levels.
The changes in the various line-items discussed below result from the
increase in the Company's expenses since it consummated a series of securities
offerings in 1996 and began to apply the proceeds to expand services in
anticipation of future revenues.
<TABLE>
<CAPTION>
Percentage of Revenues
Year Ended December 31,
<S> <C> <C>
1996 1995
Revenues 100.0% 100.0%
Operating Expenses
Direct Salaries and Costs 79.7 80.0
Selling, General and Administrative 42.2 16.8
Expenses
Depreciation 2.2 2.1
Total Operating Expenses 124.1 98.9
Operating Income (Loss) (24.1) 1.1
Other Income (Expense) 2.1 0.0
Income (Loss) before taxes
Income taxes -- .1
Net Income (Loss) (22.0%) 1.0%
</TABLE>
REVENUES
Revenues for the years ended December 31, 1996 and 1995 were $4,077,792 and
$1,196,208, respectively, or an increase of 341% in 1996 as compared to 1995.
in fiscal 1996, approximately 63% of revenues were generated from Web site
design and creation services, 14% from media placement on Web sites, 13% from
traditional graphic design services and 10% from one CD-ROM project.
In fiscal 1995, approximately 80% of revenues were generated from Web
site design and creation services and the remainder was attributable to
traditional graphic design services. Since the transition of the Company
from a Web site design firm into an integrated, interactive marketing and
communications firm is ongoing, the Company is unable to predict the relative
percentage of its revenues that will be generated from each of its various
services.
Any significant shortfall of demand for the Company's services in relation
to the Company's expectations would have an adverse impact on the Company's
business, operating results and financial condition.
DIRECT SALARIES AND COSTS
Direct salaries and costs include all direct labor costs and other direct
costs related to project performance, such as independent contractors,
freelance labor, supplies, and printing and equipment costs. As a percentage
of revenues, direct salaries and costs remained relatively constant in fiscal
1996 as compared to fiscal 1995. The Company's direct salaries and costs for
fiscal 1996 were $3,249,717 and for fiscal 1995 were $957,027. In 1996, direct
salaries and costs consisted primarily of approximately $1,200,000 in direct
salaries and approximately $1,200,000 paid to freelance artists and other
independent contractors (half of which was incurred in the fourth quarter
principally in respect of two projects) and the remainder consisted of media
placement costs and supplies and printing. In 1995, direct salaries and costs
consisted primarily of approximately $405,000 paid to freelance artists and
other independent contractors (approximately half of which was paid to a vendor
of complex computer programming services required for special features on Web
sites), and secondarily of approximately $300,000 paid as direct salaries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1996 increased to
$1,720,503 (42.2% of revenues) from $200,931 in 1995 (16.8% of revenues), and
in each period consisted of salaries, professional fees, occupancy costs,
marketing and advertising and travel and office expenses and supplies, among
other things. The increase in absolute dollars reflects the application of the
proceeds from the Company's private placements and initial public offering
during 1996, consistent with the Company's expansion strategy. The increase as
a percentage of revenues reflects the incurrence of expenses in 1996 as the
Company expanded the scope of its services in anticipation of future revenues.
In 1995, prior to raising money from external sources, selling, general and
administrative expenses were limited by the Company's lack of funds.
In addition, the Company may open additional sales offices, although the
Company has determined not to open one in Germany for the foreseeable
future.{*} As a result of any such expansion, the Company's selling, general
and administrative expenses, particularly occupancy costs and office expenses
and supplies, would likely increase.
DEPRECIATION
Depreciation expense was $92,167 and $24,485 in the years ended December 31,
1996 and 1995, respectively, and related to depreciation of equipment and
leasehold improvements. The expense in 1996 was principally the result of
depreciation of the Company's equipment and leasehold improvements in
connection with the acquisition of computer equipment and the relocation of its
offices.
INTEREST INCOME, NET
The net proceeds from the Company's securities offerings earned interest
income net of interest and other expense of $89,178 for the year ended December
31, 1996. The Company incurred interest expense of $869 for the year ended
December 31, 1995.
INCOME TAXES
The Company operated as a partnership during the year ended December 31,
1994. As a result, the partners were individually liable for federal and state
income taxes on the Company's taxable income. Effective January 1995, the
Company elected to be treated as an S Corporation for federal income tax
purposes. As a result, the shareholders were individually liable for federal
income tax on the Company's taxable income. In January 1996, the Company began
to be treated as a C corporation for federal and state income tax purposes.
The Company is also liable for New York state and city income taxes.
SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents unaudited quarterly financial information for
the period from January 1, 1995 to December 31, 1996. The information has been
derived from the Company's unaudited Consolidated Financial Statements. The
unaudited quarterly financial information has been prepared on the same basis
as the audited Consolidated Financial Statements and includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of such information when read in conjunction
with the Company's audited Consolidated Financial Statements and the
accompanying notes thereto appearing elsewhere in this Report. These results
are not indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995 1996 1996 1996 1996
(UNAUDITED)
Revenues $ 33,639 $383,423 $301,481 $477,665 $ 512,434 $498,050 $825,348 $2,241,960
Operating Expenses:
Direct salaries and 68,152 274,309 268,074 346,492 499,109 607,066 785,245 1,358,297
costs
Selling, general and
administrative expenses 12,449 72,294 53,090 63,098 125,958 262,823 234,303 1,097,419
Depreciation 4,779 10,147 4,779 4,780 9,113 14,221 23,626 45,207
Total operating 85,380 356,750 325,943 414,370 634,180 884,110 1,043,174 2,500,923
expenses
Operating income (loss) $(51,741) $ 26,673 $(24,462) $ 63,295 $(121,746) $(386,060) $(217,826) $(258,963)
</TABLE>
_________________
Quarterly revenues and operating results have fluctuated and will fluctuate
as a result of a variety of factors. These factors, some of which have
affected the Company and some of which are beyond the Company's control,
include the timing of the completion, material reduction or cancellation of
major projects, the loss of a major customer or the termination of a
relationship with a Channel Source, timing of the receipt of new business,
timing of the hiring or loss of personnel, changes in the pricing strategies
and business focus of the Company or its competitors, capital expenditures,
operating expenses and other costs relating to the expansion of operations,
general economic conditions and acceptance and use of the Internet. The
Company's quarterly operating margins may also fluctuate from period to period
depending on the relative mix of lower cost full time employees versus higher
cost independent contractors. At the present time, the Company has determined
to increase expense levels, which to a large extent are fixed, based in part on
expectations as to future revenues and will base future expense levels
similarly. As a result, operating expenses as a percentage of revenues have
increased in the fourth quarter of 1996 as compared to the prior three
quarters. Revenues and operating results are difficult to forecast because of
these fluctuations and because the Company lacks historical financial data for
a significant number of periods. The Company may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall.
Any significant shortfall of demand for the Company's services in relation
to the Company's expectations would have an adverse impact on the Company's
business, operating results and financial condition.
The trading prices of the Common Stock and its Redeemable Common Stock
Purchase Warrants are subject to fluctuation in response to quarterly
variations in operating results, announcements of technological innovations or
new products or services by the Company or its competitors, as well as other
events or factors. In addition, the stock market has from time to time
experienced price and volume fluctuations which have particularly affected the
market price of technology-oriented and media companies, which often have been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock and the
Redeemable Common Stock Purchase Warrants.
LIQUIDITY AND CAPITAL RESOURCES
The Company is dependent on its cash of approximately $3.9 million (at
December 31, 1996), together with cash generated by operations, if any, for
working capital in order to be competitive, to meet the increasing demands for
service, quality and pricing and for any expansion of its business. While the
Company believes that its cash position together with cash expected to be
generated by operations will be sufficient to finance its operations for at
least one year, the Company may nevertheless require future substantial
alternative financing in order to satisfy its working capital needs, which may
be unavailable or prohibitively expensive since the Company's only assets
available to secure additional financing are accounts receivable.{*}
Accordingly, the Company may not have the funds to relieve any liquidity
problems in the next year and thereafter, or to finance any expansion of its
business. See "-- Factors Affecting Operating Results and Market Price of
Stock -- Cash Flow Deficit; Need for Additional Financing."
Net cash used in the Company's operating activities of $(1,925,081) in the
year ended December 31, 1996 and related primarily to a substantial increase in
accounts receivable, which was partially offset by an increase in accounts
payable, and to the loss incurred during the year.
In 1996, the Company spent approximately $500,000 on capital expenditures,
consisting of furniture, fixtures and leasehold improvements acquired and made
in connection with the Company's recent relocation of its principal offices and
the opening of two sales offices. Additional capital expenditures may be made
in connection with the opening of additional sales offices.
In 1996, the Company's primary source of liquidity was from two private
placements and its initial public offering, which yielded approximately
$6,300,000 of net proceeds. In addition the Company financed the purchase of
certain equipment through capital leases. The principal balance of such leases
was $130,000 at December 31, 1996 and is payable in varying installments
through the year 2000.
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
CASH FLOW DEFICIT; NEED FOR ADDITIONAL FINANCING
The Company's current primary focus is on increasing the volume of all of
its services. As a result, the Company has hired and will continue to hire
additional personnel and has incurred and will continue to incur substantial
expenses related to administration, production, technical resources, marketing,
customer support and infrastructure in order to enhance and expand its
operations. The Company had an operating cash flow deficit of $(2,404) in 1995
and of $(1,925,081) in 1996. The Company may require substantial additional
financing in order to satisfy its working capital needs, which may be
unavailable or prohibitively expensive since the Company's only assets
available to secure additional financing are accounts receivable. Should such
financing be unavailable or prohibitively expensive when the Company requires
it, the Company would not be able to finance any expansion of its business and
may not be able to satisfy its working capital needs, either of which would
have a material adverse effect on the Company's business, operating result and
financial condition.
RECENT OPERATING LOSSES; LIMITED OPERATING HISTORY; EARLY STAGE OF DEVELOPMENT
The Company's revenues for the years ended December 31, 1995 and 1996 were
$1,196,208 and $4,077,792, respectively, with net income of $11,896 in 1995 and
a net loss of $(895,417) in 1996. There can be no assurance that the Company
will be profitable in the future or that revenue growth, if any, can be
sustained.
The prospects of the Company must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving
markets and especially those in Internet and other computer related markets.
There can be no assurance that the Company will be successful in addressing
these risks.
ABILITY TO MANAGE GROWTH
Since the beginning of 1996, there has been substantial growth in the number
of the Company's employees and increased (i) responsibility for both existing
and new management personnel, (ii) strain on the Company's existing management,
administrative, operational, financial and technical resources and (iii)
demands on its management information systems and controls. There can be no
assurance that the Company will effectively develop and implement systems,
procedures or controls adequate to support the Company's operations or that
management will be able to achieve the rapid execution necessary to fully
exploit the opportunity for the Company's services. To manage its business and
any growth, the Company must continue to implement and improve its operational
and financial systems and continue to expand, train and manage its employees.
In particular, management believes that in addition to Nelson Hunter, who was
recently hired as Chief Financial Officer, the Company will need to hire
additional qualified administrative and management personnel in the accounting
and finance areas to establish and manage financial control systems. If the
Company is unable to manage its business effectively, the Company's business,
operating results and financial condition will be materially adversely
affected.
EVOLVING MARKETING STRATEGY
The Company's marketing efforts have expanded as the range of services which
the Company offers has increased. In addition to developing strategic
relationships with other companies, such as advertising agencies and Internet
service providers ("Channel Sources") that seek to augment their businesses by
directly or indirectly offering to their customers Web site services provided
by the Company and other third parties, the Company also directly markets its
core creative services as well as the services of VisiTrac<trademark>, Net
Media<trademark> and Cliqnow<trademark>!
To try to avoid any conflict with a Channel Source, the Company does not
intend to offer services to customers referred by a particular Channel Source
that could be provided to those customers by that Channel Source. Since the
Company does not expect to offer its full range of services to these customers,
projects for them may be less profitable than full-service production projects
for other customers. Should a Channel Source favor other providers of similar
services, fail to effectively market the Company's services as a result of the
Channel Source's competitive position or otherwise, or not utilize the
Company's services to the extent anticipated by the Company, the Company may
also be adversely affected. The inability to recruit, manage or retain
additional Channel Sources, or their inability to market the Company's services
effectively or provide timely and cost-effective customer support and service,
could materially adversely affect the Company's business, operating results and
financial condition.
RELATIONSHIP WITH MCI AS ONLY SIGNIFICANT CHANNEL SOURCE
To date, the Company's only significant continuing Channel Source
relationship has been and continues to be with MCI. The Company continues to
derive revenues from an Internet initiative of MCI commenced in February 1996,
pursuant to which MCI salespersons offer comprehensive Web site services to
their customers and potential customers in the northeastern United States. In
connection with Webworks, MCI co-markets the Company's services and after
pre-screening an interested customer, introduces that customer to the Company.
However, MCI has no obligation to refer projects to the Company, is expected to
refer Webworks projects to others, and utilizes the services of certain of the
Company's competitors, including CKS Group, Inc., for other Web site projects.
The Company is also aware that AT&T, UUNET, and Microsoft Technologies, Inc.,
among others, have introduced programs directly competing with MCI's Internet
initiative. See "--One-Time Customers; Concentrative of Revenues" and
"Business--Marketing--Relationship with MCI."
ONE-TIME CUSTOMERS; CONCENTRATION OF REVENUES
Since most of the Company's direct customers (and certain Channel Sources)
have retained the Company on a single project basis, customers from whom the
Company generated substantial revenue in one period have not been a substantial
source of revenue in a subsequent period. During 1995, single customers
accounted for approximately 18% (J. Walter Thompson, relating to one project
for the benefit of Bell Atlantic), 15% (MCI and referrals from MCI) and 12%
(Prudential Securities) of the Company's revenues. During 1996, single
customers accounted for 20% (America Online Incorporated), 15% (Toys `R' Us),
14% (Chase Manhattan Bank) and 12% (International Business Machines Corp.). In
addition, approximately nine percent of the Company's 1996 revenues were
derived from referrals from MCI. Due to the Company's limited operating
history and the emerging nature of the Internet, the Company generally cannot
be sure whether its relationships with customers will continue to be on a one
project per customer basis, although the Company continued to provide services
in the first quarter of 1997 to the 1996 customers named above. To the extent
the Company does not generate repeat or ongoing business from its customers,
it will incur the higher sales and marketing expenses associated with attracting
new customers as compared to those in attracting additional business from
existing customers.
UNCERTAIN ADOPTION OF INTERNET AS A MEDIUM OF COMMERCE AND COMMUNICATIONS;
DEPENDENCE ON INTERNET
Demand and market acceptance for recently introduced services and products
like those offered by the Company are subject to a high level of uncertainty.
The use of the Internet in marketing and advertising and otherwise,
particularly by those individuals and enterprises that have historically relied
upon traditional means of marketing and advertising, generally requires the
acceptance of a new way of conducting business and exchanging information.
Enterprises that have already invested substantial resources in other means of
conducting business and exchanging information may be particularly reluctant or
slow to adopt a new strategy that may make their existing resources and
infrastructure less useful. There can be no assurance that the market for the
Company's services will develop and if it fails to develop, develops more
slowly than expected or becomes saturated with competitors, or if the Company's
services do not achieve market acceptance, the Company's business, operating
results and financial condition will be materially adversely affected.
The Company's ability to derive revenues will also depend upon a robust
industry and the infrastructure for providing Internet access and carrying
Internet traffic. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure
or timely development of complementary products, such as high speed modems.
Moreover, other critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use and access, and quality of
service) remain unresolved and may impact the growth of Internet use. Because
global commerce and online exchange of information on the Internet and other
similar open wide area networks are new and evolving, it is difficult to
predict with any assurance whether the Internet will prove to be and remain a
viable commercial marketplace. If the infrastructure necessary to support the
Internet's commercial viability is not developed, or if the Internet does not
become a viable marketplace, the Company's business, operating results and
financial condition would be materially and adversely affected.
RISK OF CHANGING TECHNOLOGY
The services the Company offers and the services and products the Company
expects to offer in the future, are impacted by rapidly changing technology,
evolving industry standards, emerging competition and frequent new service,
software and other product introductions. There can be no assurance that the
Company can successfully identify new business opportunities and develop and
bring new services or products to market in a timely and cost-effective manner,
or that services, products or technologies developed by others will not render
the Company's services or products noncompetitive or obsolete. In addition,
there can be no assurance that services, products or enhancements introduced by
the Company will achieve or sustain market acceptance or be able to effectively
address compatibility, inoperability or other issues raised by technological
changes or new industry standards. The Company's pursuit of technological
advances may also require the Company to seek assistance from third parties.
INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT; POSSIBLE LITIGATION
The Company believes that its success in its core business of Web site
design and creation is not dependent upon patents, copyrights or trademarks and
the Company does not currently have any registered patents, copyrights or
trademarks, although applications for various trademarks have been made.
Consequently, the Company relies principally on a combination of common-law and
statutory law to protect its proprietary information and know-how. The Company
also utilizes technology owned by third parties. There can be no assurance
that licenses for any technology developed by third parties that might be
required for the Company's services would be available on reasonable terms, if
at all. See "Business -- Trademarks."
Although the Company does not believe that its services infringe the
proprietary rights of any third parties, there can be no assurance that third
parties will not assert claims based on these services against the Company in
the future or that any of those claims would not be successful. In addition,
many of the Company's competitors rely upon trade secret law. Litigation may
be necessary in the future to enforce the Company's intellectual property
rights and to protect its proprietary information, to determine the validity
and scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Litigation of this nature, whether or not
successful, could result in substantial costs and diversions of resources,
either of which could have a material adverse effect on the Company's business,
financial condition and operating results. Furthermore, parties making claims
against the Company could secure a judgment awarding substantial damages, as
well as injunctive or other equitable relief which could directly or indirectly
prohibit the Company from providing certain services and products. A judgment
of this nature could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONFLICTS OF INTEREST; RESTRICTIONS
The Company has been precluded and may be precluded in the future from
pursuing opportunities that require it to provide services to direct
competitors of existing customers or Channel Sources. In addition, the Company
risks alienating or straining relationships with customers and Channel Sources
each time the Company agrees to provide services to even indirect competitors
of existing customers or Channel Sources. Conflicts of interest may jeopardize
the stability of revenues generated from existing customers and Channel Sources
and preclude access to business prospects, either of which could have a
material adverse effect on the Company's business, financial condition and
operating results.
**FOOTNOTES**
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
{*}This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Factors Affecting Operating
Results and Market Price of Stock" commencing on page 17, for a discussion of
factors that could affect future performance.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 13(a)(1) in Part IV.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required for this item is incorporated by reference to the
Company's 1997 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission's no later than 120 days subsequent to
December 31, 1996.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference to the
Company's 1997 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission's no later than 120 days subsequent to
December 31, 1996.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated by reference to the
Company's 1997 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission's no later than 120 days subsequent to
December 31, 1996.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for this item is incorporated by reference to the
Company's 1997 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission's no later than 120 days subsequent to
December 31, 1996.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
(a) Documents filed as part of this report.
1.FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Balance Sheet - December 31, 1996 F-2
Consolidated Statements of Operations - For the years
ended December 31, 1996 and 1995 F-3
Consolidated Statements of Changes in Stockholders' Equity -
(Deficit) For the years ended December 31, 1996 and 1995 F-4
Consolidated Statements of Cash Flows - For the years
ended December 31, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
2. EXHIBITS
3.1 Certificate of Incorporation of the Registrant*
3.1(a) Form of Amendment to Certificate of Incorporation*
3.2 By-laws of the Registrant*
4.1 Form of Common Stock Certificate*
4.2 Form of Warrant Certificate*
4.4 Form of Warrant Agreement by and between Continental Stock
Transfer & Trust Company and the Registrant*
4.5 Form of Voting Agreement among Messrs. Centner, de Ganon, Cleek
and Szollose*
10.1 1996 Stock Option Plan and Rules Relating thereto*
10.2 1997 Stock Option Plan**
10.3 Consulting Agreement with Harvey Berlent*
10.4 Employment Agreement with David J. Centner*
10.5 Employment Agreement with Matthew G. de Ganon*
10.6 Employment Agreement with Bradley K. Szollose*
10.7 Employment Agreement with Douglas E. Cleek*
10.8 Agreement of Lease - 55 Broad Street, New York, New York*
10.9 Agreement of Lease - 50 Broad Street, New York, New York**
10.10 Agreement of Lease - Baltimore, Maryland**
21.1 Subsidiary List*
24.1 Powers of Attorney to sign Registration Statement (set forth on
signature page)**
27.1 Financial Data Schedule**
- -----------
* Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, No. 333-4319.
** Filed herewith.
(b)The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this Report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
K2 DESIGN, INC.
By: /S/ DAVID J. CENTNER Dated: March 27, 1997
------------------------------
David J. Centner, Chairman
POWER OF ATTORNEY
Each of the undersigned hereby appoints Matthew G. de Ganon, as his or her
attorneys-in-fact to sign his or her name, in any and all capacities, to any
amendments to this Form 10-KSB and any other documents filed in connection
therewith to be filed with the Securities and Exchange Commission.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/S/ DAVID J. CENTNER Chairman (principal executive March 27, 1997
David J. Centner officer), and Director
/S/ MATTHEW G. DE GANON Director March 27, 1997
Matthew G. de Ganon
/S/ DOUGLAS E. CLEEK Director March 27, 1997
Douglas E. Cleek
/S/ BRADLEY K. SZOLLOSE Director March 27, 1997
Bradley K. Szollose
/S/ JAMES A. FAVIA Director March 27, 1997
James A. Favia
/S/ STEVEN N. GOLDSTEIN Director March 27, 1997
Steven N. Goldstein
/S/ NELSON HUNTER Chief Financial Officer March 27, 1997
Nelson Hunter (principal financial and
accounting officer)
<PAGE>
K2 DESIGN, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Financial Statements of K-2 Design, Inc. and Subsidiary
Report of Independent Public Accountants.....................F-1
Consolidated Balance Sheet - December 31, 1996...............F-2
Consolidated Statements of Operations - For the years
ended December 31, 1996 and 1995..........................F-3
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) -For the years ended December 31,
1996 and 1995.............................................F-4
Consolidated Statements of Cash Flows - For the years
ended December 31, 1996 and 1995..........................F-5
Notes to Consolidated Financial Statements...................F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To K2 Design, Inc.:
We have audited the accompanying consolidated balance sheet of K2 Design, Inc.
(a Delaware corporation) and its subsidiary (a New York corporation) as of
December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the years ended
December 31, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of K2 Design, Inc. and its
subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the years ended December 31, 1996 and 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
February 27, 1997
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $3,867,430
Accounts receivable (net of allowances for doubtful accounts of $25,000) 2,067,715
Prepaids 52,369
Costs in excess of billings 81,044
Other current assets 178,068
Total current assets $6,246,626
FIXED ASSETS, net (Note 3) 607,431
OTHER ASSETS 40,622
Total assets $6,894,679
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations (Note 4) $ 53,448
Accounts payable 744,563
Accrued professional fees 35,000
Accrued compensation 91,521
Accrued payroll taxes 33,272
Accrued sales taxes 97,265
Other accrued expenses 174,784
Billings in excess of costs (Note 2) 166,169
Total current liabilities 1,396,022
LONG-TERM CAPITAL LEASE OBLIGATIONS (Note 4) 76,437
Total liabilities 1,472,459
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (Notes 2 and 7):
Preferred stock, $.01 par value, 1,000,000 shares authorized;
0 shares issued and outstanding -
Common stock, $.01 par value, 9,000,000 shares authorized;
3,645,421 shares issued and outstanding 36,454
Additional paid-in capital 6,281,183
Accumulated deficit (895,417)
Total stockholders' equity 5,422,220
Total liabilities and stockholders' equity $6,894,679
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
REVENUES $4,077,792 $1,196,208
DIRECT SALARIES AND COSTS 3,249,717 957,027
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,720,503 200,931
DEPRECIATION 92,167 24,485
Income (loss) from operations (984,595) 13,765
INTEREST AND OTHER INCOME/(EXPENSE), net 89,178 (869)
Income (loss) before provision for income taxes (895,417) 12,896
PROVISION FOR INCOME TAXES - 1,000
Net income (loss) $(895,417) $ 11,896
Net loss per common share $ (.32) -
PRO FORMA NET INCOME DATA (UNAUDITED)
(Notes 2 and 6):
Income before provision for income taxes, as reported $ 12,896
Pro forma income tax provision -
Pro forma net income $ 12,896
PRO FORMA NET INCOME PER COMMON SHARE $.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,831,711 1,946,373
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional
<S> <C> <C> <C> <C> <C> <C>
Number of Partners' Paid-in Accumulated
SHARES AMOUNT CAPITAL CAPITAL DEFICIT TOTAL
BALANCE, December 31, 1994 - $- $(78,421) $ - $- $(78,421)
Termination of partnership and
capital contribution to S
Corporation 75 - 78,421 (78,421) - -
Issuance of common stock 25 - - 10,000 - 10,000
Capital contribution - - - 25,000 - 25,000
Corporate recapitalization 1,895,380 18,955 - (18,955) - -
(Note 7)
Net income - - - - 11,896 11,896
BALANCE, December 31, 1995 1,895,480 18,955 - (62,376) 11,896 (31,525)
Termination of S Corporation - - - 11,896 (11,896) -
Private placement of common
stock at $1.25 per share, net of
expenses 200,000 2,000 - 153,230 - 155,230
Private placement of common
stock at $1.75 per share, net of
expenses 400,002 4,000 - 617,755 - 621,755
Initial Public Offering of
common stock at $6.00 per
share, net of expenses 1,149,939 11,499 - 5,560,678 - 5,572,177
Net loss - - - - (895,417) (895,417)
BALANCE, December 31, 1996 3,645,421 $36,454 $- $6,281,183 $(895,417) $5,422,220
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(895,417) $ 11,896
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation 92,167 24,485
Changes in-
Accounts receivable (1,934,021) (114,711)
Prepaid expenses (52,369) -
Costs in excess of billings (81,044) -
Other current assets (178,068) -
Other assets (36,217) (2,530)
Accounts payable 649,623 73,210
Accrued professional fees 13,000 19,500
Accrued compensation 67,569 (56,048)
Accrued payroll taxes 29,545 3,727
Accrued sales taxes 97,265 -
Other accrued expenses 166,574 8,210
Billings in excess of costs 136,312 29,857
Net cash used in operating activities (1,925,081) (2,404)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (502,152) (17,553)
Net cash used in investing activities (502,152) (17,553)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 6,349,162 10,000
Capital contribution - 25,000
Principal payments on capital lease obligations (37,255) (35,613)
Principal payments on note payable (25,000) -
Principal payments on line of credit (10,000) -
Proceeds from note payable - 25,000
Proceeds from line of credit - 10,000
Net cash provided by financing activities 6,276,907 34,387
Net increase in cash 3,849,674 14,430
CASH, beginning of year 17,756 3,326
CASH, end of year $3,867,430 $ 17,756
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 16,260 $ 869
Income taxes 1,000 1,074
Noncash investing activities-
Equipment acquired under capital leases 128,334 54,136
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1.ORGANIZATION AND BUSINESS
K2 Design, Inc. ("K2" or the "Company") commenced operations on March 1, 1993
as a partnership. In January 1995 the Partnership contributed its capital into
a newly formed corporation and elected S Corporation status.
Effective January 1, 1996, the Company was reorganized as a Delaware holding C
corporation having a wholly owned operating subsidiary incorporated in New
York. The reorganized corporation is authorized to issue 9,000,000 shares of
common stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share. The 100 shares of common stock of the
predecessor corporation that were issued and outstanding at the date of
reorganization were exchanged for 1,895,480 shares of common stock in the
reorganized corporation.
K2 is a full service interactive communications, design and technology company,
engaged primarily in the business of designing and creating Web sites on the
Internet. The Company also provides various other information delivery
services. The Company's customers are primarily U.S.-based corporations
operating in a wide variety of industries.
PRIVATE PLACEMENTS
Effective February 29, 1996, the Company consummated a private placement
offering in which it sold 200,000 shares of its common stock at $1.25 per
share. Effective May 9, 1996, the Company consummated a second private
placement offering in which it sold 400,002 additional shares of its common
stock at $1.75 per share.
INITIAL PUBLIC OFFERING
Effective July 26, 1996, the Company consummated an initial public offering in
which 1,149,939 units of the Company's securities were sold to the public ( the
"Public Units") at $6.00 per unit, each consisting of one share of Common Stock
and two warrants to purchase one share of Common Stock at $7.50. The net
proceeds from this offering of approximately $5,600,000 are being used for
used for working capital and general corporate purposes.
<PAGE>
2.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates in the
PREPARATION OF 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.
REVENUE RECOGNITION
Revenues are recognized on the percentage of completion method based upon the
ratio of costs incurred to total estimated costs incurred and anticipated
profits earned on projects in progress in excess of amounts billed. Billings
in excess of costs represent amounts billed in excess of costs incurred and
estimated profit earned. Such billings are generally at the beginning of
contract periods, and are in accordance with contract provisions. Provisions
for any estimated losses on uncompleted contracts are made in the period in
which such losses are determinable. A portion of the Company's revenues has
been generated on a fixed fee for service basis.
FIXED ASSETS
Fixed assets are carried at cost and depreciated using the straight-line method
over their estimated useful lives. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the term of the underlying
lease.
Estimated useful lives by class of assets are as follows:
Computers and equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Life of lease
Assets purchased with capital leases are depreciated over their estimated
useful lives.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts receivable, and accounts
payable approximate fair market value based upon the relatively short-term
nature of these financial instruments.
<PAGE>
CONCENTRATION OF CREDIT
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade accounts receivable. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral from its customers. The Company's sales to
its four largest customers constituted approximately 20%, 15%, 14% and 12% for
the year ended December 31, 1996. The Company had accounts receivable from
these customers amounting to $1,538,798 at December 31, 1996. The Company's
sales to its three largest customers for the year ended December 31, 1995
constituted approximately 18%, 15% and 12% of revenue.
INCOME TAXES
Effective January 1995, the Company elected to be treated as an S Corporation
for federal income tax purposes. As a result, the shareholders were
individually liable for Federal income tax on the Company's taxable income. The
Company was subject to New York State and City income taxes. Effective January
1996, the Company elected to be treated as a C Corporation. As a result, the
Company is subject to Federal, New York State and City income taxes on the
Company's taxable income.
The Company provides federal, state and city income tax in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years on which those temporary differences are
expected to be recovered or settled. Deferred taxes were not significant for
the year ended December 31, 1996.
NET LOSS AND PRO FORMA NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock was computed by dividing net loss by the
weighted average number of common shares outstanding. As required by the
Securities and Exchange Commission rules, all warrants, options and shares
issued within one year of the public offering at less than the public
offering price are assumed to be outstanding for each period presented up to
the date of the initial public offering.
<PAGE>
STOCK-BASED COMPENSATION
During October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation ("SFAS No. 123"). This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
SFAS No. 123 encourages entities to adopt a fair value based method of
accounting for stock compensation plans. However, SFAS. No. 123 also permits
entities to continue to measure compensation costs under pre-existing
accounting pronouncements with the requirement that pro forma disclosures of
net income and earnings per share be included in the notes to the financial
statements. The Company has elected to adopt the disclosure requirements of
SFAS 123.
3.FIXED ASSETS
Fixed assets, at cost, including capital leases (Note 4), summarized by major
categories at December 31, 1996, consist of the following:
Computers and equipment $ 513,728
Furniture and fixtures 150,477
Leasehold improvements 66,669
730,874
Less- Accumulated depreciation 123,443
Fixed assets, net $ 607,431
4. CAPITAL LEASE OBLIGATIONS
The Company is a lessee in noncancelable leasing agreements for certain
computers and equipment. Included in fixed assets, net, is $129,771 of
computers and equipment held under capital leases.
Future minimum lease payments for fixed assets under capital lease at December
31, 1996, are as follows:
1997 $ 65,790
1998 59,525
1999 31,261
2000 2,111
Total minimum lease payments 158,687
Less- Imputed interest (28,802)
Capital lease obligation $ 129,885
<PAGE>
5.COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space and automobiles for varying periods.
At December 31, 1996, approximate future minimum rental commitments under all
noncancelable operating leases are as follows:
Fiscal year:
1997 $ 173,723
1998 173,723
1999 164,418
2000 124,252
2001 57,990
Thereafter 2,456
Total minimum lease payments $ 696,562
Rental expense for the Company's premises amounted to $78,687 in 1996 and
$29,150 in 1995.
EMPLOYMENT CONTRACTS
The Company has employment contracts with certain of its executives which
expire as of December 31, 1998. Such agreements provide for minimum salary
levels and bonuses which are payable based on 1.88% of the Company's pre-tax
income. The aggregate commitment for future salaries, excluding bonuses, at
December 31, 1996 was approximately $980,000.
6.INCOME TAXES
As described in Note 2, the Company previously elected "S" corporation status
under the provisions of the Internal Revenue Code. In January, 1996 the
Company reorganized as a Delaware Holding C Corporation in contemplation of the
initial public offering.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $900,000 which expire in 2012. The company has recorded a
deferred tax asset of approximately $350,000 related to the loss carryforward
and a corresponding valuation allowance due to the uncertainty of the
realization of the asset.
The provision for income taxes on historical and unaudited pro forma net income
for the years ended December 31, 1996 and 1995, respectively, differs from the
amount computed by applying the federal statutory rate due to the following:
<PAGE>
1996 1995
Statutory federal income tax rate (34)% 34%
State and local taxes, net (6) 6
Operating loss carryforwards - (40)
Valuation Allowance 40 -
0% 0%
The unaudited pro forma information above reflects income tax expense as if the
Company had been subject to federal and state income taxes. The Company would
not have had a federal and state income tax provision because of net operating
loss carryforwards for 1995.
7.STOCK OPTION PLAN
Effective January 16, 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"), pursuant to which designated employees, including officers and
directors of the Company and certain outside consultants, will be entitled to
receive nonqualified stock options and qualified stock incentive compensation.
An aggregate of 106,500 shares of common stock are available for grant under
the Plan and have been reserved for this purpose at December 31, 1996.
The Plan expires on January 1, 2006. Under the terms of the Plan, the minimum
exercise price of options granted cannot be less than 100% of the fair market
value of the common stock of the Company on the option grant date. Options
granted under the Plan expire ten years after the option grant date. For
incentive stock options granted to such persons who would be deemed to have in
excess of a 10% ownership interest in the Company, the option price shall not
be less than 110% of such fair market value for all options granted, and the
options expire five years after the option grant date. Options granted are
exercisable in five equal annual installments commencing on the option grant
date.
<PAGE>
A summary of the Plan at December 31, 1996 and the changes during the year then
ended is presented in the table and narrative below:
Weighted
Average
SHARES EXERCISE PRICE
Outstanding at beginning of year - $ -
Granted 118,500 4.03
Exercised - -
Forfeited - -
Outstanding at end of year 118,500 $ 4.03
Exercisable at end of year - -
Weighted average fair value of options
granted (see below) 118,500 $ 1.18
The Company accounts for the Plan under APB No. 25, under which no compensation
cost is recognized for stock options granted with an exercise price at or above
the prevailing market price on the date of the grant. Had compensation cost
for this plan been determined consistent with the fair value approach required
by SFAS No. 123, the Company's net loss and net loss per common share would
have been increased to the following pro forma amounts:
1996
Net loss:
As reported $(895,417)
Pro forma $(919,926)
Net loss per common share:
As reported $( 0.32)
Pro forma $( 0.32)
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used for the grants made in January 1996 and October 1996, respectively: risk-
free interest rates of 5.3% and 6.1%; no expected dividend yields for options
granted; expected lives of 5 years; expected stock price volatility of 75%.
The effects of applying SFAS No. 123 in this pro forma disclosure may not be
indicative of future amounts because anticipated stock option grants are
anticipated in future years.
Under SFAS No. 123, options granted to external consultants must be accounted
for at fair value on the date of grant utilizing the Black-Scholes option
pricing model. The options granted to such individual during 1996 did not
have a material effect on the Company's December 31, 1996 financial statements.
<PAGE>
EXHIBIT INDEX
Exhibit
NUMBER EXHIBIT NAME
10.2 1997 Stock Option Plan
10.9 Agreement of Lease - 50 Broad Street, New York, New York
10.10 Agreement of Lease - Baltimore, Maryland
24.1 Powers of Attorney to sign Registration Statement (set forth on
signature page)
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 10.2
K2 DESIGN, INC.
1997 STOCK INCENTIVE PLAN
<PAGE>
ARTICLE I
PURPOSE AND EFFECTIVENESS
1.1 Purpose. The purpose of the K2 Design, Inc. 1997 Stock Incentive
Plan (the "Plan") is to promote the success of K2 Design, Inc. (the "Company")
by providing a method whereby (i) eligible employees of the Company and its
Subsidiaries and (ii) independent contractors and consultants providing
services to the Company or its Subsidiaries may be awarded additional
remuneration for services rendered and encouraged to invest in capital stock of
the Company, thereby increasing their proprietary interest in the Company's
businesses, encouraging them to remain in the employ of the Company or its
Subsidiaries, and increasing their personal interest in the continued success
and progress of the Company or its Subsidiaries. The Plan is also intended to
aid (i) in attracting persons of exceptional ability to become officers and
employees of the Company and its Subsidiaries and (ii) inducing independent
contractors to agree to provide services to the Company.
1.2 Effective Date. The Plan shall be subject to, and become effective
upon, the approval by the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock of the Company.
ARTICLE II
DEFINITIONS
2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in
the Plan shall have the following meanings (whether used in the singular or
plural):
"Affiliate" of the Company means any corporation, partnership, or
other business association that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under
common control with the Company.
"Agreement" means a stock option agreement or restricted shares
agreement, or an agreement evidencing more than one type of Award,
specified in Section 10.5, as any such Agreement may be supplemented
or amended from time to time.
"Approved Transaction" means any transaction in which the Board (or,
if approval of the board is not required as a matter of law, the
stockholders of the Company) shall approve (i) any consolidation or
merger of the Company, or binding share exchange, pursuant to which
shares of Common Stock would be changed or converted into or
exchanged for cash, securities or other property, other than any
such transaction in which the common stockholders of the Company
immediately prior to such transaction have the same proportionate
ownership of the common stock of, and voting power with respect to,
the surviving corporation immediately after such transaction, (ii)
any merger, consolidation or binding share exchange to which the
Company is a party as a result of which the persons who are common
stockholders of the Company immediately prior thereto have less than
a majority of the combined voting power of the outstanding capital
stock of the Company ordinarily (and apart from the rights accruing
under special circumstances) having the right to vote in the
election of directors immediately following such merger,
consolidation or binding share exchange, (iii) the adoption of any
plan or proposal for the liquidation or dissolution of the Company,
or (iv) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company.
"Award" means a grant of Options or Restricted Shares under this
Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statue or statues thereto. Reference to
any specific Code section shall include any successor section.
"Committee" means the committee of the Board appointed pursuant to
Section 3.1 to administer the Plan.
"Common Stock" means the Common Stock, $.01 par value per share, of
the Company.
"Company" means K2 Design, Inc., a Delaware corporation.
"Disability" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not
less than 12 months.
"Dividend Equivalents" means, with respect to Restricted Shares to
be issued at the end of the Restriction Period, to the extent
specified by the Committee only, an amount equal to all dividends
and other distributions (or the economic, equivalent thereof) which
are payable to stockholders of record during the Restriction Period
on a like number of shares of Common Stock.
"Domestic relations order" means a domestic relations order as
defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder.
" Effective Date" means the date on which the Plan becomes effective
pursuant to Section 1.2.
"Equity security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Exchange Act, and an equity security of an
issuer shall have the meaning ascribed thereto in Rule 16a-1
promulgated under the Exchange Act, or any successor Rule.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto.
Reference to any specific Exchange Act section shall include any
successor section.
"Fair Market Value" of a share of the Common Stock on any day means
the last sale price (or, if no last sale price is reported, the
average of the high bid and low asked prices) for a share of Common
Stock on such day (or, if such day is not a trading day, on the next
preceding trading day) as reported on NASDAQ or, if not reported on
NASDAQ, as quoted by the National Quotation Bureau Incorporated, or
if the Common Stock is listed on an exchange, on the principal
exchange on which the Common Stock is listed. If for any day the
Fair Market Value of a share of Common Stock, is not determinable by
any of the foregoing means, then the Fair Market Value for such day
shall be determined in good faith by the Committee on the basis of
such quotations and other considerations as the Committee deems
appropriate.
"Holder" means an employee of the Company or a Subsidiary or an
independent contractor or consultant who has received an Award under
this Plan.
"Incentive Stock Option" means a stock option granted under Article
VI which is intended to be an incentive stock option within the
meaning of Section 422 of the Code.
"NASDAQ" means the Nasdaq Stock Market.
"Nonqualified Stock Option" means a stock option granted under
Article VI that is designated a nonqualified stock option.
"Option" means any Incentive Stock Option or Nonqualified Stock
Option.
"Plan" has the meaning ascribed thereto in Section 1.1.
"Restricted Shares" means shares of Common Stock or the right to
receive shares of Common Stock, as the case may be, awarded pursuant
to Article VIII.
"Restriction Period" means a period of time beginning on the date of
each award of Restricted Shares and ending on the Vesting Date with
respect to such award.
"Retained Distribution" has the meaning ascribed thereto in Section
8.3.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor Rule, References to paragraphs of Rule 16b-3 shall
include the comparable provisions of any successor Rule.
"Subsidiary" of the Company means any present or future subsidiary
(as defined in Section 424(f) of the Code) of the Company or any
business entity in which the Company owns directly or indirectly,
50% or more of the voting, capital or profits interests. An entity
shall be deemed a subsidiary of the Company for purposes of this
definition only for such periods as the requisite ownership or
control relationship is maintained.
"Vesting Date" with respect to any Restricted Shares awarded
hereunder means the date on which such Restricted Shares cease to be
subject to a risk of forfeiture, as designated in or determined in
accordance with the Agreement with respect to such award of
Restricted Shares pursuant to Article VIII. If more than one
Vesting Date is designated for an award of Restricted Shares,
references in the Plan to a Vesting Date in respect of such Award
shall be deemed to refer to each party of such Award and the Vesting
Date of such part.
ARTICLE III
ADMINISTRATION
3.1 Committee. The Plan shall be administered by the Option Committee
of the Board unless a different committee is appointed by the Board. The
Committee shall be comprised of not less than two persons. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of its members shall
constitute a quorum and all determinations shall be made by a majority of such
quorum. Any determination reduced to writing and signed by all of the members
shall be fully as effective as if it had been made by a majority vote at a
meeting duly called and held.
3.2 Powers. The Committee shall have full power and authority to grant
to eligible persons Options under Article VI of the Plan and/or Restricted
Shares under Article VIII of the Plan, to determine the terms and conditions
(which need not be identical) of all Awards so granted, to interpret the
provisions of the Plan and any Agreements relating to Awards granted under the
Plan, and to supervise the administration of the Plan. The Committee in making
an Award may provide for the granting or issuance of additional, replacement or
alternative Awards upon the occurrence of specified events, including the
exercise of the original Award. The Committee shall have sole authority in the
selection of persons to whom Awards may be granted under the Plan and in the
determination of the timing, pricing and amount of any such Award, subject only
to the express provisions of the Plan. In making determinations hereunder, the
Committee may take into account the nature of the services rendered by the
respective employees, independent contractors and consultants, their present
and potential contributions to the success of the Company and its Subsidiaries
an such other factors as the Committee in its discretion deems relevant.
3.3 Interpretation. The Committee is authorized, subject to the
provisions of the Plan, to establish, amend and rescind such rules and
regulations as it deems necessary or advisable for the proper administration of
the Plan and to take such other action in connection with or in relation to the
Plan as it deems necessary or advisable. Each action and determination made or
taken pursuant to the Plan by the Committee, including any interpretation or
construction of the Plan, shall be final and conclusive for all purposes and
upon all persons. No member of the Committee shall be liable for any action or
determination made or take by him or the Committee in good faith with respect
to the Plan.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to the provisions of this Article IV, the
maximum number of shares of Common Stock with respect to which Awards may be
granted during the term of the Plan shall be 350,000 shares. Shares of Common
Stock will be made available from the authorized but unissued shares of the
Company. The shares of Common Stock subject to (i) any Award granted under the
Plan that shall expire, terminate or be annulled for any reason without having
been exercised (or considered to have been exercised as provided in Section 7)
and (ii) any Award of Restricted Shares that shall be forfeited prior to
becoming vested (provided that the Holder received no benefits of ownership of
such Restricted Shares other than voting rights and the accumulation of
Retained Distributions and unpaid Dividend Equivalents that are likewise
forfeited), shall again be available for purposes of the Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock
dividend, stock split, reclassification or otherwise) or combines its
outstanding shares of Common Stock into a similar number of shares of Common
Stock (by reverse stock split, reclassification or otherwise), or if the
Committee determines that any stock dividend, extraordinary cash dividend,
reclassification, recapitalization, reorganization, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock, or other similar corporate event (including mergers or consolidations
other than those which constitute Approval Transactions) affects the Common
Stock such that an adjustment is required in order to preserve the benefits or
potential benefits intended to be made available under this Plan, then the
Committee shall, in its sole discretion and in such manner as the Committee may
deem equitable and appropriate, make such adjustments to any or all of (i) the
number and kind of shares which thereafter may be awarded, optioned, or
otherwise made subject to the benefits contemplated by the Plan; (ii) the
number and kind of shares subject to outstanding Awards, and (iii) the purchase
or exercise price with respect to any of the foregoing, provided, however, that
the number of shares subject to any Award shall always be a whole number. The
Committee may, if deemed appropriate, provide for a cash payment to any Holder
of an Award in connection with any adjustment made pursuant to this Section
4.2.
ARTICLE V
ELIGIBILITY
5.1 General. The persons who shall be eligible to participate in the
Plan and to receive Awards under the Plan shall be such employees (including
officers and directors) of the Company and its Subsidiaries or independent
contractors or consultants as the Committee shall select. Awards may be made
to employees, independent contractors or consultants who hold or have held
Awards under this Plan or any similar or other awards under any other plan of
the Company or any of its Affiliates.
ARTICLE VI
STOCK OPTIONS
6.1 Grant of Options. Subject to the limitations of the Plan, the
Committee shall designate from time to time those eligible persons to be
granted Options, the time when each Option shall be granted to such eligible
persons, the number of shares subject to such Option, whether such Option is an
Incentive Stock Option or a Nonqualified Stock Option and, subject to Section
6.2, the purchase price of the shares of Common Stock subject to such Option.
Subject to the other provisions of the Plan, the same person may receive
Incentive Stock Options and Nonqualified Stock Options at the same time and
pursuant to the same Agreement, provided that Incentive Stock Options and
Nonqualified Stock Options are clearly designated as such.
6.2 Option Price. The price at which shares may be purchased upon
exercise of an Option shall be fixed by the Committee and may be more than,
less than or equal to the Fair Market Value of the Common Stock as of the date
the Option is granted.
6.3 Term of Options. Subject to the provisions of the Plan with respect
to death, retirement and termination of employment, the term of each Option
shall be for such period as the Committee shall determine as set forth in the
applicable Agreement.
6.4 Excise of Options. An Option granted under the Plan shall become
(and remain) exercisable during the term of the Option to the extent provided
in the applicable Agreement and this Plan and, unless the Agreement otherwise
provides, may be exercised to the extent exercisable, in whole or in part, at
any time and from time to time during such term; provided, however, that
subsequent to the grant of an Option, the Committee, at any time before
complete termination of such Option, may accelerate the time or time at which
such Option may be exercised in whole or in part (without reducing the term of
such Option).
6.5 Manner of Exercise.
(a) Form of Payment. An Option shall be exercised by
written notice to the Company upon such terms and conditions as the
Agreement may provide and in accordance with such other procedures
for the exercise of Options as the Committee may establish from time
to time. The method or methods of payment of the purchase price for
the shares to be purchased upon exercise of an Option and of any
amounts required by Section 10.10 shall be determined by the
Committee and may consist of (i) cash, (ii) check, (iii) promissory
note, (iv) whole shares of Common Stock or of Series B Stock already
owned by the Holder, (v) the withholding of shares of Common Stock
issuable upon such exercise of the Option, (vi) the delivery,
together with a properly executed exercise notice, of irrevocable
instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the purchase price,
(vii) any combination of the foregoing methods of payment, or such
other consideration and method of payment as may be permitted for
the issuance of shares under the Delaware General Corporation Law.
The permitted method or methods of payment of the amounts payable
upon exercise of an Option, if other than in cash, shall be set
forth in the applicable Agreement and may be subject to such
conditions as the Committee deems appropriate. Without limiting the
generality of the foregoing, if a Holder is permitted to elect to
have shares of Common issuable upon exercise of an Option withheld
to pay all or any part of the amounts payable in connection with
such exercise, then the Committee shall have the sole discretion to
approve or disapprove such election, which approval or disapproval
shall be given after such election is made.
(b) Value of Shares. Shares of Common Stock delivered
in payment of all or any part of the amounts payable in connection
with the exercise of an Option, and shares of Common Stock withheld
for such payment, shall be valued for such purpose at their Fair
Market Value as of the exercise date. Notwithstanding the
foregoing, if a Holder who is permitted to do so pursuant to the
applicable Agreement elects to have shares of Common Stock issuable
upon exercise of an Option withheld in payment of all or any part of
the amounts payable in connection with the exercise of such Option
and if, in order to meet the exemptive requirements of Rule 16b-3,
such election is made during a window period determined in
accordance with paragraph (e)(3) of such Rule (or is made prior
thereto to become effective during such window period), then for
purposes of determining the Fair Market Value of the shares of
Common Stock withheld, such Option (other than an Incentive Stock
Option) shall be deemed to have been exercised on the day during
such window period on which the highest reported last sale price of
a share of Common Stock as reported on NASDAQ occurred and the Fair
Market Value of such shares shall be deemed to be such highest
reported last sale price.
(c) Issuance of Shares. The Company shall effect the
transfer of the shares of Common Stock purchased under the Option as
soon as practicable after the exercise thereof and payment in full
of the purchase price therefor and of any amounts required by
Section 10.10, and within a reasonable time thereafter such transfer
shall be evidenced on the books of the Company. No Holder or other
person exercising an Option shall have any of the rights of a
stockholder of the Company with respect to shares of Common Stock
subject to an Option granted under the Plan until due exercise and
full payment has been made. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the
date of such due exercise and full payment.
6.6 Nontransferability. Unless otherwise determined by the Committee
and provided in the applicable Agreement, Options shall not be transferable
other than by will or the laws of descent and distribution or pursuant to a
domestic relations order and, except as otherwise required pursuant to a
domestic relations order, Options may be exercised during the lifetime of the
Holder thereof only by such Holder (or his or her court appointed legal
representative).
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
RESTRICTED SHARES
8.1 Grant. Subject to the limitations of the Plan, the Committee shall
designate those eligible persons to be granted awards of Restricted Shares,
shall determine the time when each such Award shall be granted, whether shares
of Common Stock covered by awards of Restricted Shares will be issued at the
beginning or the end of the Restriction Period and whether Dividend Equivalents
will be paid during the Restriction Period in the event shares of the Common
Stock are to be issued at the end of the Restriction Period, and shall
designate (or set forth the basis for determining) the Vesting Date or Vesting
Dates for each award of Restricted Shares and may prescribe other restrictions,
terms and conditions applicable to the vesting of such Restricted Shares in
addition to those provided in the Plan. The Committee shall determine the
price, if any, to be paid by the Holder for the Restricted Shares; provided,
however, that the issuance of Restricted Shares shall be made for at least the
minimum consideration necessary to permit such Restricted Shares to be deemed
fully paid and nonassessable. All determinations made by the Committee
pursuant to this Section 8.1 shall be specified in the Agreement.
8.2 Issuance of Restricted Shares at Beginning of the Restriction
Period. If shares of Common Stock are issued at the beginning of the
Restriction Period, the stock certificate or certificates representing such
Restricted Shares shall be registered in the name of the Holder to whom such
Restricted Shares shall have been awarded. During the Restriction Period,
certificates representing the Restricted Shares and any securities constituting
Retained Distributions shall bear a restrictive legend to the effect that
ownership of the Restricted Shares (and such Retained Distributions), and the
enjoyment of all rights appurtenant thereto, are subject to the restrictions,
terms and conditions provided in the Plan and the applicable Agreement. Such
certificates shall remain in the custody of the Company and the Holder shall
deposit with the Company stock powers or other instruments of assignment, each
endorsed in blank, so as to permit retransfer to the Company of all or any
portion of the Restricted Shares and any securities constituting Retained
Distributions that shall be forfeited or otherwise not become vested in
accordance with the Plan and the applicable Agreement.
8.3 Restrictions. Restricted Shares issued at the beginning of the
Restriction Period shall constitute issued and outstanding shares of Common
Stock for all corporate purposes. The Holder will have the right to vote such
Restricted Shares, to receive and retain such dividends and distributions, as
the Committee may in its sole discretion designate, paid or distributed on such
Restricted Shares and to exercise all other rights, powers and privileges of a
Holder of Common Stock with respect to such Restricted Shares; except, that (a)
the Holder will not be entitled to delivery of the stock certificate or
certificates representing such Restricted Shares until the Restriction Period
shall have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled or waived; (b) the Company will retain
custody of the stock certificate or certificates representing the Restricted
Shares during the Restriction Period as provided in Section 8.2; (c) other than
such dividends and distributions as the Committee may in its sole discretion
designate, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Shares (and
such Retained Distributions will be subject to the same restrictions, terms and
vesting and other conditions as are applicable to the Restricted Shares) until
such time, if ever, as the Restricted Shares with respect to which such
Retained Distributions shall have been made, paid or declared shall have become
vested, and such Retained Distributions shall not bear interest or be
segregated in a separate account; (d) the Holder may not sell, assign,
transfer, pledge, exchange, encumber or dispose of the Restricted Shares or any
Retained Distributions or his interest in any of them during the Restriction
Period; and (e) a breach of any restrictions, terms or conditions provided in
the Plan or established by the Committee with respect to any Restricted Shares
or Retained Distributions will cause a forfeiture of such Restricted Shares and
any Retained Distributions with respect thereto.
8.4 Issuance of Stock at End of the Restriction Period. Restricted
Shares issued at the end of the Restriction Period shall not constitute issued
and outstanding shares of Common Stock and the Holder shall not have any of the
rights of a stockholder with respect to the shares of Common Stock covered by
such an award of Restricted Shares, in each case until such shares shall have
been transferred to the Holder at the end of the Restriction Period. If and to
the extent that shares of Common Stock are to be issued at the end of the
Restriction Period, the Holder shall be entitled to receive Dividend
Equivalents with respect to the shares of Common Stock covered thereby either
(i) during the Restriction Period or (ii) in accordance with the rules
applicable to Retained Distributions, as the Committee may specify in the
Agreement.
8.5 Cash Awards. In connection with any award of Restricted Shares, an
Agreement may provide for the payment of a cash amount to the Holder of such
Restricted Shares at any time after such Restricted Shares shall have become
vested. Such cash awards shall be payable in accordance with such additional
restrictions, terms and conditions as shall be prescribed by the Committee in
the Agreement and shall be in addition to any other salary, incentive, bonus or
other compensation payments which such Holder shall be otherwise entitled or
eligible to receive from the Company.
8.6 Completion of Restriction Period. On the Vesting Date with respect
to each award of Restricted Shares, and the satisfaction of any other
applicable restrictions, terms and conditions (a) all or the applicable portion
of such Restricted Shares shall become vested, (b) any Retained Distributions
and any unpaid Dividend Equivalents with respect to such Restricted Shares
shall become vested to the extent that the Restricted Shares related thereto
shall have become vested and (c) any cash award to be received by the Holder
with respect to such Restricted Shares shall become payable, all in accordance
with the terms of the applicable Agreement. Any such Restricted Shares,
Retained Distributions and any unpaid Dividend Equivalents that shall not
become vested shall be forfeited to the Company and the Holder shall not
thereafter have any rights (including dividend and voting rights) with respect
to such Restricted Shares, Retained Distributions and any unpaid Dividend
Equivalents that shall have been so forfeited. The Committee may, in its
discretion, provide that the delivery of any Restricted Shares, Retained
Distributions and unpaid Dividend Equivalents that shall have become vested,
and payment of any cash awards that shall have become payable, shall be
deferred until such date or dates as the recipient may elect. Any election of
a recipient pursuant to the preceding sentence shall be filed in writing with
the Committee in accordance with such rules and regulations, including any
deadline for the making of such an election, as the Committee may provide.
ARTICLE IX
INTENTIONALLY OMITTED
ARTICLE X
GENERAL PROVISIONS
10.1 Acceleration of Options and Restricted Shares.
(a) Death or Disability. If a Holder's employment shall
terminate by reason of death or Disability, notwithstanding any
contrary waiting period, installment period, vesting schedule or
Restriction Period in any Agreement or in the Plan, unless the
applicable Agreement provides otherwise: (i) in the case of an
Option, each outstanding Option granted under the Plan shall
immediately become exercisable in full in respect of the aggregate
number of shares covered thereby; and (ii) in the case of Restricted
Shares, the Restriction Period applicable to each such award of
Restricted Shares shall be deemed to have expired and all such
Restricted Shares, any related Retained Distributions and any unpaid
Dividend Equivalents shall become vested and any cash amounts
payable pursuant to the applicable Agreement shall be adjusted in
such manner as may be provided in the Agreement.
(b) Approved Transactions. In the event of any Approved
Transaction, notwithstanding any contrary waiting period,
installment period, vesting schedule or Restriction Period in any
Agreement or in the Plan, unless the applicable Agreement provides
otherwise: (i) in the case of an Option each such outstanding
Option granted under the Plan shall become exercisable in full in
respect of the aggregate number of shares covered thereby; and (ii)
in the case of Restricted Shares, the Restriction Period applicable
to each such award of Restricted Shares shall be deemed to have
expired and all such Restricted Shares, any related Retained
Distributions and any unpaid Dividend Equivalents shall become
vested and any cash amounts payable pursuant to the applicable
Agreement shall be adjusted in such manner as may be provided in the
Agreement, provided, however, that any Options not theretofore
exercised shall terminate upon consummation of the Approved
Transaction. Notwithstanding the foregoing, unless otherwise
provided in the applicable Agreement, the Committee may, in its
discretion, determine that any or all outstanding Awards of any or
all types granted pursuant to the Plan will not vest or become
exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to
consummation of the Approved Transaction, if the Board or the
surviving or acquiring corporation, as the case may be, shall have
taken, or made effective provision for the taking of, such action as
in the opinion of the Committee is equitable and appropriate to
substitute a new Award for such Award or to assume such Award and in
order to make such new or assumed Award, as nearly as may be
practicable, equivalent to the old Award (before giving effect to
any acceleration of the vesting or exercisability thereof), taking
into account, to the extent applicable, the kind and amount of
securities, cash or other assets into or for which the Common Stock
may be changed, converted or exchanged in connection with the
Approved Transaction.
10.2 Termination of Employment.
(a) General. If a Holder's employment shall terminate
prior to the complete exercise of an Option (or deemed exercise
thereof, as provided in Section 7.2) or during the Restriction
Period with respect to any Restricted Shares, then such Option shall
thereafter be exercisable, and the Holder's rights to any unvested
Restricted Shares, Retained Distributions, unpaid Dividend
Equivalents and cash amounts shall thereafter vest solely to the
extent provided in the applicable Agreement; provided, however, that
(i) no Option may be exercised after the scheduled expiration date
thereof; (ii) if the Holder's employment terminates by reason of
death or Disability, the Option shall remain exercisable for a
period of at least one year following such termination (but not
later than the scheduled expiration of such Option); and (iii) any
termination by the Company for cause will be treated in accordance
with the provisions of Section 10.2(b).
(b) Termination by Company for Cause. If a Holder's
employment with the Company or a Subsidiary shall be terminated by
the Company or such Subsidiary during the Restriction Period with
respect to any Restricted Shares, or prior to the exercise of any
Option, for cause (for these purposes, cause shall have the meaning
ascribed thereto in any employment agreement to which such Holder is
a party or, in the absence thereof, shall include but not be limited
to, insubordination, dishonesty, incompetence, moral turpitude,
other misconduct of any kind or the refusal to perform his duties
and responsibilities for any reason other than illness or
incapacity; provided, however, that if such termination occurs
within 12 months after an Approved Transaction, termination for
cause shall mean only a felony conviction for fraud,
misappropriation or embezzlement), then (i) all Options held by such
Holder shall immediately terminate and (ii) such Holder's rights to
all restricted Shares, Retained Distributions, any unpaid Dividend
Equivalents and any cash awards shall be forfeited immediately.
(c) Miscellaneous. The Committee may determine whether
any given leave of absence constitutes a termination of employment;
provided, however, that for purposes of the Plan (i) a leave of
absence, duly authorized in writing by the Company for military
service or sickness, or for any other purpose approved by the
Company if the period of such leave does not exceed 90 days, and
(ii) a leave of absence in excess of 90 days, duly authorized in
writing by the Company, provided the employee's right to
reemployment is guaranteed either by statute or contract, shall not
be deemed a termination of employment. Awards made under the Plan
shall not be affected by any change of employment so long as the
Holder continues to be an employee of the Company or any Subsidiary.
10.3 Right of Company to Terminate Employment. Nothing contained in the
Plan or in any Award, and no action of the Company or the Committee with
respect thereto, shall confer or be construed to confer on any Holder any right
to continue in the employ of the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or a Subsidiary to terminate
the employment of the Holder at any time, with or without cause; subject,
however, to the provisions of any employment agreement between the Holder and
the Company or any Subsidiary.
10.4 Nonalienation of Benefits. No right or benefit under the Plan shall
be subject to alienation, sale, assignment, hypothecation, pledge, exchange,
transfer, encumbrance or charge, and any attempt to alienate, sell, assign,
hypothecate, pledge, exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such benefits.
10.5 Written Agreement. Each grant of an Option under the Plan shall be
evidenced by a stock option agreement which shall designate the Options granted
thereunder as Incentive Stock Options or Nonqualified Stock Options; and each
award of Restricted Shares shall be evidenced by a restricted shares agreement,
each in such form and containing such terms and provisions not inconsistent
with the provisions of the Plan as the Committee from time to time shall
approve; provided, however, that if more than one type of Award is made to the
same Holder, such Awards may be evidenced by a single agreement with such
Holder. Each grantee of an Option or Restricted Shares shall be notified
promptly of such grant and a written agreement shall be promptly executed and
delivered by the Company and the grantee, provided that, in the discretion of
the Committee, such grant of Options or Restricted Shares shall terminate if
such written agreement is not signed by such grantee (or his attorney) and
delivered to the Company within 60 days after the date the Committee approved
such grant. Any such written agreement may contain (but shall not be required
to contain) such provisions as the Committee deems appropriate (i) to ensure
that the penalty provisions of Section 4999 of the Code will not apply to any
stock or cash received by the Holder from the Company or (ii) to provide cash
payments to the Holder to mitigate the impact of such penalty provisions upon
the Holder. Any such agreement may be supplemented or amended from time to
time as approved by the Committee as contemplated by Section 10.8(b).
10.6 Designation of Beneficiaries. Each person who shall be granted an
Award under the Plan may designate a beneficiary or beneficiaries and may
change such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on a form to be prescribed by
it, provided that no such designation shall be effective unless so filed prior
to the death of such person.
10.7 Right of First Refusal. The Agreements may contain such provisions
as the Committee shall determine to the effect that if a Holder elects to sell
all or any shares of Common Stock that such Holder acquired upon the exercise
of an Option or upon the vesting of Restricted Shares awarded under the Plan,
then such Holder shall not sell such shares unless such Holder shall have first
offered in writing to sell such shares to the Company at Fair Market Value on a
date specified in such offer (which date shall be at least three business days
and not more than ten business days following the date of such offer). In any
such event, certificates representing shares issued upon exercise of Options or
and the vesting of Restricted Shares shall bear a restrictive legend to the
effect that transferability of such shares are subject to the restrictions
contained in the Plan and the applicable Agreement and the Company may cause
the transfer agent for the Common Stock to place a stop transfer order with
respect to such shares.
10.8 Termination and Amendment.
(a) General. Unless the Plan shall theretofore have
been terminated as hereinafter provided, no Awards may be made under
the Plan on or after the tenth anniversary of the Effective Date.
The Board or the Committee may at any time prior to the tenth
anniversary of the Effective Date terminate the Plan, and may, from
time to time, suspend or discontinue the Plan or modify or amend the
Plan in such respects as it shall deem advisable; except that no
such modification or amendment shall be effective prior to approval
by the Company's stockholders to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the
applicability of any exemption provided by such rule to any Award
then outstanding (unless the holder of such Award consents) or to
the extent stockholder approval is otherwise required by applicable
legal requirements.
(b) Modification. No termination, modification or
amendment of the Plan may, without the consent of the person to whom
any Award shall theretofore have been granted, adversely affect the
rights of such person with respect to such Award. No modification,
extension, renewal or other change in any Award granted under the
Plan shall be made after the grant of such Award, unless the same is
consistent with the provisions of the Plan. With the consent of the
Holder and subject to the terms and conditions of the Plan
(including Section 10.8(a)), the Committee may amend outstanding
Agreements with any Holder, including, without limitation, any
amendment which would (i) accelerate the time or times at which the
Award may be exercised and/or (ii) extend the scheduled expiration
date of the Award. Without limiting the generality of the
foregoing, the Committee may, but solely with the Holder's consent
unless otherwise provided in the Agreement, agree to cancel any
Award under the Plan and issue a new Award in substitution therefor,
provided that the Award so substituted shall satisfy all of the
requirements of the Plan as of the date such new Award is made.
Nothing contained in the foregoing provisions of this Section
10.8(b) shall be construed to prevent the Committee from providing
in any Agreement that the rights of the Holder with respect to the
Award evidenced thereby shall be subject to such rules and
regulations as the Committee may, subject to the express provisions
of the Plan, adopt from time to time, or impair the enforceability
of any such provision.
10.9 Government and Other Regulations. The obligation of the Company
with respect to Awards shall be subject to all applicable laws, rules and
regulations and such approvals by any governmental agencies as may be required,
including, without limitation, the effectiveness of any registration statement
required under the Securities Act of 1933, and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted.
10.10 Withholding. The Company's obligation to deliver shares of Common
Stock or pay cash in respect of any Award under the Plan shall be subject to
applicable federal, state and local tax withholding requirements. Federal,
state and local withholding tax due at the time of an Award, upon the exercise
of any Option or upon the vesting of, or expiration of restrictions with
respect to, Restricted Shares, as appropriate, may, in the discretion of the
Committee, be paid in shares of Common Stock already owned by the Holder or
through the withholding of shares otherwise issuable to such Holder, upon such
terms and conditions (including, without limitation, the conditions referenced
in Section 6.5) as the Committee shall determine. If the Holder shall fail to
pay, or make arrangements satisfactory to the Committee for the payment, to the
Company of all such federal, state and local taxes required to be withheld by
the Company, then the Company shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to such Holder an
amount equal to any federal, state or local taxes of any kind required to be
withheld by the Company with respect to such Award.
10.11 Separability. It is the intent of the Company that this Plan
comply with Rule 16b-3 with respect to persons subject to Section 16 of the
Exchange Act unless otherwise provided herein or in an Award Agreement, that
any ambiguities or inconsistencies in the construction of this Plan be
interpreted to give effect to such intention, and that if any provision of this
Plan is found not to be in compliance with Rule 16b-3, such provision shall be
null and void to the extent required to permit this Plan to comply with Rule
16b-3.
10.12 Non-Exclusivity of the Plan. Neither the adoption of the Plan by
the Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding
of stock and cash otherwise then under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
10.13 Exclusion from Pension and Profit-Sharing Computation. By
acceptance of an Award, unless otherwise provided in the applicable Agreement,
each Holder shall be deemed to have agreed that such Award is special incentive
compensation that will not be taken into account, in any manner, as salary,
compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan, program or policy of the
Company or any Subsidiary. In addition, each beneficiary of a deceased Holder
shall be deemed to have agreed that such Award will not affect the amount of
any life insurance coverage, if any, provided by the Company on the life of the
Holder which is payable to such beneficiary under any life insurance plan
covering employees of the Company or any Subsidiary.
10.14 Unfunded Plan. Neither the Company nor any Subsidiary shall be
required to segregate any cash or any shares of Common Stock which may at any
time be represented by Awards and the Plan shall constitute an "unfunded" plan
of the Company. Except as provided in Article VIII with respect to awards of
Restricted Shares and except as expressly set forth in writing, no employee
shall have voting or other rights with respect to shares of Common A Stock
prior to the delivery of such shares. Neither the Company nor any Subsidiary
shall, by any provisions of the Plan, be deemed to be a trustee of any Common A
Stock or any other property, and the liabilities of the Company and any
Subsidiary to any employee pursuant to the Plan shall be those of a debtor
pursuant to such contract obligations as are created by or pursuant to the
Plan, and the rights of any employee, former employee or beneficiary under the
Plan shall be limited to those of a general creditor of the Company or the
applicable Subsidiary, as the case may be. In its sole discretion, the Board
may authorize the creation of trusts or other arrangements to meet the
obligations of the Company under the Plan, provided, however, that the
existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.
10.15 Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
10.16 Accounts. The delivery of any shares of Common Stock and the
payment of any amount in respect of an Award shall be for the account of the
Company or the applicable Subsidiary, as the case maybe, and any such delivery
or payment shall not be made until the recipient shall have paid or made
satisfactory arrangements for the payment of any applicable withholding taxes
as provided in Section 10.10.
10.17 Legends. In addition to any legend contemplated by Section 10.7,
each certificate evidencing Common Stock subject to an Award shall bear such
legends as the Committee deems necessary or appropriate to reflect or refer to
any terms, conditions or restrictions of the Award applicable to such shares,
including, without limitation, any to the effect that the shares represented
thereby may not be disposed of unless the Company has received an opinion of
counsel, acceptable to the Company, that such disposition will not violate any
federal or state securities laws.
10.18 Company's Rights. The grant of Awards pursuant to the Plan shall
not affect in any way the right or power of the Company to make
reclassifications, reorganizations or other changes of or to its capital or
business structure or to merge, consolidate, liquidate, sell or otherwise
dispose of all or any part of its business or assets.
<PAGE>
EXHIBIT 10.9
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of this 25th day of September 1996,
between FIFTY BROAD STREET, INC. AND FIFTY NEW STREET, INC., New York
corporations having their principal place of business c/o Cushman & Wakefield,
Inc., 100 Wall Street, New York, N.Y. 10005, party of the first part,
hereinafter referred to as OWNER, and K2 DESIGN, INC., a New York corporation,
party of the second part, hereinafter referred to as TENANT,
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner
Room 2001 in the building known as 50 Broad Street, in the Borough of
Manhattan, City of New York, for the term of Five (5) years, three (3) months
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the First (1st) day of November nineteen hundred and ninety-six,
and to end on the Thirty-first (31) day of January, two-thousand and two, both
dates inclusive, at an annual rental rate of Thirty-four thousand, five hundred
and eighty 00/00 ($34,580.00) (11/1/96 to 11/30/98); then Thirty-six thousand,
five hundred and fifty-six ($36,556.00) (12/1/98 to 12/31/99); and then Thirty-
eight thousand, five hundred and thirty-two ($38,532.00) (1/1/2000 to
1/31/2002) 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(s)
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 as
hereinafter provided.
OCCUPANCY: 2. Tenant shall use and occupy demised premises for
executive offices for Tenant's use and for no other purpose.
TENANT ALTERATIONS:3. Tenant shall make no changes in or to the
demised premises of any nature without Owner's prior written consent and to the
provisions of this article. Tenant at Tenant's expense, may make alterations,
installations, additions or improvements which are non-structural and which do
not affect utility services or plumbing and electrical lines, in or to the
interior of the demised premises by using contractors or mechanics first
approved by Owner. Tenant shall, before making any alterations, additions,
installations or improvements, at its expense, obtain all permits, approvals
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
and 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
filing the bond required by law. All fixtures and all paneling, partitions,
railings and like installations, installed in the premises at any time, either
by Tenant or by Owner in 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 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 may be removed
from the premises by Owner, at Tenant's expense.
MAINTENANCE AND REPAIRS: 4. Tenant shall, throughout the term of
this lease, take good care of the demised premises and the fixtures and
appurtenances therein. Tenant shall be responsible for all damage or injury to
the demised premises or any other part of the building and the systems and
equipment thereof, whether requiring structural or nonstructural repairs caused
by or resulting from carelessness, omission, neglect or improper conduct of
Tenant, Tenant's subtenants, agents, employees, invitees or licensees, or which
arise out of any work, labor service or equipment done for or supplied to
Tenant or any subtenant or arising out of the installation use or operation of
the property or equipment of Tenant or any subtenant. Tenant shall also repair
all damage to the building and the demised premises caused by the moving of
Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at
Tenant's expense, all repairs in and to the demised premises for which Tenant
is responsible, using only the contractor for the trade or trades in question,
selected from a list of at least two contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems thereof
for which Tenant is responsible shall be performed by Owner at the Tenant's
expense. Owner shall maintain in good working order and repair the exterior
and the structural portions of the building, including the structural portions
of its demised premises, and the public portions of the building interior and
the building plumbing, electrical, heating and ventilating systems (to the
extent such systems presently exist) serving the demised premises. Tenant
agrees to give prompt notice of any defective condition in the premises for
which Owner may be responsible hereunder. 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
others making 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 setoff 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 an action for damages for breach of contract. The provisions
of this Article 4 shall not apply in the case of fire or other casualty which
are dealt with in Article 9 hereof.
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 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, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall 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, 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, (including Tenant's permitted use) or, with respect to the building if
arising out of Tenant's use or manner of use of the premises or the building
(including the use permitted under the lease). 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 may, after securing Owner to Owner's satisfaction
against all damages, interest, penalties and expenses, including, but not
limited to, reasonable attorney's fees, by cash deposit or by surety bond in an
amount and in a company satisfactory to Owner, contest and appeal any such
laws, ordinances, orders rules, regulations or requirements provided same is
done with all reasonable promptness and provided such appeal shall not subject
Owner to prosecution for a criminal offense or constitute a default under any
lease or mortgage under which Owner may be obligated, or cause the demised
premises or any part thereof to be condemned or vacated. Tenant shall not 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 with respect to the demised premises or the building of
which the demised premises form a part, or which shall or might subject Owner
to any liability or responsibility to any person or for property damage.
Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Underwriters, Fire
Insurance Rating Organization or 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.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may
be imposed upon Owner by reason of Tenant's failure to comply with the
provisions of this article and if by reason of such failure 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" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable
to said premises shall be conclusive evidence of the facts therein stated and
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 judgment, 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 of 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 execute promptly any certificate that Owner
may request.
PROPERTY-LOSS, DAMAGE, REIMBURSEMENT, 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, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused
by other tenants or persons in, upon or about said building or caused by
operations in construction 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 attorneys 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 of any action or proceeding is brought
against Owner by reason 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, 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 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 subject to Owner's
right to elect not to restore the same as herein provided. (d) If the demised
premises are rendered wholly unusable or (whether or not the demised premises
are damages 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, 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
Landlord'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 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 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, 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 against the other or any one claiming through or
under each of them by way of subrogation or otherwise. 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 benefitting 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
and assigns to Owner. Tenant's entire interest in any such 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
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 or relieve Tenant from obtaining the express consent in writing of
Owner to any further assignment or underletting.
ELECTRIC CURRENT: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 the risers or
wiring installation and Tenant may not use any electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installation or
interfere with the use thereof 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 the demised premises or to any other portion of the
building or which Owner may elect to perform. Tenant shall permit Owner to use
and maintain and replace pipes and conduits in and through the demised premises
and to erect new pipes and conduits therein provided they are concealed within
the walls, floor, or ceiling. 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 or
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 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. If Tenant is not present
to open and permit an entry into the 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 hereunder.
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.
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.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the
contrary notwithstanding, this lease may be cancelled by Owner by the 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 nor 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 rent 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 or 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 become vacant or deserted; 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 this lease be rejected under <section> 235 of Title 11
of the U.S. Code (bankruptcy code); or if Tenant shall fail to move into or
take possession of the premises within fifteen (15) days after the commencement
of the term of this lease, then, in any one or more of such events, upon Owner
serving a written five (5) days notice upon Tenant specifying the nature of
said default and upon the expiration of said five (5) 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 five (5) day period, and if Tenant shall not have
diligently commenced curing such default within such five (5) day 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 three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such three (3) 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
otherwise, (a) the 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, and/or (c) Tenant or the legal representatives
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 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, 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 in the event of Tenant being
evicted or dispossessed for any cause, or in the event of Tenant being evicted
or dispossessed for any cause, or in the event of Owner obtaining possession of
demised premises, by reason of the violation by Tenant of any of the covenants
and conditions of this lease, or otherwise.
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, then, unless otherwise provided elsewhere in this lease. Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant hereunder. 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 attorney's fees, in instituting, prosecuting or
defending any 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 five (5)
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 therefor to change the arrangement and/or location of
public entrance, 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 Tenants 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 such 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 or operation or any other matter or thing
affecting or related to the premises 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" 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. 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 31 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 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) until after Owner shall have given
Tenant written notice that the premises are substantially ready for Tenant's
occupancy. 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 occupancy shall be deemed to be under all
the terms, covenants, conditions and provisions of this lease, except as to the
covenant to pay rent. 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. 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 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.
WAIVE 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 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.
INABILITY TO PERFORM:27. This Lease and the obligation of Tenant to
pay rent hereunder and perform al 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 or fixtures if Owner is prevented or delayed
from so doing by reason of strike or labor troubles or any cause whatsoever
including, but not limited to, government preemption in connection with a
National Emergency 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 of supply and demand which have been or are affected 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.
SERVICES PROVIDED BY OWNERS:29. As long as Tenant is not in default
under any of the covenants of this lease, Owner shall provide: (a) necessary
elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays
from 8 a.m. to 1 p.m. and have one elevator subject to call at all other times;
(b) heat 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 a.m. to 1 p.m.; (c) water for
ordinary lavatory purposes, but if Tenant uses or consumes water for any other
purposes or in unusual quantities (of which fact Owner shall be the sole
judge), Owner may install a water meter at Tenant's expense which Tenant shall
thereafter maintain at Tenant's expense in good working order and repair to
register such water consumption and Tenant shall pay for water consumed as
shown on said meter as additional rent as and when bills are rendered;
(d) cleaning service for the demised premises on business days at Owner's
expense provided that the same are kept in order by Tenant. If, however, said
premises are to be kept clean by Tenant, it shall be done at Tenant's sole
expense, in a manner satisfactory to Owner and no one other than persons
approved by Owner shall be permitted to enter said premises or the building of
which they are a part for such purpose. Tenant shall pay Owner the cost of
removal of any of Tenant's refuse and rubbish from the building; (e) if the
demised premises are serviced by Owner's air conditioning/cooling and
ventilating system, air conditioning/cooling will be furnished to Tenant from
May 15th through September 30th on business days (Mondays through Fridays,
holidays excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will be
furnished on business days during the aforesaid hours except when air
conditioning/cooling is being furnished as aforesaid. If Tenant requires air
conditioning/cooling or ventilation for more extended hours or on Saturdays,
Sundays or on holidays, as defined under Owner's contract with Operating
Engineers Local 94-94A, Owner will furnish the same at Tenant's expense. RIDER
to be added in respect to rates and conditions for such additional service;
(f) Owner reserves the right to stop services of the heating, elevators,
plumbing, air-conditioning, power systems or cleaning or other services, if
any, when necessary by reason of accident or for repairs, alterations,
replacements or improvements necessary or desirable in the judgment of Owner
for as long as may be reasonably required by reason thereof. If the building
of which the demised premises are a part supplies manually-operated elevator
service. Owner at any time may substitute automatic-control elevator service
and upon ten days' written notice to Tenant, proceed with alterations necessary
therefor without in any wise affecting this lease or the obligation of Tenant
hereunder. The same shall be done with a minimum of inconvenience to Tenant
and Owner shall pursue the alteration with due diligence.
CAPTIONS: 30. 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 provisions thereof.
DEFINITIONS: 31. The term "office", or "offices", wherever used
in this lease, shall not be construed to mean premises used as a store or
stores, for the sale or display, at any time, of goods, wares or merchandise,
of any kind, or as a restaurant, shop, booth, bootblack or other stand, barber
shop, or for other similar purposes or for manufacturing. The term "Owner"
means a landlord or lessor, and as used in this lease means only the owner, or
the mortgagee in possession, for the time being of the land and building (or
the owner of a lease of the building or of 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 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 "business days" as used
in this lease shall exclude Saturdays (except such portion thereof as is
covered by specific hours in Article 29 hereof), Sundays and all days observed
by the State or Federal Government as legal holidays and those designated as
holidays by the applicable building service union employees service contract or
by the applicable Operating Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION-SHORING:32. 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 person 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:33. Tenant and Tenant's servants, employees,
agents, visitors, and licensees shall observe faithfully, and comply strictly
with, the Rules and Regulations 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 ten (10) 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.
SECURITY: 34. Tenant has deposited with Owner the sum of
$2,881.67 as security for the faithful performance and observance by Tenant of
the terms, provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and
additional rent, Owner may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any rent and
additional rent or any other sum as to which Tenant is in default or for any
sun which Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in the re-letting of
the premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Owner. In the event that Tenant shall
fully and faithfully comply with all of the terms, provisions, covenants and
conditions of this lease, the security shall be returned to Tenant after the
date fixed as the end of the Lease and after the delivery of entire possession
of the demised premises to Owner. In the event of a sale of the land and
building or leasing of the building, of which the demised premises form a part,
Owner shall have the right to transfer the security to the vendee or lessee and
Owner shall thereupon br released by Tenant from all liability for the return
of such security; and Tenant agrees to look to the new Owner 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 Owner.
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber the monies deposited herein as security and that neither
Owner nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
ESTOPPEL CERTIFICATE:35. 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 and 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.
SUCCESSORS AND ASSIGNS:36. 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.
Articles 37 through 43 inclusive are attached hereto and form 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 FIFTY BROAD STREET, INC. AND
FIFTY NEW STREET, INC.
_____________________________ /S/ NORMAN E. ALEXANDER
Secretary President
Witness for Tenant: K2 DESIGN, INC.
/S/ BRADLEY K. SZOLLOSE /S/ MATTHEW G. DE GANON
- ----------------------------- -----------------------------------
Secretary President
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 4th day of October, 1996, before me personally came Bradley
K. Szollose to me known, who being by me duly sworn, did depose and say that he
resides in Staten Island, NY that he is the Secretary/Treasurer of K2 Design,
Inc. the corporation described in and which executed the foregoing instrument,
as OWNER: that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
/S/ SETH BRESSMAN
-----------------------------------
NOTARY PUBLIC, County of New York
Registration No. 01BR4971373
Notary Expiration Date: 9/4/98
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 4th day of October, 1996, before me personally came Matthew
de Ganon to me known, who being by me duly sworn, did depose and say that he
resides in New York City that he is the President of K2 Design, Inc. the
corporation described in and which executed the foregoing instrument, as
TENANT: that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
/S/ SETH BRESSMAN
----------------------------------
NOTARY PUBLIC, County of New York
Registration No. 01BR4971373
Notary Expiration Date: 9/4/98
<PAGE>
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement
to owner making the within lease with Tenant, the undersigned guarantees to
Owner, owner's successors and assigns, the full performance and observance of
all the covenants, conditions and agreements, therein provided to be performed
and observed by Tenant, including the "Rules and Regulations" as therein
provided, without requiring any notice of non-payment, non-performance, or non-
observance, or proof, or notice, or demand, whereby to charge the undersigned
therefor, all of which the undersigned hereby expressly waives and expressly
agrees that the validity of this agreement and the obligations of the guarantor
hereunder shall in no wise be terminated, affected or impaired by reason of the
assertion by Owner against Tenant of any of the rights or remedies reserved to
Owner pursuant to the provisions of the within lease. The undersigned further
covenants and agrees that this guaranty shall remain and continue in full force
and effect as to any renewal, modification or extension of this lease and
during any period when Tenant is occupying the premises as a "statutory
tenant." As a further inducement to owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action or proceeding brought by either Owner or the undersigned against the
other on any matters whatsoever arising out of, under, or by virtue of the
terms of this lease or of this guarantee that Owner and the undersigned shall
and do hereby waive trial by jury.
Dated: , 19__
Guarantor
Witness
Guarantor's Residence
Business Address
Firm Name
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF )
On this day of , 19 , before me
personally came to me known and known to me to be the individual described
in, and who executed the foregoing Guaranty and acknowledged to me that he
executed the same.
Notary
<PAGE>
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery
by Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, 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 clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw permit to be swept
or thrown from the demised premises any dirt or other substances into any of
the corridors or halls, elevators, or out of the doors or windows or stairways
of the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the demised
premises if the same is visible from the outside of the premises without the
prior written consent of Owner, except that the name of Tenant may appear on
the entrance door of the premises. In the event of the violation of the
foregoing by any Tenant, Owner may remove same without any liability, and may
charge the expense incurred by such removal to Tenant or Tenants violating this
rule. Interior signs on doors and directory tablet shall be inscribed, painted
or affixed for each Tenant by Owner at the expense of such Tenant, and shall be
of a size, color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Owner, as Owner may direct. No Tenant shall lay linoleum,
or other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly
prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling n the building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between the
hours of 6 P.M. an 8 A.M. and at all hours on Sundays, and legal holidays all
persons who do not present a pass to the building signed by the Owner. Owner
will furnish passes to persons for whom any Tenant requests same in writing.
Each Tenant shall be responsible for all persons for whom he requests such pass
and shall be liable to Owner for all acts of such persons.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. If the building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all rules
nd regulations issued by the Owner with respect to such services. If Tenant
requires air conditioning or ventilation after the usual hours, Tenant shall
give notice in writing to the building superintendent prior to 3:00 P.M. in the
case of services required on week days, and prior to 3:00 P.M. on the day prior
in the case of after hours service required on weekends or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy
equipment,bulky matter, or fixtures into or out of the building without Owner's
prior written consent. If such safe, machinery, equipment, bulky matter or
fixtures requires special handling, all work in connection therewith shall
comply with the Administrative Code of the City of New York and all other laws
and regulations applicable thereto and shall be done during such hours as Owner
may designate.
<PAGE>
ADDRESS 50 Broad Street
PREMISES
=================================
FIFTY BROAD STREET, INC. AND
FIFTY NEW STREET, INC.
TO
==================================
STANDARD FORM OF
OFFICE
LEASE
The Real Estate Board of New York, Inc.
<copyright>Copyright in 1983. All rights Reserved
Reproduction in while or in part prohibited.
===================================
DATED: September 25, 1996
RENT PER YEAR $34,580.00 (11/1/96-11/30/98)
$34,556.00 (12/1/98-12/31/99)
$38,532.00 (1/1/00-1/31/02)
RENT PER MONTH $2,881.67 (11/1/96-11/30/98)
$3,046.33 (12/1/98-12/31/99)
$3,211.00 (1/1/00-1/31/02)
TERM Five (5) years, three (3) months
FROM November 1, 1996
TO January 31, 2002
Drawn...............................................
Checked by........................................
Entered by..........................................
Approved by.......................................
<PAGE>
[DIAGRAM OMITTED]
<PAGE>
This RIDER is attached to and forms a part of a certain lease dated the
25th day of September, 1996, between FIFTY BROAD STREET, INC. AND FIFTY NEW
STREET, INC., as Landlord and K2 DESIGN, INC., as Tenant
If there shall exist any duplication, conflict or inconsistency between
any term, covenant or condition in the printed form and in this Rider, the
term, covenant or condition of this Rider shall control.
TENANT'S PROPORTIONATE SHARE: 37. For the purpose of Articles 38 and
39 (a) demised premises shall be deemed to contain a floor area of 1,976 square
feet, (b) the Building shall be deemed to contain a total floor area of 172,424
square feet, and (c) Tenant's proportionate share shall be deemed to be
1.1460%.
TAXES: 38. A. Taxes shall mean all real estate taxes, assessments,
sewer rentals, county taxes, or any other governmental charges whether Federal,
State, City, County or Municipal, whether general or special, ordinary or
extraordinary, foreseen or unforeseen which may now or hereafter be levied,
imposed or assessed against the land upon which the Building stands and upon
the Building, (hereinafter referred to as the "Real property"). In the event
of a future change in the method of taxation, any franchise, income, profit or
any other tax, assessment or other charge shall be levied, imposed or assessed
against the Real Property in substitution in whole or in part for or in lieu of
any tax, assessment or other charge which would otherwise constitute Taxes
under the foregoing provisions of this paragraph, then such franchise, income,
profit or any other tax, assessment or other charge shall be deemed to be Taxes
for the purposes hereof.
B. "Tax Year" shall be the period from July 1 to June 30.
C. "Base Year" shall be the Tax Year commencing July 1, 1996 and
expiring June 30, 1997.
D. Tenant hereby covenants and agrees that for each Tax Year or a
portion thereof occurring within the term of this lease, or any renewal or
extension hereof, or any period of retention of possession by Tenant as a hold-
over or otherwise, in which the total amount of Taxes shall exceed the Taxes
levied, imposed or assessed against the Real Property for the Base Year, Tenant
shall pay to Landlord, as additional rent, an amount equal to the product
obtained by multiplying the total of such excess by Tenant's proportionate
share (such amount hereinafter referred to as "Tenant's Tax Payment").
E. At or after the commencement of the Tax Year immediately
succeeding the Base Year and for each subsequent Tax Year occurring within the
term of this lease, or any renewal or extension hereof, or any period of
retention of possession by Tenant as a hold-over or otherwise, Landlord will
render to Tenant a statement, after receipt by Landlord of the necessary bills
or invoices from the governmental authorities charged with the duty of
collecting the Taxes, showing a comparison of the Taxes for the Base Year and
the Tax year which is the subject of such statement and setting forth the
amount, if any, of Tenant's Tax Payment (such statement hereinafter referred to
as the "Tax Statement"). Landlord shall use its best efforts to submit to
Tenant a Tax Statement within 120 days of the Commencement of the Tax Year
which is the subject of such Tax Statement. However, nothing contained herein
shall be deemed or construed to release or relieve Tenant of its obligation to
pay its proportionate share of any increase in Taxes should Landlord fail to
submit a Tax Statement within 120 days period.
F. Tenant's Tax Payment as set forth on Landlord's Tax Statement
shall be payable in full within ten (10) days after receipt by Tenant of
Landlord's Tax Statement.
G. The amount of Taxes payable for the Base Year and subsequent
Tax Years occurring within the term of this lease, or any renewal or extension
hereof, or any period of retention of possession by Tenant as a hold-over or
otherwise, shall be the amount thereof as is finally determined by legal
proceedings or otherwise to be payable by Landlord. (Notwithstanding the
foregoing Tenant shall be obligated to pay Landlord Tenant's Tax Payment as set
forth on the Tax Statement submitted to Tenant by Landlord and any adjustment
for a reduction in Taxes shall be made after rendition of the Adjusted Tax
Statement as provided below.) If by virtue of any such adjustment in the Taxes
as finally determined to be payable by Landlord, Tenant's Tax Payment set forth
in any Tax Statement rendered by Landlord pursuant to paragraph E of this
Article 38 shall be less than (resulting in an underpayment) or be greater than
(resulting in an overpayment) that which would have been payable by Tenant had
the adjusted amount for the Base Year and/or subsequent Tax year been utilized
in the preparation of the Tax Statement and computation of Tenant's Tax
Payment, then after rendition by Landlord to Tenant of a statement setting
forth the amount of such underpayment or overpayment (such statement
hereinafter referred to as "Adjusted Tax Statement"): (i) in the case of an
underpayment, Tenant shall, within five (5) days after rendition of such
Adjusted Tax Statement, pay to landlord an amount equal to such underpayment,
or (ii) in the case of an overpayment, Landlord shall, provided Tenant is not
then in default under any of the terms, covenants, or conditions of this lease,
credit an amount equal to such overpayment against the monthly installment of
the annual base rent next becoming due under this lease or, if the amount of
such credit shall exceed the monthly base rent payable by Tenant under this
lease, appropriate credit shall be made against subsequent monthly installments
of the annual base rent due from Tenant under this lease. A proportionate
share of expenditures for attorney's fees and other expenses necessary to
obtain a reduction in the total amount of Taxes payable by Landlord may, at the
option of Landlord, be charged against the amount of any such reduction prior
to the rendition of any such Adjusted Tax Statement. Nothing herein contained
shall obligate Landlord to make application for, or otherwise commence legal or
other proceedings, to obtain a reduction in the Taxes. If Landlord shall
commence legal or other proceedings to obtain a reduction in the Taxes for the
base Year or any Tax Year, the Tenant shall continue to pay all Tenant's Tax
Payment as set forth on Landlord's Tax Statement and any adjustment will be
made after the final determination of the amount of Taxes.
H. Any payment under this Article 38 for any period occurring
within the term of this lease, or any renewal or extension hereof or any period
of retention of possession by Tenant as a hold-over or otherwise, for less than
a full Tax year, occurring at the commencement or expiration of the term of
this lease shall be apportioned so that Tenant shall pay only that portion
thereof which corresponds with the portion of said Tax Year occurring within
the term of this lease, or a renewal or extension hereof, or any period of
retention of possession by Tenant as a hold-over or otherwise.
I. Notwithstanding the foregoing provisions of this Article 38,
(i) in no event shall any adjustment in Tenant's Tax Payment result in a
decrease in the total amount of the annual base payable under this lease, nor
(ii) shall any such adjustment be chargeable against the additional rent
payable by Tenant under any other Article of this lease.
J. It is understood that the Tax Year (July 1 to June 30) is based
on the currently utilized fiscal year of the City of New York for the
computation of real estate taxes. In the event the City of New York shall
substitute a different period for the computation of real estate taxes, the
Landlord at Landlord's option shall have the right to adopt such substituted
period for the purposes of this Article 38 and if Landlord so elects, Tenant
agrees that it will promptly execute an agreement deemed necessary and
appropriate by Landlord to modify this Article 38 to accurately reflect and
incorporate such change into the provisions of this Article 38.
K. Tenant's obligation to pay or receive a credit of any amount as
provided in this Article 38 shall survive the expiration or earlier termination
of this lease or any renewal or extension hereof or any period of retention of
possession by Tenant as a hold-over or otherwise.
WAGES: 39. A. The term "Wage Rate" shall mean the hourly cost,
inclusive of the minimum hourly wage rate payable by Landlord for an hour's
work by a porter excluding fringe benefits.
(1) The minimum hourly wage rate shall be the rate for the
employment of porters in class "A" office buildings, from time to
time established by Agreement between the Realty Advisory Board on
Labor Relations, Inc. and Local 32B-32J of the Building Services
Employees International Union AFL-CIO or by the successor to either
both of them; (this rate shall be used in computations under this
Article whether or not porters' wages are actually paid by or for
the Landlord or by independent contractors who furnish such services
to the Building).
(2) If there is no such union agreement in effect at any time
during or prior to the term of this Lease, then all computations and
payments shall nevertheless, be made, but shall be on the basis of
the regular hourly wage rate, actually being paid or accrued at such
time by Landlord or by the contractor performing the cleaning
services for Landlord for such porters, and appropriate retroactive
adjustment shall thereafter be made if and when the minimum regular
hourly wage rate pursuant to such agreement is finally determined.
However, if any such union agreement shall require the regular
employment of porters on days or during hours when overtime or other
premium pay rates are in effect, then the "minimum hourly wage rate"
as used above shall be deemed to mean the actual weekly wage rate,
divided by the actual hours in a calendar week during which such
porters re required to be employed (e.g. If, for example, as of
October 1, 1980, an agreement between RAB and Local 32B shall
require the regular employment of building porters for forty (40)
hours during a calendar week at a regular hourly wage rate of $3.00
for the first thirty (30) hours, and premium or overtime hourly wage
rate of $4.50 for the remaining ten hours, then the regular straight
time hourly wage rate under this Article, as of October 1, 1980,
shall be deemed to be the total weekly wage rate of $135.00 divided
by the total number of required hours of employment, forty (40) or
$3.365 per hour).
(3) As used herein, the term "porters" shall mean that
classification of employee engaged in the general maintenance and
operation of office buildings most nearly comparable to that
classification now applicable to porters in 1987 agreement with said
Local 32B-32J (which classification is presently termed "others" in
said agreement).
B. The "Basic Rate" shall be the Wage Rate as determined above
payable by Landlord as of December 31, 1997.
C. If in any calendar year occurring during the term of this lease
or any renewal, extension or period of retention by Tenant as a hold-over or
otherwise, the cost for an hour's work by a porter shall exceed the "Basic
Rate", Tenant shall pay to Landlord, as additional rent, an amount equal to the
product obtained by multiplying such increase by the square feet of floor area
demised hereby as set forth in Article 37 (such amount hereafter referred to as
"Tenant's Wage Payment"). At or after the beginning of the calendar year
subsequent to the calendar year utilized for the purposes of determining the
Basic Rate and each calendar year thereafter during the term of this lease,
Landlord shall furnish to Tenant a statement showing the comparison of the
Basic Rate and the cost for an hour's work by a porter for the calendar year
which is the subject of such statement and setting forth the amount, if any, of
Tenant's Wage Payment (such statement hereinafter referred to as the "Wage
Statement").
D. In order to provide for current payments on account of Tenant's
Wage Payment payable to landlord pursuant to paragraph (c) of this Article 39,
Tenant covenants and agrees that within ten (10) days after the rendition of
each such Wage Statement, Tenant shall pay to landlord an amount equal to one-
twelfth (1/12th) of Tenant's Wage Payment multiplied by the number of monthly
rent payment dates between the commencement of the calendar year to which such
Wage Statement relates and the month in which such Wage Statement is rendered
to Tenant and thereafter, and continuing monthly until the expiration of the
calendar year which is the subject of the Wage Statement, monthly amounts equal
to one-twelfth (1/12th) of Tenant's Wage Payment, aggregating an amount equal
to Tenant's Wage Payment as set forth in such Wage Statement.
E. Any payments due under this Article 39 for any period occurring
within the term of this lease, or any renewal or extension hereof, or any
period of retention of possession by Tenant as a hold-over or otherwise, for
less than a full calendar year occurring at the commencement or expiration of
the term of this lease shall be apportioned so that Tenant shall pay only that
portion thereof which corresponds with the portion of said calendar year within
the term of this lease, or a renewal or extension hereof, or any period of
retention of possession by Tenant as a hold-over or otherwise.
F. Nothing contained in this Article 39 shall be construed so as
to (i) permit any decrease in the cost for an hour's work by a porter,
(ii) result in a decrease in the total amount of the annual base rent payable
hereunder, (iii) permit Tenant to charge the amount of such decrease against
the additional rent payable hereunder, or (iv) permit Tenant to charge the
amount of such decrease against the additional rent payable by Tenant under any
other provision of this lease.
G. Any Wage Statements furnished to Tenant by landlord shall
constitute a final determination as between Landlord and Tenant as to the
hourly cost for an hour's work by a porter for the periods represented thereby.
H. Tenant's obligation to pay any amount pursuant to this Article 39
shall survive the expiration or earlier termination of this lease or any
renewal or extension hereof or any period of retention of possession by Tenant
as a hold-over or otherwise.
ASSIGNMENT/SUBLETTING:40. (a) Supplementing Article 11 hereof, Tenant,
if it requests Landlord's consent to an assignment of the lease or a subletting
of all the demised premises, shall submit to Landlord the name of the proposed
assignee or subtenant and such information as to its financial responsibility
and standing as Landlord may reasonably require. Upon the receipt of such
request and information from Tenant, Landlord shall have an option, to be
exercised in writing within 15 days after such receipt, to cancel and terminate
the lease as of the date set forth in Landlord's notice of exercise of such
option, which shall be not less than 60 nor more than 120 days following the
service of such notice. Tenant shall have no right to any subletting for less
than the entire demised premises.
(b) In the event Landlord shall exercise such option, Tenant shall
surrender possession of the entire demised premises on the date set forth in
such notice in accordance with the provisions of this lease relating to
surrender of the demised premises at the expiration of the term.
(c) In the event that Landlord shall not exercise the option to
cancel the lease as above provided within 15 days after the receipt of Tenant's
written request, then Landlord's consent to such request shall not be
unreasonably withheld provided:
(i) the proposed subletting is for the purposes not
inconsistent with the manner of use permitted herein and is in keeping with the
then standards of the building and does not violate any negative covenants as
used in any other lease between the landlord and other tenants in the building;
(ii) the proposed subtenant is a reputable party of reasonable
financial worth considering the responsibility involved and the Tenant shall
provide Landlord with proof thereof satisfactory to Landlord;
(iii) the proposed subtenant is not then an occupant of any
part of the building;
(iv) any proposed sublease shall contain a provision making
such sublease subject to the terms and conditions of this lease;
(v) such subletting shall not release Tenant from the due,
prompt, and punctual performance of all the terms, covenants and conditions
contained in this lease on its part to be performed or observed and from the
payment of the rents and additional rents due and to become due under this
lease;
(vi) Tenant submits a copy of the proposed sublease, executed
by the proposed subtenant, to Landlord for its review and approval prior to
execution by the Tenant.
(d) In no event shall any assignment or subletting to which
Landlord may have consented release or relieve Tenant from its obligations
fully to perform all of the terms, covenants and conditions of the lease on its
part to be performed.
(e) Tenant covenants and agrees that in any case where Tenant
claims Landlord is unreasonably withholding its consent, Tenant shall not make
any claim against Landlord for damages but shall be restricted to the remedy of
declaratory judgment in the Supreme Court of the State of New York.
ELECTRICITY:41. Landlord will redistribute or furnish to Tenant all
electric energy which Tenant shall require for the use of Tenant in the demised
premises on a so-called "rent inclusion" basis, and there shall be no charge to
the Tenant therefore by way of measuring the same on any meter or otherwise,
the total charge for electric current being included in the fixed annual rental
set forth in this lease. Landlord shall not in any way be liable or
responsible to Tenant for any loss or damage or expense which Tenant may
sustain or incur if either the quantity or character of electric service is
changed.
Landlord reserves the right to discontinue the redistribution or
furnishing of electric energy to Tenant if required to do so by the Public
Service Commission or any legal authority, at any time upon thirty (30) days'
written notice to Tenant, and from and after the effective date of such
termination, Landlord shall no longer be obliged to furnish Tenant with
electric energy. If Landlord exercises such right of termination, this lease
shall remain unaffected thereby and shall continue in full force and effect;
and thereafter Tenant shall arrange to obtain electric service direct from the
public utility company servicing the building. Commencing with the date when
Tenant receives such direct service and as long as Tenant shall continue so to
receive such service, the fixed annual rental rate payable under this lease
shall be reduced to $29,640.00 (11/1/96 to 11/30/98); and $31,616.00 (12/1/98
to 12/31/99); and $33,592.00 (1/1/200 to 1/31/02) per term, per annum.
Tenant shall make no alteration or additions to the electrical equipment
and/or appliances without the prior written consent of Landlord in each
instance. Tenant covenants and agrees that at all times its use of electric
current shall never exceed the capacity of existing feeders to the building or
the risers or wiring installations. Landlord, or Landlord's designated
independent electric consultant, is given the right to make surveys of Tenant's
premises from time to time to ascertain the electrical equipment and
appliances, fixtures and equipment utilizing electric power therein.
At the option of Landlord, Tenant agrees to purchase from landlord all
lamps or bulbs used in the demised premises and to pay for the cost of
installation thereof.
The rental hereunder shall be subject to future adjustments,
proportionately, in the event of (i) any increase or decrease, after the date
hereof, in the cost of Landlord of furnishing such electric current, including
without limitation, any sales, excise or similar taxes thereof, or any fuel
adjustment; (ii) any change in the Tenant's present electrical wiring or
increase in its equipment, facilities and/or fixtures; or (iii) in consumption
of electricity by Tenants because of the extension of or increase in Tenant's
office hours over those building standard office hours set forth herein for
heating and elevator services. Should the parties not agree on the amount of
any such adjustment, the determination thereof by an independent electrical
consultant, selected by Landlord and Tenant, shall be binding and conclusive on
both parties.
LANDLORD'S WORK: 42. Landlord shall perform the following work in a
building standard manner in accordance with Exhibit A attached.
1) It is understood and agreed that Landlord, at its sole cost and
expense, will erect one hundred (100) linear feet of building
standard dry wall partition.
2) It is understood and agreed that Landlord will supply and
install six (6) building standard doors, frames and hardware.
3) It is understood and agreed that Landlord will supply and
install two (2) 100 volt, 15 amp dedicated electric circuits.
4) It is understood and agreed that Landlord will supply and
install twelve (12), 110 volt building standard electric outlets.
5) it is understood and agreed that Landlord will relocate one (1)
2' x 2' air-conditioning diffuser.
6) It is understood and agreed that Landlord will relocate two (2)
light fixtures.
7) It is understood and agreed that Landlord will paint the
demised premises in a building standard manner.
8) It is understood and agreed that Landlord will supply and
install building standard venetian blinds.
9) It is understood and agreed that Landlord, at its sole cost and
expense, will supply and install building standard carpeting.
FREE RENT: 43. It is understood and agreed that the Tenant shall receive
free rent for the period of 11/1/96 to 11/30/96 (1 month's free rent); and for
the period of 11/1/97 to 11/30/97 (1 month's free rent); and for the period
11/1/98 to 11/30/98 (1 month's free rent).
<PAGE>
EXHIBIT 10.10
THIS LEASE, made this 6th day of November, 1996, by and
between SCARLETT HARBOR ASSOCIATES LIMITED PARTNERSHIP, hereinafter called
"Landlord," and K2 DESIGN, INC., hereinafter called "Tenant."
WITNESSETH, that in consideration of the rental hereinafter agreed
upon and the performance of all the conditions and covenants hereinafter set
forth on the part of the Tenant to be performed, the Landlord does hereby lease
unto the said Tenant, and the latter does lease from the former the following
premises (hereinafter sometimes called the "Premises"):
BEING all those premises outlined in red on the Lease Plan attached hereto as
Exhibit A, said premises being located within the building (hereinafter
sometimes called the "Building") known as "Scarlett Place," situate on a parcel
of land (hereinafter sometimes called the "Property") bounded by East Pratt
Street to the North, Columbus Plaza to the South, the Jones Falls to the West,
and the extension of I-83 to the East in the City of Baltimore, Maryland; 200
S. President Street, 9th Floor, Baltimore, MD 21202; 1,897 rentable square
feet;
for the term of three (3) years, beginning on December 1, 1996 and ending
November 30, 1999. Landlord agrees that it will, at its sole cost and expense,
as soon as reasonably possible after the execution of this Lease, commence and
pursue to completion the Landlord's Work set forth in Section 44 of this Lease.
The Premises shall be deemed to be substantially completed on the date when
Landlord or its architect notifies Tenant in writing that the Premises are
substantially complete, with the exception of minor items which do not
interfere with Tenant's installations and work in order to outfit the Premises
for Tenant's use. Tenant shall have the option to extend the initial term of
this Lease for one (1) consecutive additional term of three (3) years each,
provided Tenant gives Landlord written notice of such election at least one
hundred twenty (120) days prior to the expiration of the then current term of
this Lease. Each extension term shall be upon the same terms, covenants and
conditions as the initial term hereof, except that the minimum rental shall be
as set forth in paragraph 1 (d).
This Lease is made subject to the following additional terms,
covenants and conditions:
1. RENTAL.
(a) Tenant covenants and agrees to pay Landlord as minimum
rental, without notice or demand, the annual rental of Thirty Thousand, One
Hundred Twenty-seven Dollars and Ten Cents ($30,127.10), payable in advance on
the first day of each month during the term of this Lease, in equal monthly
installments of Two Thousand, Five Hundred Ten Dollars and Fifty-nine Cents
($2,510.59) each, without setoff or deduction. If the term of this Lease shall
commence on a date other than the first day of a month, the rental for the
period from the date of commencement of the term to the first day of the first
full calendar month of the term shall be prorated and shall be payable on the
first day of the term; if the term of this Lease shall end on a date other than
the last day of a month, the rent for the period from the first day of the last
month of the term to the date the term ends shall be prorated and shall be
payable on the first day of the last month of the term.
(b) All rentals shall be paid to Landlord C/O MERRITT, 2066 LORD
BALTIMORE DRIVE, BALTIMORE, MD 21244, or at such other place or to such
appointee of the Landlord as the Landlord may from time to time designate in
writing.
(c) Tenant covenants and agrees to pay the rental herein reserved
and each installment thereof promptly when and as due, without setoff or
deduction whatsoever.
(d) The annual minimum rental for the extension term or terms shall
be as follows:
First Extension Term $33,140.00
2. USE.
Tenant covenants and agrees to use and occupy the Premises solely for the
following purposes: GENERAL OFFICES.
Tenant agrees to comply with all applicable zoning and other laws and
regulations, and to provide and install at its own expense any additional
equipment or alterations required to comply with all such laws and regulations
as required from time to time. Tenant further agrees not to make, or cause or
permit to be made, any use of the Premises which shall constitute a nuisance or
shall interfere with the rights of other tenants in the Building to quietly
enjoy, use and occupy the Premises leased by them and the common areas of the
Building. Tenant will not permit, allow or cause any public or private auction
sales or sheriffs' or constables' sales to be conducted on or from the
Premises.
3. SERVICE AND UTILITIES.
(a) Provided that Tenant is not in default hereunder, Landlord
agrees to furnish to the Premises, electricity for normal desktop office
equipment and normal copying equipment, and lighting, heating, ventilation and
air conditioning ("HVAC") as required in Landlord's judgment for the
comfortable use and occupancy of the Premises. Subject to the limitations set
forth below, such utilities shall be made available without additional charge
between the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00
a.m. to 12:00 noon on Saturday, except for legal holidays. If Tenant desires
electricity or HVAC at any other time, Landlord shall provide and shall bill
Tenant for the same at Landlord's standard charges therefore, a schedule of
which Landlord has delivered to Tenant prior to Tenant's execution of this
Lease, (as such schedule may be reasonably adjusted by Landlord from time to
time) and Tenant shall pay Landlord's charges therefor at the same time and in
the same manner as is provided for the payment of minimum rental hereunder.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Unless caused by the negligence or willful
misconduct of Landlord, its employees, agents or contractors, Landlord shall
not be in default hereunder or be liable for any damages directly or indirectly
resulting from, nor shall the rent be abated by reason of (i) the installation,
use or interruption of use of any equipment in connection with the furnishing
of any of the services to be furnished by Landlord as set forth in this Lease;
(ii) failure to furnish or delay in furnishing any such services where such
failure or delay is caused by accident or any condition or event beyond the
reasonable control of Landlord, or by the making of necessary repairs or
improvements to the Premises of the Building; or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other form of energy serving the Premises or Building. Unless caused by
the negligence or willful misconduct of Landlord, its employees, agents or
contractors, Landlord shall not be liable under any circumstances for a loss of
or injury to property or business, however, occurring, through or in connection
with or incidental to failure to furnish any such services. Tenant shall not
use heat-generating machines or equipment in the Premises which affect the
temperature otherwise maintained by the HVAC system without the prior written
consent of Landlord, and if such equipment is used, Landlord reserves the right
to install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, operation and maintenance thereof,
shall be paid by Tenant to Landlord upon demand by Landlord.
(b) Tenant shall not, without the written consent of Landlord, use
any apparatus or device in the Premises, including, without limitation,
electronic data processing machines, punch card machines or machines using in
excess of 120 volts, which consumes more electricity than is usually furnished
or supplied for the use of Premises as general office space, as reasonably
determined by Landlord. Tenant shall not connect any apparatus with electric
current except through existing electrical outlets in the Premises. Tenant
shall not consume water or electric current in excess of that usually furnished
or supplied for the use of Premises as general office space (as reasonably
determined by Landlord) without first procuring the written consent of
Landlord, which Landlord may refuse, and in the event of consent, Landlord may
have installed a water meter or electrical current meter in the Premises to
measure the amount of water or electric current consumed. The cost of any such
meter and of its installation, maintenance and repair shall be paid for by
Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such
water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility. If a separate meter is
not installed, the excess cost for such water and electric current shall be
reestablished by Landlord from time to time as its standard charges thereof.
(c) Nothing contained in this Section shall restrict Landlord's
right to require at any time separate metering of utilities furnished to the
Premises. In the event utilities are separately metered, Tenant shall pay
promptly upon demand for all utilities consumed at utility rates charged by the
local public utility. Tenant shall be responsible for the maintenance and
repair of any such meters at its sole cost.
(d) Landlord shall furnish elevator service, lighting replacement
for building standard lights, restroom supplies, exterior window washing and
janitorial services in a manner that such services are customarily furnished to
comparable office buildings in the area.
4. COMPLIANCE WITH LAWS.
Tenant covenants and agrees that it will, at its own expense, observe, comply
with and execute all laws, orders, rules, requirements, and regulations of any
and all governmental departments, bodies, bureaus, agencies and officers, and
all rules, directions, requirements, and recommendations of the local board of
fire underwriters and the fire insurance rating organizations having
jurisdiction over the Premises, or other bodies or agencies now or hereafter
exercising similar functions over the Premises in any way pertaining to the
Premises or Tenant's use and occupancy thereof. In the event Tenant shall fail
or neglect to comply with any of the aforesaid laws, orders, rules,
requirements, or recommendations, after the expiration of any applicable notice
and cure periods, Landlord or its agents may enter the Premises and take all
such actions and do all such work in or to the Premises as may be necessary in
order to cause compliance with such laws, orders, rules, requirements or
recommendations, and Tenant covenants and agrees to reimburse Landlord promptly
upon demand for the expense actually incurred by Landlord in taking such action
and performing such work.
5. ASSIGNMENT AND SUBLETTING.
(a) Tenant covenants and agrees not to assign this Lease, in whole
or part, nor sublet the Premises, or any part or portion thereof, nor grant any
license or concession for all or any part thereof, without the prior written
consent of the Landlord in each instance first had and obtained, such consent
not to be unreasonably withheld, conditioned or delayed. If such assignment or
subletting is permitted, Tenant shall not be relieved from any liability
whatsoever under this Lease. In the event that the amount of the rent or other
consideration to be paid to the Tenant by any assignee or sublessee is greater
than the rent required to be paid by the Tenant to the Landlord pursuant to
this Lease, Tenant shall pay to Landlord any such excess as is received by
Tenant from such assignee or sublessee. Any consent by Landlord to an
assignment or subletting of this Lease shall not constitute a waiver of the
necessity of such consent as to any subsequent assignment or subletting. An
assignment for the benefit of Tenant's creditors or otherwise by operation of
law shall not be effective to transfer or assign Tenant's interest under this
Lease unless Landlord shall have first consented thereto in writing, such
consent not to be unreasonably withheld, conditioned or delayed.
(b) Notwithstanding the foregoing provisions of this Section 5 to
the contrary, Tenant shall have the right to sublease all or a portion of the
Premises or assign the Lease throughout the Lease term, without Landlord's
consent, to an "Affiliate" (hereinafter defined) or to a successor by merger,
consolidation or purchase. An "Affiliate" is a person or entity who or which
"Controls" (hereinafter defined) Tenant, is "Controlled" by Tenant, or is
Controlled by the same persons or entities who or which Control Tenant.
"Control" means the unrestricted ownership of, and power to vote, more than
forty-nine and nine-tenths percent (49.9%) of the outstanding capital.
6. OPERATING COSTS.
(a) "Operating Costs" are the reasonable, customary and necessary
costs directly related to the operation (not ownership), maintenance, repair,
redecoration, refurbishment and insurance of the Building and all common areas
and facilities within the Property (including, but not limited to, elevators,
stairwells, loading areas, parking areas, pavements and walkways, landscaping,
gardening, storm drainage, and other utility systems); the cost of utilities
for such common areas and facilities; fire protection and security services, if
any; traffic control equipment; repairs to the common areas and facilities;
parking lot striping; lighting for the common areas and facilities; sanitary
control; removal of snow, trash, rubbish, garbage and other refuse; the cost of
personnel to implement such services; all insurance of whatsoever nature kept,
or caused to be kept, by Landlord out of or in connection with the ownership of
the Building and common areas, including, but not limited to, insurance
insuring the same against loss or damage by, or abatement of rental income
resulting from, fire and other such hazards, casualties, and contingencies, and
liability and indemnity insurance; plus Landlord's actual administrative and
overhead costs in connection therewith. Operating Costs shall not include the
cost of any capital improvements to the Building as determined under generally
accepted accounting principles; work which Landlord performs specifically for
or at the expense of any tenant of the Building; * "Operating Costs" shall
also include all taxes (as hereinafter defined) assessed against the Property
and Building, whether as a result of an increase in the tax rate, or the levy,
assessment or imposition of any tax on real estate as such not now levied,
assessed or imposed. The foregoing shall apply to increases in real estate
taxes assessed against the land or Building generally, and not resulting from
improvements placed thereon by Tenant. In the event of any increases in real
estate taxes resulting from improvements, alterations or additions made by
Tenant, Tenant shall pay the entire amount of said increase. "Taxes" as used
herein shall include, but not by way of limitation, all paving taxes, special
paving taxes, Metropolitan District Charges, and any and all other benefits or
assessments which may be levied on the Property or the Building, but shall not
include any income tax on the income or rent payable hereunder.
(b) "Base Year" is the 1997 Calendar Year.
(c) If, during any annual period of the term, Operating Costs per
rentable square foot in the Building exceed the Operating Costs established in
the Base Year, Tenant shall pay Landlord, as additional rent, an amount equal
to the product obtained by multiplying the number of rentable square feet
comprising the Premises by such excess Operating Costs per rentable square
foot.
(d) SEE INSERT B ATTACHED. Within sixty (60) days following the
end of each annual period of the term, Landlord shall submit to Tenant a
statement showing the actual amounts incurred by Landlord as set forth in
paragraph (c), the amount theretofore paid by Tenant, and the amount of the
resulting balance due thereon, or overpayment thereof, as the case may be. In
the
* SEE INSERT A ATTACHED
event any balance may be due by Tenant, Tenant shall pay said balance within
thirty (30) days from Tenant's receipt of such statement. In the event Tenant
has made any overpayment, such overpayment shall be credited by Landlord
against the next installment or installments of rent which are due and payable
hereunder, or if the term of this Lease has expired, such overpayment shall be
refunded by Landlord to Tenant, without interest, within five (5) days after
the date of such statement. SEE INSERT C ATTACHED.
7. INCREASE IN LANDLORD'S INSURANCE RATES.
Tenant will not do, or suffer to be done, anything in or about the Premises, or
keep or suffer to be kept, anything in or about the Premises which will
contravene or affect any policy of insurance against loss by fire or other
hazards, including, but not limited to, public liability, now existing or which
the Landlord may hereafter place thereon, or which will prevent the Landlord
from procuring such policies in companies acceptable to Landlord at standard
rates. Landlord hereby certifies to Tenant that as of the date hereof, Tenant's
use of the Premises (as specified in Section 2 hereof) and the Landlord's Work
(as described in Section 44 hereof) do not contravene or affect any policy of
insurance maintained by Landlord, and that no installations or alterations to
the Premises are required to be made by Tenant in connection therewith.
8. INSURANCE - INDEMNITY.
(a) Tenant covenants and agrees that from and after the date of
delivery of the Premises from Landlord to Tenant, Tenant will carry and
maintain, at its sole cost and expense and in the amounts specified and in the
form hereinafter provided, the following types of insurance:
(i) PUBLIC LIABILITY AND PROPERTY DAMAGE. General Public
Liability Insurance covering the Premises and Tenant's use thereof against
claims for personal injury or death and property damage occurring upon, in or
about the Premises, such insurance to afford protection to the limit of not
less than $2,000,000 arising out of any one occurrence, and against property
damage to afford protection to the limit of not less than $2,000,000; or such
insurance may be for a combined single limit of $2,000,000 per occurrence. The
insurance coverage required under this Section 8(a)(i) shall, in addition,
extend to any liability of Tenant arising out of Tenant's indemnities
hereinafter provided, as well as Independent Contractors' Liability,
Products/Completed Operations Liability, Personal Injury Liability and
Contractual Liability.
(ii) TENANT IMPROVEMENTS AND PROPERTY. Insurance covering all
leasehold improvements and other improvements installed by Tenant upon the
Premises, and any alterations, improvements, additions or changes made by
Tenant thereto in an amount not less than one hundred percent (100%) of their
full replacement cost from time to time during the Lease term, providing
protection against perils included within the standard Maryland form of fire
and extended coverage insurance policy, together with insurance against
sprinkler leakage or other sprinkler damage, vandalism and malicious mischief.
Any policy proceeds from such insurance, so long as this Lease shall remain in
effect, shall be held in trust by Tenant's insurance company first for the
repair, reconstruction, restoration or replacement of the property damaged or
destroyed.
(iii) PLATE GLASS. Plate glass insurance covering all plate
glass in the Premises. Tenant shall be and remain liable for the repair and
restoration of all such plate glass.
Tenant further covenants and agrees to carry and maintain, at all
times during the term of this Lease, the aforegoing types of insurance in
amounts at least equal to the minimum amounts of such insurance coverages
commonly required of Tenants in comparable office buildings in the area.
(b) All policies of insurance to be provided by Tenant shall be
issued in form acceptable to Landlord by insurance companies with general
policyholder's rating of not less than A and a financial rating of AAA as rated
in the most current available "Best's" Insurance Reports, and qualified to do
business in Maryland. Each such policy shall be issued in the name of Tenant.
Said policies shall be for the mutual and joint benefit and protection of each
of said parties and executed copies of each such policy of insurance or a
certificate thereof shall be delivered to Landlord within ten (10) days after
delivery of possession of the Premises to Tenant and thereafter at least
fifteen (15) days prior to the expiration of each such policy. As often as any
such policy shall expire or terminate, renewal or additional policies shall be
procured and maintained by Tenant in like manner and to like extent. All such
policies of insurance shall contain a provision that the company writing said
policy will give to Landlord at least thirty (30) days' notice in writing in
advance of any cancellations, or lapse, or the effective date of any reduction
in the amounts of insurance. In the event Tenant shall fail to promptly
furnish any insurance herein required, Landlord may effect the same for a
period not exceeding one (1) year and Tenant shall promptly reimburse Landlord
upon demand, as additional rent, the premium so paid by Landlord. If, upon
Tenant's failure, rather than purchase separate insurance coverage, Landlord
chooses to include Tenant's coverage under Landlord's insurance policies, then
Tenant shall promptly reimburse Landlord upon demand, as additional rent, the
actual increase in Landlord's premium resulting therefrom. All such public
liability, property damage and other casualty policies shall be written as
primary policies which do not contribute to and are not in excess of coverage
which Landlord may carry. All such public liability and property damage
policies shall contain a provision that Landlord shall nevertheless be entitled
to recover under said policies for any loss occasioned to it, its servants,
agents and employees by reason of negligence of Tenant or any other named
assured. Any insurance provided for may be affected by a policy or policies of
blanket insurance, covering additional items or locations; provided, however
that (i) Landlord shall be named as an additional insured thereunder as its
interests may appear; (ii) the coverage afforded Landlord will not be reduced
or diminished by reason of the use of such blanket policy of insurance; (iii)
any such policy or policies (except any covering the risks referred to in
paragraph (a)(i) above), and (iv) the requirements set forth herein are
otherwise satisfied. Neither party shall be liable to the other or to any
insurer (by way of subrogation or otherwise) for any loss or damage, even
though such loss or damage may have been occasioned by the negligence of such
party, if such loss was covered by an insurance policy containing an
endorsement to the effect that any such release by the insured shall not
adversely affect the insured's right to recover for such loss, and that the
insurer waives its right of subrogation. Any insurance policies herein
required to be procured by Landlord or Tenant shall contain an express waiver
of any right of subrogation by the insurance company against the other party
hereto, and all other tenants or occupants of space in the Building.
(c) Tenant shall, and does hereby, indemnify and hold harmless
Landlord, from and against any and all liabilities, fines, claims, damages and
actions, costs and expenses of any kind or nature (including reasonable
attorneys' fees) and of anyone whatsoever (i) relating to or arising from
Tenant's use and occupancy of the Premises; (ii) due to or arising out of any
mechanic's lien filed against the Premises, the Building, or any part thereof,
for labor performed or for materials furnished or claimed to be furnished to
Tenant, or (iii) due to or arising out of any breach, violation or
nonperformance (beyond any applicable notice and cure periods) of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Tenant to be fulfilled, kept, observed or performed, unless such damage or
injury shall be occasioned by the gross negligence or willful act or omission
of the Landlord its employees, agents or contractors, in which event, Landlord
shall indemnify and hold harmless Tenant to the extent of such negligence or
willful act or omission. Notwithstanding the foregoing, Tenant shall at all
times remain liable for, and indemnify and hold harmless Landlord as aforesaid
against, any damage or injury arising from perils against which Tenant is
required by this Lease to insure, regardless of the negligence or willful acts
or omissions of others. Landlord shall, and does hereby, indemnify and hold
Tenant harmless from and against any and all liabilities, fines, claims,
damages, and actions, costs and expenses of any kind or nature (including
reasonable attorney's fees) and of anyone whatsoever (I) relating to or arising
from the common areas of the Building and the Property, or (ii) due to or
arising out of any breach, violation or nonperformance of any covenant,
condition or agreement in this Lease set forth as contained on the part of
Landlord to be fulfilled, kept, observed or performed, unless such damage or
injury shall be occasioned by the gross negligence or willful act or omission
of Tenant, its employees, agents or contractors, in which event, Tenant shall
indemnify and hold harmless Landlord to the extent of such negligence or
willful act or omission.
9. ALTERATIONS.
Tenant shall not make any alterations to the Premises, or any part thereof,
without prior written consent of Landlord in each instance first had and
obtained, such consent not to be unreasonably withheld, conditioned or delayed.
If Tenant shall desire to make such alterations, plans for the same shall first
be submitted to and approved by Landlord, and all work and installations shall
be performed by Tenant at its own expense in accordance with approved plans.
Tenant agrees that all such work shall be done in a good and workmanlike
manner, that the structural integrity of the Building shall not be impaired,
and that no liens shall attach to the Premises by reason thereof. Tenant
agrees to obtain, at Tenant's expense, all permits required for such
alterations. Whenever Landlord consents to any alteration, Landlord shall then
make an election (which election shall be irrevocable) and advise Tenant in
writing, whether that alteration must be removed from the Premises upon the
expiration or earlier termination of this Lease.
10. OWNERSHIP OF ALTERATIONS.
Unless Landlord, pursuant to the last sentence of Section 9 above, shall elect
that all or part of any alteration made by Tenant to the Premises (including
any alteration consented to by Landlord pursuant to paragraph 9 hereof) shall
remain on the Premises after the termination of this Lease, the Premises shall
be restored to their original condition by Tenant before the expiration of this
Lease at Tenant's sole expense. Upon such election by Landlord, any such
alterations, improvements, betterments or mechanical equipment, including but
not limited to, heating and air conditioning systems, shall become the property
of Landlord as soon as they are affixed to the Premises, and all right, title
and interest thereof of Tenant shall immediately cease, unless otherwise agreed
to in writing by Landlord. Tenant shall promptly pay any franchise, minor
privilege or other tax or assessment resulting directly or indirectly from any
alterations or improvements made by Tenant to the Premises. Tenant shall
repair promptly, at its own expense, any damage to the Premises or Building
caused by bringing into the Premises any property for Tenant's use, or by the
installation of removal of such property, regardless of fault or by whom such
damage shall be caused.
11. REPAIRS AND MAINTENANCE.
(a) Except as expressly provided in Section 44, Landlord shall be
under no liability, nor have any obligation to do any work or make any repairs
in or to the Premises necessary to outfit the Premises for Tenant's occupancy
or for the operation of Tenant's business therein, and any work which may be
necessary to outfit the Premises for Tenant's occupancy or for the operation of
Tenant's business therein is the sole responsibility of Tenant and shall be
performed by Tenant at its own cost and expense. Tenant acknowledges that it
has fully inspected the Premises prior to the execution of this Lease, and
Tenant further acknowledges that Landlord has made no warranties or
representations with respect to the condition or state of repairs of the
Premises except as otherwise set forth in Section 44 hereof.
(b) Tenant, at Tenant's sole expense, shall except for services
furnished by Landlord pursuant to Section 3 hereof, maintain the Premises in
good order, condition, and repair, including the interior surfaces of the
ceilings, walls and floors, all doors, all interior windows, building standard
furnishings and special items and equipment installed by or at the expense of
Tenant.
(c) Landlord shall maintain the structure, roof, exterior of the
Building and the Building systems (electrical, plumbing, lighting, HVAC, and
mechanical systems) in good order, condition and repair.
(d) If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to promptly
commence such work and diligently prosecute it to completion and such failure
continues beyond the expiration of any applicable notice and cure periods, then
Landlord shall have the right to do such acts and expend such funds at the
expense of Tenant as are reasonably required to perform such work. Any amount
so expended by Landlord shall be paid by Tenant promptly after demand, with
interest from the date of such work, at a rate equal to four percentage points
(4%) above the prime commercial rate of interest then being charged by First
National Bank of Maryland. Landlord shall have no liability to Tenant for any
damage, inconvenience, or interference with the use of the Premises by Tenant
as a result of performing any such work.
(e) Tenant shall not place a load upon any floor of the Premises
which exceeds the load per square foot which such floor was designed to carry,
as determined by Landlord's structural engineer. Landlord reserves the right
to consult with its structural engineer if necessary, in Landlord's opinion, to
resolve any questions concerning this matter, in which event the determination
of the engineer shall be conclusive and the cost of any such determination
shall be paid for by Tenant upon demand. Tenant shall not install business
machines or mechanical equipment which cause noise or vibration to such a
degree as to be objectionable to Landlord or other Building tenants.
(f) Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant nor shall Tenant's obligations under this
Lease be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law to
make in or to any portion of the Building or the Premises. Landlord shall,
nevertheless, use reasonable efforts to minimize any interference with Tenant's
business in the Premises.
(g) Tenant shall give Landlord prompt notice of any damage to or
defective condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises and Landlord shall promptly repair such damage or
defective condition. However, Tenant shall not be deemed liable if Tenant
fails to notify Landlord of any such conditions and Tenant's failure to notify
Landlord shall not obviate Landlord's maintenance responsibilities under this
Lease.
(h) Subject to Section 10 hereof, upon the expiration or earlier
termination of this Lease, Tenant shall return the Premises to Landlord clean
and in the same condition as on the date Tenant took possession, except for
normal wear and tear. Any damage to the Premises, including any structural
damage, resulting from Tenant's use or from the removal of Tenant's fixtures,
furnishings and equipment shall be repaired by Tenant at Tenant's expense.
Landlord shall bill Tenant, as promptly as is practicable, for the actual and
reasonable costs of any cleanup and/or repairs to the Premises necessitated by
Tenant's use and occupancy thereof (normal wear and tear excepted) and such
costs shall constitute additional rental due and payable hereunder
notwithstanding any expiration or termination of this Lease.
12. DEFAULT.
(a) Any of the following events shall constitute a default by
Tenant:
(i) If the rent (basic or additional) shall be in arrears, in
whole or in part; or
(ii) If Tenant shall have failed to perform or comply with any
other term, condition, or covenant of this Lease on its part to be performed or
complied with, for a period of thirty (30) days after written notice of such
failure from Landlord plus such additional time as may reasonably be necessary
to consummate the subject performance provided that, and so long as, Tenant is
pursuing such consummation; or
(iii) If the Premises are vacant, unoccupied or deserted for a
period of fifteen (15) consecutive days or more at any time during the term of
this Lease and Tenant is not otherwise current in the payment of rent
hereunder; or
(iv) If there shall occur an Act of Bankruptcy, as defined in
Section 36 hereof; or
(v) If Tenant's leasehold interest under this Lease is sold
under execution, attachment or decree of court to satisfy any debt of Tenant,
or if any lien (including a mechanic's lien) is filed against Tenant's
leasehold interest and is not discharged or bonded within sixty (60) days
thereafter.
(b) In the event of default as defined in paragraph (a) hereof,
Landlord, in addition to any and all legal and equitable remedies it may have,
shall have the following remedies:
(i) To distrain for any rent or additional rent in default;
and
(ii) At any time after default (beyond any applicable notice
and cure periods), without notice, to declare this Lease terminated and enter
the Premises with or without legal process; and in such event Landlord shall
have the benefit of all provisions of law now or hereafter in force respecting
the speedy recovery of possession from Tenant's holding over or proceedings in
forcible entry and detainer, and Tenant waives any and all provisions for
notice under such laws.
Notwithstanding such reentry and/or termination, Tenant shall
immediately be liable to Landlord for the sum of the following: (a) all rent
and additional rent then in arrears, without apportionment to the termination
date; (b) all other liabilities of Tenant and damages sustained by Landlord as
a result of Tenant's default, including, but not limited to, the reasonable
costs of reletting the Premises and any broker's commissions payable as a
result thereof; (c) all of Landlord's reasonable costs and expenses (including
reasonable court fees) in connection with such default and recovery of
possession; (d) the difference between the rent reserved under this Lease for
the balance of the term and the fair rental value of the Premises for the
balance of the term to be discounted to present value at 15%, to be determined
as of the date of reentry; or at Landlord's option in lieu thereof, Tenant
shall pay the amount of the rent and additional rent reserved under this Lease
at the times herein stipulated for payment of rent and additional rent for the
balance of the term, less any amount received by Landlord during such period
from others to whom the Premises may be rented on such terms and conditions and
at such rentals as Landlord, in its sole discretion, shall deem proper; and (e)
any other damages recoverable by law. In the event Landlord brings any action
against Tenant to enforce compliance by Tenant with any covenant or condition
of this Lease, including the covenant to pay rent, and it is judicially
determined that Tenant has defaulted in performing or complying with any such
covenant or condition, then and in such event, Tenant shall pay to Landlord all
costs and expenses incurred by Landlord in bringing and prosecuting such action
against Tenant, including Landlord's reasonable attorney's fees.
(c) In the event Tenant fails to pay Landlord any rental payment or
other charge due hereunder within five (5) days from the date on which any such
payment was due (subject to any applicable notice and cure periods), Landlord
may, at its option, charge Tenant a late charge equal to five percent (5%) of
the rental payment or other such charge, which late charge shall be collectible
as additional rent and shall be payable by Tenant to Landlord within five (5)
days after written notice from Landlord to Tenant assessing the same. In
addition, any such rental payment or other charge which is delinquent for five
(5) days or more (after the passage of any applicable notice and cure periods),
shall bear interest from the date on which same was due at a rate equal to
twelve percent (12%).
13. DAMAGE OR DESTRUCTION.
(a) If, during the Lease term, the Premises are damaged by fire or
other casualty, but not to the extent that Tenant is prevented from carrying on
business in the Premises, Landlord shall promptly cause such damage to be
repaired; if such damage renders twenty percent (20%) or more of the Premises
untenantable, the rent reserved hereunder shall be reduced during the period of
its untenantability proportionately to the amount by which the area so rendered
untenantable bears to the entire gross rentable area of the Premises, and such
reduction shall be apportioned from the date of the casualty to the date when
the Premises are rendered fully tenantable. Notwithstanding the foregoing, in
the event such fire or other casualty damages or destroys any of Tenant's
leasehold improvements, alterations, betterments, fixtures or equipment, Tenant
shall cause the same to be repaired or restored at Tenant's sole cost and
expense and Landlord shall have no liability for the restoration or repair
thereof.
(b) If, during the Lease term, the Premises or a substantial
portion of the Building are rendered wholly untenantable as the result of fire,
the elements, unavoidable accident or other casualty, then either party may
terminate this Lease upon written notice to the other given within thirty (30)
days after such fire, accident or casualty. If neither party terminates this
Lease, Landlord shall repair the Premises and such restoration shall be
completed as promptly as reasonably possible and the rent reserved hereunder
shall abate until the Premises are again rendered tenantable.
14. POSSESSION.
In case this Lease provides for a specifically designated commencement date,
and if possession of the Premises, in whole or in part, cannot be given to
Tenant on or before such commencement date, Landlord agrees to abate the rent
proportionately until possession is given to Tenant, and Tenant agrees to
accept such pro rata abatement as liquidated damages for the failure to obtain
possession on the commencement date herein specified. The parties hereto
covenant and agree that if the term of this Lease commences on a date other
than the date herein specified, they will, upon the request of either of them,
execute an agreement in recordable form setting forth the new commencement and
termination dates of the Lease term. Under no circumstances shall Landlord be
under any liability for failure to deliver possession of the Premises to Tenant
on the date herein specified.
15. EXTERIOR OF PREMISES - SIGNS.
(a) Tenant covenants and agrees that it will not place or permit
any window display, sign, billboard, marquee, lights, awning, poles, placard,
advertising matter, or other thing of any kind, in or about the exterior of the
Premises or the Building (including without limitation any displays on or in
any motor vehicles used by Tenant, its employees, agents and servants), nor
paint or make any change in, to or on the exterior of said Premises to change
the uniform architecture, paint or appearance of the Building, without in each
such instance obtaining the prior written consent of Landlord and, if
applicable, of any owners' association or similar entity which may govern the
use of Scarlett Place. In the event such consent is given, Tenant agrees to
pay any minor privilege or other tax arising as a result of any such
installation immediately when due. Tenant shall obtain, at Tenant's expense,
all permits required for such installation. Tenant further agrees to maintain
any sign, billboard, marquee, awning, decoration, placard, or advertising
matter or other thing of any kind as may be approved by Landlord in good
condition and repair at all times.
(b) Tenant further covenants and agrees not to pile or place anything on
the sidewalk, parking lot or other exterior portion of the Premises or Building
in the front, rear or sides of the Building, not block any sidewalk, parking
lot or other exterior portion of the Premises or Building, not do anything that
directly or indirectly will interfere with any of the rights of ingress or
egress or of light from any other tenant, not do anything which will, in any
way, change the uniform and general design of the Building or the Property.
16. RELOCATION.
INTENTIONALLY DELETED.
17. FOR RENT/SALE SIGNS.
Landlord shall have the right to place a "For Rent" sign on any portion of said
Premises for six (6) months prior to termination of this Lease and to place a
"For Sale" sign thereon at any time. During such six-month period, Landlord
may show the Premises and all parts thereof to prospective tenants between the
hours of 8:00 a.m. and 6:00 p.m. on any day except Sunday or any legal holiday
on which Tenant shall not be open for business. Landlord shall use reasonable
efforts to give Tenant at least 24 hours' prior notice (either by writing or by
telephone) of its entrance into the Premises for the foregoing purposes.
18. WATER AND OTHER DAMAGE.
Landlord shall not be liable for, and Landlord is hereby released and relieved
from all claims and demands of any kind by reason of or resulting from damage
or injury to person or property of Tenant or any other party, directly or
indirectly caused by (a) dampness, water, rain or snow, in any part of the
Premises or in any part of any other property of Landlord or of others, and/or
(b) falling plaster, steam, gas, electricity, or any leak or break in any part
of the Premises or from any pipes, appliances or plumbing or from sewers or the
street or subsurface or from any other place or any part of any other property
of Landlord or of others or in the pipes of the plumbing or heating facilities
thereof, unless such condition is caused by the negligence or willful
misconduct of Landlord, its employees, agents or contractors.
19. RIGHT OF ENTRY.
Landlord and its agents, servants, employees, including any builder or
contractor employed by Landlord shall have the absolute and unconditional
right, license and permission, at any and all reasonable times, to enter and
inspect the Premises or any part thereof. Landlord shall use reasonable
efforts and shall cause its agents, servants, employees, builders or
contractors to use reasonable efforts to give Tenant at least 24 hours' prior
notice (either in writing or by telephone) of its entrance into the Premises.
20. TERMINATION OF TERM.
It is agreed that the term of this Lease shall expire and terminate at the end
of the original term hereof (or at the expiration of the last renewal term, if
this Lease contains a renewal option and the same is properly exercised),
without the necessity of any notice by or to any of the parties hereto, unless
otherwise provided herein. If Tenant shall occupy the Premises after such
expiration or termination, it is understood that Tenant shall hold the Premises
as a tenant from month-to-month, subject to all the other terms and conditions
of this lease, at an amount equal to double the highest monthly rental
installment reserved in this Lease. Landlord shall, upon such expiration or
termination of this Lease, be entitled to the benefit of all public general or
local laws relating to the speedy recovery of possession of lands and tenements
held over by tenants that may be now in force or may hereafter be enacted.
21. CONDEMNATION.
(a) If, during the term of this Lease, all or a substantial part of
the Premises shall be taken by police power or under power of eminent domain,
this Lease shall terminate as of, and the rent (basic and additional) shall be
apportioned to and abate from and after, the date of taking. Tenant shall have
no right t participate in any award or damages for such taking and hereby
assigns all of its right, title and interest therein to Landlord. For the
purposes of this paragraph, "a substantial part of the Premises" shall mean
such part that the remainder thereof is rendered inadequate for Tenant's
business and that such remainder cannot practicably be repaired and improved so
as to be rendered adequate to permit Tenant to carry on its business with
substantially the same efficiency as before the taking.
(b) If, during the Lease term, less than a substantial part of the
Premises (as hereinabove defined) is taken by police power or under power of
eminent domain, this Lease shall remain in full force and effect according to
its terms; and Tenant shall have no right to participate in any award or
damages for such taking and tenant hereby assigns all of its right, title and
interest in and to the award to Landlord. In such event Landlord shall, at its
expense, promptly make such repairs and improvements as shall be necessary to
make the remainder of the Premises adequate to permit Tenant to carry on its
business to substantially the same extent and with substantially the same
efficiency as before the taking; provided that in no event shall Landlord be
required to expend an amount in excess of the award received by Landlord for
such taking. If, as a result of such taking, any part of the Premises is
rendered permanently unusable, the basic annual rent reserved hereunder shall
be reduced in such amount as may be fair and reasonable, which amount shall not
exceed the proportion which the area so taken or made unusable bears to the
total area which was usable by Tenant prior to the taking. IF the taking does
not render any part of the Premises unusable, there shall be no abatement of
rent.
(c) For purposes of this section, "taking" shall include a
negotiated sale or lease and transfer of possession to a condemning authority
under bona fide threat of condemnation for public use, and Landlord alone shall
have the right to negotiate with the condemning authority and conduct and
settle all litigation connected with the condemnation. As hereinabove used,
the words "award or damages" shall, in the event of such sale or settlement,
include the purchase or settlement price.
(d) Nothing herein shall be deemed to prevent Tenant from claiming
and receiving from the condemning authority, if legally payable, compensation
for the taking of Tenant's own tangible property and such amount as may be
payable by statute or ordinance toward Tenant's damages for Tenant's loss of
business, removal and relocation expenses and the undepreciated value of
Tenant's leasehold improvements.
22. SUBORDINATION.
This Lease shall be subject to and subordinate at all times to the lien of any
mortgages and/or deeds of trust upon the Building now or hereafter to be made,
unless the mortgagee or holder of the deed of trust elects to have Tenant's
interest hereunder superior to the interest of the mortgagee or holder of such
deed of trust. This subordination provision shall be self-operative and no
further instrument of subordination shall be required. The Tenant agrees to
execute any documents necessary, subsequent to the execution of this Lease,
which are required to effect such subordination.
23. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS.
If Tenant shall fail to perform any covenant or duty required of it by this
Lease or by law, and such failure shall continue beyond the expiration of any
applicable notice and cure periods, Landlord shall have the right (but not the
obligation) to perform the same, and if reasonably necessary to enter the
Premises for such purposes without notice. The actual cost thereof to Landlord
shall be deemed to be additional rent hereunder payable by Tenant, shall be due
and payable by Tenant upon demand, and Landlord shall have the same rights and
remedies with respect to such additional rent as Landlord has with respect to
the rental reserved hereunder.
24. ATTORNMENT.
(a) If Landlord assigns this Lease or the rents hereunder to a
creditor as security for a debt, Tenant shall, after notice of such assignment
and upon demand by Landlord or the assignee, pay all sums thereafter becoming
due to Landlord hereunder either to Landlord or to such assignee, as required
by such notice. Tenant shall also, upon receipt of such notice, have all
policies of insurance required hereunder endorsed so as to protect the
assignee's interest as it may appear and shall deliver such policies, or
certificates thereof, to the assignee.
(b) In the event the Premises are sold at any foreclosure sale or
sales, by virtue of any judicial proceedings or otherwise, this Lease shall
continue in full force and effect and provided that the purchaser(s) at such
sale(s) agree in writing with Tenant to recognize the validity of this Lease
and to not disturb Tenant's occupancy and possession of the Premises so long as
Tenant is not in default under this Lease beyond any applicable notice and cure
periods, Tenant shall attorn to and acknowledge the foreclosure purchase or
purchasers at such sale as the landlord hereunder.
25. NON-WAIVER OF FUTURE ENFORCEMENT.
The receipt of rent by Landlord, with knowledge of any breach of this Lease by
Tenant or of any default on the part of Tenant in the observance of performance
of any of the conditions or covenants of this Lease (beyond any applicable
notice and cure periods), shall not be deemed to be a waiver of any provision
of this Lease, including the provision breached. No failure on the part of
Landlord or of the Tenant to enforce any covenant or provision herein contained
nor any waiver of any right hereunder by Landlord or Tenant shall discharge or
invalidate such covenant or provision or shall affect the right of Landlord or
tenant to enforce the same in the event of any subsequent default. The receipt
by Landlord of any rent or any sum of money or any other consideration
hereunder paid by Tenant after the termination, in any manner, of the term
herein demised, or after the giving by Landlord of any notice hereunder to
effect such termination, shall not reinstate, continue or extend the term
herein demised, or destroy, or in any manner impair the efficacy of any such
notice of termination as may have been given hereunder by Landlord to Tenant
prior to the receipt of any such sum of money or other consideration, unless so
agreed to in writing and signed by Landlord. Neither acceptance of the keys
nor any other act or thing done by Landlord or any agent or employee during the
term herein demised shall be deemed to be an acceptance of a surrender of the
Premises, excepting only an agreement in writing signed by Landlord accepting
or agreeing to accept such surrender.
26. PERSONAL PROPERTY TAXES.
Tenant shall be responsible for and shall pay any taxes or assessments levied
or assessed during the term of this Lease against any leasehold interest of
Tenant or personal property or trade fixtures of Tenant of any kind, owned by
Tenant or placed in, upon or about the Premises by Tenant.
27. RECORDATION OF LEASE.
Tenant agrees that it will, upon Landlord's request, execute a memorandum of
this Lease in a form suitable for recording under applicable Maryland law. The
party recording such Memorandum of Lease shall pay all costs of recordation,
including any transfer or recordation taxes thereon.
28. NOTICES.
Any notice required by this Lease shall be sent by certified mail to Landlord
at: c/o Merritt, 2066 Lord Baltimore Drive, Baltimore, Maryland 21244. Any
notice required by this Lease shall be sent by certified mail to Tenant at:
55 Broad Street, 7th Floor
New York, New York 10004
(if no address is specified, such notices to Tenant shall be addressed to the
Premises). Either party may, at any time, and from time to time, designate in
writing a substitute address for that set forth above, and thereafter all
notices to such party shall be sent by certified mail to such substitute
address.
29. WAIVER OF JURY TRIAL.
THE LANDLORD AND THE TENANT WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
COUNTERCLAIM, OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF
THIS LEASE. THIS WAIVER APPLIES TO ALL CLAIMS AGAINST ALL PARTIES TO SUCH
ACTIONS AND PROCEEDINGS, INCLUDING PARTIES WHO ARE NOT PARTIES TO THIS LEASE.
THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE TENANT AND
THE TENANT ACKNOWLEDGES THAT NEITHER THE LANDLORD, NOR ANY PERSON ACTING ON
BEHALF OF THE LANDLORD, HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE
TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, IN
THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. THE
TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND
RAMIFICATIONS OF THIS WAIVER PROVISION AND AS EVIDENCE OF THIS FACT SIGNS ITS
INITIALS.
/S/ MATTHEW DE GANON
(initials of tenant)
30. SEVERABILITY.
(a) It is agreed that, for the purpose of any suit brought or based
on this Lease, this Lease shall be construed to be a divisible contract, to the
end that successive actions may be maintained thereon as successive periodic
sums shall mature or be due hereunder, and it is further agreed that failure to
include in any suit or action any sum or sums then matured or due shall not be
a bar to the maintenance of any suit or action for the recovery of said sum or
sums so omitted; and Tenant agrees that it will not, in any suit or suits
brought or arising under this Lease for a matured sum for which judgment has
not previously been obtained or entered, plead, rely on or interpose the
defenses of RES ADJUDICATA, former recovery, extinguishment, merger, election
of remedies or other similar defense as a default said suit or suits.
(b) If any term, clause or provision of this Lease is declared
invalid by a court of competent jurisdiction, the validity f the remainder of
this Lease shall not be affected thereby but shall remain in full force and
effect.
31. NON-WAIVER.
It is understood and agreed that nothing herein shall be construed to be a
waiver of any of the terms, covenants or conditions herein contained, unless
the same shall be in writing, signed by the party to be charged with such
waiver, and no waiver of the breach of any covenant herein shall be construed
as a waiver of such covenant or any subsequent breach thereof. No mention in
this Lease of any specific right or remedy shall preclude either party from
exercising any other right or from having any other remedy or from maintaining
any action to which it may be otherwise entitled either at law or in equity.
32. SUCCESSORS AND ASSIGNS.
(a) Except as herein provided, this Lease and the covenants and
conditions herein contained shall inure to the benefit of and be binding upon
Landlord its successors and assigns; shall be binding upon Tenant, its
successors and assigns (including without limitation any trustee in bankruptcy
or debtor-in-possession, and any assignee of the same); and shall inure to the
benefit of Tenant and only such assignees of Tenant to whom an assignment by
Tenant has been consented to in writing by Landlord. In the event more than
one person, firm or corporation is named herein as Tenant, the liability of all
parties named herein as Tenant shall be joint and several.
(b) In the event Landlord's interest under this Lease is
transferred or assigned, written notice thereof is given to Tenant and such
transferee or assignee assumes in writing all of the obligations of Landlord
under this Lease, Landlord (or any subsequent assignee or transferee of
Landlord's interest under this Lease who gives such notice to Tenant and
assumes in writing Landlord's obligations under this Lease) shall automatically
be relieved and released from and after the date of such transferee of
Landlord's interest under this Lease who gives such notice to Tenant and
assumes in writing Landlord's obligations under this Lease, shall automatically
be relieved and released from and after the date of such transfer or conveyance
from all liability hereunder. Further, the liability of Landlord, its
successors and assigns, under this Lease shall at all times be limited solely
to Landlord's interest in the land and improvements comprising the Building and
in the event the owner of Landlord's interest in this Lease is at any time an
individual, partnership, joint venture or unincorporated association, Tenant
agrees that such individual or the members or partners of such partnership,
joint venture or unincorporated association shall not be personally or
individually liable or responsible for the performance of any of Landlord's
obligations hereunder.
33. SECURITY DEPOSIT.
Landlord hereby acknowledges receipt from Tenant of the sum of Two Thousand,
Two Hundred Sixty Dollars and Fifty-nine Cents ($2,260.59), which sum
represents a security deposit for the faithful performance of Tenant's
obligations under this Lease. Tenant agrees that Landlord shall have the
right, but not the obligation, in its sole discretion and without notice to
Tenant to apply said security deposit or any portion thereof to cure or remedy
any default by Tenant hereunder (beyond any applicable notice and cure
periods), including default in payment of rent (beyond any applicable notice
and cure periods). If Landlord so applies the security deposit or any portion
thereof Tenant shall, upon demand, immediately reimburse Landlord for the
portion of the security deposit so applied; and any failure of Tenant to do so
within ten (10) business or fifteen (15) calendar days after Landlord's written
demand therefor shall constitute an event of default hereunder. Said sum, if
not sooner applied, shall be returned to Tenant, without interest, within
thirty (30) days after vacating of the Premises by Tenant and termination of
this Lease (or upon termination of the last renewal term of this Lease if this
Lease contains a renewal option and Tenant properly exercises said option),
provided: (i) Tenant is not then in default under any of the provisions of
this Lease (beyond any applicable notice and cure periods); (ii) there is no
damage to the Premises beyond ordinary wear and tear and the Premises have been
left in a clean condition and in good order with all debris, rubbish and trash
placed in property containers; (iii) all keys to the Premises have been
returned to the Landlord; and (iv) Tenant's forwarding address has been left
with Landlord. Tenant further agrees that Landlord shall be entitled to
commingle said security deposit with its own funds, and that no mortgagee or
holder of a deed of trust on the Premises and no purchaser of said Premises at
any foreclosure sale shall have any liability to Tenant for Tenant's security
deposit.
34. NOTICES TO MORTGAGEE.
Tenant agrees that a copy of any notice of default from Tenant to Landlord
shall also be sent to the holder of any mortgage or deed of trust on the
Premises, provided Tenant has been given written notice of the fact that such
mortgage or deed of trust has been made; and Tenant shall allow said mortgagee
or holder of the deed of trust a reasonable time, not to exceed thirty (30)
days from the receipt of said notice, to cure, or cause to be cured, any such
default. If such default cannot reasonably be cured within the time specified
herein, then such additional time as may be necessary shall be allowed,
provided the curing of such default is commenced and diligently pursued
(including, but not limited to, commencement of foreclosure proceedings if
necessary to effect such cure) in which event this Lease shall not be
terminated while such remedies are being thus diligently pursued.
Notwithstanding the foregoing to the contrary, in the event of an emergency,
neither Landlord nor its mortgagee shall be entitled to a notice and cure
period, and Tenant shall have the right (but not the obligation) to rectify the
emergency situation, at Landlord's expense, and Landlord shall reimburse Tenant
for the actual cost thereof promptly upon demand.
35. ESTOPPEL CERTIFICATE.
Tenant shall, at any time and from time to time during the term of this Lease
or any renewal thereof, upon written request of Landlord, execute, acknowledge,
and deliver to Landlord (or its designee) a statement in writing, certifying
that this Lease is unmodified and in full force and effect if such is the fact
(or if there have been any modifications thereof, that the same is in full
force as modified and stating the modifications) and the dates to which the
rents and other charges have been paid in advance, if any. Any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
purchaser of the estate of Landlord or by the mortgagee or any assignee of any
mortgagee or the trustee or beneficiary of any deed of trust constituting a
lien on the Premises or the Building.
36. BANKRUPTCY.
(a) An "Act of Bankruptcy" shall mean:
(i) the application by Tenant or any guarantor of Tenant or its
or their consent to the appointment of a receiver, trustee or liquidator of
Tenant or any guarantor of Tenant or a substantial part of its or their assets;
(ii) the filing of voluntary petition in bankruptcy or the
admission in writing by Tenant or any guarantor of Tenant of its inability to
pay its debts as they become due;
(iii) the making by Tenant or any guarantor of Tenant of an
assignment for the benefit of its creditors;
(iv) the filing of a petition or an answer seeking a
reorganization or an arrangement with its creditors or an attempt to take
advantage of any insolvency law;
(v) the filing of an answer admitting the material allegations
of a petition filed against Tenant or any guarantor of Tenant in any
bankruptcy, reorganization or insolvency proceeding;
(vi) the entering of an order, judgment or decree by any court
of competent jurisdiction adjudicating Tenant or any guarantor of Tenant a
bankrupt or an insolvent, approving a petition seeking such a reorganization,
or appointing a receiver, trustee or liquidator of Tenant or any guarantor of
Tenant or of all or a substantial part of its or their assets; or
(vii) the commencing of any proceeding under any bankruptcy,
reorganization, arrangement, insolvency, readjustment, receivership or similar
law, and the continuation of such order, judgment, decree or proceeding
unstayed for a period of sixty (60) days.
(b) Upon the occurrence of an Act of Bankruptcy, this Lease and all
rights of Tenant hereunder shall automatically terminate with the same force
and effect as if the date of any such event were the date stated herein for the
expiration of the term, and Tenant shall vacate and surrender the Premises, but
shall remain liable as herein provided. Landlord reserves any and all remedies
provided herein or at law or in equity.
(c) If this Lease is not terminated in accordance with subsection
(b) above because such termination is not permitted under the BANKRUPTCY CODE,
11 U.S.C. 101 ET SEQ. (the "Bankruptcy Code"), then upon the filing of a
petition by or against Tenant under the Bankruptcy Code, Tenant, as debtor and
as debtor in possession, and any trustee who may be appointed, agree:
(i) To perform each and every obligation of Tenant under this
Lease until such time as this Lease is either rejected or assumed by order of
the United States Bankruptcy Court;
(ii) To pay monthly in advance on the first day of each month
as reasonable compensation for use and occupancy of the Premises an amount
equal to all basic rent and all additional rent reserved hereunder;
(iii) To reject or assume this Lease within sixty (60) days of
the filing of such petition under Chapter 7 of the Bankruptcy Code or within
thirty (30) days of the filing of a petition under any other Chapter;
(iv) To give Landlord at least forty-five (45) days prior
written notice of any proceeding relating to any assumption of this Lease;
(v) To give Landlord at least thirty (30) days prior written
notice of any abandonment to be deemed conclusively a rejection of this Lease;
(vi) To be deemed conclusively to have rejected this Lease in
the event of the failure to comply with any of the above; and
(vii) To be deemed to have consented to the entry of an order
by an appropriate United States Bankruptcy Court providing all of the above,
waiving notice and hearing of the entry of same.
(d) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of Landlord hereunder, whether or not
expressly denominated as rent, shall constitute "rent" for the purposes of
Section 502(b)(7) of the Bankruptcy Code, including, without limitation,
reasonable attorney's fees incurred by Landlord by reason of Tenant's
bankruptcy.
(e) In the event that this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
consideration payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord, and shall not constitute property of Tenant or
of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other consideration constituting Landlord's property under the
preceding sentence not directly paid or delivered to Landlord shall be held in
trust for the benefit of Landlord by the recipient thereof and be promptly paid
to or turned over to Landlord. If Tenant assumes this Lease and proposes to
assign the same pursuant to the provisions of the Bankruptcy Code to any person
or entity who shall have made a bona fide offer to accept an assignment of this
Lease on terms acceptable to Tenant, the notice of such proposed assignment
setting forth (i) the name and address of such person; (ii) all of the terms
and conditions of such offer; and (iii) adequate assurance to be provided to
Landlord to assure such assignee's future performance under the Lease,
including, without limitation, the assurance referred to in Section 365(b)(3)
of the Bankruptcy Code, or any such successor or substitute legislation or rule
thereto, shall be given to Landlord by Tenant, but in any event no later than
ten (10) days prior to the date that Tenant shall make application to a court
of competent jurisdiction for authority and approval to enter into such
assignment and assumption, and Landlord shall thereupon have the prior right
and option, to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if
any, as the bona fide offer made by such person, less any brokerage commission
which may be payable out of the consideration to be paid by such person for the
assignment of this Lease. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on and after the date of such assignment. Any such assignee shall, upon
demand, execute and deliver to Landlord an instrument confirming such
assumption.
(f) Nothing contained in this Section 36 shall be deemed in any
manner to limit Landlord's rights and remedies under the Bankruptcy Code, as
presently existing or as may hereafter be amended.
(g) No default under this Lease by Tenant, either prior to or
subsequent to any Act of Bankruptcy, shall be deemed to have been waived unless
expressly done so in writing by Landlord.
(h) Neither Tenant's interest in this Lease, nor any estate created
hereby in Tenant nor any interest herein or therein, shall pass to any trustee
or receiver or assignee for the benefit of creditors or otherwise by operation
of law except as may specifically be provided by the Bankruptcy Code.
37. BROKER'S COMMISSION.
Tenant and Landlord warrant that they have dealt with no broker in connection
with this Lease, except Long & Foster, Michael Reitz and agree to indemnify and
save the other harmless from all claims, actions, damages, costs and expenses
and liability whatsoever, including reasonable attorney's fees, that may arise
from any breach of this warranty. Landlord shall be responsible for paying the
commission owed on this lease transaction to the broker specified above.
38. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the rules and regulations
attached hereto as Exhibit B, and to the extent the same do not unreasonably
interfere with the conduct of Tenant's use and occupancy of the Premises, with
any amendments or modifications thereto that Landlord shall, from time to time,
promulgate with respect to the Building. Any such amendments or modifications
to the rules and regulations shall be binding upon Tenant upon delivery of a
copy of them to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance of any of said rules and regulations by any other tenants or
occupants; however, Landlord shall uniformly and non-discriminativily enforce
all rules and regulations against all tenants and occupants.
39. CAPTIONS.
The captions of the various sections of this Lease are for convenience only and
are not a part of this Lease. Such captions shall not be construed to define
or limit any of the provisions of this Lease.
40. FINAL AND ENTIRE AGREEMENT.
This Lease contains the final and entire agreement between the parties hereto,
and neither they nor their agents shall be bound by any terms, conditions or
representations not herein written.
41. TENANT REPRESENTATIVE.
The name, address and telephone number of Tenant representative to be
contacted in event of emergency are as follows:
Eric Dorsch - Premises (410) 995-0716
42. PARKING.
Tenant shall have the use of spaces 116, and 118 within the garage for the term
of the lease. The parking rate of $125.00 per month, per space is included in
the annual rental for the office premises.
43. IMPROVEMENTS.
Landlord shall provide the following within two (2) weeks of lease execution:
A. Remove wall as shown on plan to create a conference room.
B. Install sink and cabinets as shown on attached plan.
C. Install double entry doors with full lights.
44. QUIET ENJOYMENT.
Landlord hereby represents and warrants to Tenant that Landlord is in the fee
simple owner of the Building and the Premises, free and clear of liens and
encumbrances, except those matters listed on Exhibit "__" attached hereto and
made a part hereof. Subject to all of the other provisions of this Lease and
provided that Tenant performs and observes all of the terms, conditions and
covenants on Tenant's part to be performed and observed in accordance with the
terms of this Lease, Tenant shall quietly enjoy and occupy the Premises without
molestation or hindrance by Landlord or any party claiming through Landlord.
<PAGE>
WITNESS the hands and seals of the parties hereto as of the day
and year first above written.
WITNESS: SCARLETT HARBOR ASSOCIATES LIMITED PARTNERSHIP
By: MERRITT MANAGEMENT CORPORATION, AGENT
/S/ROBB MERRITT By: /S/LEROY M. MERRITT (SEAL)
Landlord
WITNESS/ATTEST: K2 DESIGN, INC.
/S/DENISE HOLLEY By: /S/MATTHEW DE GANON (SEAL)
Tenant
<PAGE>
TABLE OF CONTENTS BY AND BETWEEN
SCARLETT HARBOR ASSOCIATES LIMITED PARTNERSHIP, LANDLORD AND
K2 DESIGN, INC., TENANT
1. RENTAL....................................................................2
2. USE.......................................................................3
3. SERVICE AND UTILITIES.....................................................4
4. COMPLIANCE WITH LAWS......................................................7
5. ASSIGNMENT AND SUBLETTING.................................................7
6. OPERATING COSTS...........................................................9
7. INCREASE IN LANDLORD'S INSURANCE RATES...................................11
8. INSURANCE - INDEMNITY....................................................12
9. ALTERATIONS..............................................................17
10. OWNERSHIP OF ALTERATIONS................................................17
11. REPAIRS AND MAINTENANCE.................................................18
12. DEFAULT.................................................................22
13. DAMAGE OR DESTRUCTION...................................................25
14. POSSESSION..............................................................26
15. EXTERIOR OF PREMISES - SIGNS............................................26
16. RELOCATION.............................................................27
17. FOR RENT/SALE SIGNS....................................................27
18. WATER AND OTHER DAMAGE.................................................28
19. RIGHT OF ENTRY.........................................................28
21. CONDEMNATION............................................................29
22. SUBORDINATION...........................................................31
23. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS..........................32
24. ATTORNMENT..............................................................32
25. NON-WAIVER OF FUTURE ENFORCEMENT........................................33
26. PERSONAL PROPERTY TAXES.................................................34
27. RECORDATION OF LEASE....................................................34
28. NOTICES.................................................................35
29. WAIVER OF JURY TRIAL....................................................35
30. SEVERABILITY............................................................36
31. NON-WAIVER..............................................................37
32. SUCCESSORS AND ASSIGNS..................................................37
33. SECURITY DEPOSIT........................................................38
34. NOTICES TO MORTGAGEE....................................................40
35. ESTOPPEL CERTIFICATE....................................................40
36. BANKRUPTCY..............................................................41
37. BROKER'S COMMISSION.....................................................46
38. RULES AND REGULATIONS...................................................46
39. CAPTIONS................................................................47
40. FINAL AND ENTIRE AGREEMENT..............................................47
41. TENANT REPRESENTATIVE...................................................47
42. PARKING................................................................47
43. IMPROVEMENTS...........................................................47
44. QUIET ENJOYMENT........................................................48
<PAGE>
EXHIBIT A
DIAGRAM OMITTED
<PAGE>
EXHIBIT B
SCARLETT PLACE COMMERCIAL CONDOMINIUM
HOUSE RULES AND REGULATIONS
1. No premises shall be used for any purpose other than general
office use and no tenant shall obstruct or use for storage or permit its
agents, clerks or servants to obstruct or use for storage, in any way, any
common area of the Building; or use the same in any other way than as a
means of passage to and from the tenant's office, bring in, store, test or
use any steam or internal combustion engine, boiler, machinery,
refrigerating or heating device or air-conditioning apparatus in the
Building, or carry on any mechanical business herein, or use or permit to
be brought into the Building any inflammable oils or fluids, such as
gasoline, kerosene, naptha and benzine, or any explosives or other articles
or any materials which could cause a fire or an explosion or produce any
fumes or vapor or which could be deemed hazardous to life, limb or
property; smoke in the elevators; throw substances of any kind out of the
windows or doors, or down the passages of the Building, or in the halls or
passageways; sit on or place anything upon the window sills.
2. Waterclosets and urinals shall not be used for any purpose other
than those for which they were constructed; and no sweepings, rubbish,
ashes, newspaper or any other substances of any kind shall be thrown into
them.
3. No signs, advertising, objects, notices or lettering shall be
exhibited, inscribed, painted or affixed on any part of the common areas of
the Building, or on any part of any premises that is visible from outside
such premises, without the prior written consent of the Landlord. Landlord
shall have the right to prohibit any advertising by a tenant which, in
Landlord's opinion, tends to impair the reputation of the Building or its
desirability as an office building, and upon written notice from the
Landlord, such tenant shall refrain from or discontinue such advertising.
4. Landlord shall have the right to prescribe the times of moving
freight in and out of the Building, and all such moving shall be done under
the supervision of the Landlord.
5. Landlord reserves the right to control ingress and egress to and
from the Building and/or to close and keep locked all entrances and exist
doors of the Building on Sundays and legal holidays, on other days between
the hours of 6:00 p.m. and 8:00 a.m., and during such other times as
Landlord deems advisable for the adequate security of the Building.
Tenants and their agents and employees, and any other persons entering or
leaving the building at such times may be required to sign the Building
register, and the watchman or agent of Landlord in charge shall have the
right to refuse admittance to any person not possession satisfactory
identification and authorization. Landlord assumes no responsibility with
respect to and shall not be liable for any damages resulting from the
admission of any person, authorized or unauthorized, into the Building.
6. Tenants and their agents and employees shall not make, or permit
to be made, any noise that is annoying, unpleasant or distasteful, whether
by the use of any musical instrument, radio, television set, other audio
device or otherwise or cause or permits any unusual or objectionable odors
to be produced upon or emanate from a unit, or in any other way disturb or
interfere with other tenants or their agents, employees or invitees.
7. Tenants shall not install or use any machinery or equipment in
the unit which may cause any annoying or disturbing noise or jar or tremor
to any of the floors or walls of the Building, or which by its weight might
damage the floor of the Building upon which it is placed.
8. The directory board in the entrance lobby of the Building is
provided exclusively for the display of the name and location in the
Building of each tenant and Landlord reserves the right to exclude any
other name therefrom and to make a reasonable charge for each and every
name in addition to the name of the tenant placed on the directory board
with the consent of the Landlord.
9. Each tenant shall provide Landlord with keys to the premises to
permit entry to the premises in case of emergency or otherwise as permitted
by the Lease.
10. No bicycles, vehicles or animals of any kind shall be brought
into or kept in or upon the unit or any part of the common elements of the
Building.
11. Employees of Landlord shall not perform any work for tenants or
do anything outside of their regular duties, unless under special written
instructions from Landlord.
12. No premises shall be used for lodging or sleeping purposes, nor
may any cooking be done in any premises that causes a noticeable odor
therefrom in the common areas, or any part thereof, of the Building.
13. Tenants shall not conduct, or permit any other person to
conduct, any auction in the premises or any part of the common areas of the
Building; manufacture or store goods, wares or merchandise in the premises,
without the prior written approval of Landlord, except the storage of usual
supplies and inventory to be used by the Tenant incidental to the purposes
for which the tenant may use the premises; or permit the premises to be
used for gambling. Tenants shall not occupy or permit any portion of the
premises to be occupied as an office for public stenography or typewriter,
or for the possession, storage, manufacture or sale of intoxicating
beverages, narcotics, tobacco in any form, or as a barber or as a barber or
manicure shop.
14. No curtains, blinds, shades, screens, awnings or other form of
inside or outside window covering, or window ventilators or similar devices
shall be attached to or hung in, or used in connection with, any window or
door of the premises, without the prior written consent of Landlord. If
landlord consents, such covering or devices must be of a quality, type,
design, and color and attached in a manner approved by Landlord.
15. Canvassing, soliciting and peddling in the Building are
prohibited, and all tenants shall cooperate to prevent the same. Tenant
shall not exhibit, sell or offer for sale in the premises or in the
Building, any article or thing except those articles and things essentially
connected with the stated use of the premises, without the prior written
consent of Landlord.
16. There shall not be used in any part of the common areas of the
Building, either by a tenant or by others in the delivery or receipt of
merchandise, any hand trucks except those equipped with rubber tires and
side guards, and no hand trucks will be allowed in passenger elevators.
<PAGE>
17. Tenant shall list all articles to be taken from the Building
(other than those taken out in the usual course of business of the tenant)
on such tenant's letterhead. Such list shall be presented to the Landlord
for approval before Building employees may permit such articles to be
placed in an elevator or taken from the Building.
18. The violation of these Rules and Regulations shall constitute an
Event of default under the Lease.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
K2 DESIGN, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,867,430
<SECURITIES> 0
<RECEIVABLES> 2,092,715
<ALLOWANCES> 25,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,246,626
<PP&E> 730,874
<DEPRECIATION> 123,443
<TOTAL-ASSETS> 6,894,679
<CURRENT-LIABILITIES> 1,396,022
<BONDS> 0
0
0
<COMMON> 36,454
<OTHER-SE> 6,281,183
<TOTAL-LIABILITY-AND-EQUITY> 6,894,679
<SALES> 0
<TOTAL-REVENUES> 4,077,792
<CGS> 0
<TOTAL-COSTS> 3,249,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 16,260
<INCOME-PRETAX> (895,417)
<INCOME-TAX> 0
<INCOME-CONTINUING> (895,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (895,417)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> 0
</TABLE>
