<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
[X] EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission File Number: 333-22895
Pivot Rules, Inc.
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(Exact name of small business issuer as specified in its charter)
New York 13-3612110
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
80 West 40th Street
New York, NY 10018
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(Address of principal executive offices)
(212)-944-8000
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(Issuer's telephone number)
(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of June 30, 1997
---------- -------------------------------
Common Stock, par value $.01 per share 2,700,000
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PIVOT RULES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996 ....................................... 2
Condensed Statements of Operations for the three months ended
March 31, 1997 and 1996 (unaudited).......................... 3
Condensed Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 (unaudited).......................... 4
Notes to Condensed Financial Statements ............................ 5-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................... 11
SIGNATURES ...................................................................... 12
</TABLE>
<PAGE>
PART I
- - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
PIVOT RULES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996*
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ........................................... $ 12,000 $ 33,000
Due from factor ................................ 1,151,000 176,000
Non-factored receivables ....................... 198,000 45,000
Inventories .................................... 714,000 835,000
Prepaid expenses and other current assets ...... 186,000 69,000
Deferred income taxes .......................... 97,000 97,000
---------- ----------
Total current assets ...................... 2,358,000 1,255,000
PROPERTY AND EQUIPMENT, NET ........................ 110,000 89,000
DEFERRED COSTS AND OTHER ASSETS .................... 664,000 292,000
---------- ----------
Total ..................................... $3,132,000 $1,636,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable ............... $ 282,000 $ 230,000
Bridge financing ............................... 1,389,000 --
Short-term loan payable ........................ 219,000 279,000
Due to factor .................................. -- 123,000
Accounts payable, accrued expenses and other
current liabilities ......................... 621,000 336,000
Income taxes payable ........................... 13,000 112,000
---------- ----------
Total current liabilities ................. 2,524,000 1,080,000
NOTES PAYABLE, less current portion ................ -- 135,000
DEFERRED INCOME TAXES .............................. 12,000 12,000
---------- ----------
2,536,000 1,227,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 10,000,000 shares
authorized; 1,200,000 shares issued and
outstanding ................................. 12,000 12,000
Additional paid-in capital ..................... 565,000 397,000
Retained earnings .............................. 19,000 --
---------- ----------
596,000 409,000
---------- ----------
Total ..................................... $3,132,000 $1,636,000
========== ==========
</TABLE>
*Derived from audited financial statements.
The accompanying notes are an integral part of these
condensed financial statements.
2
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PIVOT RULES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
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<S> <C> <C>
Sales ............................................ $ 2,495,000 $ 1,529,000
Less returns and allowances ...................... 99,000 136,000
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Net sales ............................... 2,396,000 1,393,000
Cost of sales .................................... 1,784,000 1,066,000
----------- -----------
Gross profit ............................ 612,000 327,000
Selling, marketing, design and administrative
expenses ...................................... 409,000 380,000
----------- -----------
Operating profit (loss) .......................... 203,000 (53,000)
----------- -----------
Other income (expense)
License fee income ...................... 24,000 27,000
Other income ............................ -- 19,000
Amortization of deferred costs for
bridge financing ..................... (36,000) --
Interest expense and factoring charges .. (162,000) (81,000)
----------- -----------
(174,000) (35,000)
----------- -----------
Income (loss) before taxes ....................... $ 29,000 $ (88,000)
Income tax expense ............................... 10,000 --
----------- -----------
Net income (loss) ................................ $ 19,000 $ (88,000)
=========== ===========
Net income (loss) per share ...................... $ .02 $ (.07)
=========== ===========
Weighted average shares outstanding .............. 1,200,000 1,200,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
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PIVOT RULES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ................................................ $ 19,000 $ (88,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of discount and deferred costs
on bridge financing ....................................... 92,000 --
Depreciation and amortization ............................... 11,000 14,000
Changes in operating assets and liabilities
(Increase) decrease in
Inventories ........................................... 121,000 384,000
Non factored receivables .............................. (153,000) (70,000)
Prepaid expenses and other current assets ............. (117,000) 25,000
Increase (decrease) in
Accounts payable and accrued expenses ................. 285,000 (32,000)
Income taxes payable .................................. (99,000) --
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Net cash provided by operating activities ........................ 159,000 233,000
------------ -----------
Cash flows from investing activities
Purchase of property and equipment ............................... (29,000) (4,000)
Trademark costs .................................................. (1,000) (4,000)
------------ -----------
Net cash used in investing activities ................................ (30,000) (8,000)
------------ -----------
Cash flows from financing activities
Deferred costs associated with bridge financing and
initial public offering ........................................ (200,000) --
Net proceeds from bridge financing ............................... 1,122,000 --
Warrants issued with bridge financing ............................ 168,000 --
Payments of notes payable and short-term loan .................... (142,000) (77,000)
Net change in due to/from factor ................................. (1,098,000) (193,000)
------------ -----------
Net cash used in financing activities ................................ (150,000) (270,000)
------------ -----------
NET DECREASE IN CASH ................................................. (21,000) (45,000)
Cash balance - December 31 ........................................... 33,000 54,000
------------ -----------
Cash balance - March 31 ............................................. $ 12,000 $ 9,000
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest ...................................................... $ 23,000 $ 47,000
============ ===========
Income taxes .................................................. $ 99,000 $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
4
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PIVOT RULES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
Pivot Rules, Inc. ("the Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management of the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read
in conjunction with the condensed notes thereto. In the opinion of management
of the Company, the accompanying unaudited condensed financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary to fairly present the results for the interim periods to which these
financial statements relate.
These financial statements should be read in conjunction with the
Registration Statement filed with the Securities and Exchange Commission on
Form 8-A.
The results of operations of the Company for the three months ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the full year.
NOTE B - THE COMPANY
The Company designs, sources and markets a full collection of golf
lifestyle sportswear for men under the Pivot Rules brand name and registered
trademark.
NOTE C - SIGNIFICANT ACCOUNTING POLICIES
1. INVENTORIES
Inventories, which consist of finished goods, are valued at the lower of
cost or market. Cost is determined by the first-in, first-out method.
2. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of shares of common stock outstanding and after giving effect to
the stock split.
3. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share, which
is effective for financial statements for both interim and annual periods
ending after December 15, 1997. Early adoption of the new standard is not
permitted. The new standard eliminates primary and fully diluted earnings per
share and requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts were computed. Management
has not yet determined the impact that this pronouncement will have on the
Company's financial statements.
5
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PIVOT RULES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE D - BRIDGE FINANCING
On January 2, 1997, the Company issued 15 units, each unit consisting of
one convertible subordinated secured promissory note in the principal amount of
$100,000 per unit ("Note") and warrants to purchase 40,000 shares of common
stock of the Company, no par value, at an exercise price of $2.50 ("Warrants"),
for gross proceeds of $1,500,000. Net proceeds amounted to $1,290,000 after
underwriter expenses and brokerage fees, but before additional debt issuance
costs. A portion of the gross proceeds has been allocated to the Warrants based
on their estimate of fair market value, resulting in approximately $168,000 of
original issue discount and a $168,000 increase in paid-in capital.
Interest on the Notes accrued at a rate of 10% per annum from January 2,
1997 through April 30, 1997, and at the rate of 12% per annum thereafter until
Notes were repaid from the proceeds of the Initial Public Offering
("IPO") in May 1997.
In May 1997, 237,000 out of the 600,000 Warrants issued pursuant to the
bridge financing were surrendered by the Warrant holders. The cancellation of
such Warrants will result in an adjustment of interest expense. The remaining
Warrants were converted in May 1997 (on a one-for-one basis) into warrants with
the same terms sold in the IPO ("IPO Warrants"). The IPO Warrants are
exercisable at $5.00 per share, commencing on May 15, 1998 and expiring at the
closing of business on May 15, 2002.
NOTE E - COMMITMENTS AND CONTINGENCIES
1. EMPLOYMENT CONTRACTS
In March 1997, the Company entered into an employment agreement with its
Executive Vice President of Sales ("VP of Sales"). The employment agreement
expires on March 16, 2002. Pursuant to the employment agreement, the VP of
Sales is entitled to a base salary and is eligible for a discretionary annual
bonus in 1997 and in subsequent years a bonus contingent on achieving certain
performance objectives. Pursuant to the employment agreement, the VP of Sales
is also entitled to annual raises to be determined by the Board of Directors in
its discretion, but subject to certain specified minimum amounts, as well as an
annual option grant.
In March 1997, the Company entered into an employment agreement with its
Vice President of Operations, which expires on February 28, 2001. The
employment agreement provides for a base salary and discretionary annual
bonuses. In addition, the employment agreement provides for annual raises to be
determined by the Board of Directors in its discretion but subject to certain
specified minimums, and an annual option grant contingent on achieving certain
specified performance objectives.
2. OPERATING LEASE
In May 1997, the Company signed a lease for a new office and showroom
space. The term of the lease is from June 1, 1997 through May 31, 2008. Annual
minimum rentals are $81,000 through May 31, 2003 and $90,000 for the remaining
periods. In addition, under the terms of the lease, the Company is obligated to
pay for its own electricity.
6
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PIVOT RULES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE F - AUTHORIZED SHARES
In May 1997, the Company's Board of Directors authorized a new class of
2,000,000 shares of preferred stock, $.01 par value per share and increased the
aggregate number of shares of Common Stock authorized for issuance from
10,000,000 shares to 15,000,000 shares.
NOTE G - STOCK OPTION PLAN
In May 1997, the Company's Board of Directors adopted a stock option
plan (the "Plan") for the purpose of encouraging key employees and consultants
and directors who are not employees to acquire a proprietary interest in the
growth and performance of the Company. In May 1997, 83,000 shares were granted
under the Plan, all of which have an exercise price of $5.00. The maximum
number of shares which may be granted under the Plan is 200,000.
NOTE H - INITIAL PUBLIC OFFERING
The Company completed its IPO in May 1997. The Company received net
proceeds of approximately $6,500,000, of which approximately $2,029,000 was
used to repay Company indebtedness, including the repayment of notes issued by
the Company in connection with the bridge financing. In connection with the
payoff of the bridge financing, the Company has written-off approximately
$81,000 of debt discount and approximately $257,000 of debt issuance costs.
7
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Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PIVOT RULES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company designs, sources and markets a full collection of golf
lifestyle sportswear for men under the Pivot Rules brand name and registered
trademark. Its current products include knit and woven shirts, sweaters,
sweatshirts, pants, shorts, outerwear, hats and socks, many of which carry the
Company's distinctive "Three Golfer" logo. The Company focuses its design
efforts on creating products with updated styling, innovative design, and
superior comfort and fit, utilizing natural fibers and bright colors.
In September 1996, as a result of increasing competition in the "upper
moderate" price segment of the golf lifestyle apparel market, the Company
initiated a strategy of repositioning its products into the "moderate" price
segment and expanding distribution to focus on higher-volume retailers.
Historically, the Company sold its products in the "upper moderate"
price segment, primarily to better department stores, specialty stores, and
catalogs. Because such retailers typically purchased small quantities of a
given product style, the Company utilized small production runs and its
profitability was dependent upon high margins. By refocusing its marketing
efforts on the "moderate" price segment of the golf lifestyle apparel market,
the Company is taking advantage of the greater distribution opportunities
available and the resulting larger order sizes to increase profitability
through sales growth and improved sourcing.
RESULTS OF 0PERATIONS
Three months ended March 31, 1997 ("First Quarter of 1997") compared to the
Three months ended March 31, 1996 ("First Quarter of 1996")
The Company's net sales increased by $1,003,000, or 72.0%, to $2,396,000
in the First Quarter of 1997 from $1,393,000 in the First Quarter of 1996 due
to an increase in unit volume of its men's sportswear collection resulting
from the Company's shift to the "moderate" price segment. In the First Quarter
of 1997, revenues of $2,314,000 was derived from the sale of the men's
sportswear collection as compared to revenues of $873,000 for the First Quarter
of 1996. The remaining portion of net sales in the First Quarter of 1997 and
the First Quarter of 1996 was attributable to the women's sportswear collection
which the Company chose to discontinue during 1996. The Company continues to
sell a limited amount of women's apparel on a contract basis.
Returns and allowances decreased by $37,000, or 27.2%, to $99,000 in the
First Quarter of 1997 from $136,000 in the First Quarter of 1996. Returns and
allowances represented 4.0% of gross sales in the First Quarter of 1997 as
compared to 8.9% in the First Quarter of 1996. This improvement resulted
principally from improved selling at retail which resulted in lower markdowns
as well as from a shift in sales to larger volume retailers who had lower
return and discount rates.
Gross profit increased by $285,000, or 87.2%, to $612,000 in the First
Quarter of 1997 from $327,000 in the First Quarter of 1996. Gross margin as a
percentage of net sales increased to 25.5% in the First Quarter of 1997 from
23.5% in the First Quarter of 1996. This increase is related to lower
allowances as a percentage of gross sales and reduced sourcing costs relating
to larger order sizes. This increase was partially offset by an average lower
selling price.
8
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Selling, marketing, design and administrative expenses increased by
$29,000, or 7.6%, to $409,000 in the First Quarter of 1997 from $380,000 in the
First Quarter of 1996. As a percentage of net sales, selling, marketing, design
and administrative expenses declined to 17.0% in the First Quarter of 1997 from
27.3% in the First Quarter of 1996. Salaries increased by $35,000, due to the
hiring of key management personnel, which was partially offset by a reduction
in advertising expense of $21,000.
Interest expense and factoring charges increased by $81,000 to $162,000
in the First Quarter of 1997 from $81,000 in the First Quarter of 1996. This
increase is primarily attributable to the interest expense associated with the
bridge financing totalling $94,000 which was paid in full in May 1997.
Other income of $19,000 in the First Quarter of 1996 represents the
proceeds from lawsuit settlements, net of related costs.
Net income increased by $107,000 to net income of $19,000 in the First
Quarter of 1997 from a loss of $88,000 in the First Quarter of 1996. This
increase is attributable to the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary funding requirements are to finance working
capital and the continued growth of its business. Primarily, this includes the
purchase of inventory, launching advertising campaigns, and the capital
expenditures relating to the development and installation of concept shops
and/or concept areas the Company is beginning to install within retail stores.
During the First Quarter of 1997, net cash provided by operating
activities was $159,000, compared to $233,000 in the First Quarter of 1996. In
the First Quarter of 1997, the decrease in cash provided by operations
primarily resulted from an increase in net sales, reduction in inventory
levels, and increases in accounts payable and accrued expenses. cash provided
by operations was partially offset by increases in non-factored receivables
and prepaid expenses.
During the First Quarter of 1997, the net cash used in investing
activities was $30,000, compared to $8,000 in the First Quarter of 1996. The
cash used in the First Quarter of 1997 was primarily for the deposit on the
development of concept shops and/or concept areas to be installed in retail
stores in May 1997. In the First Quarter of 1996, the cash was used to
purchase property and equipment and was also attributable to the costs
associated with the registration of several trademarks in the United States
and foreign countries.
During the First Quarter of 1997, the cash used in financing activities
was $150,000, compared to $270,000 in the First Quarter of 1996. During the
First Quarter of 1997, the Company received net proceeds from the bridge
financing of $1,290,000 which was offset by a net increasein the amounts
due from the factor of $1,098,000 and deferred costs
associated with the bridge financing and IPO of $200,000. In addition,
the Company paid $142,000 in notes payable and short-term loans payable.
During the First Quarter of 1996, the cash used in financing activities
resulted from a net decrease of $193,000 in the amounts due to factor
and from payments of $77,000 in notes payable.
Factoring Agreement: The Company is party to a Retail Collection
Factoring Agreement ("Factoring Agreement") with Heller Financial ("Heller")
pursuant to which the Company sells all of its eligible accounts receivable to
Heller. The Company may take advances from Heller, at Heller's discretion, for
up to 80% of the net balance due on eligible accounts receivable. At March 31,
1997, there was approximately $347,000 due from Heller under the Factoring
Agreement and approximately $1,560,000 in factored receivables. Interest on
net amount due to Heller is payable monthly in arrears at the rate of 2% above
the Chase Manhattan Bank, N.A. prime rate ("Prime"). Interest on the working
net receivable from Heller is payable monthly in arrears at the rate of 2%
below Prime.
Bridge Financing: In January 1997, the Company received funds from its
bridge financing. In the first quarter of 1997, these funds were used for the
hiring of key personnel, the initial stages of the development of concept shops
and/or concept areas to be installed within retail stores, and the payment of
expenses in connection with the IPO.
9
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Initial Public Offering: In May 1997, the Company completed its IPO. The
IPO consisted of 1,500,000 units each of which consisted of one share of the
Company's common stock and one IPO Warrant. Each unit was priced at $5.00 per
share resulting in net proceeds of approximately $6,500,000, after deducting
underwriting discounts, commissions, and underwriting related expenses. The net
proceeds from the IPO were used to repay the bridge financing, the notes
payable, and the short-term loan payable. The remaining proceeds are intended
to be used for marketing and advertising purposes, the installation of concept
shops and/or concept areas, and for working capital and general corporate
purposes.
The foregoing contains forward-looking statements concerning, among
other things, the Company's expected future revenues and operations and
expenditures. All such forward-looking statements are necessarily only
estimates of future results and the actual results achieved by the Company may
differ materially from these projections.
10
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item no. Description
-------- -----------
1.1 Underwriting Agreement by and between the Company and
GKN Securities Corp. dated May 15, 1997.
10.21 Lease Agreement by and between the Company and John R.
Perlman, et al., dated as of May 5, 1997.
27 Financial Data Schedule.
11
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 30, 1997
PIVOT RULES, INC.
/s/ E. Kenneth Seiff
------------------------------
E. Kenneth Seiff
President and Chief Executive Officer
/s/ Meena N. Bhatia
------------------------------
Meena N. Bhatia
Chief Financial Officer
12
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UNDERWRITING AGREEMENT
BETWEEN
PIVOT RULES, INC.
AND
GKN SECURITIES CORP.
DATED: MAY 15, 1997
<PAGE>
TABLE OF CONTENTS
Page
INDEX OF DEFINITIONS....................................................... v
1. Purchase and Sale of Securities........................................ 1
1.1 Firm Units....................................................... 1
1.1.1 Purchase of Firm Units................................... 1
1.1.2 Payment and Delivery..................................... 1
1.2 Over-Allotment Option............................................ 2
1.2.1 Option Units............................................. 2
1.2.2 Exercise of Option....................................... 2
1.2.3 Payment and Delivery..................................... 2
1.3 Unit Purchase Option............................................. 3
1.3.1 Purchase Option.......................................... 3
1.3.2 Payment and Delivery..................................... 3
2. Representations and Warranties of the Company.......................... 3
2.1 Filing of Registration Statement................................. 3
2.1.1 Pursuant to the Act...................................... 3
2.1.2 Pursuant to the Exchange Act............................. 3
2.2 No Stop Orders, Etc.............................................. 3
2.3 Disclosures in Registration Statement............................ 4
2.3.1 Securities Act and Exchange Act Representation........... 4
2.3.2 Disclosure of Contracts.................................. 4
2.3.3 Prior Securities Transactions............................ 5
2.4 Changes After Dates in Registration Statement.................... 5
2.4.1 No Material Adverse Change............................... 5
2.4.2 Recent Securities Transactions, Etc...................... 5
2.5 Independent Accountants.......................................... 5
2.6 Financial Statements............................................. 5
2.7 Authorized Capital; Options; Etc................................. 5
2.8 Valid Issuance of Securities; Etc................................ 6
2.8.1 Outstanding Securities................................... 6
2.8.2 Securities Sold Pursuant to this Agreement............... 6
2.9 Registration Rights of Third Parties............................. 7
2.10 Validity and Binding Effect of Agreements........................ 7
2.11 No Conflicts, Etc................................................ 7
2.12 No Defaults; Violations.......................................... 7
2.13 Corporate Power; Licenses; Consents.............................. 8
2.13.1 Conduct of Business...................................... 8
2.13.2 Transactions Contemplated Herein......................... 8
2.14 Title to Property; Insurance..................................... 8
2.15 Litigation; Governmental Proceedings............................. 8
2.16 Good Standing.................................................... 8
2.17 Taxes............................................................ 9
2.18 Employees' Options............................................... 9
2.19 Transactions Affecting Disclosure to NASD........................ 9
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Page
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2.19.1 Finder's Fees............................................ 9
2.19.2 Payments Within Twelve Months............................ 9
2.19.3 Use of Proceeds.......................................... 9
2.19.4 Insiders' NASD Affiliation............................... 9
2.20 Foreign Corrupt Practices Act.................................... 10
2.21 Nasdaq and The Boston Stock Exchange Eligibility................. 10
2.22 Intangibles...................................................... 10
2.23 Relations With Employees......................................... 10
2.23.1 Employee Matters......................................... 10
2.23.2 Employee Benefit Plans................................... 11
2.24 Officers' Certificate............................................ 11
2.25 Warrant Agreement................................................ 11
2.26 Agreements With Insiders......................................... 11
2.26.1 Lock-Up Agreements....................................... 11
2.26.2 Insider Sales............................................ 12
2.27 Subsidiaries..................................................... 12
3. Covenants of the Company............................................... 12
3.1 Amendments to Registration Statement............................. 12
3.2 Federal Securities Laws.......................................... 12
3.2.1 Compliance............................................... 12
3.2.2 Filing of Final Prospectus............................... 12
3.2.3 Exchange Act Registration................................ 12
3.3 Blue Sky Filing.................................................. 12
3.4 Delivery to the Underwriters of Prospectuses..................... 13
3.5 Events Requiring Notice to the Representative.................... 13
3.6 Review of Financial Statements................................... 13
3.7 Reserved......................................................... 13
3.8 Secondary Market Trading and Standard & Poor's................... 13
3.9 Nasdaq and BSE Maintenance; De-listing of Units.................. 13
3.10 Warrant Solicitation and Registration of Common Stock Underlying
the Warrants..................................................... 14
3.10.1 Warrant Solicitation and Representative Warrant
Solicitation Fees........................................ 14
3.10.2 Registration of Common Stock............................. 14
3.11 Reserved......................................................... 14
3.12 Reports to the Representative and Others......................... 14
3.12.1 Periodic Reports, Etc.................................... 14
3.12.2 Transfer Sheets and Weekly Position Listings............. 15
3.12.3 Secondary Market Trading Memorandum...................... 15
3.13 Unit Purchase Option............................................. 15
3.14 Disqualification of Form SB-2.................................... 15
3.15 Payment of Expenses.............................................. 15
3.15.1 General Expenses......................................... 15
3.15.2 Non-Accountable Expenses................................. 16
3.16 Application of Net Proceeds...................................... 16
3.17 Delivery of Earnings Statements to Security Holders.............. 16
3.18 Key Person Life Insurance........................................ 17
ii
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Page
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3.19 Stabilization.................................................... 17
3.20 Internal Controls................................................ 17
3.21 Accountants and Lawyers.......................................... 17
3.22 Transfer Agent................................................... 17
3.23 Sale of Securities............................................... 17
3.24 Exercise Price of Options........................................ 17
4. Conditions of the Underwriters' Obligations............................ 17
4.1 Regulatory Matters............................................... 18
4.1.1 Effectiveness of Registration Statement.................. 18
4.1.2 NASD Clearance........................................... 18
4.1.3 No Blue Sky Stop Orders.................................. 18
4.2 Company Counsel Matters.......................................... 18
4.2.1 Effective Date Opinion of Counsel........................ 18
4.2.2 Opinions of Intellectual Property Counsel................ 22
4.2.3 Closing Date and Option Closing Date Opinions of Counsel. 22
4.2.4 Reliance................................................. 22
4.2.5 Secondary Market Trading Memorandum...................... 22
4.3 Cold Comfort Letter.............................................. 22
4.4 Officers' Certificates........................................... 23
4.4.1 Officers' Certificate.................................... 23
4.4.2 Secretary's Certificate.................................. 24
4.5 No Material Changes.............................................. 24
4.6 Delivery of Unit Purchase Option................................. 24
4.7 Opinion of Counsel for the Representative........................ 25
4.8 Unaudited Financials............................................. 25
5. Indemnification........................................................ 25
5.1 Indemnification of the Underwriters.............................. 25
5.1.1 General.................................................. 25
5.1.2 Procedure................................................ 26
5.2 Indemnification of the Company................................... 26
5.3 Contribution..................................................... 26
5.3.1 Contribution Rights...................................... 26
5.3.2 Contribution Procedure................................... 27
6. Default by an Underwriter.............................................. 27
6.1 Default Not Exceeding 10% of Firm Units.......................... 27
6.2 Default Exceeding 10% of Firm Units.............................. 27
6.3 Postponement of Closing Date..................................... 28
7. Additional Covenants................................................... 28
7.1 Board Designee................................................... 28
7.2 Insider Sales.................................................... 28
7.3 Press Releases................................................... 29
7.4 Form S-8 or any Similar Form..................................... 29
7.5 Compensation and Other Arrangements.............................. 29
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Page
----
8. Representations and Agreements to Survive Delivery..................... 29
9. Effective Date of This Agreement and Termination Thereof............... 29
9.1 Effective Date................................................... 29
9.2 Termination...................................................... 29
9.3 Notice........................................................... 30
9.4 Expenses......................................................... 30
9.5 Indemnification.................................................. 30
10. Miscellaneous.......................................................... 30
10.1 Notices.......................................................... 30
10.2 Headings......................................................... 31
10.3 Amendment........................................................ 31
10.4 Entire Agreement................................................. 31
10.5 Binding Effect................................................... 31
10.6 Governing Law, Jurisdiction...................................... 31
10.7 Execution in Counterparts........................................ 31
10.8 Waiver, Etc...................................................... 31
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INDEX OF DEFINITIONS
--------------------
Term Section
- ---- -------
1% or Greater Holders....................................................2.26.1
Act...................................................................... 2.1.1
BSE........................................................................2.21
Closing Date..............................................................1.1.2
Code.....................................................................2.23.2
Commission................................................................2.1.1
Common Stock..............................................................1.1.1
Company..................................................Introductory Paragraph
Effective Date............................................................1.2.2
ERISA....................................................................2.23.2
ERISA Plans..............................................................2.23.2
Exchange Act..............................................................2.1.2
Filing Date..............................................................2.19.2
Firm Units................................................................1.1.1
Insiders.................................................................2.26.1
Intangibles................................................................2.22
NASD.....................................................................2.19.1
Nasdaq.....................................................................2.21
Option Closing Date.......................................................1.2.2
Option Securities.........................................................1.2.1
Over-allotment Option.....................................................1.2.1
Preliminary Prospectus....................................................2.1.1
Prospectus................................................................2.1.1
Public Securities.........................................................1.2.1
Registration Statement....................................................2.1.1
Regulations...............................................................2.1.1
Representative...........................................Introductory Paragraph
SAS.........................................................................4.3
Secondary Market Trading Memorandum......................................3.12.3
Securities................................................................1.3.1
Transfer Agent.............................................................3.22
Unaudited Financials........................................................4.8
Underwriters.............................................Introductory Paragraph
Underwriters' Securities..................................................1.3.1
Underwriters' Warrants....................................................1.3.1
Unit Purchase Option......................................................1.3.1
Warrant(s)................................................................1.1.1
Warrant Agreement..........................................................2.25
v
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PIVOT RULES, INC.
1,500,000 Units
UNDERWRITING AGREEMENT
----------------------
New York, New York
May 15, 1997
GKN Securities Corp.
61 Broadway
12th Floor
New York, New York 10006
Ladies and Gentlemen:
The undersigned, Pivot Rules, Inc., a New York corporation
("Company"), hereby confirms its agreement with GKN Securities Corp. (being
referred to herein variously as the "Representative" or "you") and the other
underwriters named on Schedule 1 hereto (the Representative and the other
underwriters being collectively called the "Underwriters" or, individually, an
"Underwriter") as follows:
1. Purchase and Sale of Securities.
1.1 Firm Units.
1.1.1 Purchase of Firm Units. On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell, severally and not jointly, to the
several Underwriters 1,500,000 units ("Firm Units") for a purchase price (net
of commissions) of $4.50 per Firm Unit. Each Firm Unit consists of one share of
the Company's Common Stock, par value $.01 per share ("Common Stock") , and one
Redeemable Common Stock Purchase Warrant ("Warrant(s)"). The shares of Common
Stock and the Warrants included in the Firm Units will not be detachable or
separately transferable, and may be traded only as Units, until three months
from the date hereof or such earlier date as you may determine. Each Warrant
entitles its holder to purchase one share of Common Stock at an initial
purchase price of $5.00 per share commencing one year after the Effective Date
(as hereinafter defined) until the fifth anniversary of the Effective Date. The
Underwriters, severally and not jointly, agree to purchase from the Company the
number of Firm Units set forth opposite their respective names on Schedule I
attached hereto and made a part hereof at a purchase price of $4.50 per Unit.
1.1.2 Payment and Delivery. Delivery and payment for the Firm Units
shall be made at 10:00 A.M., New York time, on or before the third business day
following the date that the Firm Units commence trading or at such earlier time
as the Representative shall determine, or at such other time as shall be agreed
upon by the Representative and the Company at the offices of the Representative
or at such other place as shall be agreed upon by the Representative and the
Company. The hour and date of delivery and payment for the Firm Units are
called the "Closing Date." Payment for the Firm Units shall be made on the
Closing Date at the Representative's election by wire transfer or by certified
or bank cashier's check(s) in New
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York Clearing House funds, payable to the order of the Company upon delivery to
you of certificates (in form and substance satisfactory to the Representative)
representing the Firm Units for the account of the respective accounts of the
Underwriters. The Firm Units shall be registered in such name or names and in
such authorized denominations as the Representative may request in writing at
least two full business days prior to the Closing Date. The Company will permit
the Representative to examine and package the Firm Units for delivery at least
one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Units except upon tender of payment by
the Underwriters for all the Firm Units.
1.2 Over-Allotment Option.
1.2.1 Option Units. For the purposes of covering any over-allotments
in connection with the distribution and sale of the Firm Units, the
Underwriters are hereby granted an option to purchase up to an additional
225,000 Units ("Option Units") from the Company ("Over-allotment Option"). Each
Option Unit is identical to a Firm Unit. The Firm Units and the Option Units
are, together with the shares of Common Stock issuable upon exercise of the
Warrants, hereinafter referred to collectively as the "Public Securities." The
purchase price to be paid for the Option Units will be the same price per
Option Unit as the price per Firm Unit set forth in Section 1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option granted pursuant
to Section 1.2.1 hereof may be exercised by the Representative on behalf of the
Underwriters as to all or any part of the Option Units at any time, from time
to time, but not more than twice, within forty-five days after the effective
date ("Effective Date") of the Registration Statement (as hereinafter defined).
The Underwriters will not be under any obligation to purchase any Option Units
prior to the exercise of the Over-allotment Option. The Over-allotment Option
granted hereby may be exercised by the giving of oral notice to the Company
from the Representative, which must be confirmed by a letter or telecopy
setting forth the number of Option Units to be purchased, the date and time for
delivery of and payment for the Option Units and stating that the Option Units
referred to therein are to be used for the purpose of covering over-allotments
in connection with the distribution and sale of the Firm Units. If such notice
is given at least two full business days prior to the Closing Date, the date
set forth therein for such delivery and payment will be the Closing Date. If
such notice is given thereafter, the date set forth therein for such delivery
and payment will not be earlier than five full business days after the date of
the notice, unless we mutually agree to an earlier date. If such delivery and
payment for the Option Units does not occur on the Closing Date, the date and
time of the closing for such Option Units will be as set forth in the notice
(hereinafter "Option Closing Date"). Upon exercise of the Over-allotment
Option, the Company will become obligated to convey to the Underwriters, and,
subject to the terms and conditions set forth herein, the Underwriters will
become obligated to purchase, the number of Option Units specified in such
notice.
1.2.3 Payment and Delivery. Payment for the Option Units will be at
the Representative's election by wire transfer or by certified or bank
cashier's check(s) in New York Clearing House funds, payable to the order of
the Company at the offices of the Representative or at such other place as
shall be agreed upon by the Representative and the Company upon delivery to the
Representative of certificates representing such securities for the respective
accounts of the Underwriters. The certificates representing the Option Units to
be delivered will be in such denominations and registered in such names as the
Representative requests not less than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be, and will be made
available to the Representative for inspection, checking and packaging at
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the aforesaid office of the Company's transfer agent or correspondent not less
than one full business day prior to such Closing Date.
1.3 Unit Purchase Option.
1.3.1 Purchase Option. The Company hereby agrees to issue and sell to
the Underwriters (and/or their designees) on the Closing Date, for an aggregate
purchase price of $100, an option ("Unit Purchase Option") exercisable, at any
time, in whole or in part, for a period of four years commencing one year from
the Effective Date, for the purchase of an aggregate of 150,000 Units
("Underwriters' Units") at an initial exercise price of 160% of the initial
offering price of a Unit (i.e., $8.00 per Unit). The Underwriters' Units are
identical to the Firm Units. The Unit Purchase Option, the Underwriters' Units,
the Warrants underlying the Underwriters' Units ("Underwriters' Warrants"), the
shares of Common Stock issuable upon exercise of the Unit Purchase Option and
the shares of Common Stock issuable upon exercise of the Underwriters' Warrants
are hereinafter referred to collectively as the "Underwriters' Securities." The
Public Securities and the Underwriters' Securities are hereinafter referred to
collectively as the "Securities."
1.3.2 Payment and Delivery. Delivery and payment for the Unit Purchase
Option shall be made on the Closing Date. The Company shall deliver to the
Underwriters, upon payment therefor, certificates for the Unit Purchase Option
in the name or names and in such authorized denominations as the Representative
may request.
2. Representations and Warranties of the Company. The Company represents and
warrants to the Representative as follows:
2.1 Filing of Registration Statement.
2.1.1 Pursuant to the Act. The Company has filed with the Securities
and Exchange Commission ("Commission") a registration statement and an
amendment or amendments thereto, on Form SB-2 (No. 333-22895), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Securities under the Securities Act of 1933, as amended ("Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act and the rules and
regulations ("Regulations") of the Commission under the Act. Except as the
context may otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Regulations), is hereinafter called the "Registration
Statement," and the form of the final prospectus dated the Effective Date (or,
if applicable, the form of final prospectus filed with the Commission pursuant
to Rule 424 of the Regulations), is hereinafter called the "Prospectus." The
Registration Statement has been declared effective by the Commission on the
date hereof.
2.1.2 Pursuant to the Exchange Act. The Company has filed with the
Commission a registration statement on Form 8-A (No. 000-22415), as amended,
providing for the registration under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), of the Units, the Common Stock and the Warrants. Such
registration of the Units, Common Stock and Warrants has been declared
effective by the Commission on the date thereof.
3
<PAGE>
2.2 No Stop Orders, Etc. Neither the Commission nor, to the best of
the Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has
instituted or, to the best of the Company's knowledge, threatened to institute
any proceedings with respect to such an order.
2.3 Disclosures in Registration Statement.
2.3.1 Securities Act and Exchange Act Representation. At the time the
Registration Statement became effective and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus and any amendment or supplement
thereto contained and will contain all material statements which are required
to be stated therein in accordance with the Act and the Regulations, and
conformed and will conform in all material respects to the requirements of the
Act and the Regulations; neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, during such time period and on such
dates, contained or will contain any untrue statement of a material fact or
omitted or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, nor did they or
will they contain any untrue statement of a material fact nor did they or will
they omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. When any Preliminary Prospectus was first filed with
the Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and did not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The representation and warranty made in this Section 2.3.1 does
not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to
the Underwriters by the Representative expressly for use in the Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
2.3.2 Disclosure of Contracts. The description in the Registration
Statement and the Prospectus of contracts and other documents is accurate in
all material respects and presents fairly the information required to be
disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement which have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and (i) which is referred to in the Prospectus,
or (ii) is material to the Company's business, has been duly and validly
executed, is in full force and effect in all material respects and is
enforceable against the Company and, to the Company's knowledge, the other
parties thereto in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, as enforceability of any indemnification provision
may be limited under the federal and state securities laws, and that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. None of such contracts or
instruments has been assigned by the Company, and neither the Company nor, to
the best of the Company's knowledge, any other party is in default thereunder
4
<PAGE>
and, to the best of the Company's knowledge, no event has occurred which, with
the lapse of time or the giving of notice, or both, would constitute a default
thereunder. To the best of the Company's knowledge, none of the material
provisions of such contracts or instruments violates or will result in a
violation of any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company
or any of its assets or businesses, including, without limitation, those
relating to environmental laws and regulations.
2.3.3 Prior Securities Transactions. No securities of the Company have
been sold by the Company or by or on behalf of, or for the benefit of, any
person or persons controlling, controlled by, or under common control with the
Company within the three years prior to the date hereof, except as disclosed in
the Registration Statement.
2.4 Changes After Dates in Registration Statement.
2.4.1 No Material Adverse Change. Since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or in the results of
operations, business or business prospects of the Company, including, but not
limited to, a material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
whether or not arising in the ordinary course of business, and (ii) there have
been no transactions entered into by the Company, other than those in the
ordinary course of business, which are material with respect to the condition,
financial or otherwise, or to the results of operations, business or business
prospects of the Company.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred
any liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect
to its capital stock.
2.5 Independent Accountants. Grant Thornton LLP, whose report is filed
with the Commission as part of the Registration Statement, are independent
accountants as required by the Act and the Regulations.
2.6 Financial Statements. The financial statements, including the
notes thereto and supporting schedules included in the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company at the dates and for the periods to which they apply;
and such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved; and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The pro forma
financial information set forth in the Registration Statement reflects all
significant assumptions and adjustments relating to the business and operations
of the Company.
2.7 Authorized Capital; Options; Etc. The Company had at the date or dates
indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in "Capitalization" in the Registration Statement
and the Prospectus. Based on the assumptions
5
<PAGE>
and adjustments stated in the Registration Statement and the Prospectus, the
Company will have on the Closing Date the adjusted stock capitalization set
forth in "Capitalization." Except as set forth in the Registration Statement
and the Prospectus, on the Effective Date and on the Closing Date there will be
no options, warrants, or other rights to purchase or otherwise acquire any
authorized but unissued shares of Common Stock of the Company, including any
obligations to issue any shares pursuant to anti-dilution provisions, or any
security convertible into shares of Common Stock of the Company, or any
contracts or commitments to issue or sell shares of Common Stock or any such
options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
2.8.1 Outstanding Securities. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders (except to the extent that certain shareholders of the Company may be
liable for employee wages or salaries pursuant to Section 630 of the Business
Corporation Law of the State of New York ("BCL"); and none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company.
The outstanding options and warrants to purchase shares of Common Stock
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms, except (i) as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may
be limited under the federal and state securities laws, and (iii) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to the equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought. The authorized
Common Stock and outstanding options and warrants to purchase shares of Common
Stock conform in all material respects to all statements relating thereto
contained in the Registration Statement and the Prospectus. The offers and
sales of the outstanding Common Stock, options and warrants to purchase shares
of Common Stock were at all relevant times either registered or qualified under
the Act and the applicable state securities or Blue Sky Laws or exempt from
such registration requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities have
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders (except to the
extent that certain shareholders of the Company may be liable for employee
wages or salaries pursuant to Section 630 of the BCL; the Securities are not
and will not be subject to the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company; and all
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. When issued, the Unit
Purchase Option, the Underwriters' Warrants and the Warrants will constitute
valid and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the Company
called for thereby and the Unit Purchase Option, the Underwriters' Warrants and
the Warrants will be enforceable against the Company in accordance with their
respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may
be limited under the federal and state securities laws, and (iii) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to the equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
6
<PAGE>
2.9 Registration Rights of Third Parties. Except as set forth in the
Prospectus, no holders of any securities of the Company or of any options or
warrants of the Company exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company to register any
such securities of the Company under the Act or to include any such securities
in a registration statement to be filed by the Company.
2.10 Validity and Binding Effect of Agreements. This Agreement, the Unit
Purchase Option and the Warrant Agreement (as hereinafter defined) have been
duly and validly authorized by the Company, and constitute, or when executed
and delivered, will constitute, the valid and binding agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by the
Company of this Agreement, the Unit Purchase Option, and the Warrant Agreement,
the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms hereof and
thereof do not and will not, with or without the giving of notice or the lapse
of time or both, (i) result in a breach of, or conflict with any of the terms
and provisions of, or constitute a default under, or result in the creation,
modification, termination or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other material
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company
is subject; (ii) result in any violation of the provisions of the Certificate
of Incorporation or the By-Laws of the Company; (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business; or (iv) have any material adverse effect on
any permit, license, certificate, registration, approval, consent, license or
franchise necessary for the Company to own or lease and operate any of its
properties or to conduct its business.
2.12 No Defaults; Violations. Except as described in the Prospectus, no
default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of
trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the properties or assets of the Company is subject, except
where such default, singly or in the aggregate, would not have a material
adverse effect on the financial position, prospects, value or the operation of
the properties or the business of the Company, taken as a whole. The Company is
not in violation of any term or provision of its Certificate of Incorporation
or By-Laws or in violation of any franchise, license, permit, applicable law,
rule, regulation, judgment or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, except as described in the Prospectus and except where
such violation, singly or in the aggregate, would not have a material adverse
effect on the financial position, prospects, value or the operation of the
properties or the business of the Company, taken as a whole.
7
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2.13 Corporate Power; Licenses; Consents.
2.13.1 Conduct of Business. The Company has all requisite corporate
power and authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies to own or lease its properties and conduct its business as
described in the Prospectus, except for those which, if not obtained, would
not, singly or in the aggregate, have a material adverse effect on the Company.
The Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local rules and regulations, except where non-compliance
would not, singly or in the aggregate, have a material adverse effect on the
Company. The disclosures in the Registration Statement concerning the effects
of federal, state and local regulation on the Company's business as currently
contemplated are correct in all material respects.
2.13.2 Transactions Contemplated Herein. The Company has all corporate
power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery, of the
Securities pursuant to this Agreement, the Warrant Agreement and the Unit
Purchase Option, and as contemplated by the Prospectus, except with respect to
applicable federal and state securities laws.
2.14 Title to Property; Insurance. The Company has good and defensible
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable or arising by law.
The Company has insured its properties against loss or damage by fire or other
casualty and maintains such insurance in adequate amounts.
2.15 Litigation; Governmental Proceedings. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the best of
the Company's knowledge, threatened against, or involving the properties or
business of, the Company which might materially and adversely affect the
financial position, prospects, value or the operation of the properties or the
business of the Company, or which questions the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to, or in connection with, this Agreement. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal, domestic or foreign, naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, its properties or business is bound or subject.
2.16 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of the state
of its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have
a material adverse effect on its properties or business.
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2.17 Taxes. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof. The Company has paid
all taxes (as hereinafter defined) shown as due on such returns that were filed
and has paid all taxes imposed on or assessed against the Company. The
provisions for taxes payable, if any, shown on the financial statements filed
with or as part of the Registration Statement are sufficient for all accrued
and unpaid taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in
writing to the Representative, (i) no issues have been raised (and are
currently pending) by any taxing authority in connection with any of the
returns or taxes asserted as due from the Company, and (ii) no waivers of
statutes of limitation with respect to the returns or collection of taxes have
been given by or requested from the Company. The term "taxes" mean all federal,
state, local, foreign, and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments, or charges of any kind whatever, together with any
interest and any penalties, additions to tax, or additional amounts with
respect thereto. The term "returns" means all returns, declarations, reports,
statements, and other documents required to be filed in respect to taxes.
2.18 Employees' Options. No shares of Common Stock are eligible for sale
pursuant to Rule 701 promulgated under the Act.
2.19 Transactions Affecting Disclosure to NASD.
2.19.1 Finder's Fees. There are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's,
consulting or origination fee with respect to the introduction of the Company
to the Underwriters or the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
2.19.2 Payments Within Twelve Months. Other than payments to the
Representative, the Company has not made any direct or indirect payments (in
cash, securities or otherwise) to (i) any person, as a finder's fee, investing
fee or otherwise, in consideration of such person raising capital for the
Company or introducing to the Company persons who provided capital to the
Company, (ii) to any NASD member, or (iii) to any person or entity that has any
direct or indirect affiliation or association with any NASD member within the
twelve month period prior to the date on which the Registration Statement was
filed with the Commission ("Filing Date") or thereafter.
2.19.3 Use of Proceeds. None of the net proceeds of the offering will
be paid by the Company to any participating NASD member or any affiliate or
associate of any NASD member, except as specifically authorized herein.
2.19.4 Insiders' NASD Affiliation. No officer or director of the
Company or, to the Company's knowledge, owner of any of the Company's
unregistered securities has any direct or indirect affiliation or association
with any NASD member, other than Carole Hoffman and Jon Meltzer. The Company
will advise the Representative and the NASD if any stockholder of the Company
becomes, directly or indirectly, an affiliate or associated person of an NASD
member participating in the offering.
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2.20 Foreign Corrupt Practices Act. Neither the Company nor any of its
officers, directors, employees or agents or any other person acting on behalf
of the Company has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
it in connection with any actual or proposed transaction) which (i) is likely
to subject the Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, might
have had a materially adverse effect on the assets, business or operations of
the Company as reflected in any of the financial statements contained in the
Prospectus or (iii) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company. The internal
accounting controls and procedures of the Company are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 Nasdaq and The Boston Stock Exchange Eligibility. As of the Effective
Date, the Public Securities have been approved for designation upon notice of
issuance on the Nasdaq SmallCap Market ("Nasdaq") and for listing on the Boston
Stock Exchange ("BSE").
2.22 Intangibles. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights and other rights (collectively,
"Intangibles") described as being licensed to or owned by it in the
Registration Statement. The Company's Intangibles which have been registered in
the United States Patent and Trademark Office have been fully maintained and
are in full force and effect. There is no claim or action by any person
pertaining to, or proceeding pending or, to the best of the Company's
knowledge, threatened and the Company has not received any notice of conflict
with, the asserted rights of others which challenges the exclusive right of the
Company with respect to any Intangibles used in the conduct of the Company's
business except as described in the Prospectus. To the best of the Company's
knowledge, the Intangibles and the Company's current products, services and
processes do not infringe on any Intangibles held by any third party. Except
for alleged violations and pending claims set forth on Schedule 2.22, to the
best of the Company's knowledge, no others have infringed upon the Intangibles
of the Company.
2.23 Relations With Employees.
2.23.1 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the best of the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state and local laws and regulations. There is no unfair labor practice charge
or complaint against the Company pending before the National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending
or, to the best of the Company's knowledge, threatened against or involving the
Company or any predecessor entity, and none has ever occurred. To the best of
the Company's knowledge, no question con cerning representation exists
respecting the employees of the Company and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
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grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 Employee Benefit Plans. Other than as set forth in the
Registration Statement and on Schedule 2.23.2, the Company neither maintains,
sponsors nor contributes to, nor is it required to contribute to, any program
or arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintain or contribute to, and has at no time maintained or contributed to, a
defined benefit plan, as defined in Section 3(35) of ERISA. If the Company does
maintain or contribute to a defined benefit plan, any termination of the plan
on the date hereof would not give rise to liability under Title IV of ERISA. No
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended ("Code"), which could subject the
Company to any tax penalty for prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multi-employer plan."
2.24 Officers' Certificate. Any certificate signed by the President or the
Chief Financial Officer of the Company and delivered to the Representative or
its counsel shall be deemed a representation and warranty by the Company to the
Representative as to the matters covered thereby.
2.25 Warrant Agreement. The Company has entered into a warrant agreement
with respect to the Warrants and the Underwriters' Warrants substantially in
the form filed as an exhibit to the Registration Statement ("Warrant
Agreement") with American Stock Transfer & Trust Company, in form and substance
satisfactory to the Representative, providing for, among other things, (i) no
redemption of the Warrants without the consent of the Representative and (ii)
the payment of a warrant solicitation fee as contemplated by Section 3.10.1
hereof.
2.26 Agreements With Insiders.
2.26.1 Lock-Up Agreements. The Company has caused to be duly executed
legally binding and enforceable agreements pursuant to which all of the
officers and directors of the Company and all holders ("1% or Greater Holders")
of at least one percent (1%) of the outstanding Common Stock of the Company or
warrants or options to purchase, or other securities convertible into, one
percent (1%) or more of the outstanding Common Stock (including family members
who reside in the same household as such persons and affiliates of such
persons) or any option holder who would have the ability to sell the shares
underlying his options under Rule 701 under the Act ("Insiders") agree not to
sell any shares of Common Stock or warrants or options to purchase, or other
securities convertible into Common Stock, owned by them (either pursuant to
Rule 144 of the Regulations or otherwise) for a period of 24 months following
the Effective Date except with the prior consent of the Representative (and, if
required by applicable state blue sky laws, the securities commissions in any
such states); provided, however, that, with respect to any person who is a 1%
or Greater Holder (who holds no other position with the Company and who does
not reside in the same household as any other Insider), such agreement shall
continue for only 18 months following the Effective Date.
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2.26.2 Insider Sales. The Company has caused to be executed legally
binding and enforceable agreements pursuant to which each of its Insiders has
granted to the Representative the rights described in Section 7.2 of this
Agreement.
2.27 Subsidiaries. The Company has no subsidiaries and has no interest in,
shares of capital stock of or right to acquire an interest in or shares of
capital stock of, any other corporation, limited liability company, partnership
or other entity.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company will deliver to the
Representative, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Representative
shall reasonably object.
3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when a Prospectus is required to be
delivered under the Act, the Company will use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to
time in force, so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus. If at any time when a Prospectus relating to the Securities is
required to be delivered under the Act any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Representative, the Prospectus, as then amended or supplemented, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission, subject to Section 3.1 hereof, an appropriate amendment or
supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will file the Prospectus
(in form and substance satisfactory to the Representative) with the Commission
pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years from the
Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and Warrants under the provisions of Section
12 of the Exchange Act.
3.3 Blue Sky Filing. The Company will endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Representative may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representative agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may be
required by the laws of such jurisdiction.
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3.4 Delivery to the Underwriters of Prospectuses. The Company will deliver
to each of the several Underwriters, without charge, from time to time during
the period when the Prospectus is required to be delivered under the Act or the
Exchange Act, such number of copies of each Preliminary Prospectus and the
Prospectus as such Underwriter may reasonably request and, as soon as the
Registration Statement or any amendment or supplement thereto becomes
effective, deliver to you two original executed Registration Statements,
including exhibits, and all post-effective amendments thereto and copies of all
exhibits filed therewith or incorporated therein by reference and all original
executed consents of certified experts.
3.5 Events Requiring Notice to the Representative. The Company will notify
the Representative immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Securities for offering or sale in any jurisdiction or of
the initiation, or the threatening, of any proceeding for that purpose, (iv) of
the mailing and delivery to the Commission for filing of any amendment or
supplement to the Registration Statement or Prospectus, (v) of the receipt of
any comments or request for any additional information from the Commission, and
(vi) of the happening of any event during the period described in Section 3.4
hereof which, in the judgment of the Company, makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of five years from the
Effective Date, the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to participate in the preparation and
presentation (but not audit) of the Company's financial statements for each of
the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's Form 10-QSB quarterly
reports and the mailing of quarterly financial information to stockholders.
3.7 Reserved.
3.8 Secondary Market Trading and Standard & Poor's. The Company will take
all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (within thirty
(30) days after the Effective Date) and to maintain such publication with
updated quarterly information for a period of five years from the Effective
Date, including the payment of any necessary fees and expenses. The Company
shall take such action as may be reasonably requested by the Representative to
obtain a secondary market trading exemption in such states as may be requested
by the Underwriter, including the payment of any necessary fees and expenses
and the filing of a Form (e.g. 25101(b)) for secondary market trading in the
State of California on the Effective Date or as soon thereafter as is
permissible.
3.9 Nasdaq and BSE Maintenance; De-listing of Units. For a period of five
years from the date hereof, the Company will use its best efforts to maintain
the quotation on Nasdaq and the listing on the BSE of the Units, Common Stock
and Warrants and, if the Company satisfies the inclusion standards of the
Nasdaq National Market System, apply for and maintain quotations on the Nasdaq
National Market System of such securities during such period. Upon request by
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the Underwriter, the Company agrees to take immediately all actions necessary
to de-list the Units from Nasdaq and/or the BSE, provided that at such time the
Common Stock and Warrants are permitted to trade separately.
3.10 Warrant Solicitation and Registration of Common Stock Underlying the
Warrants.
3.10.1 Warrant Solicitation and Representative Warrant Solicitation
Fees. The Company hereby engages the Representative, on a non-exclusive basis,
as its agent for the solicitation of the exercise of the Warrants. The Company,
at its cost, will (i) assist the Representative with respect to such
solicitation, if requested by the Representative and will (ii) provide to the
Representative, and direct the Company's transfer and warrant agent to provide
to the Representative, lists of the record and, to the extent known, beneficial
owners of the Company's Warrants. Commencing one year from the Effective Date,
the Company will pay to the Representative a commission of five percent of the
Warrant exercise price for each Warrant exercised, payable on the date of such
exercise, on the terms provided for in the Warrant Agreement, if allowed under
the rules and regulations of the NASD and only if the Representative has
provided bona fide services to the Company in connection with the exercise of
Warrants and has received written confirmation from the holder that the
Representative has solicited such exercise. In addition to soliciting, either
orally or in writing, the exercise of Warrants, such services may also include
disseminating information, either orally or in writing, to Warrantholders about
the Company or the market for the Company's securities, and the assisting in
the processing of the exercise of Warrants. The Representative may engage
sub-agents who are members of the NASD in its solicitation efforts, provided,
however, nothing herein shall obligate the Company to make any payment to any
such sub-agent. The Company will disclose the arrangement to pay such
solicitation fees to the Representative in any prospectus used by the Company
in connection with the registration of the shares of Common Stock underlying
the Warrants. The Company shall not be obligated to reimburse the
Representative for any of its expenses incurred in connection with such
solicitation.
3.10.2 Registration of Common Stock. The Company agrees that prior to
the date that the Warrants become exercisable, it shall file with the
Commission a post-effective amendment to the Registration Statement, if
possible, or a new registration statement, to register, under the Act, and it
shall take such action as is necessary to qualify for sale, in those states in
which the Warrants were initially offered by the Company, the Common Stock
issuable upon exercise of the Warrants. In either case, the Company shall cause
the same to become effective at or prior to the date that the Warrants become
exercisable, and maintain the effectiveness of such registration statement and
keep current a prospectus thereunder and maintain such qualification until the
expiration of the Warrants in accordance with the provisions of the Warrant
Agreement. The provisions of this Section 3.10.2 may not be modified, amended
or deleted without the prior written consent of the Representative.
3.11 Reserved.
3.12 Reports to the Representative and Others.
3.12.1 Periodic Reports, Etc. For a period of five years from the
Effective Date, the Company will promptly furnish to the Representative, and to
each other Underwriter who may so request, copies of such financial statements
and other periodic and special reports as the Company from time to time files
with any governmental authority or furnishes generally to holders of any class
of its securities, and promptly furnish to the Representative (i) a copy of
each periodic report the Company shall be required to file with the Commission,
(ii) a copy of every
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press release with respect to the Company or its affairs which was released by
the Company, (iii) copies of each Form SR, or (iv) a copy of each Form 8-K or
Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company.
3.12.2 Transfer Sheets and Weekly Position Listings. For a period of
five years from the Closing Date, the Company will furnish to the
Representative at the Company's sole expense such transfer sheets and position
listings of the Company's securities as the Representative may reasonably
request, including the daily, weekly and monthly consolidated transfer sheets
of the transfer agent of the Company and the weekly position listings of the
Depository Trust Company.
3.12.3 Secondary Market Trading Memorandum. Until such time as the
Securities are listed or quoted, as the case may be, on one of the following:
the New York Stock Exchange, the American Stock Exchange or Nasdaq National
Market, the Company shall engage the Representative's legal counsel to deliver
to the Representative a written opinion detailing those states in which
Securities may be traded in non-issuer transactions under the Blue Sky laws of
the fifty states ("Secondary Market Trading Memorandum") and to update such
memorandum and deliver same to the Representative on a timely basis, but in any
event on the Effective Date, and on the first day of every calendar quarter
thereafter. The Company shall pay to the Representative's legal counsel a
one-time fee of $5,000 for such services at the Closing.
3.13 Unit Purchase Option. On the Closing Date, the Company will execute
and deliver the Unit Purchase Option to the Representative substantially in the
form filed as an exhibit to the Registration Statement.
3.14 Disqualification of Form SB-2. For a period equal to five years from
the date hereof, the Company will not take any action or actions which may
prevent or disqualify the Company's use of Form SB-2 (or other appropriate
form) for the registration of the Warrants and the Unit Purchase Option and the
securities issuable upon exercise of those securities under the Act.
3.15 Payment of Expenses.
3.15.1 General Expenses. The Company hereby agrees to pay on each of
the Closing Date and, to the extent not paid at Closing Date, the Option
Closing Date, if any, all expenses incident to the performance of the
obligations of the Company under this Agreement, including but not limited to
(i) the preparation, printing, filing, delivery and mailing (including the
payment of postage with respect to such mailing) of the Registration Statement,
the Prospectus and the Preliminary Prospectuses and the printing and mailing of
this Agreement and related documents, including the cost of all copies thereof
and any amendments thereof or supplements thereto supplied to the Underwriters
in quantities as may be reasonably required by the Underwriters, (ii) the
printing, engraving, issuance and delivery of the Units, the shares of Common
Stock and the Warrants included in the Units and the Unit Purchase Option,
including any transfer or other taxes payable thereon, (iii) the qualification
of the Securities under state or foreign securities or Blue Sky laws, including
the filing fees under such Blue Sky laws, the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," and all amendments and supplements thereto,
fees up to an aggregate of $35,000 and disbursements of the Representative's
counsel, and a one-time fee of $5,000 payable to the Representative's counsel
for the preparation of the Secondary Market Trading Memorandum, (iv) costs
associated with applications for assignments of a rating of the Securities by
qualified rating agencies, (v) filing fees, costs and expenses (including fees
up to an aggregate of $5,000 and disbursements for
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the Representative's counsel) incurred in registering the offering with the
NASD, (vi) costs up to an aggregate of $30,000 of placing "tombstone"
advertisements in The Wall Street Journal, The New York Times and a third
publication to be mutually selected by the Representative and the Company,
(vii) fees and disbursements of the transfer and warrant agent, (viii) the
Company's expenses associated with "due diligence" meetings arranged by the
Representative; (ix) the preparation, binding and delivery of transaction
"bibles" in quantity, form and style reasonably satisfactory to the
Representative and transaction lucite cubes or similar commemorative items in a
style and quantity as reasonably requested by the Representative, (x) any
listing of the Securities on Nasdaq SmallCap, and any securities exchange or
any listing in Standard & Poor's, (xi) fees and disbursements of any counsel
engaged to review the Company's intellectual property rights, and (xii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section
3.15.1. Since an important part of the public offering process is for the
Company to describe appropriately and accurately the background of the
principals of the Company, the Company has engaged and will pay for an
investigative search firm of the Representative's choice to conduct an
investigation of principals of the Company mutually selected by the
Representative and the Company. The Representative may deduct from the net
proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein to be paid by the
Company to the Representative and/or to third parties.
3.15.2 Non-Accountable Expenses. The Company further agrees that, in
addition to the expenses payable pursuant to Section 3.15.1, it will pay to the
Representative a non-accountable expense allowance equal to three percent (3%)
of the gross proceeds received by the Company from the sale of the Securities,
of which $50,000 has been paid to date, and the Company will pay the balance on
the Closing Date and any additional monies owed attributable to the Option
Securities or otherwise on the Option Closing Date by certified or bank
cashier's check or, at the election of the Representative, by deduction from
the proceeds of the offering contemplated herein. If the offering contemplated
by this Agreement is not consummated for any reason whatsoever other than a
breach by the Representative of this Agreement, then the following provisions
shall apply: The Company's liability for payment to the Representative of the
non-accountable expense allowance shall be equal to the sum of the
Representative's actual out-of-pocket expenses (including, but not limited to,
counsel fees, "road-show" and due diligence expenses. The Representative shall
retain such part of the non-accountable expense allowance previously paid as
shall equal such actual out-of-pocket expenses. If the amount previously paid
is insufficient to cover such actual out-of-pocket expenses, the Company shall
remain liable for and promptly pay any other actual out-of-pocket expenses. If
the amount previously paid exceeds the amount of actual out-of-pocket expenses,
the Representative shall promptly remit to the Company any such excess.
3.16 Application of Net Proceeds. The Company will apply the net proceeds
from the offering received by it in a manner consistent in all material
respects with the application described under the caption "USE OF PROCEEDS" in
the Prospectus. The Company hereby agrees that, except as so described, the
Company will not apply any net proceeds from the offering to pay (i) any debt
for borrowed funds, or (ii) any debt or obligation owed to any Insider.
3.17 Delivery of Earnings Statements to Security Holders. The Company will
make generally available to its security holders as soon as practicable, but
not later than the first day of the fifteenth full calendar month following the
Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under
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Section 11(a) of the Act) covering a period of at least twelve consecutive
months beginning after the Effective Date.
3.18 Key Person Life Insurance. The Company will maintain key person life
insurance in an amount not less than $1,200,000 on the life of E. Kenneth Seiff
and pay the annual premiums therefor naming the Company as the sole beneficiary
thereof for at least three years following the Effective Date.
3.19 Stabilization. Neither the Company, nor, to its knowledge, any of its
employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
3.20 Internal Controls. The Company maintains and will continue to maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
3.21 Accountants and Lawyers. For a period of five years from the Effective
Date, the Company shall retain independent public accountants and securities
lawyers acceptable to the Representative. Accountants Grant Thornton LLP, and
lawyers Shereff, Friedman, Hoffman & Goodman, LLP, are acceptable to the
Representative.
3.22 Transfer Agent. For a period ending at the earlier of (i) the five
year anniversary of the Effective Date or (ii) the redemption of the Warrants,
the Company shall retain a transfer agent for the Common Stock and Warrants
acceptable to the Representative. American Stock Transfer & Trust Company
("Transfer Agent") is acceptable to the Representative.
3.23 Sale of Securities. The Company agrees not to permit or cause a
private or public sale or private or public offering (except for such private
transfers as are permitted under the terms of the lockup agreements executed by
the Insiders prior to the date hereof) of any of its securities (in any manner,
including pursuant to Rule 144 under the Act) owned nominally or beneficially
by the Insiders for a period of 24 months following the Effective Date without
obtaining the prior written approval of the Underwriter; provided, however,
that with respect to any person who is a 1% or Greater Holder (who holds no
other position with the Company and who does not reside in the same household
as any other Insider), the Company shall refuse to permit or cause any such
sale or offering for only 18 months following the Effective Date.
3.24 Exercise Price of Options. For a period of three years after the
Effective Date, the Company will not grant any option pursuant to the Company's
1997 Stock Option Plan at an exercise price less than the greater of $5.00 per
share or the fair market value of the Common Stock on the date of the grant.
4. Conditions of the Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the Securities, as provided herein, shall
be subject to the continuing accuracy of the representations and warranties of
the Company as of the date hereof and as of
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each of the Closing Date and the Option Closing Date, if any, to the accuracy
of the statements of officers of the Company made pursuant to the provisions
hereof and to the performance by the Company of its obligations hereunder and
to the following conditions:
4.1 Regulatory Matters.
4.1.1 Effectiveness of Registration Statement. The Registration
Statement has been declared effective on the date of this Agreement and, at
each of the Closing Date and the Option Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for such purpose shall have been instituted or shall be pending or,
to the best knowledge of the Company, contemplated by the Commission and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Graubard Mollen & Miller,
counsel to the Representative.
4.1.2 NASD Clearance. By the Effective Date, the Representative shall
have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration
Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of the
Securities in any jurisdiction designated by the Representative pursuant to
Section 3.3 hereof shall have been issued on either on the Closing Date or the
Option Closing Date, and no proceedings for that purpose shall have been
instituted or, to the best knowledge of the Company, shall be contemplated.
4.2 Company Counsel Matters.
4.2.1 Effective Date Opinion of Counsel. On the Effective Date, the
Representative shall have received the favorable opinion of Shereff, Friedman,
Hoffman & Goodman, LLP, counsel to the Company, dated the Effective Date,
addressed to the Representative and in form and substance satisfactory to
Graubard Mollen & Miller, counsel to the Representative, to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation and is in good standing under the laws of the State of New
York and in good standing in each jurisdiction in which it owns or leases any
real property or the character of its operations requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business of the Company.
(ii) The Company has all requisite corporate power and
authority, and, to the best of such counsel's knowledge, has all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental or regulatory officials and bodies to own or lease its
properties and conduct its business as described in the Prospectus, and, to the
best of such counsel's knowledge, the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates and permits, except where the failure to obtain or to comply would
not have a material adverse effect on the Company. The Company has all
corporate power and authority to enter into this Agreement, the Warrant
Agreement and the Unit Purchase Option and to carry out the provisions and
conditions hereof, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained, except where the failure
to obtain such consents, authorizations, approvals and orders would not have a
material adverse effect on the Company. No consents, approvals, authorizations
or orders of, and no filing with, any court or governmental agency or body
(other
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than such as may be required under the Act and applicable Blue Sky laws), is
required for the valid offer, authorization, issuance, sale and delivery of the
Securities, and the consummation of the transactions and agreements
contemplated by this Agreement, the Warrant Agreement and the Unit Purchase
Option, and as contemplated by the Prospectus or if so required, all such
authorizations, approvals, consents, orders, registrations, licenses and
permits have been duly obtained and are in full force and effect and have been
disclosed to the Representative.
(iii) All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof are not subject to personal liability by reason of being
such holders (except to the extent that certain shareholders of the Company may
be liable for employee wages or salaries pursuant to Section 630 of the BCL);
and none of such securities were issued in violation of statutory preemptive
rights of any holders of any security of the Company or, to the best of such
counsel's knowledge, similar contractual rights granted by the Company. The
outstanding options and warrants to purchase shares of Common Stock known to
such counsel to be outstanding constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws and public policy, and (c) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to the equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The authorized and, to such counsel's
knowledge, outstanding capital stock of the Company is as set forth under the
caption "Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when issued
and paid for, will be validly issued, fully paid and non-assessable; the
holders thereof are not and will not be subject to personal liability by reason
of being such holders (except to the extent that certain shareholders of the
Company may be liable for employee wages or salaries pursuant to Section 630 of
the BCL). The Securities are not and will not be subject to the statutory
preemptive rights of any holders of any security of the Company or, to the best
of such counsel's knowledge, similar contractual rights granted by the Company.
All corporate action required to be taken for the authorization, issuance and
sale of the Securities has been duly and validly taken. When issued, the Unit
Purchase Option, the Underwriters' Warrants and the Warrants will constitute
valid and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor as provided therein, the number and type of
securities of the Company called for thereby and such Warrants, the Unit
Purchase Option, and the Underwriters' Warrants, when issued, in each case,
will be enforceable against the Company in accordance with their respective
terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification and contribution
provisions may be limited under the federal and state securities laws and
public policy, and (c) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to the equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought. The forms of certificates representing the Securities are in due and
proper form under New York corporate law.
(v) To the best of such counsel's knowledge, except as set forth
in the Prospectus, no holders of any securities of the Company or of any
options, warrants or securities of the Company exercisable for or convertible
or exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company.
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(vi) To the best of such counsel's knowledge, the Units, the
shares of Common Stock and the Warrants are eligible for quotation on the
Nasdaq SmallCap Market and have been approved for quotation on the BSE.
(vii) This Agreement has been duly and validly authorized and,
assuming the due and valid authorization, execution and delivery of such
agreement by the Representative, will constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification and contribution
provisions may be limited under the federal and state securities laws and
public policy, and (c) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to the equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought.
(viii) The execution, delivery and performance by the Company of
this Agreement, the Unit Purchase Option and the Warrant Agreement, the
issuance and sale of the Securities, the consummation of the transactions
contemplated hereby and thereby and the compliance by the Company with the
terms and provisions hereof and thereof, do not and will not, with or without
the giving of notice or the lapse of time, or both, (a) conflict with, or
result in a breach of, any of the terms or provisions of, or constitute a
default under, or result in the creation or modification of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to the terms of, any material mortgage, deed of trust, note,
indenture, loan, contract, commitment or other material agreement or instrument
to which the Company is a party or by which the Company or any of its
properties or assets is bound, except for such breaches, defaults, liens,
security interests, charges or encumbrances as would not have a material
adverse effect on the Company, (b) result in any violation of the provisions of
the Certificate of Incorporation or the By-Laws of the Company, (c) violate any
judgment, order or decree of which such counsel has knowledge, statute, rule or
regulation applicable to the Company of any court, domestic or foreign, or of
any federal, state or other regulatory authority or other governmental body
having jurisdiction over the Company, its properties or assets except where
such violation would not have a material adverse effect on the Company, or (d)
have a material adverse effect on any permit, certification, registration,
approval, consent, license or franchise of the Company.
(ix) The Registration Statement, each Preliminary Prospectus and
the Prospectus and any post-effective amendments or supplements thereto (other
than the financial statements and other financial data included therein, as to
which no opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and Regulations. The Securities and all other
securities issued or issuable by the Company conform in all material respects
to the description thereof contained in the Registration Statement and the
Prospectus. The statements in the Prospectus under "Risk Factors," "Business,"
"Management," "Certain Transactions," "Principal Shareholders," "Description of
Securities" and "Shares Eligible for Future Sale" have been reviewed by such
counsel, and insofar as they contain descriptions of law, statutes, licenses,
rules or regulations are correct in all material respects. No statute or
regulation or legal or governmental proceeding required to be described in the
Prospectus is not described as required, nor are any contracts or documents of
which such counsel has knowledge of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement not so described or filed as required.
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(x) The Registration Statement is effective under the Act, and,
to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the
Act or applicable state securities laws.
(xi) Except as described in the Prospectus, to the best of such
counsel's knowledge, no default exists in the due performance and observance of
any term, covenant or condition of any material license, contract, indenture,
mortgage, deed of trust, note, loan or credit agreement, commitment, or any
other material agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of its properties or assets is
subject, except such defaults which, singly or in the aggregate, would not have
a material adverse effect on the Company. The Company is not in violation of
any term or provision of its Certificate of Incorporation or, to the best of
such counsel's knowledge, its By-Laws. To the best of such counsel's knowledge,
the Company is not in violation of any judgment, order or decree of which such
counsel has knowledge, franchise, license, permit, law, rule or regulation
applicable to the Company, of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
business, except where such violations, singly or in the aggregate, would not
have a material adverse effect on the Company.
(xii) To the best of such counsel's knowledge, except as
described in the Prospectus, the Company does not own an interest in any
corporation, partnership, joint venture, trust or other business entity.
(xiii) To the best of such counsel's knowledge, except as set
forth in the Prospectus, there is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending or
threatened against the Company, which would reasonably be expected to have a
material adverse effect on the business, properties or financial condition of
the Company.
(xiv) The Company is not, and upon consummation of the
transactions contemplated by this Agreement will not be, an "investment
company" within the meaning of Section 3 of the Investment Company Act of 1940,
as amended.
Counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Underwriters at which
the contents of the Registration Statement, the Prospectus and related matters
were discussed and although such counsel is not passing upon, and does not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus (except as
otherwise set forth in counsel's opinion), subject to the qualification that as
to determination of materiality of any factual matters, such counsel may rely,
where such counsel concludes that such reliance is justifiable, on the views of
the Chief Executive Officer of the Company, no facts have come to the attention
of such counsel which lead them to believe that either the Registration
Statement or the Prospectus or any amendment or supplement thereto contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and other financial and statistical data contained in or
omitted from the Registration Statement or Prospectus).
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The opinion of counsel for the Company and any opinion relied upon by
such counsel for the Company shall include a statement to the effect that it
may be relied upon by counsel for the Representative in its opinion delivered
to the Representative.
4.2.2 Opinions of Intellectual Property Counsel. On the Effective
Date, the Representative also shall have received the opinions of Alston & Bird
LLP, intellectual property counsel to the Company for trademark matters, and
Lerner, David, Littenberg, Krumholz & Mentlik, intellectual property counsel to
the Company for patent matters, addressed to the Representative and in the
forms attached hereto as Exhibits A and B, respectively.
4.2.3 Closing Date and Option Closing Date Opinions of Counsel. On
each of the Closing Date and the Option Closing Date, if any, the
Representative shall have received the favorable opinions of Shereff, Friedman,
Hoffman & Goodman, LLP, counsel to the Company, Alston & Bird LLP, intellectual
property counsel to the Company for trademark matters, and Lerner, David,
Littenberg, Krumholz & Mentlik, intellectual property counsel to the Company
for patent matters, dated the Closing Date or the Option Closing Date, as the
case may be, addressed to the Representative and in form and substance
satisfactory to Graubard Mollen & Miller, counsel to the Representative,
confirming as of the Closing Date and, if applicable, the Option Closing Date,
the statements made by Shereff, Friedman, Hoffman & Goodman, LLP, Alston & Bird
LLP and Lerner, David, Littenberg, Krumholz & Mentlik in their respective
opinions delivered on the Effective Date.
4.2.4 Reliance. In rendering such opinions, such counsel may rely (i)
as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinions, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory to
Representative's counsel) of other counsel reasonably acceptable to
Representative's counsel, familiar with the applicable laws, and (ii) as to
matters of fact, to the extent they deem proper, on certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Representative's counsel if requested. Any opinion relied upon by
counsel for the Company shall include a statement to the effect that it may be
relied upon by counsel for the Representative in its opinion delivered to the
Representative.
4.2.5 Secondary Market Trading Memorandum. On the Effective Date the
Representative shall have received the written Secondary Market Trading
Memorandum.
4.3 Cold Comfort Letter. At the time this Agreement is executed, and at
each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Representative and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to Graubard
Mollen & Miller, counsel for the Representative, from Grant Thornton LLP,
dated, respectively, as of the date of this Agreement and as of the Closing
Date and the Option Closing Date, if any:
(i) confirming that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable
Regulations;
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(ii) stating that in their opinion the financial statements of
the Company included in the Registration Statement and Prospectus comply as to
form in all material respects with the applicable accounting requirements of
the Act and the published Regulations thereunder;
(iii) stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a
review of the latest available unaudited interim financial statements of the
Company (as described in Statement on Auditing Standards ("SAS") No. 71 --
"Interim Financial Information"), with an indication of the date of the latest
available unaudited interim financial statements, a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that (a) the unaudited financial statements of
the Company included in the Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of the Act
and the Regulations or any material modification should be made to the
unaudited interim financial statements included in the Registration Statement
for them to be in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, (b) at a date
not later than five days prior to the Effective Date, Closing Date or Option
Closing Date, as the case may be, there was any change in the capital stock or
long-term debt of the Company, or any decrease in the shareholders' equity of
the Company as compared with amounts shown in the December 31, 1996 balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any decrease,
setting forth the amount of such decrease, and (c) during the period from
December 31, 1996 to a specified date not later than five days prior to the
Effective Date, Closing Date or Option Closing Date, as the case may be, there
was any decrease in revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period in the preceding
year and as compared with the corresponding period in the preceding quarter,
other than as set forth in or contemplated by the Registration Statement, or,
if there was any such decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, and work
sheets, of the Company with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement;
(v) statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
4.4.1 Officers' Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the President and the Chief Financial
Officer of the Company, dated the Closing Date or the Option Closing Date, as
the case may be, respectively, to the effect that the Company has performed all
covenants and complied with all conditions required by this Agreement to be
performed or
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complied with by the Company prior to and as of the Closing Date, or the Option
Closing Date, as the case may be, and that the conditions set forth in Section
4.5 hereof have been satisfied as of such date and that, as of Closing Date and
the Option Closing Date, as the case may be, the representations and warranties
of the Company set forth in Section 2 hereof are true and correct. In addition,
the Representative will have received such other and further certificates of
officers of the Company as the Representative may reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the By-Laws and Certificate of Incorporation, as amended, of the
Company are true and complete, have not been modified and are in full force and
effect, (ii) that the resolutions relating to the public offering contemplated
by this Agreement are in full force and effect and have not been modified,
(iii) all correspondence between the Company or its counsel and the Commission,
(iv) all correspondence between the Company or its counsel and the NASD
concerning inclusion of the Securities on Nasdaq, (v) all correspondence
between the Company or its counsel and the BSE concerning listing on the BSE,
and (vi) as to the incumbency of the officers of the Company. The documents
referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and the
Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company, taken as a whole, (iii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness which default would have a material adverse effect on the Company,
(iv) no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus,
(v) no action suit or proceeding, at law or in equity, shall have been pending
or threatened against the Company or affecting any of its property or business
before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations
and conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.6 Delivery of Unit Purchase Option. The Company has delivered to the
Representative an executed copy of the Unit Purchase Option.
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4.7 Opinion of Counsel for the Representative. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to Graubard Mollen & Miller, counsel to the Representative, and you shall have
received from such counsel a favorable opinion, dated the Closing Date and the
Option Closing Date, if any, with respect to such of these proceedings as you
may reasonably require. On or prior to the Effective Date, the Closing Date and
the Option Closing Date, as the case may be, counsel to the Representative
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
4.8 Unaudited Financials. The Company has furnished to the Representative a
copy of the latest available unaudited interim financial statements for the
quarter ended March 31, 1997 ("Unaudited Financials") of the Company which have
been read by the Company's independent accountants, as stated in their letter
dated as of the Closing Date to be furnished pursuant to Section 4.3 hereof.
5. Indemnification.
5.1 Indemnification of the Underwriters.
5.1.1 General. Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each of the Underwriters, their
respective directors, officers, agents and employees and each person, if any,
who controls any such Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all
loss, liability, claim, damage and expense whatsoever (including but not
limited to any and all legal or other expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, whether arising out of any action between any of the Underwriters
and the Company or between any of the Underwriters and any third-party or
otherwise) to which they or any of them may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact directly relating to the
transactions effected by the Underwriters in connection with this offering
contained in (i) any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time each may be amended and supplemented); (ii) in
any post-effective amendment or amendments or any new registration statement
and prospectus in which are included securities of the Company issued or
issuable upon exercise of the Unit Purchase Option; or (iii) any application or
other document or written communication (in this Section 5 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to an Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof,
or in any application, as the case may be; provided, further, that the
indemnification hereunder shall not be applicable to any Preliminary Prospectus
if the untrue statement or alleged untrue statement was contained in a
Preliminary Prospectus and was
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corrected in the Prospectus. The Company agrees promptly to notify the
Representative of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the
Registration Statement or Prospectus.
5.1.2 Procedure. If any action is brought against an Underwriter or
controlling person in respect of which indemnity may be sought against the
Company pursuant to Section 5.1.1, such Underwriter shall promptly notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and fees of counsel
(subject to the approval of such Underwriter) and payment of actual expenses.
Underwriter or controlling person shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall
be at the expense of such Underwriter or such controlling person unless (i) the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action, or (ii) the Company shall not
have employed counsel to have charge of the defense of such action, or (iii)
such indemnified party or parties shall have reasonably concluded that there
may be defenses available to it or them which are different from or additional
to those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys selected by the Underwriter and/or controlling
person shall be borne by the Company. Notwithstanding anything to the contrary
contained herein, if an Underwriter or controlling person shall assume the
defense of such action as provided above, the Company shall have the right to
approve the terms of any settlement of such action which approval shall not be
unreasonably withheld.
5.2 Indemnification of the Company. Each Underwriter, severally and not
jointly, agrees to indemnify and hold harmless the Company against any and all
loss, liability, claim, damage and expense described in the foregoing indemnity
from the Company to the several Underwriters, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions by the Underwriters made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
in any application in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to such Underwriter by or on
behalf of such Underwriter expressly for use in such Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement thereto
or in any such application. In case any action shall be brought against the
Company or any other person so indemnified based on any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment or supplement thereto
or any application, and in respect of which indemnity may be sought against any
Underwriter, such Underwriter shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the several Underwriters by the provisions of
Section 5.1.2.
5.3 Contribution.
5.3.1 Contribution Rights. In order to provide for just and equitable
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Section 5 makes claim for indemnification pursuant
hereto but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 5
provides for indemnification in such case, or (ii) contribution under the Act,
the Exchange Act or otherwise may be required on the part of any
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such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses
of the nature contemplated by said indemnity agreement incurred by the Company
and the Underwriters, as incurred, in such proportions that the Underwriters
are responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus bears to
the initial offering price appearing thereon and the Company is responsible for
the balance; provided, that, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 5.3, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section, each director, officer and employee of an Underwriter, and each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the Act, shall have the same rights to contribution as such Underwriter, and
each director, officer and employee of the Company, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act, shall
have the same rights to contribution as the Company.
5.3.2 Contribution Procedure. Within fifteen days after receipt by any
party to this Agreement (or its representative) of notice of the commencement
of any action, suit or proceeding, such party will, if a claim for contribution
in respect thereof is to be made against another party ("contributing party"),
notify the contributing party of the commencement thereof, but the omission to
so notify the contributing party will not relieve it from any liability which
it may have to any other party other than for contribution hereunder. In case
any such action, suit or proceeding is brought against any party, and such
party notifies a contributing party or its representative of the commencement
thereof within the aforesaid fifteen days, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution on
account of any settlement of any claim, action or proceeding which was effected
by the party seeking contribution without the written consent of the
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to
contribution under the Act, the Exchange Act or otherwise available.
6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Units. If any Underwriter or
Underwriters shall default in its or their obligations to purchase the Firm
Units or the Option Units if exercised, hereunder, and if the number of the
Firm Units with respect to which such default relates does not exceed in the
aggregate 10% of the number of Firm Units or Option Units which all
Underwriters have agreed to purchase hereunder, then such Firm Units or Option
Units to which the default relates shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Units. In the event that such default
relates to more than 10% of the Firm Units or Option Units, you may in your
discretion arrange for yourself or for another party or parties to purchase
such Firm Units or Option Units to which such default relates on the terms
contained herein. If within one business day after such default relating to
more than 10% of the Firm Units or Option Units you do not arrange for the
purchase of such
27
<PAGE>
Firm Units or Option Units, then the Company shall be entitled to a further
period of one business day within which to procure another party or parties
satisfactory to you to purchase said Firm Units or Option Units on such terms.
In the event that neither you nor the Company arrange for the purchase of the
Firm Units or Option Units to which a default relates as provided in this
Section 6, this Agreement may be terminated by you or the Company without
liability on the part of the Company (except as provided in Section 3.15 and
Sections 5.1 hereof) or the several Underwriters; provided, however, that if
such default occurs with respect to the Option Units, this Agreement will not
terminate as to the Firm Units, and provided further that nothing herein shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for damages occasioned by its default
hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Units or
Option Units to which the default relates are to be purchased by the
non-defaulting Underwriters, or are to be purchased by another party or parties
as aforesaid, you or the Company shall have the right to postpone the Closing
Date or Option Closing Date for a reasonable period, but not in any event
exceeding five business days, in order to effect whatever changes may thereby
be made necessary in the Registration Statement or the Prospectus or in any
other documents and arrangements, and the Company agrees to file promptly any
amendment to the Registration Statement or the Prospectus which in the opinion
of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 6 with like effect as if it had originally been a party to
this Agreement with respect to such Securities.
7. Additional Covenants.
7.1 Board Designee. For a period of four years from the Effective Date, the
Company will elect a designee of the Representative (reasonably acceptable to
the Company) as a member of the Board of Directors of the Company. Such
designee shall receive no more or less compensation than is paid to other
non-management directors of the Company. If the Representative does not
exercise its option to designate a member of the Company's Board of Directors,
the Representative shall nevertheless have the right to send a representative
(who need not be the same individual from meeting to meeting) to observe each
meeting of the Board of Directors. Such person, whether a member of the Board
of Directors or a representative, shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings, including, but
not limited to, food, lodging and transportation. The Company agrees to give
the Representative written notice of each such meeting and to provide the
Representative with an agenda of the meeting no later than it gives such notice
and provides such agenda to the other directors.
7.2 Insider Sales. During the four year period following the Effective
Date, the Representative shall have the right to purchase for the
Representative's account or to sell for the account of the Insiders any
securities sold on any United States securities market or exchange, including,
but not limited to, open market sales or sales pursuant to Rule 144 under the
Act. Each of the Insiders will agree to consult with the Representative with
regard to any such sales and will offer the Representative the exclusive
opportunity to purchase or sell such securities on terms at least as favorable
to the Insiders as they can secure elsewhere. If the Representative fails to
accept in writing any such proposal for sale by the Insiders within one
business day after receipt of a notice containing such proposal, then the
Representative shall have no claim or right with respect to any such sales
contained in any such notice. If, thereafter, such proposal is modified in any
material respect, the Insiders shall adopt the same procedures as with respect
to the original proposal.
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<PAGE>
7.3 Press Releases. The Company will not issue a press release or engage
in any other publicity out of the ordinary course until 25 days after the
Effective Date without the Representative's prior written consent unless
required by law.
7.4 Form S-8 or any Similar Form. The Company shall not file a
Registration Statement on Form S-8 (or any similar or successor form) for the
registration of shares of Common Stock underlying stock options for a period of
one year from the Effective Date without the Representative's prior written
consent.
7.5 Compensation and Other Arrangements. The Company hereby agrees that
for a period of three years from the Effective Date, all compensation and other
arrangements between the Company and its officers, directors and affiliates
shall be approved by the Option Plan/Compensation Committee of the Company's
Board of Directors, a majority of the members of which shall have no
affiliation or other relationship with the Company other than as directors.
8. Representations and Agreements to Survive Delivery. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriters and Company, including the indemnity agreements contained in
Section 5 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the several
Underwriters until the earlier of the expiration of any applicable statute of
limitations and the seventh anniversary of the later of the Closing Date or the
Option Closing Date, if any, at which time the representations, warranties and
agreements shall terminate and be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
9.1 Effective Date. This Agreement shall become effective on the Effective
Date at the time that the Registration Statement is declared effective.
9.2 Termination. You shall have the right to terminate this Agreement at
any time prior to any Closing Date, (i) if any domestic or international event
or act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, The Boston Stock Exchange or in the over-the-counter market shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction, or (iii) if the United States shall
have become involved in a war or major hostilities, or (iv) if a banking
moratorium has been declared by a New York State or federal authority, or (v)
if a moratorium on foreign exchange trading has been declared which materially
adversely impacts the United States securities market, or (vi) if the Company
shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether
or not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Securities, or (vii) if E.
Kenneth Seiff shall no longer serve the Company in his present capa city, or
(viii) if the Company has breached any of its representations, warranties or
obligations hereunder, or (ix) if the Representative shall have become aware
after the date hereof of such a material adverse change in the condition
(financial or otherwise), business, or prospects of the
29
<PAGE>
Company, or such adverse material change in general market conditions, as in
the Representative's judgment would make it impracticable to proceed with the
offering, sale and/or delivery of the Securities or to enforce contracts made
by the Underwriters for the sale of the Securities.
9.3 Notice. If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 9, the Company shall
be notified on the same day as such election is made by you by telephone or
telecopy, confirmed by letter.
9.4 Expenses. In the event that this Agreement shall not be carried out for
any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.15 hereof.
9.5 Indemnification. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
10. Miscellaneous.
10.1 Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed
If to the Representative:
GKN Securities Corp.
61 Broadway
12th Floor
New York, New York 10006
Attention: Brian K. Coventry, Vice President
Copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attention: David Alan Miller, Esq.
If to the Company:
Pivot Rules, Inc.
80 West 40th Street
New York, New York 10018
Attention: E. Kenneth Seiff, Chief Executive Officer
30
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Copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9928
Attention: Richard A. Goldberg, Esq.
10.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10.3 Amendment. This Agreement may be amended only by a written instrument
executed by each of the parties hereto.
10.4 Entire Agreement. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject matter hereof.
10.5 Binding Effect. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Representative, the Underwriters, the Company
and the controlling persons, directors and officers referred to in Section 5
hereof, and their respective successors, legal representatives and assigns, and
no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement or
any provisions herein contained.
10.6 Governing Law, Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the law of the State of New York,
without giving effect to conflicts of law. The Company hereby agrees that any
action, proceeding or claim against it arising out of, relating in any way to
this Agreement shall be brought and enforced in the courts of the State of New
York or the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting
a copy thereof by registered or certified mail, return receipt requested,
postage prepaid, addressed to it at the address set forth in Section 10.1
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim. The parties hereto
agree that the prevailing party(ies) in any such action shall be entitled to
recover from the other party(ies) all of its reasonable attorneys' fees and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
10.7 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
10.8 Waiver, Etc. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such
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<PAGE>
provision, nor to in any way affect the validity of this Agreement or any
provision hereof or the right of any of the parties hereto to thereafter
enforce each and every provision of this Agreement. No waiver of any breach,
non-compliance or non-fulfillment of any of the provisions of this Agreement
shall be effective unless set forth in a written instrument executed by the
party or parties against whom or which enforcement of such waiver is sought;
and no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
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If the foregoing correctly sets forth the understanding between the
Representative and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
PIVOT RULES, INC.
By: /s/ E. Kenneth Seiff
--------------------------------
Name: E. Kenneth Seiff
Title: President and Chief
Executive Officer
Accepted as of the date first
above written.
New York, New York
GKN SECURITIES CORP.
By: /s/ Deborah S. Novick
--------------------------
Deborah S. Novick
Title: Vice President
33
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SCHEDULE I
PIVOT RULES, INC.
1,500,000 UNITS
Number of Firm Units
Underwriter to be Purchased
----------- ---------------
GKN Securities Corp. 1,200,000
Rickel & Associates, Inc. 300,000
35
<PAGE>
SCHEDULE 2.22
INTANGIBLES
The Company brought an action against the Wool Bureau, Inc.
(the "Wool Bureau") (a trade association that promotes wool clothing and other
products) on August 28, 1996 in the United States District Court for the
Southern District of New York entitled Pivot Rules, Inc. v. The Wool Bureau,
Inc., 96-CV-6573 (AGS) alleging federal trademark infringement, use of false
designation of origin, false descriptions and false representations, and common
law unfair competition. These claims arise from the Wool Bureau's alleged
infringement of the Company's "The Rules Have Changed" registered trademark,
Certificate of Registration No. 1,718,326. The Wool Bureau answered the
complaint on September 30, 1996, denying the core allegations and asserting
affirmative defenses of failure to state a claim, fair use, mootness, no
likelihood of confusion and weakness and diluteness of trademark.
<PAGE>
SCHEDULE 2.23.2
EMPLOYEE WELFARE BENEFIT PLANS
1. Group Medical Insurance
2. Life insurance provided for the following officers pursuant to
their contracts:
E. Kenneth Seiff Chief Executive Officer
William McLoone Executive V.P. of Sales
David Lewis Vice President of Operations
3. Company Stock Option Plan
<PAGE>
STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, made as of this 12TH day of FEBRUARY 1997, between JOHN R.
PERLMAN, et al party of the first part, hereinafter referred to as LANDLORD,
and PIVOT RULES, INC., a New York Corporation party of the second part,
hereinafter referred to as TENANT,
WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the ENTIRE NINTH (9TH) FLOOR in the building known as 42-52 WEST 39TH
STREET in the Borough of MANHATTAN, City of New York, for the term of ELEVEN
(11) YEARS (or until such term shall sooner cease and expire as hereinafter
provided) to commence on the 1ST day of JUNE nineteen hundred and
NINETY-SEVEN, and to end on the 31ST day of MAY two thousand and EIGHT both
dates inclusive, at an annual rental rate of EIGHTY-ONE THOUSAND ($81,000.)
DOLLARS for the period commencing JUNE 1, 1997 and ending May 31, 2003; and
thereafter at an annual rental rate of NINETY THOUSAND ($90,000.) DOLLARS for
the period commencing JUNE 1, 2003 and ending May 31, 2008 (each being the
base rent for the period involved) 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 Landlord or such other place as Landlord 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 Landlord
pursuant to the terms of another lease with Landlord or with Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice
to Tenant add the amount of such arrearages to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord 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 general and
executive offices, showroom and designing for wearing apparel and for no other
purpose.
ALTERATIONS: 3. Tenant shall make no structural changes in or to the demised
premises of any nature without Landlord's without Landlord's prior written
consent. Subject to the prior written consent of Landlord, 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 Landlord. All fixtures and all paneling, partitions, railings and
like installations, permanently fixed in the premises at any time, either by
Tenant or by Landlord in Tenant's behalf, shall, upon installation, become the
property of Landlord and shall remain upon and be surrendered with the demised
premises unless Landlord, by notice to Tenant no later than twenty days prior
to the date fixed as the termination of this lease, elects to relinquish
Landlord'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 Landlord 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
Landlord. 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 Landlord, either be retained as Landlord's property or may be
removed from the premises by Landlord at Tenant's expense. 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 Landlord and Tenant agrees to carry and
will cause Tenant's contractors and subcontractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Landlord 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 ten
days thereafter at Tenant's expense, by filing the bond required by law.
<PAGE>
REPAIRS: 4. Landlord shall maintain and repair the public portions of the
building including structure and infrastructure both exterior and interior.
Tenant shall, throughout the term of this lease, take good care of the demised
premises and the fixtures and appurtenances therein and at Tenant's sole cost
and expense, make all non-structural repairs thereto as and when needed to
preserve them in good working order and condition, reasonable wear and tear,
obsolescence and damage from the elements, fire or other casualty, excepted.
Notwithstanding the foregoing, all damage or injury to the demised premises or
to any other part of the building, or to its fixtures, equipment and
appurtenances, whether requiring structural or non-structural repairs, caused
by or resulting from carelessness, omission, neglect or improper conduct of
Tenant, Tenant's servants, employees, invitees or licensees, shall be repaired
promptly by Tenant at its sole cost and expense, to the satisfaction of
Landlord reasonably exercised. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesiad repairs shall be of quality or class
equal to the original work or construction. If Tenant fails after ten days
notice to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by the Landlord at the expense of Tenant and the
expenses thereof incurred by Landlord shall be collectible as additional rent
after rendition of a bill or statement thereof. If the demised premises be or
become infested with vermin, Tenant shall at Tenant's expense, cause the same
to be exterminated from time to time to the satisfaction of Landlord. Tenant
shall give Landlord prompt notice of any defective condition in any plumbing,
heating system or electrical lines located in, servicing or passing through
the demised premises and following such notice, Landlord shall remedy the
condition with due diligence but at the expense of Tenant if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesiad. Except as specifically
provided in Article 9 or elsewhere in this lease, there shall be no allowance
to the Tenant for a diminution of rental value and no liability on the part of
Landlord by reason of inconvenience, annoyance or injury to business arising
from Landlord. Tenant or others making or failing to make any repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. The provisions of this Article 4 with respect to the making of
repairs shall not apply in the case of fire or other casualty which are dealt
with in Article 9 hereof.
WINDOW 5. Tenant will not clean nor require, permit, suffer or sallow any
CLEANING window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State Labor Law or any other
applicable law or of the Rules of the Board of Standards and Appeals, or of
any other Board or body having or asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, 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 or any similar body
which shall impose any violation, order or duty upon Landlord or Tenant with
respect to the demised premises arising out of Tenant's use or manner of use
thereof, or with respect to the building if arising out of Tenant's use or
manner of use of the premises or the building (including the use permitted
under the lease). Except as provided in Article 29 hereof, nothing herein
shall require Tenant to make structural repairs or alterations unless Tenant
has by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant may, after securing Landlord to
Landlord's satisfaction against all damages, interest, penalties and expenses,
including, but not limited to reasonable attorneys' fees, by cash deposit or
by surety bond in an amount and in a company satisfactory to Landlord, 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 Landlord to prosecution for a criminal offense
or constitute a default under any lease or mortgage under which Landlord may
be obligated, or cause the demised premises or any part 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 Landlord with respect to the demised
premises or the building of which the demised premises form a part, or which
shall or might subject Landlord to any liability or responsibility to any
person or for property damage, nor shall Tenant keep anything in the demised
premises except as now or hereafter permitted by the Fire Department, Board of
Fire 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
<PAGE>
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 Landlord 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 timer
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Landlord, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Landlord which shall have been charged because of
such failure by Tenant, and shall make such reimbursement upon the first day
of the month following such outlay by Landlord. In any action or proceeding
wherein Landlord 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 of the
several items and charges in the fire insurance rate then applicable to said
premises. Tenant shall not place al 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. Landlord 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 Landlord'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 lessee 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 of good standing
that Landlord may request. See addendum.
PROPERTY - LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: 8. Landlord 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 Landlord, its agents, servants or
employees; nor shall Landlord or its agents 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
Landlord's own acts, Landlord 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 not move any
safe, heavy machinery, heavy, equipment, bulky matter or fixtures into or out
of the building without Landlord'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 Landlord may designate. Tenant shall
indemnify and save harmless Landlord against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Landlord
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
subtenant, and any agent, contractor, employee, invitee or licensee of any
subtenant. In case any action or proceeding is brought against Landlord by
reason of such claim, Tenant, upon written notice from Landlord, will, at
Tenant's expense, resist or defend such action or proceeding by counsel
approved by Landlord 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 Landlord 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
Landlord 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 thence forth
shall cease until the date when the premises shall have been repaired and
restored by Landlord, subject to Landlord's right to elect not to restore the
same as hereinafter provided. (d) If the demised premises are rendered wholly
unusable or (whether or not the demised premises are damaged in whole or in
part) if the building shall be so damaged that Landlord shall decide to
demolish it or to rebuild it, then, in any of such events, Landlord 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
<PAGE>
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 Landlord shall serve a termination
notice as provided for herein, Landlord shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Landlord's control. After any such casualty, Tenant
shall cooperate with Landlord'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 Landlord 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, Landlord 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 and also, provided that such a policy can be obtained
without additional premiums. Tenant acknowledges that Landlord 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
Landlord 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.
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 Landlord in
each instance. If this lease be assigned, or if the demised premises or any
part thereof be underlet or occupied by anybody other than Tenant, Landlord
may, after default by Tenant, collect rent from the assignee, under-tenant or
occupancy, 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
Landlord to an assignment or underletting shall not in any wise be construed
to relieve Tenant from obtaining the express consent in writing of Landlord to
any further assignment or underletting. This Article is modified by Article
#56 & Article #57.
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
Landlord's opinion, reasonably exercised, will overload such installations 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 Landlord
liable or responsible to Tenant, for any loss, damages or expenses which
Tenant may sustain.
ACCESS TO PREMISES: 13. Landlord or Landlord'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 Landlord may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which Landlord may elect to perform following Tenant's failure to
make repairs or perform any work which Tenant is obligated to perform under
this lease, or for the purpose of complying with laws, regulations and other
directions of governmental authorities. Tenant shall permit Landlord to use
and maintain and replace pipes and conduits in and through the demised
premises and to erect new pipes and conduits therein. Landlord may, during
the progress of any work in the demised premises, take all necessary materials
and equipment into said premises without the same constituting an eviction nor
shall the Tenant be entitled to any abatement of rent while such work is in
progress nor to any damages by reason of loss or interruption of business or
otherwise. Throughout the term hereof Landlord shall have the right to enter
the demised premises at reasonable hours for the purpose of showing the same
to prospective purchasers or mortgagees of the building, and during the last
six months of the term for the purpose of showing the same to prospective
tenants and may, during said six months period, place upon the premises the
usual notices "To Let and "For Sale" which notices Tenant shall permit to
remain thereon without molestation. If Tenant is not present to open and
permit an entry into the premises, Landlord or Landlord's agent 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 and such entry shall not render Landlord 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, Landlord 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. Landlord shall have the right at any time without the same
<PAGE>
constituting an eviction and without incurring liability to Tenant therefore
to change the arrangement and/or location of public entrances, passageways,
doors, doorways, corridors, elevators, stairs, toilets, or other public parts
of the building and to change the name, number or designation by which the
building may be known.
See addendum
VAULT, VAULT SPACE AREA: 14. No Vaults, vaulty 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, blueprint or
plan, or anything contained elsewhere in this lease to the contrary
notwithstanding. Landlord 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, Landlord shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall
such renovation, 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 Landlord's
work, if any. In any event, Landlord 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.
SEE ARTICLE #62
<PAGE>
BANKRUPTCY: 16. (a) If at the date fixed as the commencement of the term of
this lease or if at any time during the term hereby demised there shall be
filed by or against Tenant in any court pursuant to any statute either of the
United States or of any state, a petition, in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, and within 60 days thereof, Tenant fails to
secure a dismissal thereof, or if Tenant make an assignment for the benefit of
creditors or petition for or enter into an arrangement, this lease, at the
option of Landlord, exercised within a reasonable time after notice of the
happening of any one or more of such events, may be canceled and terminated by
written notice to the Tenant (but if any of such events occur prior to the
commencement date, this lease shall be ipso facto cancelled and terminated)
and whether such cancellation and termination occur prior to or during the
term, neither Tenant nor any person claiming through or under Tenant by virtue
of any statute or of any order of any court, shall be entitled to possession
or to remain in possession of the premises demised but shall forthwith quit
and surrender the premises, and Landlord, in addition to the other rights and
remedies Landlord has by virtue of any other provision herein or elsewhere in
this lease contained or by virtue of any statute or rule of law, may retain as
liquidated damages, any rent, security deposit or moneys received by him from
Tenant or others in behalf of Tenant. 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, Landlord 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 per cent (4%) per annum. If such premises or
any part thereof be re-let by the Landlord for the unexpired term of said
lease, or any part thereof, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the amount of rent reserved upon
such re-letting 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
Landlord 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 the demised premises
are damaged by reason of negligence or carelessness of Tenant its agents,
employees or invitees; or if any execution or attachment shall be issued
against Tenant or any of Tenant's property whereupon the demised premises
shall be taken or occupied by someone other than Tenant; or if Tenant shall
make default with respect to any other lease between Landlord and Tenant; 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, of which
fact Landlord shall be the sole judge; then, in any one or more of such
events, upon Landlord 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) days 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 Landlord 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 Landlord 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 Landlord 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, Landlord may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF LANDLORD 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, together with such expenses as
Landlord may incur for legal expenses, attorneys' fees, brokerage, and/or
putting the demised premises in good order, or for preparing the same for
re-rental; (b) Landlord may re-let the premises or any part or parts thereof,
either in the name of Landlord or otherwise, for a term or terms, which may at
Landlord'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 Landlord as liquidated
damages for the failure of Tenant to observe and perform said Tenant's
<PAGE>
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 Landlord 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 Landlord may incur in connection with re-letting, such as
legal expense, 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
Landlord to collect the deficiency for any subsequent month by a similar
proceeding. Landlord, in putting the demised premises in good order or
preparing the same for re-rental may, at Landlord's option, make such
alterations, repair, replacements, and/or decorations in the demise premises
as Landlord, in Landlord'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. Landlord
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 Landlord hereunder. In the event
of a breach or threatened breach by Tenant of any of the covenants or
provisions hereof, Landlord 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 particularly remedy, shall not preclude Landlord 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
Landlord 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 of
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,
landlord may immediately or at the time thereafter and without notice perform
the obligation of Tenant thereunder, and if Landlord, in connection therewith
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, such sums so paid or
obligations incurred with interest and costs shall be deemed to be additional
rent hereunder and shall be paid by Tenant to Landlord within five (5) days of
rendition of any bill or statement to Tenant therefore, and 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 Landlord as
damages.
NO REPRESENTATIONS BY LANDLORD 20. Neither Landlord nor Landlord's agents have
made any representations or promises with respect to the physical condition of
the building, the land upon which it is erected or the demised premises, the
rents, leases, expenses of operation or any other matter or thing affecting or
related to the 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 buliding 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
Landlord 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: 21. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Landlord the demised prmises, broom
clean, in good order and condition, ordinary wear 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 of the prceding Saturday unless it be
a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT: 22. Landlord 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 33 hereof and to the ground leases, underlying
leases and mortages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 23. If Landlord is unsable 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 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, Landlord 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 the inability to obtain possession) until after Landlord shal 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: 24. The failure of Landlord to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease
or of any of the Rules or Regulations set forth or hereafter adopted by
Landlord, shall not
<PAGE>
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach and no provision of this Lease
shall be deemed to have been waived by Landlord unless such waiver be in
writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly recent 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 Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this lease provided. No act
or thing done by Landlord or Landlord'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 Landlord.
No employee of Landlord or Landlord's agent shall have any power to accept the
keys of said premises prior to the termination of the lease and the delivery
of keys to any such agent or employee shall not operate as a termination of
the lease or in surrender of the premises.
WAIVER OF TRIAL BY JURY: 25. It is mutually agreed by and between Landlord 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 Landlord and Tenant, and Tenant's use of or
occupancy of said premises, and any emergecny statutory or any other statutory
remedy. It is further mutually agreed that in the event Landlord commences any
summary proceeding for possession of the premises, Tenant will not interpose
any counterclaim of whatever nature or description in any such proceeding.
INABILITY TO PERFORM: 26. ThislLease and the obligation of Tenant to pay rent
hereuder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be afrected, impaired or
excused because Landlord is unable to fulfill any of its obligations under
this lease or to supply or is delayed in supplying any services 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 equiment or fixtures if Landlord is prevented or
delayed from so doing by reason of strike or labor troubles or any cause
whatsoever including, but not limited to, government presumption 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: 27. Execept as otherwise in this lease provided, a bill,
statement, notice or communication which Landlord 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 demeed 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 Landlord must be served by registered or cerfified mail addressed to
Landlord at the address first hereinabove given or at such other address as
Landlord shall designate by written notice.
WATER CHARGES: 28. If Tenant requires, uses or consumes water for any purpose
in addition to ordinary lavatory purposes (of which fact Tenant consituttes
Landlord to be the sole judge) Landlord may install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant shall pay Landlord
for the cost of the meter and the cost of the installation thereof and
throughout the dfuration of Tenant's occupancy Tenant shall keep said meter
and installation eqipment in good working order and repair at Tenant's own
cost and expense in default of which Landlord may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from Tenant.
Tenant agrees to pay for water consumed, as shown on said meter as and when
bills are rendered, and on default in making such payment Landlord may pay
such charges and collect the same from Tenant. Tenant covenants and agrees to
pay the sewer rent, charge or any other tax, rent, levy or charge which now or
hereafter is assessed, imposed or a lien upon the demised premises or the
realty of which they are part purusnat to law, order or regluation made or
issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection or system. The bill
rendered by Landlord shall be payable by Tenant as additionasl rent. If the
building or the demised premises or any part thereof be supplied with water
through a meter through which water is also supplied to other premises Tenant
shall pay to Landlord as additional rent, on the first day of each month, % <-
($20.00) of the total meter charges, as Tenant's portion. Independently of and
in addition to any of the remedies reserved to Landlord hereinabove or
elsewhere in this lease, Landlord may sue for and collect any monies to be
paid by Tenant or paid by Landlord for any of the reasons or puspoes
hereinabove set forth.
See addendum
<PAGE>
SPRINKLERS: 29. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York
Fire Insurance Exchange or any bureau, depart,ent or official of the federal,
state or city government require or recommend the installation of a sprinkler
system or that any changes, modifications, alterations or additional sprinkler
heads or other equipment be made or supplied in an existing spinkler system by
reason of Tenant's business, or the location of partitions, trade fixtures, or
other contents of the demised presmies, or for any other reason, or if any
such sprinkler system installations, changes, modifications, alterations,
additional sprinkler heads or other such equipment, become necessary to
prevent the imposition of a penalty or charge against the full allowance for
a sprinkler system in the fire insurance rate set by any said Exchange or by
any fire insurance company, Tenant shall, at Tenant's expense, promptly make
such sprinkler system installtions, changes, modifications, alterations, and
supply additional sprinkler heads or other euqipment as required whether the
work involved shall be structural or nonstructural in nature. Tenant shall pay
to
-- Landlord as additional rent the sum of $20.00 on the first day of each
month during the term of this lease, as Tenant's portion of the contract
price for sprinkler supervisory service.
ELEVATORS, HEAT, CLEANING: 30. As long as Tenant is not in default under any
of the covenants of this lease Landlord shall: (a) provide necessary elevator
facilities on business days from 7:00a.m. to 10:00 p.m. and on Saturdays from
8:00 a.m. to 6:00 p.m.; (b) furnish heat to the demised presmies when and as
required by law, on business days from 7:00 a.m. to 10:00 p.m. and on
Saturdays from 8:00 a.m. to 6:00 p.m.; (c) at Landlord's expense cause to be
kept clean the public halls and public portions of the bulding, which are used
in common by all tenants. Tenant shall at Tenant's expense, keep the demised
premises clean and in order, to the satisfaction of Landlord, and for that
purpose shall employ the person or persons, or corporation approved by
Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's
refuse and rubbish from the building. Bills for the same shall be rendered by
Landlord to Tenant at such time as Landlord may elect and shall be due and
payable when rendered, and the amount of such bills shall be demeed to be, and
be paid as, additional rent. Tenant shall, however, have the option of
independently contracting for the removal of such rubbish and refuse in the
event that Tenant does not wish to have same done by employees of Landlord.
Under such circumstances, however, the removal of such refuse and rubbish by
others shall be subject to such rules and regulations as, in the judgment of
Landlord, are necessary for the proper operation of the buliding. Landlord
reserves the right to stop service of the heating, elevator, plumbing and
electric systems, when necessary, by reason of accident, or emergency, or for
repairs, alterations, replacements or improvements, in the judgment of
Landlord desirable or necessary to be made, until said repairs, alterations,
replacement or improvements shall have been completed. And Landlord shall have
no responsibility or liability for failure to supply heat, elevator, plumbing
and electric service, during said period or when prevented from so doing by
strikes, accidents or by any cause beyond Landlord's control, or by laws,
orders or regulations of any Federal, State or Municipal Authority, or failure
of coal, oil or other suitable fuel supply, or inability by exercise of
reasonable diligence to obtain coal, oil or other suitable fuel. If the
building of which the demised premises are a part supplies manually operated
elevator service, Landlord may proceed with alterations necessary to
substitute automatic control elevator service upon ten (10) days written
notice to Tenant without in any way affecting the obligations of Tenant
hereunder, provided that the same shall be done with the minimum amount of
inconvenience to Tenant, and Landlord pursues with due diligence the
completion of the alterations.
SECURITY 31. Tenant has deposited with Landlord the sum of $15,080.00 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,
Landlord may use, apply or retain in 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 sum which
Landlord 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 reletting of
the premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Landlord. 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 delivery of entire possession
of the demised premises to Landlord. In the event of a sale of the land and
building or leasing of the building, of which the demised premises form a
part, Landlord shall have the right to transfer the security to the vendee or
lessee and Landlord shall thereupon be released by Tenant from all liability
for the return of said security; and Tenant agrees to look to the new Landlord
solely for the return of said security; and it is agreed that the provisions
hereof shall apply to every transfer or assignment made of the security to a
new Landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
See Article #50
<PAGE>
CAPTIONS: 32. The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provision thereof.
DEFINITIONS: 33. The term "Landlord" 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 said lease, or in the event of a lease of
said building, or of the land and building, the said Landlord shall be and
hereby is entirely freed and relieved of all covenants and obligations of
Landlord 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 Landlord 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 30 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: 34. 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
Landlord, or diminution or abatement of rent.
RULES AND REGULATIONS: 35. Tenant and Tenant's servants, employees, agents,
visitors, and licenses shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Landlord or Landlord's agents may from time to time adopt.
Notice of any additional rules or regulations shall be given in such manner as
Landlord may elect. In case Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter made or adopted by Landlord or
Landlord'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
<PAGE>
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 Landlord within ten
(10) days after the giving of notice thereof. Nothing in this lease contained
shall be construed to impose upon Landlord 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 Landlord shall not be liable to Tenant
for violation of the same by any other tenant, its servants, employees,
agents, visitors or licenses.
GLASS: 36. Landlord shall replace, at the expense of Tenant any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. See Addendum.
SUCCESSORS AND ASSIGNS: 37. The covenants, conditions and agreements contained
and Assigns: shall bind lease shall bind and inure to the benefit of Landlord
and Tenant and their respective heirs, distributees, executors, administrators,
successors, and except as otherwise provided in this lease, their assigns.
Riders containing Articles #38 through #64 inclusive, annexed hereto
and forming part of this lease.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
<TABLE>
<C> <C>
John R. Perleman, et al
Witness for Landlord: By: Adams & Co. Real Estate, Inc., Agent [corporate seal]
/s/ Margaret Campmile By: /s/ Warren Felix
- ---------------------------------- -------------------------------------
Executive Director of Leasing
Pivot Rules, Inc.
Witness for Tenant:
/s/ Stephanie R. Schniebolk By: /s/ E. Kenneth Seiff, Pres. [corporate seal]
- ---------------------------------- -------------------------------------
5/15/97
</TABLE>
I.D. #13-3612110
<PAGE>
<TABLE>
<S><C>
ACKNOWLEDGMENTS
CORPORATE LANDLORD
STATE OF NEW YORK, }
SS.:
COUNTY OF }
ON THIS DAY OF , 19 , before me
personally came ,
to me known, who being by me duly sworn, did depose and say that he resides in
:
that he is the of
the corporation described in and which executed the foregoing instrument, as
LANDLORD; 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.
INDIVIDUAL LANDLORD
STATE OF NEW YORK, }
SS.:
COUNTRY 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, as
LANDLORD, executed the foregoing instrument and acknowledged to me that he
executed the same.
CORPORATE TENANT
STATE OF NEW YORK, }
SS.:
COUNTY OF }
ON THIS DAY OF , 19 , before me
personally came ,
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of
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.
INDIVIDUAL TENANT
STATE OF NEW YORK, }
SS.:
COUNTY OF }
On this day of , 19 , be fore me personally came , to me known and
known to me to be the individual described in and who, as TENANT, executed the
foregoing instrument and acknowledged to me that he executed the same.
</TABLE>
<PAGE>
IMPORTANT -- PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 35.
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 to and
egress from the demised premises and for delivery of merchandise and equipment
in a prompt an efficient manner using elevators and passageways designated for
such delivery by Landlord. 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 side guards if said premises are situate on the ground
floor of the building Tenant thereof shall further, at Tenant's expense, keep
the sidewalks 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 or 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 Landlord 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 Landlord.
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 Landlord, 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, Landlord 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 Landlord at the expense of such Tenant, and shall
be of a size, color and style acceptable to Landlord.
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 Landlord, and as Landlord 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, restor to Landlord 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 Landlord 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 Landlord. Landlord reserves the right
to inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations or the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Landlord,
and at hours and under regulation fixed by Landlord. Canvassing, soliciting
and peddling in the building is prohibited and each Tenant shall co-operate to
prevent the same.
10. Landlord reserves the right to exclude from the building between the hours
of 6 P.M. and 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 Landlord. Landlord
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 Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlord's opinion, tends to impair the reputation of the building
or its desirability as a building for offices, and upon written notice from
Landlord, 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 emate
from the demised premises.
<PAGE>
Address: 42-52 WEST 39TH STREET
Premises: ENTIRE 9TH FLOOR
JOHN R. PERLMAN, et al
TO
PIVOT RULES, INC.
STANDARD FORM OF
LOFT
LEASE
The Real Estate Board of New York, Inc.
(C)Copyright 1973. All Rights Reserved.
Reproduction in whole or in
part prohibited.
Dated February 12, 1997
Rent per Year $81,000.
$90,000.
Rent per Month $6,750.
$7,500.
Term 11 years
From 6/1/97
To 5/31/98
Drawn by mc Checked by
Entered by Approved by
ADAMS
& CO.
REAL ESTATE
INC.
411 FIFTH AVENUE
NEW YORK, N.Y. 10016
(212) 679-5500
<PAGE>
<TABLE>
<S><C>
RIDER AGREEMENT:
TO BE ATTACHED TO AND FORM A PART OF:
LEASE DATED FEBRUARY 12, 1997, PREMISES ENTIRE 9TH FLOOR - 42-52 WEST 39TH STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES as Tenant
ELECTRICITY
(a) Tenant may make its own arrangements with the public utility company
servicing the demised premises for the payment of all charges for electricity
consumed at the demised premises by Tenant. In no event shall Landlord be
responsible for charges for electricity consumed at the demised premises by
Tenant. Notwithstanding the foregoing, if electric current be supplied by
Landlord, which Landlord reserves the right to do at its sole option, Tenant
covenants and agrees to purchase the same from Landlord or Landlord's
designated agent at terms and rates set by Landlord in subparagraph (b) below.
Where more than one meter measures the service of Tenant in the building, the
service rendered through each meter may be computed and billed separately in
accordance with the rates herein. Bills therefor shall be rendered at such
times as Landlord may elect in the amount computed from a meter. In the event
that such bills are not paid within fifteen (15) days after the same are
rendered, Landlord may, without further notice, discontinue the service of
electric current to the demised premises without releasing Tenant from any
liability under this Lease and without Landlord or Landlord's agent incurring
any liability for any damage or loss sustained by Tenant by such
discontinuance of service. Landlord shall not in any wise be liable or
responsible for any loss or damage or expense which Tenant may sustain or
incur if either the quantity or character of electric service is changed or is
no longer available or suitable for Tenant's electrical requirements. Any
riser or risers to supply Tenant's electrical requirements, upon written
request of Tenant, will be installed by Landlord, at the sole cost and expense
of Tenant, if, in Landlord's sole judgment, the same are necessary and will
not cause permanent damage or injury to the building or demised premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb
other tenants or occupants of the building. In addition to the installation of
such riser or risers, Landlord will also at the sole cost and expense of
Tenant, install all other equipment proper and necessary in connection
therewith subject to the aforesaid terms and conditions. Tenant covenants and
agrees that 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 may discontinue any of the aforesaid services upon
thirty (30) days notice to Tenant without being liable to Tenant therefor or
without in any way affecting this lease or the liability of Tenant hereunder
or causing a diminution of rent and the same shall not be deemed to be
lessening or diminution of services within the meaning of any law, rule or
regulation now or hereafter enacted, promulgated or issued. In the event
Landlord gives such notice of discontinuance Landlord shall permit Tenant to
receive such service direct from a public utility company. Tenant shall make
no alteration or addition to the electric equipment and/or appliances without
prior written consent of Landlord in each instance. If any tax is imposed upon
Landlord's receipt from the sale or resale of electrical energy or gas or
telephone service to Tenant by any Federal, State or Municipal Authority,
Tenant covenants and agrees that, where permitted by law, Tenant's pro-rata
share of such taxes shall be passed on to, and included in the bill and paid
by Tenant to Landlord.
(b) The Tenant shall purchase electricity from the Landlord or Landlord's
Agent at a charge which shall be computed by adding 10% to the total of (1)
the meter readings for energy use, the demand, and fuel adjustments under
Consolidated Edison Service classification 4 or like or similar rate by any
other utility company servicing the building, and (2) all taxes imposed on
each of such components plus sales tax. All charges incurred by the Tenant
under this Article shall be additional rent and collectible by the Landlord as
such.
<PAGE>
RIDER AGREEMENT:
TO BE ATTACHED TO AND FORM A PART OF:
LEASE DATED FEBRUARY 12, 1997, PREMISES ENTIRE 9TH FLOOR - 42-52 WEST 39TH STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES as Tenant
38. It is specifically understood and agreed that this lease is offered to the
Tenant for signature by the Managing Agent of the building solely in its
capacity as such Agent and subject to the Landlord's acceptance and approval,
and that the Tenant has hereunto affixed its signature with the understanding
that the said lease shall not in any way bind the Landlord or its Agent until
such time as the Landlord has approved said lease and same is executed and
delivered to the Tenant.
39. The Tenant will indemnify and save harmless the Landlord from and against
any and all liability, penalties, losses, damages, expenses, suits and
judgments arising from injury during the term of this lease to person or
property of any nature, in the building of which the demised premises from a
part from any matter or thing growing out of the use or occupation of the
demised premises and the Tenant agrees throughout the term of this lease to
keep the Landlord insured against General Public Liability in limits of
$1,000,000. per person, $3,000,000. per incident and against Property Damage
in the amount of $500,000. Such policies of insurance and certificates thereof
shall be obtained by the Tenant and delivered to the Landlord showing the
payment of the premium thereon. On the failure of the Tenant to obtain and pay
for such insurance, the Landlord may, but shall not be obligated to, procure
the same and pay the premiums thereon, and the cost thereof shall be added to
the monthly rent next due and shall be collectible as additional rent.
40. Prior to installing new or additional air conditioning unit or units in
the premises, the Tenant shall first obtain the written consent of the
Landlord or its Managing Agent. Tenant shall pay for all electrical current
consumed in the operation thereof. In the event such unit or units utilize
circulating water, it shall be equipped with an approved water conserving
device and in connection therewith, Tenant shall install and maintain in good
working order, at its own cost and expense, a water meter which shall meter
all make-up water used in such air conditioning equipment and shall pay for
such water as per meter reading and in addition thereto, sewerage or any other
charge, tax or levy which now or hereafter is imposed by the City of New York
in connection with said use of water. Any charge for electricity or water
consumed as herein provided, shall be deemed to be additional rent and payable
as such.
41. If the Landlord or any successor in interest be an individual, joint
venture, tenancy in common, co-partnership, unincorporated association, or
other unincorporated aggregate of individuals (all of which are referred to
below, individually and collectively, as an "unincorporated Landlord"), then,
anything elsewhere to the contrary notwithstanding, Tenant shall look solely
to the estate and property of such unincorporated Landlord in the land and
building of which the leased premises are a part, for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
requiring the payment of money by Landlord in the event of any default or
breach by Landlord with respect to any of the terms, covenants and conditions
of the lease to be observed and/or performed by Landlord, and no other
property or assets of such unincorporated Landlord shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies.
42. The provisions of Article #19 of this lease shall apply to any action or
special proceeding the Landlord may institute should the Tenant fail to vacate
the premises at the expiration of the term of this lease.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated FEBRUARY 12, 1997, Premises ENTIRE 9TH FLOOR - 42-52 WEST 39th STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
43. (a) For the purpose of this Article, the term "lease year" shall mean the
period of twelve (12) months commencing with the term commencement date and
ending on the following MAY 31ST and each successive period of twelve (12)
months thereafter during the term. The term "base year" as applied to real
estate taxes, shall mean the City tax year July 1, 1997 to June 30, 1998.
(b) In the event that the real estate taxes payable with respect to
the building and the land on which it is located, during any lease year shall
be greater than the amount of such taxes due and payable during the base year,
whether by reason of an increase in either the tax rate or the assessed
valuation or by reason of the levy, assessment or imposition of any tax on
real estate as such, not now levied, assessed or imposed, or for any other
reason, Tenant shall pay to Landlord, as additional rent for the lease year in
which such increase occurs, an amount equal to 6% of the difference between
the amount of such tax or installment and the corresponding tax or installment
paid during the base year. Such additional rent shall be paid in twelve (12)
equal monthly installments beginning on the first day of the month next
succeeding receipt by the Tenant of a bill therefor. The amount of such taxes
actually paid by Landlord during the base year shall determine the amount of
additional rent payable under this paragraph (b) until, as the result of a
final determination in legal proceedings or otherwise, the amount of such
taxes shall be reduced. In the event of such a final determination, the
reduced amount of such taxes shall thereafter determine the amount of
additional rent payable by Tenant pursuant to this paragraph (b), the
additional rent theretofore payable hereunder shall be recomputed on the basis
of such reduction, unless the taxes for any subsequent year exceeds the
original tax prior to reduction, in which event the base tax shall be the
original tax and Tenant shall pay to the Landlord such additional rent in
twelve (12) equal monthly installments after being billed therefor, any
deficiency between the amount of such additional rent as theretofore computed
and the amount thereof due as the result of such recomputation. The bill for
additional rent under this paragraph (b) shall be accompanied by copies of the
tax bills referred to herein. If Landlord shall be the lessee under an
underlying lease, the term "real estate taxes" as used in this paragraph (b)
shall be deemed to mean and include the amounts payable as additional rental
under said underlying lease based on the taxes payable with respect to said
building and land.
(c) If the amount of additional rent payable by Tenant pursuant to
the foregoing paragraph (b) shall be affected by any application filed by or
on behalf of Landlord for a reduction in the assessed valuation of the said
building and land or by any proceedings instituted by or on behalf of Landlord
in a court of competent jurisdiction for judicial review of said assessed
valuation, and if, after Tenant shall have made a payment of additional rent
under said paragraph (b) Landlord shall receive a refund of any portion of the
real estate taxes on which such payment shall have been based as the result of
any such application or proceeding, Landlord shall pay to Tenant 6% of the
refund less any amount owing by Tenant for expenses in connection therewith as
provided in the preceding sentence. Nothing in this paragraph (c) contained
shall be deemed or construed to require Landlord to pay to Tenant any portion
of a refund of taxes paid by Landlord during the base year.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated FEBRUARY 12, 1997, Premises ENTIRE 9TH FLOOR - 42-52 WEST 39th STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
44. For the purpose of this Article, the following definitions shall apply:
The term "Base Year" shall mean the twelve full calendar months of
1997.
The term "Price Index" shall mean the "Revised Consumer Price Index
for Urban Wage Earners and Clerical Worker" as published by the Bureau of
Labor Statistics of the U.S. Department of Labor of New York, N.Y. -
Northeastern, N.J.
The term "Average Price Index" shall mean the average of the twelve
monthly Price Indices for any yearly period used in this Article's
calculations.
(a) Adjustment. On each anniversary date of the term of this lease,
there shall be an adjustment of the base rent. Each such adjustment shall be
based on the percentage difference between the Average Price Index for the
preceding twelve month period and the Base Year.
(b) Calculation of Adjustment. In the event the Average Price Index
for the twelve month period preceding each anniversary reflects an increase
over the Base Year Average Price Index, the base annual rental for such
twelve-month period reserved in this lease shall be multiplied by the
percentage difference between the Average Price Index for such preceding
twelve-month period and the Average Price Index for the Base Year. The
resulting amount shall be deemed additional rent for such preceding
twelve-month period and shall be paid by Tenant to Landlord within fifteen
days after submission by Landlord of a statement showing the amount due for
the period covered by such statement.
(c) If the compilation of such Price Index shall be revised or
discontinued, there shall be substituted therefor a revised index modified by
such adjustments as shall be required to produce substantially equivalent
results.
In no event shall the adjusted annual rental of this lease be at any
time less than the base rent as adjusted for the previous year.
Nothing in this Article shall affect the Tenant's obligation for the
payment of additional rent for its share of increases in real estate taxes
payable by the Tenant in accordance with Article #43 of this lease.
Notwithstanding anything herein contained, any increase in rent
pursuant to this Article shall not exceed 3% of the previous year's base rent
as adjusted for the period June 1, 1998 through May 31, 2003; and 4% for the
period June 1, 2003 through May 31, 2008.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated FEBRUARY 12, 1997, Premises ENTIRE 9TH FLOOR - 42-52 WEST 39th STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
45. If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this lease, such
holding over shall not be deemed to extend the term or renew the lease, but
such holding over thereafter shall continue upon the covenants and conditions
herein set forth except that the charge for use and occupancy of such holding
over for each calendar month or part thereof (even if such part shall be a
small fraction of a calendar month) shall be the sum of:
(a) 1/12 of the highest base annual rental rate set forth on page one
of this lease times 1.5, plus
(b) 1/12 of all other items of annual additional rental, which annual
additional rental would have been payable pursuant to this lease had this
lease not expired, plus
(c) those other items of additional rent (not annual additional rent)
which would have been payable monthly pursuant to this lease, had this lease
not expired,
which total sum Tenant agrees to pay to Landlord promptly upon demand, in
full, without setoff or deduction. Neither the billing nor the collection of
use and occupancy in the above amount shall be deemed a waiver of any right of
Landlord to collect damages for Tenant's failure to vacate the demised
premises after the expiration or sooner termination of this lease.
The aforesaid provisions of this Article shall survive the expiration
or sooner termination of this lease.
46. Tenant's obligation to pay additional rent under this lease for the final
lease year shall survive the expiration of the term of this lease, and any
additional rent due for any partial lease year shall be prorated.
47. If Tenant is late in making any payment due to Landlord from Tenant under
this lease for ten (10) or more days, Tenant shall pay Landlord a late charge
of $.05 for each $1.00 which remains unpaid after such period to compensate
Landlord for additional expense in processing such late payment. In addition,
if Tenant is late in making any payment due to Landlord under this lease for
ten (10) or more days, then interest shall become due and owing on such
payment and shall be paid by Tenant to Landlord from the date when it was due
until the date payment is made, computed at a rate equal to the lesser of
eighteen (18%) per cent per annum or the highest rate permitted by law.
48. All charges which are the obligation of the Tenant shall be
additional rent and collectible as such.
49. The Landlord agrees to accept checks in payment of any obligations of the
Tenant under this lease provided, however, they are drawn on a bank, which has
an office or branch in the City of New York. In the event any check tendered
in payment of rent or additional rent is dishonored for any reason whatsoever,
its substitute shall be a certified or bank check and all future checks
tendered to the Landlord shall be certified or bank checks.
50. The security as set forth in Article #31 hereof shall be deposited in
Citibank, N.A. located at 411 Fifth Avenue, New York, NY 10016, in an
interest-bearing account and the interest earned thereon shall accrue to
Tenant less 1% to be retained by the Landlord as an administrative charge.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated FEBRUARY 12, 1997, Premises ENTIRE 9TH FLOOR - 42-52 WEST 39th STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
51. Every notice, invoice, or demand given by the Landlord to the Tenant for
any item of additional rent under this lease shall be conclusive and binding
upon the Tenant unless within 30 days after the giving of such notice, invoice
or demand the Tenant shall notify the Landlord in writing as required by the
pertinent provisions of this lease that the Tenant disputes the correctness of
the notice, invoice or demand, specifying the particular item claimed to be
incorrect. In the event the dispute shall not thereafter be settled by
agreement between the parties within 30 days thereafter the Landlord shall
within the next 90 days institute a summary proceeding or an action to
determine the issue. During the pendency of such action or proceeding the
Tenant shall pay all of the items on such notice, invoice or demand including
the disputed items without prejudice to Tenant's position on such disputed
items and in the event there is a final determination in Tenant's favor the
Landlord shall forthwith refund to the Tenant the amount overpaid.
52. The Owners of the building of which the demised premises form a
part are the following:
Stacey A. Borow
Joyce Greene
Allison Rossett
Andrew D. Ortofrio, as Custodian
Robert M. Hausman
Orin Rossett
Jay Elson
Helen Sue Zeidman
Estate of Beatrice Seaver
Estate of Jane Eurengy
Ms. Kathy C. Koch
1954 Associates Limited
Leo Hanan
Estate of Jacob Kurtz
Pauline Shacter, Trustee
Muriel Farber
Lenore Felix
Lawrence I. Sanders, as Trustee
Beverly A. Fox
Selma Lederman, Trustee
Barbara Wilk
Fay Friedman
Estate of William Morris
Steven Zahn
Barry L. Friedman
Ray Morse
Leslie Akst
Paul J. Friedman
Arthur Nelkin
Gary Brandt
Barry Levy
Mark S. Nelkin
James Brandt
Susan Haft
Sandra Zahn-Oreck
John Brandt
Elise Goodheart
Estate of Hannah S. Picard
Robert Brandt
Muriel Goodheart
Harriet Radwell
Scott Zahn Kaufman and
Thomas Zahn Kaufman, Petitioners
53. It is understood and agreed that upon the execution and delivery of this
lease, the Tenant shall have immediate possession of the demised premises,
free of base rent through MAY 31, 1998, otherwise subject to the terms and
conditions hereof, and with the express understanding that the Tenant shall
pay all items of additional rent and other charges reserved under this lease
commencing with the date the Tenant receives an executed copy of this lease,
provided however, that in the event Tenant defaults in fulfilling any of the
monetary terms of this lease at any time during the term or defaults in the
payment of rent or additional rent after the free rent period, the rent for
the entire free rent period shall immediately become due and payable. Any
defaults shall be subject to applicable cure periods.
54. Upon the execution of this lease the Tenant shall furnish to the Landlord
a list of all of its officers and their respective residence addresses. If
during the term of this lease there is any change in the officers or
addresses, the Landlord shall be notified of the same within five (5) days
thereafter. This is a substantial obligation of this lease.
55. Tenant represents that it dealt with no broker except JAMES BUSLIK
&ASSOCIATES, INC. Tenant agrees to hold Landlord and ADAMS & CO. REAL ESTATE,
INC. harmless from and against any and all claims or demands for brokerage
commissions arising out of or in connection with the execution of this lease
or any conversations or negotiations thereto with any broker other than the
above named broker. Landlord shall be obligated to pay the commission to the
above named broker.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated FEBRUARY 12, 1997, Premises ENTIRE 9TH FLOOR - 42-52 WEST 39th STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
56. (A) Subject to the provisions of paragraph (F) of this Article, the
provisions of Article #11 of this lease are amended to the extent that,
Landlord agrees that it will not withhold its consent unreasonably to a
subletting of the all or a portion of the demised premises or an assignment of
this lease provided that (a) as to a sublease, Tenant delivers to Landlord a
copy of the proposed sublease in form to be executed, together with reasonably
detailed statements of the proposed subtenant's business and financial
references; (b) as to an assignment, Tenant delivers to Landlord reasonably
detailed statements of the proposed assignee's business and financial
references; (c) the purpose for which the proposed subtenant or assignee to
use the demised premises are uses expressly permitted by and not expressly
prohibited by this lease; (d) the date when the proposed sublease or
assignment is to become effective is at least 30 days after the submission to
Landlord of the aforesaid documentation; (e) Tenant shall not be in default in
the performance of any of its obligations under this lease; (f) the proposed
subtenant or assignee is not then a tenant of any space in the building of
which the demised premises form a part; (g) no advertisement with respect to
the demised premises shall quote a rental below that of the demised premises
or comparable space in the building; (h) any request for consent to such
subletting or assignment shall be made by notice pursuant to the provisions of
Article #27 of this lease.
(B) Any such subletting or assignment shall not release the Tenant
herein from any liability or responsibility under the terms, covenants or
conditions of the within lease.
(C) It is expressly agreed that in the event of an assignment, the
Assignee shall assume all the obligations of the lease jointly with the Tenant
herein, and the Tenant shall deliver to the Landlord a duplicate-original of
such assignment and the assumption by the Assignee, duly executed and
acknowledged by the Tenant and such Assignee as soon as same has been
executed.
(D) No further or additional subletting of the demised premises or
assignment of this lease shall be made, except with the prior written approval
of the Landlord pursuant to this Article.
(E) It is further understood and agreed that the Tenant shall
designate Adams & Co. Real Estate, Inc. as Tenant's exclusive Agent to effect
any sublet, assignment or release, and Tenant shall pay to Adams & Co. Real
Estate, Inc. upon the execution of such subleasing, assignment or release, a
commission computed in accordance with the rates and rules established by
Adams & Co. Real Estate, Inc. Such exclusive shall be limited to ninety (90)
days only, after Tenant submits a request, however, if Tenant obtains its own
subtenant or assignee, no commission shall be due, owing or payable to Adams &
Co. Real Estate, Inc.
(F) Notwithstanding the provisions of this Article, in the event
Tenant requests Landlord's consent to a subletting of the entire demised
premises or an assignment of this lease, Landlord shall have the right to
cancel and terminate this lease as of the effective date set for such proposed
subletting or assignment by giving Tenant notice to that effect within 30 days
from the receipt of such request and thereupon, on such effective date, this
lease shall terminate and come to an end as though that were the date
originally set forth for the termination of this lease. Tenant agrees to
vacate and surrender possession of the premises to the Landlord on or before
said date, leaving same broom clean, in good order and condition. Thereupon,
both parties will be released and relieved from further liability under the
within lease, except that Tenant's obligations to perform all of the terms,
obligations and covenants, including the obligation to pay rent and additional
rent, up to and including the date of termination, shall survive such
termination. Landlord further agrees that if Landlord does cancel and
terminate this lease as per this Article, it shall not lease the premises to
the Tenants proposed Subtenant.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated February 12, 1997, Premises ENTIRE 9TH FLOOR - 42-52 WEST 39TH STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
56. (continued)
(G) If, in the event of a subletting allowed by the Landlord, the
rental for the sublet space is above $9.00 plus all additional rent due to
Landlord per square foot of rentable space for any period not beyond April 30,
2003 and above $10.00 plus all additional rent due to Landlord per square foot
of rental space for any period during the balance of the term of the lease,
that portion of the sublet rent and additional rent above $9.00 plus all
additional rent due to Landlord or $10.00 plus all additional rent due to
Landlord shall be divided equally between the Landlord and Tenant herein and
the Landlord's share shall be deemed additional rent under this lease and
payable within ten (10) days after receipt thereof by the Tenant to the
Landlord.
57. It is understood and agreed that portions of the demised premises may be
used and occupied by corporations, companies or firms affiliated with the
Tenant, to be used for the purposes for which the premises have been leased as
set forth in Article #2 hereof. This shall not, however, relieve the Tenant
herein from any liability or responsibility under the within lease.
58. It is understood and agreed that in the event at any time during the term
of this lease, the Eighth (8th) Floor and the Tenth (10th) Floor in the
building of which the demised premises are a part become available for rent,
the Tenant herein shall have first option or privilege of leasing said space
for a term and at any annual rental to be mutually agreed upon between the
parties hereto. This provision, however, does not preclude the Landlord from
renewing the lease with the existing Tenant of the premises.
The Landlord agrees to notify the Tenant by registered or certified
mail, return receipt requested, whenever such space is available for rent and
the Tenant agrees to advise the Landlord by registered or certified mail,
return receipt requested, within a period of ten (10) days from the receipt of
such notice, that it will accept or reject the privilege of renting said
space. In the event the Tenant accepts same, it agrees to execute a lease
within a period of five (5) days after said lease has been submitted to the
Tenant for signature. The term of said lease shall commence on the first day
of the month succeeding receipt of such notice from the Landlord and shall
expire on the same date as this lease. In the event the Tenant fails to notify
the Landlord of its intention to lease said spaces or fails to execute a lease
as herein provided, the Landlord shall be released from any further obligation
to the Tenant herein with respect to such space offered and the Landlord shall
be free to rent the space to any other prospective tenant.
59. Subject to all of the terms and conditions of Article #3 of the within
lease, permission is hereby granted to the Tenant to make, at its own cost and
expense, all alterations, improvements and installations in the demised
premises.
Prior to the commencement of any and all work and installations,
Tenant shall submit to the Landlord or its Managing Agent, for its approval in
writing, plans and specifications for all work and installations, which
approval Landlord agrees shall not be unreasonably withheld or delayed. All
work shall be in strict conformity with all rules, regulations and ordinances
of any governmental authority or bureau having jurisdiction thereof, including
the New York Board of Fire Underwriters or any other similar body, and the
Tenant agrees to procure any permits needed in connection with such work prior
to the commencement thereof. In the event the Tenant is required to do any
work in connection with the building sprinkler system, water and/or electrical
risers or any other building riser or facility, the Tenant agrees that all
work in connection therewith shall be done by plumbing, electrical, sprinkler
and/or other contractors approved by the Landlord at the Tenant's sole cost
competitive in price with similar contractors. Tenant further agrees that it
shall require its contractors and/or sub-contractors to furnish the Landlord
with Certificates of Insurance for Workers' Compensation, Public Liability and
Property Damage, as provided for in Article #3 of this lease and otherwise
comply with the terms and conditions of this lease and particularly Article #3
thereof.
<PAGE>
RIDER AGREEMENT:
To be attached to and form a part of:
LEASE dated February 12, 1997 Premises ENTIRE 9TH FLOOR - 42-52 WEST 39TH STREET
----------------- -----------------------------------------
Between JOHN R. PERLMAN et al as Landlord
and PIVOT RULES, INC. as Tenant
60. Landlord represents that there is no asbestos in the demised premises.
61. Wherever in this lease the consent or approval of the Landlord is required
or necessary, the same will not be unreasonably withheld or delayed.
62. The Landlord represents that the premises may be used for the purposes for
which they have been leased as set forth in Article #2 of this lease.
63. The Landlord agrees to provide, at no additional cost to the Tenant, no
more than four (4) names in the main lobby directory board of the building.
64. The Landlord shall maintain the air conditioning units now in the demised
premises in good working order during the first year of the lease.
ADDENDUM to ARTICLE #4:
Landlord agrees to deliver premises vermin-free.
ADDENDUM to ARTICLE #7:
Landlord shall use its reasonable efforts to obtain a non-disturbance
agreement from the current or future mortgagees.
ADDENDUM to ARTICLE # 13:
Except in the event of an emergency or where such entry is required
by law, Landlord's right of entry shall be exercised following reasonable
advance notice to Tenant. Landlord agrees that, while exercising such right of
entry or making such repairs, replacements and improvements, it shall use
reasonable efforts to avoid interfering with Tenant's business or disrupting
the same.
ADDENDUM to ARTICLE # 28:
Landlord agrees that there shall be no extra charge for water
consumed as a result of the installation by Tenant of a small kitchenette.
ADDENDUM to ARTICLE # 36:
The maintenance of all window glass shall be the responsibility of
the Tenant and shall be kept in good repair at its sole cost and expense.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,000
<SECURITIES> 0
<RECEIVABLES> 198,000
<ALLOWANCES> 0
<INVENTORY> 714,000
<CURRENT-ASSETS> 2,358,000
<PP&E> 200,000
<DEPRECIATION> 111,000
<TOTAL-ASSETS> 3,132,000
<CURRENT-LIABILITIES> 2,524,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 565,000
<TOTAL-LIABILITY-AND-EQUITY> 313,200
<SALES> 2,396,000
<TOTAL-REVENUES> 2,396,000
<CGS> (1,784,000)
<TOTAL-COSTS> (411,000)
<OTHER-EXPENSES> (59,000)
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> (115,000)
<INCOME-PRETAX> 29,000
<INCOME-TAX> 10,000
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