<PAGE>
As filed with the Securities and Exchange Commission on April 7, 1999
Registration No. 333-71783
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INTERNET FINANCIAL SERVICES INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6211 13-3911867
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
40 Wall Street
New York, New York 10005
(212) 422-1664
(Address and telephone number of principal executive offices and principal
place of business)
Steven Malin
Chairman and Chief Executive Officer
Internet Financial Services Inc.
40 Wall Street, New York, New York 10005
(212) 422-1664
(Name, address and telephone number of agent for service)
Copies to:
Edward I. Tishelman, Esq. Robert J. Mittman, Esq.
Hartman & Craven LLP Tenzer Greenblatt LLP
460 Park Avenue 405 Lexington Avenue
New York, New York 10022 New York, New York 10174
(212) 753-7500 (212) 885-5000
(212) 688-2870 (fax) (212) 885-5001 (fax)
---------------------
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective
---------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
Proposed
Maximum Proposed
Offering Price Maximum Amount of
Title of Each Class of Amount to Be Per Aggregate Registration
Securities to be Registered Registered Unit(1) Offering Price(1) Fee(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value ("Common
Stock") ............................. 2,300,000(2) $ 7.00 $16,100,000 $ 3,932.31
- ---------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants(3) ............ 200,000 $ .0005 $ 100 $ --(4)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock underlying Underwriter's
Warrants ............................ 200,000 $ 11.55 $ 2,310,000 $ 564.20
- ---------------------------------------------------------------------------------------------------------------------
Total .................................................................. $18,410,100
- ---------------------------------------------------------------------------------------------------------------------
Total Registration Fee ...................................................................... $ 4,496.51
- ---------------------------------------------------------------------------------------------------------------------
Amount Previously Paid ...................................................................... $ 3,728.81
- ---------------------------------------------------------------------------------------------------------------------
Amount Due .................................................................................. $ 767.70(5)
=====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) of the Securities Act.
(2) Includes 300,000 shares which the Underwriter has the option to purchase to
cover over-allotments, if any.
(3) Represents warrants to be issued to the Underwriter. Pursuant to Rule 416,
there is also being registered hereby such additional indeterminate number
of shares of Common Stock as may become issuable by reason of the
anti-dilution provisions set forth in the Underwriter's Warrants.
(4) None pursuant to Section 457(g).
(5) Represents the amount due for (i) the additional 345,000 shares being
offered hereby at $7.00 and (ii) the additional 30,000 shares underlying the
Underwriter's Warrants being offered hereby at $11.55. Pursuant to Rule 457,
no additional fee is due on account of the increase in the offering price
for the remaining shares for which the registration fee was previously paid.
<PAGE>
Internet Financial Services Inc.
Cross Reference Sheet for Prospectus Under Form SB-2
<TABLE>
<CAPTION>
<S> <C>
Front of Registration Statement and Outside Front
Cover of Prospectus .................................... Front of Registration Statement and Outside Front
Cover Page of Prospectus
Inside Front and Outside Back Cover Pages of
Prospectus ............................................. Inside Front and Outside Back Cover
Summary Information and Risk Factors .................... Prospectus Summary; Risk Factors
Use of Proceeds ......................................... Use of Proceeds
Determination of Offering Price ......................... Outside Front Cover Page of Prospectus;
Underwriting
Dilution ................................................ Dilution
Selling Security Holders ................................ Inapplicable
Plan of Distribution .................................... Outside Front Cover Page of Prospectus;
Underwriting
Legal Proceedings ....................................... Litigation
Directors, Executive Officers, Promoters and
Control Persons ........................................ Management
Security Ownership of Certain Beneficial Owners
and Management ......................................... Principal Stockholders
Description of Securities ............................... Outside Front Cover Page of Prospectus; Prospectus
Summary; Capitalization; Description of Securities
Interests of Named Experts and Counsel .................. Legal Matters; Experts
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ......... Management
Organization within Last Five Years ..................... Certain Transactions
Description of Business ................................. Business
Management's Discussion and Analysis or Plan of
Operation .............................................. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Description of Property ................................. Business
Certain Relationships and Related Transactions .......... Certain Transactions
Market for Common Equity and Related
Stockholder Matters .................................... Outside Front Cover Page of Prospectus; Risk
Factors; Management; Description of Securities
Executive Compensation .................................. Management
Financial Statements .................................... Financial Statements
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure .................... Inapplicable
</TABLE>
ii
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED APRIL 7, 1999
Internet Financial Services Inc.
2,000,000 Shares of Common Stock
$7.00 per Share
Internet Financial Services Inc. is offering 2,000,000 shares of its
common stock. This is our initial public offering and there currently is no
public market for our common stock. The offering price may not reflect the
market price of our shares after the offering.
---------------------
Investing in the common stock involves risks. See "Risk Factors"
beginning on page 7.
---------------------
================================================================================
Public Underwriting Proceeds
Offering Discounts and to
Price Commissions Company
- --------------------------------------------------------------------------------
Per Share ......... $ 7.00 $ .65 $ 6.35
- --------------------------------------------------------------------------------
Total ............. $14,000,000 $1,300,000 $12,700,000
================================================================================
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
We have granted the underwriter a 45-day option to purchase up to an
additional 300,000 shares of common stock to cover over-allotments. The
underwriter is offering the shares on a firm commitment basis. Whale Securities
Co., L.P. expects to deliver the shares of common stock to purchasers on ,
1999.
---------------------
Whale Securities Co., L.P.
, 1999
<PAGE>
[LOGO AND DIAGRAM]
<PAGE>
PROSPECTUS SUMMARY
Internet Financial Services
Internet Financial Services Inc. provides real-time online financial
brokerage services and comprehensive information about the securities markets
through its proprietary trading systems, UltimateTrader(R) and
WatleyTrader(TM). We also operate a third-market institutional sales desk which
specializes in executing and facilitating large-block transactions in
approximately 500 thinly-traded equity securities.
UltimateTrader
We designed UltimateTrader for use by self-directed active traders. Active
traders execute more trades per day than any other category of investors and
require real-time information and quick order execution to effectuate their
trading strategies. UltimateTrader is a uniquely integrated trading system
because it provides active traders with the comprehensive information they need
on a real-time basis and the ability to execute trades in seconds.
UltimateTrader delivers and automatically updates a continuous, dynamic stream
of live market data to the client's screen. With most other Internet-based
trading systems, displayed data remains static until the query is repeated.
UltimateTrader's features enable clients to:
o access comprehensive information on stocks, markets, indices, mutual
funds, news and options;
o establish and track their securities, cash and margin positions;
o customize screen layouts;
o execute trades with a few simple mouse-clicks or key strokes; and
o route trades directly to the exchanges, the Nasdaq Market Maker System,
a specific market maker or an electronic communication network
WatleyTrader
WatleyTrader is our web-based Internet broker service which we designed for
active investors who execute trades online and use online services to gather
information about the securities markets. WatleyTrader provides clients
comprehensive information on stocks, markets, indices, mutual funds, news and
options in a live format for a fee, or a partially time delayed format for free.
Our Online Client Base
We have an online client base of approximately 1,700 accounts as of March
22, 1999, a significant increase compared to our 300 online accounts as of
September 30, 1997.
Our Market Opportunity
Online trading is the fastest growing segment of the brokerage industry and
is expected to continue to grow significantly. Forrester Research, Inc.
estimates that the online trading industry grew from approximately 1.5 million
accounts at the end of 1996 to approximately 5 million accounts at the end of
1998 and that the market will grow to 8.4 million accounts at the end of 1999
and 14.4 million accounts in 2002. We believe that UltimateTrader is uniquely
positioned to satisfy the needs of this growing market.
3
<PAGE>
Our Strategy
Our strategy is to capitalize on perceived opportunities arising from the
expanding online trading market by:
o Targeting active traders and other active investors;
o Expanding our marketing efforts for our online brokerage service;
o Expanding our network infrastructure and client support capabilities;
o Converting to self-clearing operations;
o Improving our third-market institutional sales desk; and
o Offering new services.
Our Formation
Internet Financial Services was incorporated in May 1996 under the laws of
the State of Delaware. Our wholly-owned subsidiary, A.B. Watley, Inc., was
organized in December 1958 under the laws of the State of New York. In January
1997, we acquired all of the outstanding capital stock of Watley.
How to Contact Internet Financial Services
Our principal executive offices are located at 40 Wall Street, New York,
New York 10005, and our telephone number is (212) 422-1664. We maintain a
website at www.abwatley.com. Information contained in our website does not
constitute a part of this prospectus.
The Offering
Common stock offered..... 2,000,000 shares
Common stock to be
outstanding after this
offering................ 7,631,745 shares. Our outstanding shares do not
include:
o 200,000 shares reserved for issuance upon
exercise of the underwriter's warrants;
o 1,049,900 shares reserved for issuance upon
exercise of options granted under our stock option
plans;
o 150,100 shares reserved for issuance upon the
exercise of options available for future grant
under our stock option plans;
o 351,250 shares reserved for issuance upon
exercise of non plan options and warrants; and
o 300,000 shares reserved for issuance in this
offering to cover over-allotments, if any, by the
underwriter.
Use of proceeds.......... We intend to use the net proceeds of this offering
for sales and marketing; expanding and upgrading our
network; expanding client services; repaying
indebtedness; and working capital and general
corporate purposes.
Risk factors............. An investment in the common stock is speculative
and involves a high degree of risk. You should
purchase the shares only if you can afford a
complete loss of your investment.
Proposed Nasdaq SmallCap
Market symbol........... IFSX
4
<PAGE>
Notice to California investors: Each purchaser of our common stock in
California must be an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, or satisfy
one of the following suitability standards:
o minimum gross income of $65,000 and a net worth (exclusive of home, home
furnishings and automobiles) of $250,000; or
o minimum net worth (exclusive of home, home furnishings and automobiles)
of $500,000.
Notice to Ohio, South Carolina and Washington investors: Each purchaser of
our common stock in Ohio, South Carolina and Washington must be an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
----------------------
Summary Financial Information
The following summary financial information sets forth certain historical
and pro forma financial data . The historical financial data as of September 30,
1998 and 1997, and for the years ended September 30, 1998 and 1997, have been
derived from our audited consolidated financial statements included elsewhere
herein, which statements have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report included elsewhere herein. The historical
financial data as of December 31, 1998 and for the three months ended December
31, 1998 and 1997 are derived from our unaudited consolidated financial
statements included elsewhere herein and include all adjustments (consisting
only of normal recurring adjustments) which our management considers necessary
for a fair presentation of the financial position as of, and the results for,
such interim periods. The results of operations for the three months ended
December 31, 1998 are not necessarily indicative of the results for any future
interim period or for the year ending September 30, 1999.
The following summary financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the notes thereto, included
in this prospectus.
The pro forma information presented below gives effect to the receipt of
approximately $1,050,000 of net proceeds in January 1999 upon the issuance of
221,500 shares of common stock, and the receipt of $375,000 of net proceeds in
January 1999 upon the issuance of a $400,000 principal amount promissory note
and warrants to purchase 140,000 shares of common stock.
The as adjusted information presented below gives effect to:
o the sale of the shares of common stock offered hereby, the anticipated
application of a portion of the estimated net proceeds therefrom for the
repayment of $750,000 principal amount of indebtedness and $37,000
accrued and unpaid interest thereon;
o the reclassification of approximately $271,000 of deferred offering costs
as a reduction to equity;
o the write-off of non-cash deferred option and warrant costs related to
the issuance of options and warrants in connection with indebtedness
being repaid with a portion of the proceeds of this offering; and
o the recognition of approximately $16,000 of professional fee expenses
related to the issuance of options to non-employees effective on the date
of this prospectus.
Our consolidated financial statements are not categorized between current
and non-current assets and liabilities. For purposes of calculating working
capital, we consider our cash and cash equivalents, securities owned,
receivables from clearing brokers and a portion of other assets to be current
assets, and securities sold, not yet purchased, the current portion of notes
payable and accounts payable and accrued liabilities to be current liabilities.
5
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended September 30, December 31,
------------------------------- -----------------------------
1998 1997 1998 1997
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues .................................... $9,119,268 $ 4,532,532 $3,180,033 $1,457,560
Net revenues ................................ 8,859,946 4,320,173 3,071,530 1,437,950
Commissions, floor brokerage and clearing
charges ................................... 3,425,725 1,844,927 1,369,610 597,070
Employee compensation and related costs ..... 2,247,963 1,297,575 852,342 380,041
Other expenses .............................. 3,805,903 2,234,868 1,074,854 823,427
Net loss .................................... (632,410) (1,059,973) (229,426) (365,779)
Net loss per share .......................... (.12) (.30) (.04) (.07)
Weighted average number of shares
outstanding ............................... 5,171,182 3,508,560 5,291,080 5,120,771
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1998
-------------------- --------------------------------------------------
Actual Pro Forma As Adjusted
---------------- -------------- --------------
<S> <C> <C> <C> <C>
Working capital (deficit) ......... $ (691,258) $ (1,777,898) $ (352,898) $10,710,269
Total assets ...................... 5,539,457 6,363,494 7,813,494 18,430,676
Total liabilities ................. 3,785,038 4,575,371 4,975,371 3,988,538
Stockholders' equity .............. 1,754,419 1,788,123 2,838,123 14,442,138
</TABLE>
6
<PAGE>
RISK FACTORS
The shares offered hereby are speculative and involve a high degree of
risk. Each prospective investor should carefully consider the following risk
factors before making an investment decision.
Because we have experienced losses and expect our expenses to increase, we may
not be able to achieve profitability.
Since our inception, we have incurred losses. As of December 31, 1998 we
had an accumulated deficit of $2,133,187. Our operating expenses are expected to
continue to increase significantly in connection with our proposed expanded
activities. Accordingly, our future profitability will depend on our ability to
increase our client base and our revenues while controlling costs. We expect to
continue to incur losses until we are able to significantly increase our client
base and revenues.
The evolving nature of the online brokerage market makes the ultimate demand for
our services uncertain.
The level of demand for online brokerage services is uncertain because the
market is rapidly evolving. Our offering of brokerage services over the Internet
involves a relatively new approach to securities trading. Customers of
traditional full-commission brokerage firms or discount brokers may be reluctant
or slow to convert to Internet brokerage services. Moreover, security and
privacy concerns of existing and potential users of our services may deter
potential clients from using our trading systems. If the market for online
brokerage services does not develop as we expect, our business, financial
condition and operating results will be materially adversely affected.
Client attrition results in the loss of clients.
Any significant increase in our client attrition rate could have a material
adverse effect on our business and operations. Historically, we have experienced
a client attrition rate of 7% per month. Client attrition results in the erosion
of our client base. We must attract new clients to maintain our client base.
Our business is highly sensitive to declines in the securities markets.
A general decrease in trading activity in the securities markets could
adversely affect the level of trading by our clients. Historically, when the
stock market suffers large declines, known as a bear market, the level of
individual investor activity declines. We will likely be adversely affected
during any long-term bear market. As a result, our business, financial condition
and operating results would be adversely affected because certain expenses,
consisting primarily of salaries and benefits, computer and networking costs and
rent remain relatively fixed. Moreover, our operating results may fluctuate
dramatically from period to period as a result of these factors.
We may not be able to compete successfully for clients because the number of
competitors is increasing and some of our competitors are better known and have
greater resources.
The market for electronic brokerage services is intensely competitive and
rapidly changing. We compete directly with other firms which focus on active
trading clients as well as other discount brokerage firms offering online or
telephone brokerage services. We also face competition for clients from full
commission brokerage firms, financial institutions and mutual funds. Many of our
competitors have well-established reputations for providing brokerage and
financial services and have longer operating histories and significantly greater
financial, technical, marketing, personnel and other resources than we have.
Many of our clients also maintain accounts with one or more of our competitors.
The general financial success of companies in the securities industry over
the past several years has strengthened existing competition. We believe that
this success will continue to attract new competitors to the industry which
could adversely affect our ability to gain or even maintain market share. Such
potential competitors include depository institutions, insurance companies and
providers of online financial and information services. We cannot assure you
that we will be able to compete successfully. Competitive factors could
materially adversely affect our business, financial condition and operating
results.
7
<PAGE>
We need to expand our network infrastructure and client support capabilities or
we will not be able to service our growing client base.
We will need to expand our network infrastructure and client support
capabilities in anticipation of an expanded client base. Such expansion will
require us to make significant up front expenditures for servers, routers and
computer equipment, to increase bandwidth for internet connectivity and to hire
and train additional client service personnel. Such expansion must be completed
without system disruptions. Failure to expand our network infrastructure or
client service capabilities would materially adverse affect our company's
business and operations.
System failures or service interruptions could be caused by high levels of
client usage, failures of third-party systems or other acts beyond our control.
System failures or service interruptions could result in:
o substantial losses for our clients
o client inability to satisfy margin obligations
o decreased commission revenues
o loss of client accounts
o harm to our reputation.
System failures or service interruptions could cause substantial losses for
our clients and result in decreased commission revenues from client trading
activities and in loss of client accounts, client inability to satisfy margin
obligations and harm to our reputation and the perception of our trading
system's reliability. Any significant degradation or failure of our trading
systems or any other systems in the trading process could cause clients to
suffer delays in trading. During a systems failure, we may not be able to
process the volume of telephone orders placed by our clients.
Our online trading systems are heavily dependent on the integrity of the
electronic systems supporting it. Heavy stress placed on our trading systems
during peak trading times could cause our systems to operate at unacceptably low
speed or fail. Failure of our trading systems could also be caused by online
service providers, record keeping and data processing functions performed by
third parties and third-party software such as Internet browsers and trading
engines. Additionally, a natural disaster, power or telecommunications failure
or act of war, may cause an extended systems failure. Computer viruses or
unauthorized access to or sabotage of our network by a third party could also
result in system failures or service interruptions.
If we are unable to prevent unauthorized access to our clients' transactions and
other data we could be harmed.
Advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments could result in a compromise of the
technology or other software used by us to protect client transaction and other
data. The secure transmission of confidential information over public networks
is a critical element of our operations. We are not aware of any security
breaches in the transmission of confidential information. Any significant
compromise of our trading systems' security could materially adversely affect
our business, financial condition and operating results.
We may need additional financing to support our proposed expansion.
We cannot assure you that the proceeds of this offering will be sufficient
to fund our proposed expansion or that additional financing will become
available if needed. We will be materially adversely affected if we do not
obtain financing when needed.
We need the proceeds of this offering to expand our operations and finance
our future working capital requirements. Based upon our current plans and
assumptions relating to our business plan, we anticipate that the net proceeds
of this offering will satisfy our capital requirements for at least twelve
months following the closing of this offering. If our plans change or our
assumptions prove to be inaccurate, we may need to seek additional financing
sooner than currently anticipated or curtail our operations. Any issuance of
equity securities would dilute the interest of our stockholders.
8
<PAGE>
Our operations would be interrupted if the services of our clearing brokers are
terminated.
Watley is dependent on the operational capacity and the ability of its
clearing brokers for the orderly processing of transactions. Watley's clearing
agreements may be terminated by either party, upon 60 days written notice in the
case of Penson Financial Services, Inc., and 30 days prior written notice in the
case of Weiss, Peck & Greer, L.L.C. Termination or material interruptions of
services provided by our clearing brokers would have a material adverse effect
on our operations. Watley's agreements with its clearing brokers provide that
the clearing brokers process all securities transactions for Watley's account
and the accounts of Watley's clients. Services of the clearing brokers include
billing and credit extension, control and receipt, custody and delivery of
securities. Watley has also agreed to indemnify and hold the clearing brokers
harmless from liabilities or claims, including claims arising from the
transactions of our clients, which could be material in amount.
Our client lending activities subject us to the risks of loss resulting from
clients not satisfying their obligations and our being required to cover our
clients' obligations.
We are subject to the risks inherent in extending credit to the extent that
we permit our clients to purchase securities on a "margin" basis. In the event
that margin requirements are not sufficient to cover losses, Watley may be
required to sell or buy securities at prevailing market prices and incur losses
to satisfy client obligations. A portion of Watley's clients' securities
activities are transacted on a margin basis through the clearing broker which
Watley has agreed to indemnify. Credit is extended to the client and secured by
cash and securities in the client's account or "short sales," sales of
securities not yet purchased. Margin risk is exacerbated during periods of
rapidly declining markets in which the value of the collateral held by Watley
could fall below the amount borrowed by the client.
Failure to successfully expand our operations would hurt our operating results.
Our business and prospects will be harmed if we are unable to successfully
expand our business. We believe that we need to expand our business to achieve
and sustain profitable operations. We intend to use a portion of this offering
to expand our operations through internal growth and possible acquisitions. Our
proposed expansion will depend on, among other factors, widespread consumer
acceptance of UltimateTrader and WatleyTrader and our ability to attract and
retain clients, hire and retain additional skilled management, marketing,
industry and client service and other personnel.
We may seek to expand through acquisitions which are not currently identified
and which therefore may entail risks which you will not have a basis to
evaluate.
We may seek to expand our operations by acquiring companies in businesses
which we believe will complement or enhance our business. We are not currently
involved in negotiations with respect to any material acquisitions, and are not
a party to any agreement, commitment, arrangement or understanding relating to
any such acquisitions. We have not established any minimum criteria for any
acquisition and our management may have complete discretion in determining the
terms of any such acquisition. Consequently, there is no basis for you to
evaluate the specific merits or risks of any potential acquisition that we may
undertake. We cannot assure you that we will be able to ultimately effect any
acquisition, successfully integrate any acquired business in our operations or
otherwise successfully expand our operations.
Converting to a self-clearing broker will subject us to many risks.
We may not receive regulatory approval to engage in self-clearing
operations.
The NASD must agree to amend Watley's membership agreement before Watley
will be able to engage in self-clearing operations. We cannot assure you that
the NASD will agree to so amend Watley's membership agreement.
Self-clearing brokers are subject to more regulatory control and
examination than we are currently subject which could lead to civil liabilities
or penalties for errors or violations of regulations.
Self-clearing securities firms are subject to substantially more regulatory
control and examination than we are currently subject. Errors in performing
clearing functions or reporting could lead to civil penalties imposed by the SEC
or the NASD. Self-clearing operations, especially where conducted by firms such
as Watley, without significant prior experience, involve substantial risks of
losses due to clerical errors relating to the
9
<PAGE>
handling of client funds and securities. We cannot assure you that Watley will
be able to perform such operations as accurately and efficiently as such
operations are being performed by Watley's clearing brokers. Clearing process
errors also may lead to civil liability for actions in negligence brought by
parties who are financially harmed as a result of such errors. Any liability
that arises as a result of self-clearing operations could have a material
adverse effect on our company's business, financial condition and operating
results. Watley's failure to perform self-clearing operations accurately and
cost-effectively could have a material adverse effect on our business, financial
condition and operating results.
Converting to self-clearing operations will increase our capital
requirements and impose additional responsibilities for controlling client
securities and clearing transactions.
If we convert to a self-clearing firm, we will have to pay for a portion of
the securities purchased by our clients, to the extent such purchases are made
on margin, which will increase our capital requirements substantially. We will
also have direct responsibility for the possession and control of client
securities and other assets and the clearance of client securities transactions.
This will require us to record on our balance sheet the client receivables and
client payables to Watley that are a result of client margin loans and client
free credit balances (i.e., client cash balances maintained by Watley) which
could have a significant effect on our total assets and total liabilities.
Our inability to obtain accurate information could cause service interruptions
and loss of clients and could subject us to claims by clients or third parties.
We depend upon information suppliers to accurately provide and, in some
cases, format such data, on a real-time basis. Failure by any service provider
to supply such information according to our requirements could result in service
interruptions, adverse client perception of our trading system and loss of
clients. In addition, we could be sued by clients who download inaccurate
information from our trading system for losses resulting from the client's use
of such information. We may also be subject to claims, including claims for
negligence, copyright or trademark infringement based on the nature and content
of information downloaded by clients from our trading systems and subsequently
distributed to others. We do not maintain insurance to cover most of these types
of liabilities. Any liability imposed on us or costs incurred in defending
claims that are not covered by insurance or are in excess of our insurance
coverage could materially adversely affect our business, financial condition and
operating results.
If the Internet infrastructure is not developed or issues concerning the
commercial use of the Internet are not favorably resolved, use of our trading
systems may be adversely affected.
Our business, financial condition and operating results will be materially
adversely affected if critical issues concerning the commercial use of the
Internet are not favorably resolved, the necessary infrastructure is not
developed, or the Internet does not become a viable commercial marketplace.
Widespread acceptance of UltimateTrader and WatleyTrader will depend upon the
adoption of the Internet as a widely used medium for commerce. The Internet may
not continue to develop as a commercial marketplace because of inadequate
development of the necessary infrastructure, such as a reliable network
backbone, or timely development of complementary services and products, such as
high speed modems and high speed communication lines. The Internet has
experienced, and is expected to continue to experience, significant growth in
the number of users and amount of traffic. However, the Internet infrastructure
may not be able to support the demands placed on it by this continued growth. In
addition, use of the Internet could be adversely affected by delays in the
development or adoption of new standards and protocols to handle increased
levels of Internet activity or due to increased governmental regulation.
Critical issues concerning the commercial use of the Internet, including
security, reliability, cost, ease of use, accessibility and quality of service,
remain unresolved. Such issues may negatively affect the growth of Internet use
or the attractiveness of commerce and communications on the Internet and,
therefore impede our ability to grow.
Failure by third-party information vendors, telecommunication suppliers or
clearing brokers to be year 2000 complaint could adversely affect our network
operations.
We would be harmed if there are any systems failures or interruptions in
service resulting from the inability of our computing system or any such
third-party's systems to recognize the year 2000. We are highly
10
<PAGE>
dependent upon third-party financial information vendors, telecommunications
suppliers and our clearing brokers. We have sent letters to a number of our
vendors requesting assurances of their compliance. These third parties have
generally advised us that their review of their operating systems indicate that
their operating systems are or will be year 2000 compliant. Since our evaluation
of these issues is continuing, we cannot assure you that additional issues will
not be discovered which could present a material risk of disruption to our
operations.
Rapid technological change could cause our trading system to become less
attractive to potential clients.
Electronic stock trading is characterized by rapidly changing technology,
changing client requirements, frequent new services and trading system
introductions and enhancements and evolving industry standards in computer
hardware, operating systems, database technology and information delivery
systems. If we are unable to respond to these changes, our trading systems may
become less attractive to potential clients. Our success will depend upon our
ability to maintain and develop competitive technologies to continue to enhance
our trading system and to develop and introduce new services in a timely and
cost-effective manner. Developing these technologies, trading systems and
services may require substantial time and expense. We cannot assure you that we
will be able to respond quickly, cost-effectively or sufficiently to such
developments. Our business, financial condition and operating results may be
adversely affected if we are unable to anticipate or respond quickly to such
developments.
Our operations could subject us to state business qualification laws and
taxation.
Because our services are available over the Internet in multiple states and
foreign countries and as we have numerous clients residing in such states and
foreign countries, these jurisdictions may claim that we are required to qualify
to do business as a foreign corporation in each such state and foreign country.
These jurisdictions may also impose taxes and other regulations on
Internet-based transactions. Our business, financial condition or operating
results could be materially adversely affected by the application of laws and
regulations of jurisdictions whose laws do not currently apply to our business.
Third parties could obtain access to our proprietary information or
independently develop similar technologies because of the limited protection for
our intellectual property.
Notwithstanding the precautions we take, third parties may copy or
otherwise obtain and use our proprietary technologies, ideas, know-how and other
proprietary information without authorization or independently develop
technologies similar or superior to our technologies. In addition, the
confidentiality and non-competition agreements between us and certain of our
employees, distributors and clients may not provide meaningful protection of our
proprietary technologies or other intellectual property in the event of
unauthorized use or disclosure. Policing unauthorized use of our technologies
and other intellectual property is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. Furthermore, the laws of other
jurisdictions may afford little or no effective protection of our intellectual
property rights. Our business, financial condition and operating results could
be adversely affected if we are unable to protect our intellectual property
rights.
The litigious nature of the software industry could subject us to infringement
claims.
There has been substantial litigation in the software industry involving
intellectual property rights. Third parties may assert infringement claims
against us and our technologies and trading systems may be determined to
infringe on the intellectual property rights of others. We could become liable
for damages, be required to modify our technologies or trading systems or obtain
a license if our technologies or trading systems are determined to infringe upon
the intellectual property rights of third parties. We cannot assure you that we
will be able to modify our technologies or trading systems or obtain a license
in a timely manner, if required, or have the financial or other resources
necessary to defend an infringement action. We would be materially adversely
affected if we fail to do any of the foregoing.
Your investment will be subject to immediate and substantial dilution.
Purchasers of the shares of common stock in this offering will experience
immediate and substantial dilution of $5.12 per share (or 73.1%) between the net
tangible book value per share of common stock after this offering and the
initial public offering price per share.
11
<PAGE>
Our management has significant control over stockholder matters.
Our officers and directors and their families control the outcome of all
matters submitted to a vote of the holders of common stock, including the
election of directors, amendments to our certificate of incorporation and
approval of significant corporate transactions. After the closing of this
offering, these persons will beneficially own, in the aggregate, approximately
49.4% of our outstanding common stock. Such consolidation of voting power could
also have the effect of delaying, deterring or preventing a change in control of
our company that might be beneficial to other stockholders.
We will use a portion of the proceeds of this offering to repay debt, some of
which is owed to affiliated parties.
We have allocated approximately $787,000 (6.7%) of the net proceeds of this
offering to repay outstanding indebtedness, including $100,000 to repay amounts
owed to Mel Steinberg, the father of Eric Steinberg, our Executive Vice
President, and approximately $500,000 will be used to repay a loan which is
guaranteed by six persons who are our officers, directors and/or principal
stockholders. These persons will receive a benefit as a result of the release of
their guarantees. Accordingly, these proceeds will not be available for other
corporate purposes.
Our management's broad discretion in the use of the proceeds of this offering
may increase the risk that they will not be used effectively.
We have allocated approximately $1,163,000 (10.0%) of the estimated net
proceeds of this offering to working capital and general corporate purposes. Our
management will have broad discretion as to the application of such proceeds
without having to seek your approval.
The number of shares eligible for future sale and the existence of registration
rights could depress the market for our common stock.
The possibility that a substantial number of additional shares of common
stock may become tradeable in the public market following this offering, may
adversely affect prevailing market prices for the common stock and could impair
our ability to raise capital through the sale of equity securities. In addition,
we have granted registration rights to holders of additional shares of common
stock currently restricted from trading in the public market, as well as
registration rights to the underwriter for the shares of common stock issuable
upon exercise of the underwriter's warrants. We cannot predict the effect, if
any, that sales of these additional securities or the availability of these
additional securities for sale will have on the market prices prevailing from
time to time.
A public market for our common stock may not develop or be sustained.
Before this offering, there has been no public trading market for the
common stock. We cannot assure you that a regular trading market for the common
stock will develop after this offering or that, if developed, it will be
sustained. If, in the future, the common stock is not listed on Nasdaq and the
trading price of the common stock were to fall below $5.00 per share, trading in
the common stock would become subject to the SEC's penny stock rules, which
could severely limit the market liquidity of the common stock and the ability of
purchasers in this offering to sell the common stock in the secondary market.
The offering price of our common stock was arbitrarily determined and,
therefore, may not be indicative of its value.
The initial public offering price of the common stock has been determined
arbitrarily by negotiation between us and the underwriter and is not necessarily
related to our assets, book value or potential earnings or any other recognized
criteria of value. Additionally, the initial public offering price of the common
stock may not be indicative of the prices that may prevail in the public market.
The market price of our common stock may be highly volatile.
The market price for the common stock following this offering may be highly
volatile as has been the case with the securities of other companies in emerging
businesses. Factors such as our operating results, announcements by us or our
competitors, introduction of new products or technologies by us or our
12
<PAGE>
competitors and various factors affecting the securities industry generally may
have a significant impact on the market price of the common stock. Additionally,
in recent years, the stock market has experienced a high level of price and
volume volatility. Market prices for the stock of many companies, particularly
of small and emerging growth companies, have experienced wide price fluctuations
which have not necessarily been related to the operating performance of such
companies.
The potential issuance of preferred stock could prevent a change in control of
our company.
Our ability to issue preferred stock without stockholder approval could
have the effect of making it more difficult for a third party to acquire a
majority of our voting stock thereby delaying, deferring or preventing a change
in control of our company. Our certificate of incorporation authorizes our board
of directors to issue 1,000,000 shares of "blank check" preferred stock and to
fix the rights, preferences, privileges and restrictions, including voting
rights, of these shares, without further stockholder approval. The rights of the
holders of common stock will be subject to and may be adversely affected by the
rights of holders of any preferred stock that may be issued in the future.
The significant number of outstanding options and warrants could depress the
market price of our common stock and could interfere with our ability to raise
capital.
Upon the closing of this offering, there will be outstanding options and
warrants to purchase an aggregate of 1,601,150 shares of common stock (including
200,000 shares of common stock issuable upon exercise of the underwriter's
warrants) at exercise prices ranging from $2.00 to $11.55 per share. To the
extent that outstanding options and warrants are exercised, dilution to the
percentage ownership of our stockholders will occur and any sales in the public
market of the common stock underlying such options and warrants may adversely
affect prevailing market prices for the common stock. Moreover, the terms upon
which we will be able to obtain additional equity capital may be adversely
effected since the holders of outstanding options and warrants can be expected
to exercise them at a time when we would, in all likelihood, be able to obtain
any needed capital on terms more favorable to us than those provided in the
outstanding options and warrants.
Forward-looking statements discuss future expectations and may prove to be
materially inaccurate.
Some of the statements in this prospectus discuss future expectations or
state other forward-looking information. Those statements are subject to known
and unknown risks, uncertainties and other factors that could cause our actual
results to differ materially from those contemplated by the statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this prospectus.
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,000,000 shares of common stock
being offered hereby (after deducting underwriting discounts and other expenses
of this offering) are estimated to be $11,650,000 ($13,492,000 if the
underwriter's over-allotment option is exercised in full).
We expect to use the net proceeds (assuming no exercise of the
underwriter's over-allotment option) during the twelve months following the
consummation of this offering approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Net Proceeds Dollar Amount Net Proceeds
- --------------------------- --------------- --------------
<S> <C> <C>
Sales and marketing .................................... $ 3,600,000 30.9%
Expand and upgrade network ............................. 3,400,000 29.2
Expand client services ................................. 2,700,000 23.2
Repay indebtedness ..................................... 787,000 6.7
Working capital and general corporate purposes ......... 1,163,000 10.0
----------- -----
Total ................................................ $11,650,000 100.0%
=========== =====
</TABLE>
Sales and Marketing. We intend to produce, create and place television
advertising, Internet and print commercials. We also expect to hire additional
personnel to engage in these activities.
Expand and Upgrade Network. We intend to expand our network infrastructure
to support an increasing client base and to purchase additional computer and
telephone communications equipment to create an off-site back-up communications
center or "hot site."
Expand Client Services. We expect to hire additional personnel and
purchase additional systems and equipment to:
o convert to self-clearing;
o engage in operations with international financial institutions and
clients;
o provide additional client support;
o continue to develop software and programming; and
o expand our third-market institutional sales desk to increase the number
of securities we cover for this market.
Repayment of Indebtedness. We intend to repay:
o the $500,000 principal amount promissory note, plus a $5,000 prepayment
fee, to New York Small Business Venture Fund LLC; and
o $250,000 principal amount of promissory notes (bearing interest at the
rate of 8% per annum), plus approximately $32,000 of accrued interest
thereon, including approximately $100,000 principal amount of promissory
notes held by Mel Steinberg, the father of Eric Steinberg, our Executive
Vice President.
The $500,000 principal amount promissory note bears interest at the rate of
12% and is due October 2003, subject to prepayment. We used the proceeds of
these loans for working capital and general corporate purposes.
Working Capital and General Corporate Purposes. We may use a portion of the
proceeds allocated to working capital and general corporate purposes to pay a
portion of trade payables incurred from time to time and the salaries of our
officers, if cash flow from operations is insufficient for such purposes.
Over-allotment Option. If the underwriter exercises its over-allotment
option in full, we will realize additional net proceeds of $1,842,000, all of
which will be allocated to working capital and general corporate purposes.
The foregoing represents our best estimate of the allocation of the net
proceeds of this offering based upon the current status of our business. We
based this estimate on certain assumptions, including continued expansion of our
client base and corresponding increases in revenues and that our proposed
network
14
<PAGE>
expansion can be completed and new services can be introduced without
unanticipated delays or costs. If any of these factors change, we may find it
necessary to reallocate a portion of the proceeds within the above-described
categories or use portions thereof for other purposes. Our estimates may prove
to be inaccurate, new programs or activities may be undertaken which will
require considerable additional expenditures or unforeseen expenses may occur.
Based upon our current plans and assumptions relating to our business plan,
we anticipate that the net proceeds of this offering will satisfy our capital
requirements for at least twelve months following the closing of this offering.
If our plans change or our assumptions prove to be inaccurate, we may need to
seek additional financing sooner than currently anticipated or curtail our
operations. We cannot assure you that the proceeds of this offering will be
sufficient to fund our proposed expansion or that additional financing will
become available if needed.
We will invest proceeds not immediately required for the purposes described
above principally in United States government securities, short term
certificates of deposit, money market funds or other short-term interest bearing
investments.
DILUTION
The difference between the initial public offering price per share and the
net tangible book value per share of common stock after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share is determined by dividing our net tangible book value (total tangible
assets less total liabilities) by the number of outstanding shares of common
stock.
At December 31, 1998, we had a net tangible book value of $1,462,522 or
$.28 per share. After giving effect to the sale of the 2,000,000 shares of
common stock being offered (after deducting estimated underwriting discounts and
expenses of this offering), our adjusted net tangible book value at December 31,
1998 would have been $14,362,740 or $1.88 per share, representing an immediate
increase in net tangible book value of $1.60 per share to the existing
stockholders and an immediate dilution of $5.12 (73.1%) per share to new
investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price ........................... $ 7.00
Net tangible book value before offering ................ $ .28
Increase attributable to new investors ................. 1.60
-----
Adjusted net tangible book value after offering ......... 1.88
------
Dilution to new investors ............................... $ 5.12
======
</TABLE>
The following table sets forth as of the effective date of this offering,
with respect to our existing stockholders and new investors, a comparison of the
number of shares of common stock we issued, the percentage ownership of such
shares, the total consideration paid, the percentage of total consideration paid
and the average price per share. The number of shares purchased by existing
stockholders includes 295,271 shares issued after December 31, 1998 and 35,714
shares to be issued upon the closing of this offering.
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration per Share
----------------------- -------------------------- --------------
Number Percent Amount Percent
----------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 5,631,745 73.8% $ 4,664,933 25.0% $ .83
New investors ................. 2,000,000 26.2 14,000,000 75.0 7.00
--------- ----- ----------- -----
Total ....................... 7,631,745 100.0% $18,664,933 100.0%
========= ===== =========== =====
</TABLE>
The above table assumes no exercise of the underwriter's over-allotment
option. If the underwriter exercises the over-allotment option in full, it is
estimated that the new investors will have paid $16,100,000 for the 2,300,000
shares of common stock being offered, representing approximately 77.5% of the
total consideration for 29.0% of the total number of shares of common stock
outstanding. In addition, the above table does not give effect to the shares
issuable upon exercise of outstanding options and warrants.
15
<PAGE>
DIVIDENDS
We have never declared or paid any dividends to the holders of our common
stock and we do not anticipate paying cash dividends in the foreseeable future.
We currently intend to retain all earnings for use in connection with the
expansion of our business and for general corporate purposes. Our board of
directors will have the sole discretion in determining whether to declare and
pay dividends in the future. The declaration of dividends will depend on our
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by our board of directors. Our ability to pay cash
dividends in the future could be limited or prohibited by regulatory
requirements and the terms of financing agreements that we may enter into or by
the terms of any preferred stock that we may authorize and issue.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
on an actual basis, adjusted to give effect to the pro forma information
described under "Prospectus Summary -- Summary Financial Information" and
adjusted to give effect to our sale of 2,000,000 shares of the common stock
being offered and the anticipated application of the estimated net proceeds
therefrom. The pro forma and as adjusted number of shares issued and outstanding
include 70,771 shares issuable upon the closing of this offering and 35,714
shares which will be issued upon exercise of options upon the closing of this
offering. The share numbers presented in the following table do not include:
o the 200,000 shares reserved for issuance upon exercise of the
underwriter's warrants;
o the 1,049,900 shares reserved for issuance upon exercise of options
granted under our stock option plans;
o the 150,100 shares reserved for issuance upon the exercise of options
available for future grant under our stock option plans;
o the 351,250 shares reserved for issuance upon exercise of non plan
options and warrants; and
o the 300,000 shares reserved for issuance in this offering to cover
over-allotments, if any, by the underwriter.
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
Actual Pro Forma As Adjusted
--------------- --------------- --------------
<S> <C> <C> <C>
Short-term debt ........................................ $ 740,587 $ 740,587 $ 490,587
============ ============ ============
Long-term debt ......................................... $ 695,000 $ 1,095,000 $ 595,000
------------ ------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000
shares authorized; no shares issued or outstanding,
actual, pro forma or as adjusted .................... -- -- --
Common stock, par value $.001 per share, 10,000,000
shares authorized; 5,300,760 shares issued and
outstanding, actual; 5,631,745 shares issued and
outstanding, pro forma; 7,631,745 shares issued and
outstanding, as adjusted ............................ 5,301 5,632 7,632
Additional paid-in capital ............................ 4,135,568 5,325,237 16,989,622
Option costs .......................................... (219,559) (359,559) (140,000)
Accumulated deficit ................................... (2,133,187) (2,133,187) (2,415,116)
------------ ------------ ------------
Total stockholders' equity .......................... $ 1,788,123 $ 2,838,123 $ 14,442,138
------------ ------------ ------------
Total capitalization ............................. $ 2,483,123 $ 3,933,123 $ 15,037,138
============ ============ ============
</TABLE>
In January 1999, our authorized common stock was increased to 20,000,000
shares.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a financial services company which owns A.B. Watley, Inc., a
registered securities broker-dealer and member of the National Association of
Securities Dealers, Inc. We acquired all of the capital stock of Watley in
January 1997. Our financial statements consolidate the historical results of
Watley. Watley has accounted for all of our revenues for each period presented.
We have experienced substantial changes to, and expansion of, our business
and operations since we began offering Internet brokerage services in March
1997. We expect to continue to expand our business and client base which will
require us to increase our personnel, purchase additional equipment and expand
our network and client service capabilities which will result in increasing
expenses.
Results of Operations
Three months ended December 31, 1998 compared to the three months ended December
31, 1997
Revenues for the three months ended December 31, 1998 were $3,180,033, an
increase of 118.2% as compared to revenues of $1,457,560 for the three months
ended December 31, 1997. Revenues from commissions increased by $1,288,174, or
108.5% from $1,187,487, for the December 1997 period to $2,475,661 for the
December 1998 period due to the significantly increased number of online orders,
as well as the growth in our third-market institutional sales desk operations.
The number of online trading accounts grew from 455 at December 31, 1997 to 988
at December 31, 1998. Data Service revenues also increased by $151,592, or
122.2% from $124,012 for the December 1997 period to $275,604 for the December
1998 period due to the increase in the number of online accounts. Revenues from
principal transactions increased by $264,801, or 232.6% from $113,858 for the
December 1997 period to $378,659 for the December 1998 period, mainly as a
function of the significantly higher volumes of business conducted by the
third-market institutional sales desk. Interest and other income increased from
$32,203 for the December 1997 period to $50,109 for the December 1998 period.
Interest expense increased from $19,610 for the December 1997 period to
$108,503 for the December 1998 period as result of increased borrowings.
As a result of the above, net revenues increased by $1,633,580, or 113.6%,
from $1,437,950 for the December 1997 period to $3,071,530 for the December 1998
period. Nearly all of our revenues were generated by clients in the United
States and no single client or group of related clients accounted for 10% or
more of our revenues.
Total expenses increased by $1,496,268, or 83.1%, from $1,800,538 for the
December 1997 period to $3,296,806 for the December 1998 period. Commissions,
floor brokerage and clearing charges represent payments to our clearing and
floor brokers and to employees who facilitate our clients' transactions and
other expenses related to market data services. As a result of the large
increase in the volume of business conducted by our clients, these expenses
increased by $772,540, or 129.4%, from $597,070 for the December 1997 period to
$1,369,610 for the December 1998 period. Employment compensation and related
costs increased by $472,301, or 124.3%, from $380,041 for the December 1997
period to $852,342 for the December 1998 period, largely due to the hiring of 21
new employees to service the growth in our client base. Communications expense
increased by $58,616, or 40.5%, from $144,732 for the December 1997 period to
$203,348 for the December 1998 period as a function of the growth in our online
client base. We expect that these expenses will continue to increase as we try
to further expand our client base.
Business development costs consist of advertising costs to obtain new
clients, which costs have mostly been for print and media advertising. These
expenses decreased by $164,407, or 44.7%, from $368,102 for the December 1997
period to $203,695 for the December 1998 period as a result of significantly
increased effectiveness of our marketing efforts and the resulting lower costs
of client acquisition.
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<PAGE>
Professional service expenses increased from $104,816 for the December 1997
period to $198,571 for the December 1998 period, primarily due to increased
audit fees and consulting fees relating to the general growth of our business.
Occupancy and equipment costs increased by $144,433, or 204.2%, from $70,716 for
the December 1997 period to $215,149 for the December 1998 period, primarily due
to the relocation of our offices to a new, larger space and the purchase of
additional equipment to provide additional capacity and to facilitate the
relocation efforts. Depreciation and amortization expense increased by $45,633,
or 65.9%, from $69,278 for the December 1997 period to $114,911 for the December
1998 period for similar reasons. Other expenses increased by $73,397 or 111.6%,
from $65,783 for the December 1997 period to $139,180 for the December 1998
period for the same reasons.
The income tax provision increased from $3,191 for the December 1997 period
to $4,150 for the December 1998 period.
Our operating results improved from a net loss of $365,779 for the three
months ended December 1997 to a net loss of $229,426 for the three months ended
December 31, 1998.
Fiscal year ended September 30, 1998 compared to fiscal year ended September 30,
1997.
Revenues for fiscal 1998 were $9,119,268, an increase of 101.2%, as
compared to revenues of $4,532,532 for fiscal 1997. Revenues from commissions
increased by $3,385,272, or 84.3% from $4,017,787 for fiscal 1997 to $7,403,059
for fiscal 1998 due to the substantially increased volume of orders transacted
by our online brokerage clients, as well as through our third-market
institutional sales desk. We experienced an increase in the number of online
trading clients from approximately 300 at September 30, 1997 to approximately
900 at September 30, 1998. Data service revenues also increased by $512,883, or
345.7% from $148,353 for fiscal 1997 to $661,236 for fiscal 1998 due to the
increased number of online trading accounts. Revenues from principal
transactions increased by $671,592, or 291.6%, from $230,297 for fiscal 1997 to
$901,889 for fiscal 1998, largely as a result of the increased volume of
business conducted by our third-market institutional sales desk. Interest and
other income increased from $130,095 for fiscal 1997 to $146,704 for fiscal
1998.
Interest expense increased from $212,359 for fiscal 1997 to $259,322 for
fiscal 1998 as a result of increased borrowings.
As a result of the above, our net revenues increased by $4,539,773, or
105.1%, from $4,320,173 for fiscal 1997 to $8,859,946 for fiscal 1998.
Substantially all of our revenues were generated by clients in the United
States. No client or group of related clients accounted for 10% or more of our
revenues.
Total expenses increased by $4,102,221 or 76.3%, from $5,377,370 for fiscal
1997 to $9,479,591 for fiscal 1998. Commissions, floor brokerage and clearing
charges represent payments to our clearing brokers and to employees who
facilitate our clients' transactions and expenses related to market data
services. As a result of the significant increase in the volume of transactions
by our clients, such expenses increased by $1,580,798, or 85.7%, from $1,844,927
for fiscal 1997 to $3,425,725 for fiscal 1998. Employment compensation and
related costs increased by $950,388, or 73.2% from $1,297,575 for fiscal 1997 to
$2,247,963 for fiscal 1998 due to our hiring of 25 additional personnel to
service our increased client base. Communications expense increased by $419,807,
or 124.4%, from $337,584 for fiscal 1997 to $757,391 for fiscal 1998 as a result
of our substantially increased base of online clients. We expect that these
expenses will continue to increase as we seek to expand our client base.
Business development expenses increased by $539,227, or 122.2%, from
$441,424 for fiscal 1997 to $980,651 for fiscal 1998 as a result of our expanded
marketing efforts. We expect such aggregate expenses to continue to increase as
we expand our marketing efforts. However, our new client acquisition costs
decreased on a per client basis.
Professional service expenses increased from $894,920 for fiscal 1997 to
$971,494 for fiscal 1998. Occupancy and equipment costs increased by $294,589,
or 196.9%, from $149,580 for fiscal 1997 to $444,169 for fiscal 1998, primarily
due to the relocation of our offices to larger space and the purchase of
additional equipment in anticipation of our proposed expansion. Depreciation and
amortization expense increased by $164,227, or 82.5%, from $198,980 for fiscal
1997 to $363,207 for fiscal 1998 for the same reasons. Other expenses increased
by $76,611, or 36.1%, from $212,380 for fiscal 1997 to $288,991 for fiscal 1998
for the same reasons.
18
<PAGE>
The income tax provision increased from $2,776 for fiscal 1997 to $12,765
for fiscal 1998.
As a result of the foregoing, our operating results improved from a net
loss of $1,059,973 for fiscal 1997 to a net loss of $632,410 for fiscal 1998.
Liquidity and Capital Resources
Our capital requirements have exceeded our cash flow from operations as we
have been building our business. At December 31, 1998, we had a working capital
deficit of $1,777,898. As a result, we have depended upon sales of our common
stock and borrowings from officers, directors and stockholders and third parties
to finance our working capital requirements.
Watley has outstanding an aggregate of $530,000 in the form of subordinated
loans, pursuant to agreements approved by the NASD. Such loans are included by
Watley for purposes of computing its net capital under the SEC's net capital
rules. These borrowings by Watley consist of (A) a $55,000 principal amount
non-interest bearing loan, and a $125,000 principal amount loan, bearing
interest at the rate of 12% per annum, from Steve Malin, our Chairman of the
Board and Chief Executive Officer, and (B) a $200,000 principal amount loan,
bearing interest at the rate of 15% per annum and a $150,000 principal amount
loan bearing interest at the rate of 13% per annum from Mel Steinberg, father of
Eric Steinberg, our Executive Vice President. The loans mature in October 2000,
except for the $125,000 loan which matures in April 2000. During our fiscal year
ended September 30, 1997, we paid an aggregate of $47,788 of interest on such
loans and during our fiscal year ended September 30, 1998, we paid an aggregate
of $49,500 of interest on such loans.
Watley is currently required to maintain net capital of $100,000 and a
ratio of aggregate indebtedness to net capital (the "net capital ratio") of 15
to 1 pursuant to the SEC's net capital rule. Such rule also prohibits "equity
capital" (which, pursuant to the net capital rule includes the subordinated
loans) from being withdrawn or cash dividends from being paid if Watley's net
capital ratio would exceed 10 to 1 or if Watley would have less than its minimum
required net capital. Accordingly, Watley's ability to repay the subordinated
loans may be restricted pursuant to the net capital rule. At December 31, 1998,
Watley had net capital of $187,875, which was $87,875 in excess of its minimum
required net capital, and Watley's net capital ratio was 3.3 to 1.
We received net proceeds of $2,045,000 from a private placement of equity
securities during our fiscal year ended September 30, 1997. We used
approximately $1,180,000 of such proceeds to acquire the systems and equipment
utilized to test and launch our online trading systems during that period. The
balance of these proceeds were used for advertising and working capital.
During our fiscal year ended September 30, 1998, we received net proceeds
of $990,000 from a private placement of equity securities and $250,000 from the
issuance of $250,000 principal amount notes and options to purchase an aggregate
of 35,714 shares of common stock for nominal consideration, of which $100,000
was furnished by Mel Steinberg. These proceeds were utilized to develop software
and to purchase a portion of the equipment required to expand our online
network.
In October 1998, we obtained a $500,000 loan from New York Small Business
Venture Fund LLC, bearing interest at an annual rate of 12%, payable monthly. In
connection with such loan, we issued to the lender a $500,000 principal amount
promissory note and warrants to purchase 191,250 shares of our common stock at
an exercise price equal to the initial public offering price of our common stock
($6.00 per share). We granted the lender a security interest in substantially
all of our assets to secure our obligations under the loan, and six persons who
are our officers, directors and/or principal stockholders guaranteed our
obligations under such loan. We used these funds for the purchase of additional
equipment, marketing expenses, software development and working capital. We
intend to repay the loan, plus a 1% prepayment fee, from the proceeds of this
offering.
In December 1998, we obtained a $500,000 line of financing from General
Electric Capital Corporation which is to be used from time to time primarily for
the purchase or leasing of additional equipment and software. We are required to
deliver to the lender a letter of credit in the amount of 50% of any amount
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borrowed under this financing. As of December 31, 1998, we borrowed
approximately $311,208 under this line of financing, which we used to purchase
equipment. In connection with our borrowing under this financing, we have
granted the lender a security interest in existing equipment as well as in all
equipment purchased using funds obtained under this financing.
We had cash and cash equivalents of $970,308 as of September 30, 1998. Our
operating activities provided $582,325 of net cash. We had a net loss of
$632,410 and a decrease in receivables from clearing brokers of $239,479, which
was more than offset by depreciation and amortization of $363,207, non-cash
amortization of option costs of $226,227, a non-cash compensation charge of
$115,000 and an increase in accounts payable and accrued liabilities of
$660,605. We used $1,440,345 of net cash in investing activities, consisting of
$2,244,313 of property and equipment purchases, which was partially offset by
deferred rent incentives of $803,968. Financing activities provided $1,125,635
of net cash, consisting of $990,870 of proceeds from sales of common stock and
$250,000 of proceeds from the issuance of notes payable, which were partially
offset by a $40,000 repayment of a loan to Bank of New York and $75,235 of
payments made for deferred offering costs.
As of December 31, 1998, we had cash and cash equivalents of $250,797.
Operating activities during the three months ended December 31, 1998 created a
net use of cash of $31,946. We incurred a net loss during the December 1998
period of $229,426 and $406,861 of cash was restricted to secure letters of
credit. These uses of cash were partially offset by depreciation and
amortization of $114,911, non-cash amortization of option costs of $71,983, a
decrease in securities owned of $89,548 and an increase in accounts payable and
accrued liabilities of $362,344. During the December 1998 period, we used
$984,097 of net cash in investing activities, consisting entirely of property
and equipment purchases. Financing activities provided $296,532 of cash,
consisting of $500,000 of proceeds from the issuance of notes payable and $2,500
of proceeds from exercised stock options, which were partially offset by
$195,968 of payments made for deferred offering costs and a $10,000 repayment of
a loan to Bank of New York. We issued 38,260 shares of our common stock to
acquire Computer Strategies, Inc. during the three months ended December 31,
1998. Computer Strategies provided software support, research and development to
us and we were Computer Strategies' primary customer. The acquisition was
accounted for as a purchase. We recorded approximately $60,000 in goodwill from
the acquisition which is being amortized over three years, and approximately
$59,000 in capitalized software attributable to costs incurred in the
application development stage of our software development.
In January 1999, we obtained a $400,000 loan from New York Community
Investment Company L.L.C., bearing interest at an annual rate of 12%, payable
monthly. In connection with this loan, we issued to the lender a $400,000
principal amount promissory note and warrants to purchase 140,000 shares of our
common stock at an exercise price equal to the initial public offering price of
our common stock ($6.00 per share). We granted the lender a security interest in
substantially all of our assets (other than our intangible assets) to secure our
obligations under the loan. We are using these funds for marketing expenses and
working capital.
In January 1999, we sold an aggregate of 221,500 shares of common stock to
12 investors in a private placement at a price of $4.80 per share for which we
received aggregate net proceeds of approximately $1,050,000. In connection with
such private placement, Anthony Huston, our Executive Vice President purchased
50,000 shares at a price of $240,000; Leon Ferguson, Senior Vice President,
purchased 52,000 shares at a price of $249,600; and Mark Chambre, who has agreed
to serve as a director upon the closing of this offering, purchased 15,000
shares at a price of $72,000. All of the purchasers of such shares agreed not to
sell or otherwise dispose of any of such shares for a period of twelve months
from the date of this prospectus.
We expect to make capital expenditures of approximately $3,300,000 during
the twelve months following the closing of this offering. These capital
expenditures are expected to be made to expand our network infrastructure,
create an off-site back-up communications center or "hot-site", purchase
additional systems to convert to self-clearing operations, provide additional
client support, expand our third-market institutional sales desk and continue
software and programming development.
We need the proceeds of this offering to expand our operations and finance
our future working capital requirements. Based upon our current plans and
assumptions relating to our business plan, we anticipate that the net proceeds
of this offering will satisfy our capital requirements for at least twelve
months following the
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closing of this offering. If our plans change or our assumptions prove to be
inaccurate, we may need to seek additional financing sooner than currently
anticipated or curtail our operations. We may seek additional debt or equity
financing to fund the cost of continued expansion. If we incur debt, we will
become subject to the risks that interest rates may fluctuate and cash flow may
be insufficient to make payments on the debt.
Net Operating Loss Carryforwards
Our net operating loss carryforwards expire beginning in the year 2012.
Under Section 382 of the Internal Revenue Code of 1986, utilization of prior net
operating losses is limited after an ownership change, as defined in Section
382, to an annual amount equal to the value of the corporation's outstanding
stock immediately before the date of the ownership change multiplied by the
long-term tax exempt rate. The issuance of additional equity securities,
together with our recent financings and this offering, could result in an
ownership change and, thus, could limit our use of our prior net operating
losses. In the event we achieve profitable operations, any significant
limitation on the utilization of our net operating losses would have the effect
of increasing our tax liability and reducing net income and available cash
reserves. We are unable to determine the availability of these net operating
losses since this availability is dependent upon profitable operations, which we
have not achieved in prior periods.
Relevant Accounting Standards
We generally grant stock options to certain employees and consultants with
an exercise price not less than the fair market value at the date of grant. We
account for stock option grants to employees in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, recognize no compensation expense related to such grants. In
cases where we grant options below the fair market value of the stock at the
date of grant, the difference between the strike price and the fair market value
is treated as compensation expense and amortized over the vesting period of the
option, if any. Stock options granted to consultants and others in lieu of cash
compensation are recorded based upon management's estimate of the fair value of
the options or the related services provided and expensed over the vesting
period, if any.
Pro forma information regarding net income (loss) is required under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if we had accounted for all the 1998
and 1997 stock option grants on the fair value method.
We account for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." We recognize the current and deferred tax
consequences of all transactions that have been recognized in the financial
statements, using the provisions of enacted tax laws. Deferred tax assets are
recognized for temporary differences that will result in deductible amounts in
future years and for tax loss carryforwards, if in the opinion of our
management, it is more likely than not that the deferred tax asset will be
realized. SFAS No. 109 requires companies to set up a valuation allowance for
the component of net deferred tax assets which does not meet the "more likely
than not" criteria for realization. We have established such valuation allowance
for our deferred tax assets.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." The new rules are effective for both interim and annual
financial statements for the periods ending after December 15, 1997. SFAS No.
128 supersedes APB No. 15 to conform earnings per share with international
standards as well as to simplify the complexity of the computation under APB No.
15. The previous primary earnings per share calculation is replaced with a basic
earnings per share calculation. The basic earnings per share differs from the
primary earnings per share calculation in that the basic earnings per share does
not include any potentially dilutive securities. Fully dilutive earnings per
share is replaced with diluted earnings per share and should be disclosed
regardless of dilutive impact to basic earnings per share. Accordingly, our
company has adopted SFAS No. 128 effective September 30, 1998.
Year 2000 Issues
We have devised a plan and have substantially completed a review and
assessment of all hardware and software and believe that such hardware and
software are substantially year 2000 compliant so that the
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computer programs do not cease functioning because of an inability to process on
a date occurring from and after January 1, 2000. Our review has not revealed any
year 2000 issues that cannot be remediated in a timely manner. We do not believe
that any such remediation costs will be material.
We are highly dependent upon third-party financial information vendors,
telecommunications suppliers and our clearing brokers. We have sent letters to a
number of such vendors requesting assurances of their compliance. Such third
parties have generally advised us that their review of their operating systems
indicate that their operating systems are year 2000 compliant or will be year
2000 compliant in a timely manner. We are currently developing a contingency
plan in the event that any third parties with which we do business have any
material year 2000 compliance problems.
We would be materially adversely affected if there are any failures or
interruptions in service resulting from the inability of our computing systems
or any such third-party's systems to recognize the year 2000. Moreover, since
our evaluation of these issues is continuing, we cannot assure you that
additional issues will not be discovered which could present a material risk of
disruption to our operations.
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BUSINESS
We are a financial services company which owns A.B. Watley, Inc., a
registered securities broker-dealer and member of the National Association of
Securities Dealers, Inc. Watley has received favorable industry recognition,
ranking second in Dow Jones Business Directory's recent survey of Internet
brokers and sixth in Gomez Advisors Spring 1999 ranking of Internet brokers. In
addition, UltimateTrader and Watley Trader were ranked seventh and sixteenth in
Barron's annual ranking of online brokers published in March 1999.
Industry Overview
Our industry has recently experienced a series of changes, led by
electronic and online commerce, which has created market opportunities for us
and other similarly situated brokerage firms. These favorable market trends
include:
The Emergence of Electronic and Online Commerce.
Internet and online services have provided organizations and individuals
with innovative ways of conducting business. With the emergence of the Internet
as a globally accessible, fully interactive and individually addressable
communications and computing medium, companies that have traditionally conducted
business in person, through the mail or over the telephone are increasingly
utilizing electronic commerce. Increased use of credit cards, automated teller
machines, the incidence of electronic funds transfers and online banking and
bill paying has automated, simplified and reduced the costs of financial
transactions for consumers, businesses and financial institutions.
Consumers have shown a strong preference for transacting certain types of
business electronically, such as paying bills, buying insurance, booking airline
tickets and trading securities, rather than in person or over the telephone.
These transactions are being streamlined through online commerce and can now be
performed directly by individuals virtually anywhere at any time. Consumers have
accepted and even welcomed self-directed online transactions because such
transactions can be faster, less expensive and more convenient than transactions
conducted through a human intermediary.
The Development of Online Brokerage Services.
In the past, individual investors could access the financial markets only
through a full-commission broker, who would offer investment advice and place
trades. With the deregulation of brokerage commissions in 1975 and the resulting
unbundling of brokerage services, investors began to realize that they could
separate financial advisory services from securities trading. This brought about
the advent of discount brokerage firms, which provide an alternative investment
approach by completing trades at a reduced cost.
With the emergence of electronic brokerage services, investors are being
given the ability to further unbundle the costs associated with the human
interaction required by full-commission and traditional discount brokerage
firms. By requiring personnel to handle each transaction, most traditional
brokerage firms restrict their clients' access to trading and information to the
availability of the person processing the transaction. In addition, although
full-commission and discount brokerage firms are able to offer electronic
trading services, their continued reliance on personnel, branch offices and the
associated infrastructure for a major part of their business prevents them from
reducing their cost structure to the lower price points achievable through
electronic trading.
We believe that the increased presence of automated teller machines, the
growth of discount brokerage firms and a variety of other indicators evidence a
shift in demographics that is fundamentally altering the way consumers manage
their personal financial assets. Based on consumer feedback and the rapid
acceptance by consumers of online transactions, we also believe that consumers
are increasingly taking direct control over their personal financial affairs,
not only because they are now able to do so, but also because they find it more
convenient and less expensive than relying on financial intermediaries.
As investors obtain even more access to investment information, we believe,
based upon our experience in the industry, they will desire greater control over
their financial decisions and seek alternative ways to
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invest more conveniently and cost-effectively and with less interaction with
brokers and other financial services professionals. Based upon our experience in
the industry, we believe that this trend has created a growing opportunity to
provide online trading services, such as UltimateTrader, that are easy to
access, easy to use, cost-effective and secure.
The Growing Market for Active Traders, Active Investors and Online Brokerage
Services.
Active trading is dependent upon liquidity, i.e., the ability to buy or
sell stock at any given time. Until recently, liquidity was primarily provided
by Nasdaq, the New York Stock Exchange and an alternative trading system called
Instinet. Both systems display quoted bid and ask prices for stock and have
automatic execution capacity. However, the liquidity on Instinet is available
only to institutional clients and certain brokerage firms.
In 1996, the SEC adopted rules which brought about sweeping changes in the
structure of the over-the-counter market and were very beneficial for our
company and our clients, as well as to public companies and their shareholders.
These rules, known as the order handling rules, permitted the creation and
operation of electronic communication networks, open broadcasting systems that
allow anyone with a connection to the network to see all the bids and offers
posted into the system for any Nasdaq traded security. The order handling rules
require market makers to display certain limit orders in their quotations or to
send those orders to an electronic communication network for display. The
increased regulatory emphasis on enforcing compliance with the duty of brokers
to obtain the best execution for their clients has fostered the growing
importance of electronic communication networks, which provide an
ever-increasing source of liquidity (having a ready market to buy or sell stock)
in the over-the-counter market.
Based upon our experience in the industry, we believe that this regulatory
environment and the increased availability of information to individual
investors on a real-time basis, together with advances in Internet, networking
and communications technologies, has created investing opportunities for active
traders and active investors and market opportunities for online brokerage
services.
Online trading is the fastest growing segment of the brokerage industry and
is expected to grow significantly. Forrester Research, Inc. projects that the
online trading industry grew from approximately 1.5 million accounts at the end
of 1996 to approximately 5 million accounts at the end of 1998, and that the
market will grow to 8.4 million accounts at the end of 1999 and 14.4 million
accounts in 2002. Another industry report indicates that the volume of
securities trades placed over the Internet increased by 34% during the fourth
calendar quarter of 1998, compared to the third quarter of 1998, and that the
number of online trades accounts for 25% to 30% of all individual investor stock
transactions and 14% of all equity transactions. Industry experts also project
that retail commissions generated by online trading market will grow from
approximately $268 million, or 15% of the commissions generated by discount
brokerages in 1996, to as much as $2.2 billion, or 60% of total discount
brokerage commissions by 2001.
Strategy
Our strategy is to capitalize on perceived opportunities arising from the
expanding online trading market by:
o Targeting active traders and other active investors. We believe that the
market for such clients is currently underserviced and that UltimateTrader
is positioned to satisfy their requirements.
o Expanding our marketing efforts for our online brokerage service. We intend
to aggressively market UltimateTrader by targeting active traders through
print, online and other advertisements. Our advertising efforts are
expected to include advertisements in financial publications and various
other regional and national publications that have a demographic similar to
our target market. We also intend to advertise and promote UltimateTrader
through Internet website and banner advertisements and television
commercials.
o Expanding our network infrastructure and client support capabilities. We
intend to expand our network infrastructure and client support capabilities
to better service an expected increasing client
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base. Our internal computing needs will require additional networking
equipment. We also intend to establish an off-site back-up communications
center or "hot site", in a different region of the country, to mirror the
primary location in order to ensure continued operations in the event of a
systems failure at our primary location.
o Improving our third-market institutional sales desk. We are continuously
seeking to improve our technical expertise and apply new technologies to
more effectively provide such services. Additionally, after this offering,
we intend to hire additional associates to expand the number of securities
we cover for this market.
In addition, we intend to expand our operations by:
o Converting to self-clearing operations. Based upon an internal cost/benefit
analysis we believe that performing such operations internally will reduce
our operating costs and provide us the opportunity to receive expanded
revenues from margin transactions with our clients. We expect to accomplish
this expansion by acquiring an existing clearing firm or hiring the
appropriate staff to build and manage our own clearing department. We
intend to develop and/or obtain the requisite software systems and to
acquire computer hardware, as well as the necessary personnel, to convert
to self-clearing operations during the year 2000.
o Offering online services in foreign markets. We are currently evaluating
opportunities to provide electronic execution services for foreign
institutions and their clients for transactions in the U.S. securities
markets and to arrange for foreign institutions to provide for such
services for our clients in foreign markets.
o Offering fee-based asset management services. We are evaluating the
possibility of offering a comprehensive range of financial advisory
services online, including assessing risk profiles, asset allocation and
fund placement.
UltimateTrader
We designed UltimateTrader by uniquely integrating third-party market data
and order entry software with our proprietary networking systems to create a
proprietary trading system.
Since UltimateTrader is a client-server application, it is not restricted
by the limitation of HTML, the primary programming language of the worldwide
web. With trading systems which use HTML, displayed data remains static until a
query is repeated. In contrast, UltimateTrader delivers and automatically
updates a continuous, dynamic stream of live market data to the client's screen.
UltimateTrader provides our clients access to comprehensive information on
stocks, markets, indices, mutual funds, news and options. UltimateTrader clients
are able to access bid and ask prices, charts, research and over 170 other types
of information for any listed or Nasdaq traded stock, as well as the ability to
establish and track their securities, cash and margin positions on a real-time
basis. Our clients can arrange the display and configuration of data on their
computer screens using a menu and tool bar, which are generally utilized in the
Windows(TM) operating system. Different computer screen arrays or pages can be
built to suit the user's personal requirements.
UltimateTrader clients can execute trades with a few simple mouse clicks or
keystrokes. UltimateTrader clients can route trades directly to the exchanges,
the Nasdaq Market Maker System, a specific market maker or an electronic
communication network. As a result, we believe trades can be executed more
quickly than if the trade is routed through a third market firm or an online
brokerage firm's trading desk, as is the case within any other trading systems.
The order entry section can be preset for size and type of order. The client can
use a mouse to click the bid or ask price of a security and either close out an
open position or add to an existing one. If the user clicks the bid or ask price
of the security, the order entry screen will appear pre-configured to buy or
sell.
Once an order is entered, UltimateTrader sends the order to the exchange
selected in less than two seconds from virtually anywhere in the world. Such
significant savings in time have tremendous value to a client who is trying to
trade in markets characterized by rapidly changing prices.
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Speed of order execution is also affected by how an order is routed.
UltimateTrader clients are able to route their orders directly to the exchanges
(such as the New York Stock Exchange, American Stock Exchange, Nasdaq Stock
Market, Inc. and Chicago Board Options Exchange). Most other retail online
trading systems route orders to a third-market firm (i.e., Knight and Trimark)
or to the online broker's trading desk or trading subsidiary, which in turn
routes the orders to the market. The Company believes that most internal trading
systems and those of third-market firms cannot match the order execution speed
and capacity of the exchanges.
Clients can also elect to route trades to our Watley trading desk for
efficient execution. Our Watley trading desk consists of registered
representatives who are available to assist our clients. There is no additional
cost for executing orders via the Watley trading desk button.
UltimateTrader clients may place bids or offers onto an electronic
communication network which will also appear in the Nasdaq Market Maker Level 2
screen with the corresponding price and size of the order. This gives our
clients an advantage in attempting to execute orders in between the current bid
and asked prices of Nasdaq securities.
To direct an order to a specific market maker or electronic communication
network, our clients double click on the market maker or ECN and mark their
order entry screen with this preference. The SelectNet preference button is
useful when our clients wish to execute orders for more than 1,000 shares of a
security. Orders sent through SelectNet are only shown to the market makers
trading that particular security.
UltimateTrader Service Levels. UltimateTrader clients can select among four
different service levels, depending on the information desired and the cost and
fees which a client is willing to pay for information and service.
The following table sets forth the features offered for each
UltimateTrader Service Level
<TABLE>
<CAPTION>
Ultimate Trader Service Level Service Level Service Level Service Level
Features I II III IV
- ------------------------------------------ --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Dynamic Updating Quotations .............. - - - -
Unlimited Customized Pages ............... - - - -
Electronic Execution ..................... - - - -
Board View Portfolio Minder .............. - - -
Position Minder .......................... - - -
Scrolling Tickers ........................ - - -
Alarms ................................... - - -
Snap Quotes .............................. - - -
Market Minder ............................ - - -
Hot Keys ................................. - - -
MultiQuotes .............................. - - -
Charts with Technical Studies ............ - -
Nasdaq Level II Data ..................... -
Color Coded Market Maker Screens ......... -
Time and Sales ........................... -
</TABLE>
Following is a description of each of the UltimateTrader features we offer:
o Dynamic Updating Quotations -- displays real time changes in prices and
markets as they occur.
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o Unlimited Customized Pages -- allows clients to create computer screen
layouts to their preference with their data and to scroll freely among
these pages.
o Electronic Execution -- provides direct electronic access to various
exchanges and markets for rapid routing of execution of trades.
o Board View Portfolio Minder -- used to create computer windows with
comprehensive price and other data relating to a number of different
securities.
o Position Minder -- serves as a portfolio monitor and displays existing
open positions as well as the status of pending orders.
o Scrolling Tickers -- displays price and trading volume information for
the symbols that a client chooses on a live basis. The quotes will move
through the ticker window as the server receives them.
o Alarms -- alerts clients by an audio or visual "pop-up" when target
criteria have been met for a specified security.
o Snap Quotes -- displays detailed information about individual symbols.
o Market Minder -- a fully configurable quote screen that can display
virtually any information about the security selected by the client.
o Hot Keys -- the ability to execute/cancel trades with a simple keystroke.
o MultiQuotes -- displays prices and fundamentals for any symbol.
o Charts with Technical Studies -- allows clients to view live, dynamically
updating, real-time intraday chart data and historical information for
stocks, options or indices.
o Nasdaq Level II Data -- continuously updated display of market maker and
electronic communication network current prices and changes.
o Color Coded Nasdaq Market Maker Screens -- designed to visually display
(by a special color on the screen) upward and downward trends in recent
trades in a security.
o Time and Sales -- reflects last and cumulative trades, prices and
aggregate daily volume in a security.
Our fee schedule for clients subscribing to Service Level I is as follows:
<TABLE>
<CAPTION>
Number of Trades Per Month Transaction Charges Monthly Fee for Real Time Data
- ---------------------------- --------------------- -------------------------------
<S> <C> <C>
1-19 trades per month $ 16.95 $50 per month
20 or more per month $ 16.95 free
</TABLE>
Our fee schedule for clients subscribing to Service Levels II, III and IV
is as follows:
<TABLE>
<CAPTION>
Monthly Fee for Real Time Data*
----------------------------------------------
Number of Trades Per Month Transaction Charges Level II Level III Level IV
- -------------------------- --------------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
1-9 trades per month $ 23.95 $ 75 $ 150 $ 300
10-24 trades per month $ 22.95 $ 50 $ 125 $ 250
25-49 trades per month $ 20.95 free $ 75 $ 200
50-99 trades per month $ 19.95 free free free
100-199 trades per month $ 18.95 free free free
200 or more trades per month $ 17.95 free free free
</TABLE>
- ------------
*Dow Jones News Service is an optional service priced at $95.00 per month.
Orders for an exchange listed security in excess of 2,000 shares or a
Nasdaq listed security in excess of 10,000 shares incur a surcharge of $.01 per
share and a commission of $.01 per share on the entire order. We also charge an
additional fee for executing on an electronic communication network or
SelectNet, substantially all of which is forwarded to the owner or operator of
that system.
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Optional Services. We offer a vast array of optional services to
UltimateTrader clients. Among these are the Dow Jones News Service and various
charting and market trading services. The Dow Jones News Screen provides
continuously updating real-time news in a scrolling format, including breaking
news, corporate announcements, interviews, industry news, market reports,
economic and political developments, "hot stock" alerts, international events
and other information that impacts the securities markets.
With Dow Jones News and a number of other services, we invoice the client
directly as part of their monthly bill and remit the special charges to the
vendor supplying these services, while retaining approximately 15% of the charge
as our fee.
Virtual Private Network Access. Watley has created a virtual private
network solution called the Dedicated Port Service for those clients who require
reliable non-Internet access to the equity markets. This service offers local
dial access from nearly anywhere in the country via modem, as well as ISDN
access in selected metropolitan areas. Users are charged a fixed monthly fee for
unlimited usage.
UltimateTrader has accounted for most of our retail customer account
revenues in the past year and we anticipate this to continue in the future.
During our fiscal year ended September 30, 1998 and three months ended December
31, 1998, we derived approximately 67.4% and 70.3% of our total revenues from
UltimateTrader clients.
WatleyTrader
WatleyTrader is our web-based Internet brokerage service which we designed
for active investors who execute trades online and use online services to gather
information about the securities markets. WatleyTrader provides comprehensive
information on stocks, markets, indices, mutual funds, news and options in a
live format for free. WatleyTrader clients can place trades, obtain quotes,
order research and check account balances and portfolio valuations online or
through our automated touch-tone phone system, 24 hours a day. The electronic
order system for the WatleyTrader directs orders to the Watley Desk for
execution. WatleyTrader client orders are entered, processed and confirmed
electronically.
WatleyTrader targets price sensitive investors and competes directly with
E*Trade, Charles Schwab and other online brokerages. The basic fee schedule for
the WatleyTrader is a transaction charge of $9.95 per order (orders of more than
5,000 shares bear a commission of $.01 per share for the entire order) with an
additional $15.00 fee for trades made by telephone.
During our fiscal year ended September 30, 1998 and three months ended
December 31, 1998, approximately 1.4% and 0.8% of our revenues originated from
WatleyTrader clients.
Third-Market Institutional Sales Desk
Our third-market institutional sales desk specializes in facilitating
and/or executing large-block transactions in approximately 500 thinly-traded
equity securities. These services are provided to clients who often require that
their purchases or sales of large positions remain anonymous. We match buyers
and sellers to execute "off-exchange transactions", to minimize the impact on
the market and prevent our client's positions from being disclosed to competing
firms. Our third-market institutional sales clients include mutual and pension
funds, insurance companies, banks, corporations and independent fund managers.
Approximately 30.7% and 28.9% of our revenues for our fiscal year ended
September 30, 1998 and three months ended December 31, 1998 were derived from
the institutional trading desk.
Client Services
Client services (trading, administrative, and technical support) for all
levels of online service are among our highest priorities. Based on our
experience in the industry and client feedback, we believe that providing an
effective client service team to handle client needs is critical to our success.
Our client service organization helps clients get online, handles product and
service inquiries and addresses all brokerage and technical questions. The
client service team also makes welcome calls to verify the satisfaction of our
clients.
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Live client support is available 10 hours a day from 8:00 AM to 6:00 PM EST
Monday through Friday. Our client services department operates on a 'one-stop
shopping' basis, meaning that clients do not have to be transferred between
departments in order to receive answers to their inquiries. We currently employ
ten client services associates, all of whom are registered representatives and
are available to accept and execute client orders, research past trades, discuss
account information, and provide detailed technical support. A separate
technical team helps clients with particularly serious or persistent technical
issues.
In order to provide professional and efficient client support, we have
purchased and implemented client management software. Databases are updated with
each client contact to track client service calls, trading patterns and
compliance issues, and to generate periodic (daily and weekly) reports for
management. Client services associates access the latest client account
information through their own searchable client services manual and solutions
database.
We recently launched online support and chat services for our clients. This
service currently offers an online, indexed UltimateTrader user manual and chat
area. The chat area offers clients the ability to query and 'chat' with client
services associates in real-time. Our goal with respect to the provision of
online support and chat services is to create a sense of 'virtual community'
among prospective and existing clients and between our company and our clients.
We plan to create a VIP client services team to service our most active
online clients. In addition to providing client support for all issues on an
account manager basis, we intend for the VIP team to offer face-to-face contact,
individualized service and customized incentive packages. We believe that
providing highly personalized and professional client support, especially for
our niche market high volume clients, will further differentiate our products
and services from those of our competitors.
Operations
Clearing and Order Processing
Watley does not hold any funds or securities of its clients nor does Watley
directly execute and process either its own or its clients' securities
transactions. Since October 1996, Watley has cleared all transactions for its
clients, on a fully disclosed basis, with Penson Financial Services, Inc. for
retail accounts and Weiss, Peck & Greer, L.L.C. for institutional accounts.
Pursuant to Watley's agreements with its clearing brokers, the clearing
brokers process all securities transactions for Watley's account and the
accounts of Watley's clients for a fee. Services of the clearing brokers include
billing and credit control and receipt, custody and delivery of securities, for
which we pay a per ticket charge. Watley has agreed to indemnify and hold the
clearing brokers harmless from certain liabilities or claims, including claims
arising from the transactions of its clients. Watley's clearing agreements may
be terminated by either party, upon 60 days' written notice in the case of
Penson Financial Services, Inc., and 30 day's prior written notice in the case
of Weiss, Peck & Greer, L.L.C. Watley is dependent on the operational capacity
and the ability of the clearing brokers for the orderly processing of
transactions. By engaging the processing services of clearing brokers, however,
Watley is exempt from certain capital reserve requirements imposed by federal
securities laws.
Clients' securities transactions are effected on either a cash or margin
basis. In connection with margin transactions, credit is extended to a client,
collateralized by securities and cash in the client's account, for a portion of
the purchase price. The client is charged for such margin financing at interest
rates based on the brokers' call rate plus an additional amount of up to 1.75%.
The brokers' call rate is the prevailing interest rate charged by banks on
secured loans to broker-dealers.
Margin lending is subject to the margin rules of the Board of Governors of
the Federal Reserve system. Margin lending subjects us to the risk of a market
decline that would reduce the value of our collateral below the client's
indebtedness before the collateral can be sold. Under applicable rules, in the
event of a decline in the market value of the securities in a margin account,
the client is required to deposit additional securities or cash in the account
so that the loan is at all times no greater than 65% of the market value of
securities in the margin account.
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Network Infrastructure
Our network consists of a series of servers, routing and
Internet-networking equipment, workstations, software support clusters, and
firewall management systems. This creates a global connection to our intranet,
so that any computer that can connect to the Internet can connect to our system.
Any individual with a personal computer who has a connection to the
Internet and has Windows compatible software can subscribe to UltimateTrader.
Once an account is opened, the client downloads UltimateTrader software and is
given a unique user name and password. The client then logs onto the
UltimateTrader system and is connected to one of our order servers.
Our network is accessed by electronic messaging. A message is sent to
Watley's intranet via the client's Internet service provider. In order to access
Watley's network, this message first passes through a firewall and web shield.
The firewall allows appropriate Internet traffic into the network. The web
shield prevents virus infected files or messages from reaching the network. Once
the message has passed through the firewall and web shield, a permission server
qualifies the information. Once the client establishes a connection to the
UltimateTrader system, the connection between the client and server is
maintained until the client requests it be terminated.
Our technology is supported by an internal staff of programmers, developers
and operators 24 hours a day, seven days a week. The programming staff is
supplemented by a team of quality control analysts, web page developers,
technical writers and design specialists who ensure the final product is
user-friendly and dependable. In addition to supporting the systems, the staff
continually enhances software and hardware and develops new services. Software
is designed to be versatile and easily adaptable to new and emerging
technologies.
The order server accepts buy/sell or sell short messages from the client
application and qualifies the order for appropriate review. Once an order is
qualified, it is sent to the exchange of the client's choice and messages are
sent to update our data base. This update offers the client real-time account
positions, equity and profit and loss calculations. All transactions for the day
are processed for delivery to the clearing firm.
Account Security
We use a combination of proprietary and industry standard security measures
to protect our clients' assets. Clients are assigned unique account numbers,
user identifications and passwords that must be used each time they log on to
the system. In accordance with standard industry practices, telephone orders
require authentication via personal identification number/password and/or other
personal information. In addition, our trade processing system is designed to
compare the Watley accounts database with the clearing firm's account
information on a daily basis in order to detect any discrepancies.
We rely on encryption and authentication technology, including public key
cryptography technology licensed from other parties, to provide the security and
authentication necessary to effect the secure exchange of information.
Firewalls and other software limit not only system access to the authorized
user(s), but also limit the authorized users to specifically approved
applications. This filter-software prevents unauthorized access to critical
areas of the system such as account information. Furthermore, public access
servers such as e-mail, chat services and the file transfer protocol are in a
network entirely separate from the rest of our systems.
We have implemented special policies relating to the transfer or withdrawal
of funds by clients to prevent unauthorized withdrawals. All requests for fund
withdrawal or transfer require a signed letter from the account holder. Checks
will only be made out in the account holder's name and wire transfers will only
be sent to a bank account in the account holder's name.
Proposed Self-clearing Operations
We currently intend to convert to self-clearing operations. If we were to
implement self-clearing operations, our client's securities typically will be
held by us in nominee name on deposit at one or more of the recognized
securities industry depository trust companies, to facilitate ready
transferability. We will collect
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dividends and interest on securities held in nominee name and make the
appropriate credits to our client's account. We will also facilitate exercise of
subscription rights on securities held for our clients. We will arrange for the
transmittal of proxy and tender offer materials and issuer reports to our
clients.
Self-clearing operations, especially where conducted by firms such as our
company, without significant prior experience, involve substantial risks of
losses due to clerical errors related to the handling of client funds and
securities. Errors in the clearing process also may lead to civil liability for
actions in negligence brought by parties who are financially harmed as a result
of such errors. Clearing operations have accounted for a significant portion of
our cost of services. Our failure to perform self-clearing operations accurately
and cost-effectively could have a material adverse effect on our business,
financial condition and operating results.
Suppliers
We obtain financial information from a number of third-party suppliers of
software and information services, including PC Quote, Inc., Townsend Analytics,
Ltd., Ethos Corporation and S&P ComStock, Inc. We are aware of a number of
alternative sources of comparable software and information services available in
the event that arrangements with any of our current suppliers are terminated.
Marketing and Advertising
We intend to market UltimateTrader by targeting active traders through
print, online and other advertisements. To date, we have engaged in limited
marketing and advertising efforts, consisting primarily of print advertising in
Investors Business Daily, a daily trade publication. We have also conducted
surveys of our existing client base to understand their media consuming habits
and demographic profiles in order to effectively target our advertising
campaign. We are developing a comprehensive marketing plan to attract potential
clients, as well as build market awareness, educate the investing public and
develop brand name recognition and loyalty within the most active trading
segment of the market. Our advertising efforts are expected to include
advertisements in financial publications and various other regional and national
publications that have demographics similar to our target markets. We also
intend to advertise and promote UltimateTrader through Internet website and
banner advertisements and television commercials.
Our initial marketing efforts will be concentrated in the United States.
However, as part of our long-term goals, we plan to market our services to
trading communities interested in U.S. equities in Western Europe, Latin
America, and Asia.
Competition
The market for electronic brokerage services is intensely competitive,
rapidly changing and has few barriers to entry. We believe that we compete on
the basis of speed and accuracy of order execution, processing and confirmation,
quality of client service, ease of use, amount and timeliness of information
provided, price and reliability of our trading systems. We expect that our
ability to compete will also be affected by our ability to introduce new
services and enhancements to existing services into the market on a timely
basis.
We believe our competition consists of large and small brokerage firms,
utilizing the Internet to transact retail brokerage business. Among such
competitors are E*Trade Group, Inc., Charles Schwab & Co., Inc., Quick & Reilly,
Inc., Waterhouse Securities, Inc., Fidelity Brokerage Services, Inc. and Datek
Securities Corp. We also face competition for clients from full commission
brokerage firms, including Morgan Stanley Dean Witter & Co., PaineWebber
Incorporated and Salomon Smith Barney, as well as financial institutions and
mutual funds.
Securities Regulation
Watley is a broker-dealer registered with the SEC and NASD and is licensed
as a broker-dealer in 49 states.
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. In addition, the SEC, NASD, other
self regulatory organizations, such as the various stock exchanges,
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and other regulatory bodies, such as state securities commissions, require
strict compliance with their rules and regulations. As a matter of public
policy, regulatory bodies are charged with safeguarding the integrity of the
securities and other financial markets and with protecting the interests of
clients participating in those markets, and not with protecting the interests of
our stockholders.
Broker-dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure, record keeping and the conduct of directors, officers and employees.
Because of the recent increase in the number of complaints by online traders,
the SEC, NASD and other regulatory organizations may adopt more stringent
regulations for online firms and their practices. If we fail to comply with any
laws, rules or regulations we could be censured, fined, issued a
cease-and-desist order or Watley or our officers and employees could be
suspended or expelled.
In addition, certain changes in Watley's current business or practices,
including converting to self-clearing operations, require NASD and other
regulatory approval.
To expand our services internationally, we would have to comply with
regulatory controls of each specific country in which we conduct business. The
brokerage industry in many foreign countries is heavily regulated. The varying
compliance requirements of these different regulatory jurisdictions and other
factors may limit our ability to expand internationally.
Following the closing of this offering, we intend to initiate a
comprehensive marketing campaign to bring greater brand name recognition to our
products and services. All marketing activities by Watley are regulated by the
NASD. The NASD can impose certain penalties, including censure, fine, suspension
of all advertising, the issuance of cease-and-desist orders or the suspension or
expulsion of a broker-dealer and its officers or employees for violations of the
NASD's advertising regulations.
Net Capital Requirements
The SEC, NASD and various other regulatory agencies have stringent rules
with respect to the maintenance of specific levels of net capital by securities
brokers, including the SEC's uniform net capital rule which governs Watley. Net
capital is essentially defined as net worth (assets minus liabilities), plus
other allowable credits and qualifying subordinated borrowings less certain
mandatory deductions that result from excluding assets that are not readily
convertible into cash and from valuing certain other assets, such as a firm's
positions in securities, conservatively. Among these deductions are adjustments
in the market value of securities to reflect the possibility of a market decline
prior to disposition.
As of December 31, 1998, Watley was required to maintain minimum net
capital, in accordance with SEC rules, of approximately $100,000 and had total
net capital (as so computed) of $187,875 or approximately $87,875 in excess of
minimum net capital requirements.
If Watley fails to maintain the required net capital Watley may be subject
to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD and other regulatory bodies, which ultimately could
require Watley's liquidation. In addition, a change in the net capital rules,
the imposition of new rules, a specific operating loss, or any unusually large
charge against net capital could limit those operations of Watley that require
the intensive use of capital and could limit our ability to expand our business.
The net capital rules also could restrict our ability to withdraw capital from
Watley, which in turn could limit our ability to pay dividends, repay debt and
repurchase shares of our outstanding stock.
Intellectual Property Rights
We rely on a combination of copyright, trademark and trade secrets laws and
non-disclosure agreements to protect our proprietary technologies, ideas,
know-how and other proprietary information. We have no patents or registered
copyrights. Notwithstanding the precautions we take, third parties may copy or
otherwise obtain and use our proprietary technologies, ideas, know-how and other
proprietary information without authorization or independently develop
technologies similar or superior to our technologies. In addition, the
confidentiality and non-competition agreements between our company and certain
of our employees,
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distributors and clients may not provide meaningful protection of our
proprietary technologies or other intellectual property in the event of
unauthorized use or disclosure. Policing unauthorized use of our technologies
and other intellectual property is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted.
In November 1998, we filed with the United States Patent and Trademark
Office for a trademark registration on the supplemental register for the
UltimateTrader name. Although we are not aware of any challenges to our right to
use this trademark, we cannot assure you that a trademark registration will be
granted or, if granted, that the use of this mark would be upheld if challenged.
There has been substantial litigation in the software industry involving
intellectual property rights. We believe that our technologies and trading
systems have been developed independent of others. Third parties may assert
infringement claims against our company and our technologies and trading systems
may be determined to infringe on the intellectual property rights of others.
Research and Development
During the years ended September 30, 1997 and 1998, we spent approximately
$62,000 and $703,000 for software development. During the three months ended
December 31, 1998, we spent approximately $760,000 for software development.
These software development efforts were related to enhancing the operational
capabilities of our trading systems.
Computer Strategies, Inc. Acquisition
Effective October 2, 1998, we acquired all of the capital stock of Computer
Strategies, Inc. for 38,260 shares of common stock valued at $183,648. Computer
Strategies provided computer software consulting services. Leon Ferguson was the
founder and sole stockholder of Computer Strategies and became our Senior Vice
President and Chief Information Officer upon closing of the acquisition.
Personnel
As of March 22, 1998, we employed a total of 59 persons, of whom 10 are
engaged in executive management, 16 in trading activities, 10 in client service,
5 in sales and marketing, 9 clerical and back office personnel, as well as 9
other employees. All but one of our employees are employed on a full-time basis.
In addition, we retain a computer development and consulting firm on an
exclusive basis. We believe our relations with our employees are generally good
and we have no collective bargaining agreements with any labor unions.
Our registered representatives are required to take examinations
administered by the NASD and state authorities in order to be qualified to
transact business, and are required to enter into agreements with Watley
obligating them to adhere to Watley's supervisory procedures and not to solicit
customers in the event of termination of employment. Watley's agreements with
registered representatives do not obligate such representatives to be associated
with Watley for any length of time.
Our success will depend on our ability to hire and retain additional
qualified marketing, industry, technical and financial personnel. Qualified
personnel are in high demand. We face considerable competition from other
brokerage and financial service firms and other Internet and online service
companies for such personnel, many of which have significantly greater resources
than we have.
Properties
Our principal offices are located at 40 Wall Street, New York, New York,
where we occupy approximately 15,000 square feet at an annual cost of
approximately $480,000, or $40,000 per month, plus escalations. Although the
lease began in January 1998, monthly rental payments will not commence until
June 1999. The initial term of the lease for the new office space expires in
June 2009.
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A small portion of Watley's operations are currently located at our offices
at 33 West 17th Street, New York, New York, where we occupy 7,400 square feet at
an annual rent of $131,000. These operations will be moved to our 40 Wall Street
location by June 1999. Following this relocation, Watley expects to terminate
this lease without any material penalty.
Legal Proceedings
Our business involves substantial risks of liability, including exposure to
liability under federal and state securities laws in connection with the
underwriting or distribution of securities and claims by dissatisfied clients
for fraud, unauthorized trading, churning, mismanagement and breach of fiduciary
duty. In recent years, there has been an increasing incidence of litigation
involving the securities industry, including class actions which generally seek
rescission and substantial damages.
In the ordinary course of business, we and our principals are, and may
become a party to legal or regulatory proceedings or arbitrations. We are not
currently involved in any legal or regulatory proceedings or, arbitrations, the
outcome of which is expected to have a material adverse effect on our business.
Because of the nature of our business, we may become party to legal or
regulatory proceedings or arbitrations.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Steven Malin ................ 41 Chairman of the Board, Chief Executive Officer and Director
Harry Simpson ............... 32 President, Chief Operating Officer and Director
Robert Malin ................ 33 President of A.B. Watley, Inc. and Director
Anthony G. Huston ........... 35 Executive Vice President -- Strategic Planning
Eric Steinberg .............. 33 Executive Vice President -- Administration
Leon Ferguson ............... 36 Senior Vice President and Chief Information Officer
Jonathan Priddle ............ 36 Senior Vice President -- Sales
Brett Vernick ............... 30 Senior Vice President -- Management Information Services
Michael Fielman ............. 48 Vice President -- Finance
William Brawer .............. 42 Director
Elizabeth Chambers .......... 36 Director
Mark Chambre ................ 38 Director
Stanley Weinstein ........... 72 Director
</TABLE>
Steven Malin co-founded Internet Financial Services in May 1996 and has
been our Chairman of the Board and Chief Executive Officer since inception. From
August 1993 to December 1996, Mr. Malin served as a consultant to Watley. From
1987 to 1993, he was a Senior Foreign Exchange Options Broker for Tullett and
Tokyo Forex, Inc., a global inter-bank money brokering firm with its primary
offices located in London, New York and Tokyo. Mr. Malin attended The Fletcher
School of Law and Diplomacy from 1982 to 1984. He received a bachelor of arts
degree from Vassar College in 1980.
Harry Simpson has been our President and Chief Operating Officer since
March 1998 and was our Executive Vice President of Online Brokerage Services
from May 1996 until March 1998. From January 1993 to September 1995, he served
as Vice President of Tullett and Tokyo Forex, Inc., and Manager of its Foreign
Exchange Options Desk in New York. From January 1988 to December 1992, Mr.
Simpson worked as a Senior Foreign Exchange Options Broker for Exco
International, Inc., an international money broker in Hong Kong and Tokyo. Mr.
Simpson received a bachelor of science degree in finance from Indiana University
in 1987.
Robert Malin is a co-founder of Internet Financial Services. He has been
associated with Watley since August 1993, initially as General Securities
Principal and director of day-to-day operations and, most recently, serving as
President. His prior experience includes managing equity-trading, client
services and brokerage operations. Mr. Malin and Steven Malin are brothers.
Anthony G. Huston. Mr. Huston has been our Executive Vice President since
May 1996. From September 1995 to May 1996, Mr. Huston served as a consultant to
Watley. From August 1988 to May 1995 he served as Vice President and Manager in
the Foreign Exchange Options Department in the New York, Tokyo, and London
offices of Tullett and Tokyo Forex, Inc. Mr. Huston received a bachelor of arts
degree in asian studies and international relations from the University of
Michigan in 1985. He attended New York University as a post graduate student in
economics.
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Eric Steinberg. Mr. Steinberg has been our Executive Vice President of
Administration since March 1998. His responsibilities include management of our
offices and negotiating our purchase and leasing arrangements. From May 1996 to
February 1998, Mr. Steinberg served as an administrative consultant to Internet
Financial Services. Prior thereto, from August 1993 to May 1996 he served as a
consultant to Watley. From 1991 to 1993, he was a manager at Primary Financial
Services, Inc., a financial consulting and leasing company. From September 1986
to May 1991, Mr. Steinberg was employed as an account manager by Manhattan
Leasing, Inc., a New York based leasing company.
Leon Ferguson. Mr. Ferguson joined us in October 1998 as Senior Vice
President and Chief Information Officer in connection with our acquisition of
Computer Strategies, Inc., a software consulting firm he formed in 1996 and
served as its President and Chief Executive Officer since inception. From May
1994 to January 1996, Mr. Ferguson served as Director of Information Technology
Strategies at Williams Telecommunications Group, a long-distance
telecommunications company that was acquired by WorldCom, Inc. in 1995. From
May 1990 to May 1994, Mr. Ferguson served as Chairman of Digital Communications
Associates, Inc. a software development company he founded which specializes in
high speed transaction solutions for the long distance telecommunications
industry. Mr. Ferguson received a bachelor of computer science degree from the
University of Oklahoma in 1988.
Jonathan Priddle. Mr. Priddle has served as our Senior Vice President of
Sales since December 1998. From April 1997 to November 1998, he provided
consulting services to Watley. From August 1995 to March 1997, he served as a
senior broker at Eurobrokers, Inc., a global interbank money brokering firm in
New York. From January 1995 to August 1995, Mr. Priddle served as a Senior
Currency Broker in the New York office of Tullett and Tokyo Forex, Inc. From
April 1994 to January 1995, Mr. Priddle was the Manager of the Currency/FRA
Department at Cantor Fitzgerald Associates, a foreign exchange brokerage firm.
From March 1992 to April 1994 Mr. Priddle was a broker in the Currency
Arbitrage Department of Garvin Guybutler Corporation, a global interbank money
brokering firm. Mr. Priddle began his career with Tullett and Tokyo, Inc. in
June 1985 and served in the London, Tokyo and New York offices until March
1992. Mr. Priddle attended Yeovil Tertiary College from September 1978 to March
1981 and Bristol Polytechnic from March 1981 to March 1986. Both institutions
are located in the United Kingdom.
Brett Vernick. Mr. Vernick has served as our Senior Vice President for
Management Information Services since May 1996. From March 1995 to April 1996,
Mr. Vernick served as the Eastern U.S. Region Network Specialist for PC Quote,
Inc., an international data feed corporation. From August 1992 to February
1995, he served as Director of Management Information Systems for Soil
Mechanics Environmental Services, Inc. Mr. Vernick received a bachelor of
science degree in political science and international relations from Stonybrook
in 1993.
Michael Fielman. Mr. Fielman has been our Vice President -- Finance since
April 1998. From January 1996 to March 1998, he was Controller of Cord
Contracting Co., Inc., a hydrogeologic consulting drywall contractor. From 1991
to January 1996, he was Chief Financial Officer of Artkraft Strauss Sign
Corporation, a provider of advertising signs. He received a bachelor of science
degree from New York Institute of Technology in 1973.
William Brawer has agreed to serve as a director of Internet Financial
Services upon the closing of this offering. Since February 1996, he has served
as Chairman and Chief Executive Officer of Brawer Brothers, a producer of nylon
and polyester bi-products. Prior thereto he served in various other senior
management capacities with Brawer Brothers. Mr. Brawer received a bachelor of
science degree from Colorado University in 1978.
Elizabeth Chambers has agreed to serve as a director of Internet Financial
Services upon the closing of this offering. Since August 1998, she has been
Vice President of Business Design and a member of the executive committee at
the Reader's Digest Association. Ms. Chambers is also a member of the Board of
Directors of the Reader's Digest Foundation. From September 1989 to August
1998, Ms. Chambers was with McKinsey & Company, where she was elected to
partnership in June 1995. Ms. Chambers graduated from Stanford University with
degrees in political science and economics, and holds an MBA from Harvard
University.
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Mark Chambre has agreed to serve as a director of Internet Financial
Services upon the closing of this offering. Since June 1993, he has served as
Senior Broker in the Yen Swaps Division of the Tokyo Forex Co., Inc., in Tokyo,
Japan. From April 1988 to May 1993, Mr. Chambre served as Manager of the Tokyo
Forex Co.'s Financial Futures Division. Mr. Chambre joined its parent company,
Tullett and Tokyo, Inc., in New York in 1983. Mr. Chambre received a bachelor
of arts degree from Drew University in 1982.
Stanley Weinstein has agreed to serve as a director of Internet Financial
Services upon the closing of this offering. He has been an independent corporate
financial consultant since 1991. From 1960 to 1991 he served as a partner with
Deloitte & Touche, LLP, an international accounting firm. Mr. Weinstein served
for fifteen years as adjunct Associate Professor of Accounting at Pace
University and co-authored the widely recognized SEC Compliance -- Financial
Reporting and Forms handbook. He received a bachelor of business administration
degree in accounting from City College of New York in 1949. Since May 1995, he
has served as a director of York Research Corp., a company engaged in the
production and marketing of energy related projects.
Directors are elected at each annual meeting of stockholders and hold
office until the next annual meeting of stockholders and the election and
qualification of their successors. Executive officers are elected by and serve
at the discretion of the board of directors.
We have agreed, for a period of five years from the date of this
prospectus, if so requested by the underwriter, to nominate and use our best
efforts to elect a designee of the underwriter as a director of our company or,
at the underwriter's option, as a non-voting adviser to our board of directors.
Our officers, directors and principal stockholders have agreed to vote their
shares of common stock in favor of such designee. The underwriter has not yet
exercised its right to designate such a person.
Special Advisory Board
Effective as of the date of this prospectus, we have established a special
advisory board to the board of directors which will initially consist of Anthony
G. Huston and Eric Steinberg. The special advisory board will advise and assist
the board of directors in executive planning and decision making. Members of our
special advisory board will be invited to attend, observe and participate in all
meetings of the board of directors but will not have the right to cast a vote.
Board Committees
The board of directors has established a Compensation Committee which, upon
the closing of this offering, will be comprised of Mark Chambre and William
Brawer. The Compensation Committee will review and determine the compensation
for all officers and directors of our company and will review general policy
matters relating to the compensation and benefits of all employees. The
Compensation Committee will also administer each of the stock option plans.
The board of directors has established an Audit Committee which, upon the
closing of this offering, will be comprised of Elizabeth Chambers and Stanley
Weinstein. The Audit Committee will recommend to the board of directors the
annual engagement of a firm of independent accountants and will review with the
independent accountants the scope and results of audits, the internal accounting
controls of our company and audit practices and professional services rendered
to our company by such independent accountants.
Directors' Compensation
All directors are reimbursed for their reasonable expenses incurred in
attending meetings of the board of directors and its committees. Directors who
are employees receive no additional compensation for service as members of the
board of directors or committees. Following this offering, all of our
non-employee directors will be compensated annually for their services at $2,000
and non-qualified options to acquire 1,500 shares of our common stock at the end
of each year of service.
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Executive Compensation
During the fiscal year ended September 30, 1998, the salary of Mr. Steven
Malin, our Chief Executive Officer was $70,000. Mr. Malin forgave his salary for
fiscal 1998 and no other compensation, including "long-term compensation"
payments, were made to him in any form. No executive officer received salary and
bonus compensation which exceeded $100,000 in such fiscal year.
There were no stock option grants to Mr. Malin, during the fiscal year
ended September 30, 1998.
Employment Agreements
We have entered into a four-year employment agreement with Steven Malin and
three-year employment agreements with Harry Simpson, Robert Malin, Anthony G.
Huston and Eric Steinberg all of which are automatically renewable for
additional one-year terms and provide for annual base compensation of $90,000,
respectively, until the effectiveness of this offering, whereupon annual base
compensation under each agreement will be increased to $110,000. Each agreement
provides for a bonus equal to 20% of their salaries, payable semi-annually,
based upon certain revenue levels achieved by our company, as may be approved by
the board of directors or a committee thereof.
Each of the employment agreements requires the officer to devote his full
time and efforts to our business and contains non-competition and non-disclosure
covenants of the officer for the term of his employment and for a period of two
years thereafter. Each employment agreement provides that we may terminate the
agreement for cause. In addition, each employment agreement provides for
termination by either party without cause upon at least 180 days written notice
prior to the end of the original term or any renewal term.
Key-man Life Insurance
The Company has obtained "key-man" life insurance on the lives of Steven
Malin and Harry Simpson in excess of $2,000,000 and on the life of Robert Malin
in the amount of $1,000,000.
Stock Option Plans
On January 27, 1997, the board of directors and stockholders adopted our
1997 stock option plan and on March 16, 1998, our board of directors and
stockholders adopted our 1998 stock option plan (which was subsequently
amended). We have reserved 400,000 shares of common stock for issuance upon
exercise of options granted from time to time under the 1997 stock option plan
and 800,000 shares of common stock for issuance upon exercise of options granted
from time to time under the 1998 stock option plan, as amended. The 1997 and
1998 stock option plans are intended to assist us in securing and retaining key
employees, directors and consultants by allowing them to participate in our
ownership and growth through the grant of incentive and non-qualified options.
Under each of the stock option plans we may grant incentive stock options
only to key employees (including officers) and employee directors, or we may
grant non-qualified options to our employees, officers, directors and
consultants. Incentive stock options granted under either of the stock option
plans are intended to be "Incentive Stock Options" as defined by Section 422 of
the Internal Revenue Code of 1986, as amended. The 1997 stock option plan shall
be administered by a committee, appointed by our board of directors, consisting
of from one to three directors. The 1998 stock option plan shall be administered
directly by our board of directors.
Subject to the provisions of each of the stock option plans, either the
board or the committee will determine who shall receive options, the number of
shares of common stock that may be purchased under the options, the time and
manner of exercise of options and exercise prices. The term of options granted
under each of the stock option plans may not exceed ten years (five years in the
case of an incentive stock option granted to an optionee owning more than 10% of
our voting stock). The exercise price for incentive stock options shall be equal
to or greater than 100% of the "fair market value" of the shares of the common
stock at the time the incentive stock option is granted; provided, however, that
incentive stock options granted to a 10% holder of our voting stock shall be
exercisable only at a price that is equal to or greater than 110% of
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the fair market value of the common stock on the date of the grant of the
incentive stock option. The exercise price for non-qualified options will be set
by the board or the committee, in its discretion, but in no event shall such
exercise price be less than the fair market value of the shares of common stock
on the date of grant. Such exercise price may be payable in cash or, with the
approval of the board or the committee, by delivery of shares or by a
combination of cash and shares. Shares of common stock received upon exercise of
options granted under each of the plans will be subject to certain restrictions
on sale or transfer.
Under the 1998 stock option plan, grants of options (including both
incentive and non-qualified stock options) to any one optionee who is an
employee of Internet Financial Services, shall be limited to options to purchase
150,000 shares of common stock in any calendar year. In addition, the board or
the committee determines the schedule of the time or times when an option may be
exercised, provided, however, that the aggregate fair market value of the shares
of common stock as to which an optionee may exercise incentive stock options may
not exceed $100,000 in any calendar year.
Each of the 1997 and 1998 stock option plans provide that the number of
options, including both issued and unissued options, and their exercise prices,
are to be appropriately adjusted for mergers, consolidations, recapitalizations,
stock dividends, stock splits or other share combinations. Shares allocated to
options and stock appreciation rights which have terminated for reasons other
than the exercise thereof may be reallocated to other options and/or stock
appreciation rights.
Each of the 1997 and 1998 stock option plans provide that if an optionee
dies, his options may be exercised by his executors or administrators, or by any
person who acquired the right to exercise such options, to the extent that the
optionee would have been entitled to do so at the date of death, at any time, or
from time to time, within one year after the date of optionee's death, but not
later than the expiration of the option. If an optionee's employment is
terminated, whether for cause or otherwise, an optionee may exercise such
option, to the extent that he would have been entitled to do so at the date of
termination, at any time, or from time to time, within ninety days of the date
of termination but not later than the expiration of the option.
As of the date of this prospectus, we have granted options to purchase
1,049,900 shares of common stock under our stock options plans at an exercise
price ranging from $2.00 to $7.00 per share. Of such options, options to
purchase 620,000 shares have been granted to our officers and directors. All of
the options granted to such officers and directors terminate on the ten year
anniversary of their vesting date.
For one year from the closing of the offering we will not grant options or
warrants to our existing officers, directors, employees or stockholders
beneficially owning 5% or more of the outstanding voting securities or their
affiliates, except for those options reserved for issuance under our 1998 stock
option plan.
401(k) Plan
Watley maintains a standardized 401(k) Plan known as the "A.B. Watley, Inc.
401(k) Savings Plan", a defined contribution pension plan with a cash or
deferred arrangement as described in Section 401(k) of the Internal Revenue Code
of 1986. Our 401(k) plan is intended to qualify under Section 401(a) of the
code, so that contributions, and income earned thereon, are not taxable to
employees until withdrawn. All regular full-time employees over the age of 21
are eligible to participate in the 401(k) plan. Our 401(k) plan provides that
each participant may make elective pre-tax salary deferrals up to 10% of his or
her annual compensation, subject to statutory limits. We also may make
discretionary annual matching contributions in amounts determined by the
compensation committee of the board of directors, subject to statutory limits.
Our policy is to base contributions on profitability. The trustee of our 401(k)
plan invests each employee's account at the direction of the employee, who may
choose among several investment alternatives, which do not include shares of our
common stock. We did not make any contributions to our 401(k) plan during the
last two fiscal years.
Limitation on Liability and Indemnification Matters
As authorized by the Delaware General Corporation Law, our certificate of
incorporation provides that none of our directors shall be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (A) for any breach of the director's duty of
loyalty to our
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company or its stockholders, (B) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (C) for
unlawful payments of dividends or unlawful stock redemptions or repurchases or
(D) for any transaction from which the director derived an improper personal
benefit. This provision eliminates our rights and the rights of our stockholders
(through stockholders' derivative suits on our behalf) to recover monetary
damages against a director for breach of the fiduciary duty of care (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described above. This provision does not limit or eliminate our
rights or the rights of any stockholder to seek injunctive relief or rescission
in the event of a breach of a director's duty of care. In addition, our
certificate of incorporation provides that if the Delaware General Corporation
Law is amended to further eliminate or limit the liability of a director, then
the liability of the directors shall be eliminated or limited to the fullest
extent permitted by such amendment. These provisions will not alter the
liability of directors under federal securities laws.
Our certificate of incorporation further provides for the indemnification
of any and all persons who serve as a director, officer, employee or agent of
ours to the fullest extent permitted under the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the securities act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
Prior to the closing of this offering, we will obtain and maintain a policy
of insurance under which our directors and officers will be insured, subject to
the limits of the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or omissions covered
under such policy in their respective capacities as directors or officers,
including liabilities under the Securities Act.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to Internet
Financial Services, as of the date of this prospectus and as adjusted to reflect
the sale by us of the 2,000,000 shares of common stock offered hereby, relating
to the beneficial ownership of shares of common stock by: each person who is
known by us to be the beneficial owner of more than five percent of the
outstanding shares of common stock; each of our director or person who has
agreed to become a director; and (iii) all executive officers and directors as a
group.
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of Internet Financial Services, 40 Wall Street,
New York, New York 10005.
We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus upon the
exercise of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants or
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable within 60 days of the date of this
prospectus have been exercised and converted. Assumes a base of 5,631,745 shares
of common stock outstanding prior to this offering and a base of 7,631,745
shares of common stock outstanding immediately after this offering, before any
consideration is given to outstanding options, warrants or convertible
securities.
<TABLE>
<CAPTION>
Percentage of Shares Beneficially Owned
Number of Shares ----------------------------------------
Name and Address of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------------------ -------------------- ----------------- ---------------
<S> <C> <C> <C>
Steven Malin(1) ......................... 1,600,000 28.4% 21.0%
Harry Simpson ........................... 566,667(2) 9.9 7.4
Anthony G. Huston ....................... 500,000 8.9 6.6
Robert Malin(1) ......................... 425,000 7.5 5.6
Linda Malin(1) .......................... 425,000 7.5 5.6
Eric Steinberg .......................... 425,000 7.5 5.6
Mark Chambre ............................ 52,500 * *
William Brawer .......................... 0 0 0
Elizabeth Chambers ...................... 0 0 0
Stanley Weinstein ....................... 0 0 0
All directors and executive officers as a
group (13 persons) ..................... 3,875,834(3) 66.4% 49.4%
</TABLE>
- ------------
* Less than 1%.
(1) Steven Malin and Robert Malin are brothers and Linda Malin is their sister.
(2) Includes 66,667 shares of common stock issuable upon exercise of currently
exercisable options. Does not include 133,333 shares of common stock
issuable upon exercise of options which are not currently exercisable.
(3) Includes 208,334 shares of common stock issuable upon exercise of currently
exercisable options. Does not include 411,666 shares of common stock
issuable upon exercise of options which are not currently exercisable.
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CERTAIN TRANSACTIONS
In October 1994, Steven Malin, Chairman of the Board and Chief Executive
Officer and a principal stockholder of Internet Financial Services, loaned
Watley $55,000 on an interest free basis. The maturity date for this loan is
October 31, 2000. Additionally, in April 1995, Mr. Malin loaned Watley $125,000
at an interest rate of 12% per annum. The maturity date for this loan is April
30, 2000. Each of such loans are subordinate to the prior payment by Watley in
full of all other present and future creditors.
In October 1995, Mel Steinberg, the father of Eric Steinberg, an executive
officer and principal stockholder of Internet Financial Services, loaned Watley
$200,000 at an interest rate of 15% per annum. Additionally, effective October
30, 1996, Mr. Steinberg loaned Watley $150,000 at an interest rate of 13% per
annum. The maturity date for each of the loans is October 31, 2000. Each of such
loans are subordinate to the prior payment by Watley in full of all other
present and future creditors.
On September 4, 1996, we loaned $100,000 to Robert Malin, President of
Watley and a director and principal stockholder of Internet Financial Services.
The loan bears interest at the rate of 6% per annum and is due upon demand. Mr.
Malin has agreed to repay the loan within six months of the effective date of
the offering.
In January 1997, we acquired all of the issued and outstanding shares of
Watley which were held by Steven Malin and Robert Malin. As consideration for
the acquisition, our company issued 425,000 shares of common stock to Robert
Malin and 6,538 shares of common stock to Steven Malin. The aggregate value of
the shares issued by us was $80,000.
In April 1997, we completed a private placement of 1,050,000 shares of our
common stock for which we received net proceeds of $2,045,000. In connection
with such private placement, Jonathan Priddle, an executive officer of Internet
Financial Services, purchased 25,000 shares at a price of $50,000 and Mark
Chambre, who has agreed to serve as a director of Internet Financial Services
upon the closing of this offering, purchased 37,500 shares at a price of
$75,000. In addition, relatives of Anthony Huston and Eric Steinberg, each an
executive officer and principal stockholder of Internet Financial Services,
purchased an aggregate of 52,500 shares at an aggregate price of $105,000. All
of these purchases were on the same terms and at the same price as the purchases
made by the other investors in such private placement.
In May 1997, we sold certain computer hardware and related assets to
Centennial Ventures, Inc., a broker-dealer of which Linda Malin, a principal
stockholder of Internet Financial Services and the sister of Steven and Robert
Malin, is an executive officer. As consideration for such sale, Centennial
Ventures, Inc. delivered a promissory note in the principal amount of
$39,860.75. The note is due on May 1, 1999, bears interest at the rate of 8% per
annum and is secured by all of the assets we sold to Centennial Ventures, Inc.
In February 1998, Mel Steinberg loaned to Internet Financial Services
$100,000 at an interest rate of 8%. The loan is due in February 2001. As
additional consideration for the loan, we granted Mr. Steinberg an option to
purchase 16,666 shares of common stock for nominal consideration. Mr. Steinberg
has notified us that he intends to exercise the option upon the completion of
this offering. We have agreed to repay the loan, including interest accrued
thereon through the date of this prospectus, from the proceeds of this offering.
On October 2, 1998, we entered into a loan agreement with New York Small
Business Venture Fund LLC pursuant to which we borrowed $500,000 at an interest
rate of 12% per annum, repayable over 35 months, with payments of interest only
in the first two years. We granted the lender a security interest in
substantially all of our assets to secure our obligations under the loan, and
six persons who are officers, directors and/or principal stockholders of
Internet Financial Services guaranteed our obligations under such loan. We
intend to repay this loan out of the proceeds of this offering, which will
discharge the liability of such guarantors. Stanley Weinstein, who has agreed to
serve as a director of Internet Financial Services on the date of this
prospectus, received a $25,000 consulting fee from us in connection with the
loan.
Effective October 2, 1998, we acquired all of the shares of capital stock
of Computer Strategies, Inc., for 38,260 shares of our common stock valued at
$183,648. Leon Ferguson was the founder and sole stockholder of Computer
Strategies, Inc., and became our Senior Vice President and Chief Information
Officer upon the closing of the acquisition.
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In January 1999, we completed a private placement of 221,500 shares of
common stock to 12 investors for which we received net proceeds of approximately
$1,050,000. In connection with such private placement, Anthony Huston purchased
50,000 shares at a price of $240,000, a trust naming Leon Ferguson and his wife
as beneficiaries for which Mr. Ferguson is sole trustee purchased 52,000 shares
at a price of $249,600 and Mark Chambre purchased 15,000 shares at a price of
$72,000. All of the purchasers of such shares agreed not to sell or otherwise
dispose of such shares for a period of twelve months from the date of this
prospectus. All of these purchases were made on the same terms and at the same
price per share as the purchases made by the other investors in such private
placement.
We believe that prior transaction with our officers, directors and
principal stockholders were on terms that were no less favorable than we could
have obtained from unaffiliated third parties. All future transactions,
including loans and advances, between us and our officers, directors and
stockholders beneficially owning 5% or more of our outstanding voting
securities, or their affiliates, will be for bona fide business purposes and on
terms not less favorable to us than we could have obtained in arm's length
transactions from unaffiliated third parties.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 20,000,000 shares of common stock,
$.001 par value per share and 1,000,000 shares of preferred stock $.01 par value
per share. As of the date of this prospectus, there are 5,631,745 shares of
common stock issued and outstanding, which are held of record by 66 holders. As
of the date of this prospectus, there are no shares of preferred stock
outstanding. Upon closing of this offering there will be 7,631,745 shares of
common stock outstanding and no shares of preferred stock outstanding.
Common Stock
Holders of common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In any liquidation, dissolution or winding up of Internet Financial
Services, each outstanding share entitles its holder to participate pro rata in
all assets that remain after payment of liabilities and after providing for each
class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
common stock. The rights of the holders of common stock are subject to any
rights that may be fixed for holders of preferred stock, when and if any
preferred stock is issued. All outstanding shares of common stock are, and the
shares underlying all options and warrants will be, duly authorized, validly
issued, fully paid and non-assessable upon our issuance of such shares.
Preferred Stock
Our board of directors is authorized, without further action by the
stockholders, to issue 1,000,000 shares of preferred stock from time to time in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including: the rights and terms relating to any new series
of preferred stock could adversely affect the voting power or other rights of
the holders of common stock. Additionally, such preferred stock may be used,
under certain circumstances, to discourage, delay or prevent a change in
control.
Registration Rights
The holders of 411,175 shares of common stock, including 331,250 shares of
common stock issuable upon exercise of currently exercisable warrants, are
entitled to certain piggyback registration rights, under the Securities Act,
with respect to such shares. Whenever we propose to register any of our
securities under the Securities Act for our own account or for the account of
other security holders, we shall be required to promptly notify the holders of
each of the registerable shares of such proposed registration. We will be
required to include all registerable shares which such holders may request to be
included in such registration,
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subject to certain limitations. Such holders have waived their registration
rights in connection with this offering. Additionally, holders of the
registerable shares have agreed not to request registration or sell or otherwise
dispose of the registerable shares for a period of 12 months following the date
of this prospectus.
In connection with this offering, we have agreed to grant to the
underwriter certain demand and piggyback registration rights in connection with
the 200,000 shares of common stock issuable upon exercise of the underwriter's
warrants.
Delaware Anti-Takeover Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. That section provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (A) the transaction resulting in a person's
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder, (B) the interested stockholder acquires 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding certain employee stock ownership
plans); or (C) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. An "interested stockholder" is defined as any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation or an affiliate or associate of the corporation and was the owner of
15% or more of the outstanding voting stock of the corporation at any time
within the three year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder.
Transfer Agent and Warrant Agent
The transfer agent for our common stock is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, we will have 7,631,745 shares of common
stock issued and outstanding of which the 2,000,000 shares offered hereby will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an affiliate of Internet
Financial Services. An affiliate of Internet Financial Services, generally a
person who has a controlling position with regard to Internet Financial
Services, which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act.
All of the remaining 5,631,745 shares of common stock currently outstanding
are "restricted securities," as that term is defined under Rule 144. Of such
restricted shares, an aggregate of 4,000,000 shares will be immediately eligible
for sale, subject to the contractual restrictions described below. Of the
remaining restricted shares, 1,120,000 restricted shares will become eligible
for sale under Rule 144 beginning 90 days following the date of this prospectus,
and the balance of the restricted shares will become eligible for sale pursuant
to Rule 144 at various times beginning May 1999, subject to the contractual
provisions described below. We have also issued options and warrants to purchase
1,601,150 shares of common stock, including the 200,000 shares of common stock
issuable upon exercise of the underwriter's warrants.
We have granted registration rights to holders of 411,175 of such
restricted shares (including 331,250 shares of common stock issuable upon
exercise of currently exercisable warrants), as well as demand and piggyback
registration rights to the underwriter with respect to the shares of common
stock issuable upon exercise of the underwriter's warrants.
The holders of approximately 5,500,000 of the restricted shares of common
stock have agreed not to sell or otherwise dispose of any of those shares of
common stock (including pursuant to Rule 144) or exercise any registration
rights for a period of twelve months following the date of this prospectus
without the underwriter's prior written consent.
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In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated),
who has beneficially owned restricted shares for at least one year (including
the holding period of any prior owner except an affiliate of Internet Financial
Services) would be entitled to sell, within any three month period, such number
of shares that does not exceed the greater of:
o 1% of the then outstanding shares of our common stock; or
o the average weekly trading volume of our common stock during the four
calendar weeks preceding such sale, provided, that, certain public
information about Internet Financial Services as required by Rule 144 is
then available and the seller complies with certain manner of sale
provisions and notice requirements.
A person who is not an affiliate, has not been an affiliate within three months
prior to sale and has beneficially owned the restricted securities for at least
two years is entitled to sell such shares under Rule 144 without regard to any
of the limitations described above.
Prior to this offering, there has been no public market for the common
stock and we can not predict the effect, if any, that market sales of common
stock or the availability of such shares for sale will have on the market price
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market may adversely affect
prevailing market prices for the common stock and could impair our ability to
raise capital through the sale of our equity securities.
UNDERWRITING
Whale Securities Co., L.P., as underwriter, has agreed, subject to the
terms and conditions contained in the underwriting agreement relating to this
offering, to purchase the 2,000,000 shares of common stock offered by us.
The underwriting agreement provides that the obligations of the underwriter
thereunder are subject to the delivery of an opinion of our counsel and to
various other conditions. The nature of the underwriter's obligations is such
that they are committed to purchase and pay for all of the shares of common
stock if any are purchased.
The underwriter has advised us that it proposes to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus. The underwriter may allow certain dealers who are
members of the NASD concessions, not in excess of $. per share, of which not in
excess of $. per share may be reallowed to other dealers who are members of the
NASD. Watley, our subsidiary, will not participate in this offering.
We have granted to the underwriter an option, exercisable not later than 45
days after the date of this prospectus, to purchase up to 300,000 shares at the
public offering price set forth on the cover page of this prospectus, less
underwriting discounts and commissions. The underwriter may exercise this option
only to cover over-allotments, if any, made in connection with the sale of the
shares of common stock offered hereby. If the underwriter exercises its
over-allotment in full, the total price to public would be $16,100,000, the
total underwriting discounts and commissions would be $1,495,000 and the total
proceeds (before payment of the expenses of this offering) to us would be
$14,605,000
We have agreed to pay to the underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds derived from the sale of the shares
offered hereby, including any securities sold prior to the underwriter's
over-allotment option, $50,000 of which has been paid as of the date of this
prospectus. We have also agreed to pay all expenses in connection with
qualifying the shares offered under the laws of such states as the underwriter
may designate, including expenses of counsel retained for such purpose by the
underwriter. We estimated the expenses of this offering to be $1,050,000, or
$1,113,000 if the underwriter's over-allotment option is completely exercised.
At the closing of this offering, we will sell to the underwriter and its
designees, for an aggregate of $100, underwriter's warrants to purchase up to
200,000 shares of common stock. The underwriter's warrants are exercisable at
any time, in whole or in part, during the four-year period commencing one year
from the date
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of this prospectus, at an exercise price of $11.55 per share (165% of the public
offering price per share). The underwriter's warrants are only assignable or
transferable to the officers and partners of the underwriter and members of the
selling group for one year following the date of this prospectus. During the
exercise period, the holders of the underwriter's warrants will have the
opportunity to profit from a rise in the market price of the common stock, which
will dilute the interests of our stockholders. We expect that the underwriter's
warrants will be exercised when we would, in all likelihood, be able to obtain
any capital it needs on terms more favorable. Any profit realized by the
underwriter on the sale of the underwriter's warrants, the underlying shares of
common stock or the underlying warrants may be deemed additional underwriting
compensation. The underwriter's warrants contain a cashless exercise provision.
We have agreed that, upon the request of the holders of the majority of the
underwriter's warrants, we will (at our own expense), on one occasion during the
exercise period, register the underwriter's warrants and the shares of common
stock underlying the underwriter's warrants under the Securities Act. We have
also agreed to include the underwriter's warrants and all such underlying shares
of common stock in any appropriate registration statement which is filed by us
under the Securities Act during the seven years following the date of this
prospectus.
We have agreed, for a period of five years from the date of this
prospectus, if so requested by the underwriter, to recommend and use our best
efforts to elect a designee of the underwriter as a director of Internet
Financial Services. Our officers, directors and principal stockholders have
agreed to vote their shares of common stock in favor of such designee. The
underwriter has not yet exercised and does not intend to exercise its right to
designate such a person in the near future.
The holders of approximately 5,500,000 shares of common stock have agreed
not to sell or otherwise dispose any of those securities in the public markets
for a period of twelve months from the date of this prospectus without the
underwriter's prior written consent.
The underwriter has informed us that it does not expect sales of the
securities offered to discretionary accounts to exceed 1% of the shares offered
hereby.
We have agreed to indemnify the underwriter against certain civil
liabilities, including liabilities under the Securities Act.
Prior to this offering there has been no public market for the common
stock. Accordingly, the initial public offering price of the common stock has
been determined by negotiation between us and the underwriter and may not
necessarily be related to our asset value, net worth or other established
criteria of value. Factors to be considered in determining such price include
our financial condition and prospects, an assessment of our management, market
prices of similar securities of comparable publicly-traded companies, certain
financial and operating information of companies engaged in activities similar
to our business and the general condition of the securities market.
In connection with this offering, the underwriter may engage in passive
market making transactions in the shares on Nasdaq in accordance with Rule 103
of Regulation M promulgated under the Exchange Act.
In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. These transactions may include stabilization transactions
permitted by Rule 104 of Regulation M, under which persons may bid for or
purchase shares to stabilize the market price. Specifically, the underwriter may
over-allot in connection with the offering, creating a short position in the
common stock for its own account. In addition, to cover over-allotments or to
stabilize the price of the common stock, the underwriter may bid for, and
purchase, shares of common stock in the open market. The underwriter may also
reclaim selling concessions allowed to a dealer for distributing the common
stock in the offering, if the underwriter repurchases previously distributed
common stock in transactions to cover short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriter is not required to engage in these activities, and may end any of
these activities at any time.
46
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
Internet Financial Services by Hartman & Craven LLP, New York, New York. Edward
I. Tishelman, a member of the firm of Hartman & Craven LLP, is the owner of
112,500 shares of common stock. Tenzer Greenblatt LLP has served as counsel to
the underwriter in connection with this offering.
EXPERTS
The consolidated financial statements as of September 30, 1998 and
September 30, 1997, and for each of the two years in the period ended September
30, 1998, appearing in this prospectus and registration statement have been
audited by Ernst & Young, LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on form SB-2 under
the Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. For further information with
respect to Internet Financial Services and the securities offered hereby,
reference is hereby made to the registration statement and to the exhibits filed
as a part thereof. Statements contained in this prospectus regarding the content
of any contract or other document referred to are not necessarily complete. In
each instance, we refer you to the copy of such contract or other document filed
as an exhibit to the registration statement, and each such statement is hereby
qualified in its entirety by such reference. The registration statement,
including all exhibits thereto, may be inspected without charge at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may also be obtained from the
SEC's Public Reference at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, upon the payment of prescribed fees. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, registration statements and certain other filings made with the
commission through its Electronic Data Gathering, Analysis and Retrieval systems
are publicly available through the SEC's site on the World Wide Web located at
http://www.sec.gov. The registration statement, including all exhibits and
schedules thereto and amendments thereof, has been filed with the commission
through the Electronic Data Gathering, Analysis and Retrieval system.
Upon consummation of this offering, we will become subject to the reporting
requirements of the Exchange Act and in accordance therewith, will file reports,
proxy statements and other information with the SEC. We intend to furnish our
stockholders with annual reports containing audited financial statements and
such other periodic reports as we deem appropriate or as may be required by law.
47
<PAGE>
Internet Financial Services Inc.
Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and Three Months Ended
December 31, 1998 and 1997 (unaudited)
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors ........................................................... F-2
Consolidated Statements of Financial Condition as of September 30, 1998 and September 30,
1997 and December 31, 1998 (unaudited) .................................................. F-3
Consolidated Statements of Operations for the Years Ended September 30, 1998 and 1997 and
for the Three Months Ended December 31, 1998 and December 31, 1997 (unaudited) .......... F-4
Consolidated Statements of Changes in Stockholder's Equity for the Years Ended September
30, 1998 and September 30, 1997 and for the Three Months Ended December 31, 1998
(unaudited) ............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1998 and 1997 and
for the Three Months Ended December 31, 1998 and December 31, 1997 (unaudited) .......... F-6
Notes to Consolidated Financial Statements ............................................... F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Internet Financial Services Inc.
We have audited the accompanying consolidated statements of financial
condition of Internet Financial Services Inc. (the "Company") as of September
30, 1998 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Internet
Financial Services Inc. as of September 30, 1998 and 1997, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
November 13, 1998
F-2
<PAGE>
Internet Financial Services Inc.
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1998 1997 1998
--------------- --------------- ---------------
Assets (unaudited)
<S> <C> <C> <C>
Cash and cash equivalents .............................................. $ 970,308 $ 702,693 $ 250,797
Restricted cash ........................................................ -- 113,569 406,861
Securities owned, at market value ...................................... 104,518 24,206 14,970
Receivables from clearing broker ....................................... 531,835 292,356 474,648
Property and equipment at cost, net of accumulated depreciation of
$530,892, $167,774 and $645,803 at September 30, 1998, September
30, 1997 and December 31, 1998, respectively .......................... 3,650,743 1,010,208 4,591,868
Loans receivable from related party .................................... 115,711 123,697 117,256
Deferred offering costs ................................................ 75,235 -- 271,203
Other assets ........................................................... 91,107 119,902 235,891
------------ ------------ ------------
Total assets ........................................................... $ 5,539,457 $ 2,386,631 $ 6,363,494
============ ============ ============
Liabilities and stockholders' equity Liabilities:
Subordinated borrowings ............................................... $ 350,000 350,000 $ 350,000
Subordinated borrowings from related party ............................ 180,000 180,000 180,000
Securities sold, not yet purchased, at market value ................... 19,137 -- 5,826
Notes payable ......................................................... 250,000 -- 750,000
Notes payable to related party ........................................ -- -- 85,587
Bank loan ............................................................. 80,000 120,000 70,000
Deferred rent incentives .............................................. 803,968 -- 803,968
Accounts payable and accrued liabilities .............................. 2,101,933 681,899 2,329,990
------------ ------------ ------------
Total liabilities ...................................................... 3,785,038 1,331,899 4,575,371
Stockholders' equity:
Common stock, $.001 par value, 10,000,000 shares authorized, 5,137,500,
5,050,000 and 5,300,760 shares issued and outstanding at September
30, 1998, September 30, 1997 and December 31, 1998, respectively .... 5,138 5,050 5,301
Additional paid-in capital ............................................ 3,758,333 2,441,902 4,135,568
Option costs, net ..................................................... (100,292) -- (219,559)
Subscriptions receivable .............................................. (4,999) (120,869) --
Accumulated deficit ................................................... (1,903,761) (1,271,351) (2,133,187)
------------ ------------ ------------
Total stockholders' equity ............................................. 1,754,419 1,054,732 1,788,123
------------ ------------ ------------
Total liabilities and stockholders' equity ............................. $ 5,539,457 $ 2,386,631 $ 6,363,494
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Internet Financial Services Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended Three months ended
-------------------------------- -------------------------------
September 30, September 30, December 31, December 31,
1998 1997 1998 1997
--------------- --------------- -------------- ---------------
Revenues: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Commissions ................................................ $7,403,059 $ 4,017,787 $ 2,475,661 $ 1,187,487
Data service revenues ...................................... 661,236 148,353 275,604 124,012
Principal transactions ..................................... 901,889 230,297 378,659 113,858
Interest and other income .................................. 146,704 130,095 48,564 31,058
Interest income -- related party ........................... 6,380 6,000 1,545 1,145
---------- ------------ ----------- -----------
Total revenues .............................................. 9,119,268 4,532,532 3,180,033 1,457,560
Interest expense ........................................... 244,322 197,359 104,753 15,860
Interest expense -- related party .......................... 15,000 15,000 3,750 3,750
---------- ------------ ----------- -----------
Net revenues ................................................ 8,859,946 4,320,173 3,071,530 1,437,950
---------- ------------ ----------- -----------
Expenses:
Commissions, floor brokerage, and clearing charges ......... 3,425,725 1,844,927 1,369,610 597,070
Employee compensation and related costs .................... 2,247,963 1,297,575 852,342 380,041
Communications ............................................. 757,391 337,584 203,348 144,732
Business development ....................................... 980,651 441,424 203,695 368,102
Professional services ...................................... 971,494 894,920 198,571 104,816
Occupancy and equipment costs .............................. 444,169 149,580 215,149 70,716
Depreciation and amortization .............................. 363,207 198,980 114,911 69,278
Other ...................................................... 288,991 212,380 139,180 65,783
---------- ------------ ----------- -----------
Total expenses .............................................. 9,479,591 5,377,370 3,296,806 1,800,538
---------- ------------ ----------- -----------
Loss before income taxes .................................... (619,645) (1,057,197) (225,276) (362,588)
Income tax provision ........................................ 12,765 2,776 4,150 3,191
---------- ------------ ----------- -----------
Net loss .................................................... $ (632,410) $ (1,059,973) $ (229,426) $ (365,779)
========== ============ =========== ===========
Net loss per common share ................................... $ (.12) $ (.30) $ (.04) $ (.07)
========== ============ =========== ===========
Weighted average common shares outstanding .................. 5,171,182 3,508,560 5,291,080 5,120,771
========== ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Internet Financial Services Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Issued Additional Unamortized
------------------------- Paid-in Option
Shares Par Value Capital Costs
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at October 1, 1996 ....... 431,538 $ 432 $ 259,568 $ --
Issuance of common stock, net ... 4,618,462 4,618 2,160,967 --
Issuance of non-employee stock
options (Note 12) .............. -- -- 21,367 --
Net loss ........................ -- -- -- --
--------- ------ ---------- ----------
Balance at September 30, 1997 .... 5,050,000 5,050 2,441,902 --
Issuance of common stock, net ... 87,500 88 874,912 --
Issuance of non-employee stock
options (Note 12) .............. -- -- 76,832 --
Other contributions (Note 9) .... -- -- 115,000 --
Option costs, net ............... -- -- 249,687 (100,292)
Net loss ........................ -- -- -- --
--------- ------ ---------- ----------
Balance at September 30, 1998 .... 5,137,500 5,138 3,758,333 (100,292)
Issuance of common stock, net.... 163,260 163 185,985 --
Option costs, net ............... -- -- 191,250 (119,267)
Net loss ........................ -- -- -- --
--------- ------ ---------- ----------
Balance at December 31, 1998
(unaudited) ..................... 5,300,760 $5,301 $4,135,568 $ (219,559)
========= ====== ========== ==========
Subscriptions Receivable
------------------------------ Accumulated
Shares Amount Deficit Total
--------------- ------------- ---------------- ---------------
Balance at October 1, 1996 ....... -- $ -- $ (211,378) $ 48,622
Issuance of common stock, net ... (3,568,462) (120,869) -- 2,044,716
Issuance of non-employee stock
options (Note 12) .............. -- -- -- 21,367
Net loss ........................ -- -- (1,059,973) (1,059,973)
---------- ----------- ------------ -------------
Balance at September 30, 1997 .... (3,568,462) (120,869) (1,271,351) 1,054,732
Issuance of common stock, net ... 3,318,451 115,870 -- 990,870
Issuance of non-employee stock
options (Note 12) .............. -- -- -- 76,832
Other contributions (Note 9) .... -- -- -- 115,000
Option costs, net ............... -- -- -- 149,395
Net loss ........................ -- -- (632,410) (632,410)
---------- ----------- ------------ -------------
Balance at September 30, 1998 .... (250,011) (4,999) (1,903,761) 1,754,419
Issuance of common stock, net.... 250,011 4,999 -- 191,147
Option costs, net ............... -- -- -- 71,983
Net loss ........................ -- -- (229,426) (229,426)
---------- ----------- ------------ -------------
Balance at December 31, 1998
(unaudited) ..................... -- $ -- $ (2,133,187) $ 1,788,123
============= =========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Internet Financial Services Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Three months ended
----------------------------------- ------------------------------
September 30, September 30, December 31, December 31,
1998 1997 1998 1997
--------------- ----------------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (632,410) $ (1,059,973) $ (229,426) $ (365,779)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Other contributions 115,000 -- -- --
Depreciation and amortization 363,207 198,980 114,911 69,188
Amortization of option costs 226,227 21,367 71,983 26,353
Loss on disposal of fixed assets -- 46,411 -- --
Subscriptions receivable -- -- 4,999 --
Changes in assets and liabilities:
(Increase) decrease in operating assets:
Restricted cash 113,569 (113,569) (406,861) --
Securities owned (80,312) 144,473 89,548 (48,187)
Receivables from clearing brokers (239,479) (219,122) 57,187 60,295
Loans from related party 7,986 (23,697) (1,545) (1,145)
Other assets 28,795 (57,184) (81,775) 48,764
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased 19,137 (41,262) (13,311) --
Accounts payable and accrued liabilities 660,605 409,516 362,344 651,222
------------ ------------- ---------- ----------
Net cash provided by (used in) operating
activities 582,325 (694,060) (31,946) 440,711
------------ ------------- ---------- ----------
Cash flows used in investing activities
Purchases of property and equipment, net (2,244,313) (1,177,982) (984,097) (422,907)
Deferred rent incentives 803,968 -- -- --
------------ ------------- ---------- ----------
Net cash used in investing activities (1,440,345) (1,177,982) (984,097) (422,907)
------------ ------------- ---------- ----------
Cash flows from financing activities
Proceeds from sale of common stock, net 990,870 2,044,716 -- --
Proceeds from exercised stock options -- -- 2,500 --
Proceeds from issuance of subordinated
borrowings -- 150,000 -- --
Proceeds from notes payable 250,000 120,000 500,000 --
Deferred offering costs (75,235) -- (195,968) --
Repayment of bank loan (40,000) (125,000) (10,000) (10,000)
------------ ------------- ---------- ----------
Net cash provided by (used in)
financing activities 1,125,635 2,189,716 296,532 (10,000)
------------ ------------- ---------- ----------
Net increase (decrease)in cash and
cash equivalents 267,615 317,674 (719,511) 7,804
Cash and cash equivalents at beginning of period 702,693 385,019 970,308 702,693
------------ ------------- ---------- ----------
Cash and cash equivalents at end of period $ 970,308 $ 702,693 $ 250,797 $ 710,197
============ ============= ========== ==========
Supplemental non-cash financing activities
and disclosure of cash flow information
Note receivable from sale of property and
equipment $ -- $ 39,951 $ -- $ --
Accounts payable for purchases of property and
equipment 759,429 -- -- --
Other contributions 115,000 -- -- --
Cash paid for:
Interest $ 90,802 $ 193,733 $ 41,600 $ 15,860
Taxes 2,776 53,633 -- --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements
Years ended September 30, 1998 and 1997
(unaudited with respect to data as of December 31, 1998 and for the
three-month periods ended December 31, 1998 and December 31, 1997)
1. Organization and Basis of Presentation
Internet Financial Services Inc. ("IFSI" or the "Company") conducts
business primarily through its principal subsidiary, A.B. Watley, Inc. ("A.B.
Watley"). A.B Watley is a registered broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
A.B. Watley is an introducing broker-dealer which conducts business in
electronic trading, information and brokerage services, as well as
institutional block trading. A.B. Watley clears all transactions through two
clearing brokers on a fully disclosed basis. Accordingly, A.B. Watley is exempt
from the Securities and Exchange Commission's ("SEC") Rule 15c3-3.
IFSI is a Delaware corporation organized on May 15, 1996. During its fiscal
year ended September 30, 1997, all of the shares of capital stock of A.B. Watley
were acquired by IFSI. Since IFSI and A.B. Watley were under common control, the
acquisition has been accounted for under Accounting Interpretations of the
Accounting Principles Board Opinion No. 16, "Transfers and Exchanges Between
Companies Under Common Control," which requires the assets and liabilities so
transferred to be accounted for at historical cost in a manner similar to that
used in pooling of interests accounting. IFSI issued 431,538 shares of its
common stock in consideration for the 99 shares of A.B. Watley; additionally,
the operating results of IFSI reflect the operating results of A.B. Watley for
the years presented.
The consolidated financial statements include the accounts of IFSI and its
wholly-owned subsidiary, A.B. Watley. All significant intercompany balances and
transactions have been eliminated. Certain prior year amounts reflect
reclassifications to conform to current year's presentations.
The unaudited consolidated financial statements as of December 31, 1998 and
for the three months ended December 31, 1998 and December 31, 1997 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended December 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending September 30, 1999.
2. Summary of Significant Accounting Policies
Restricted Cash:
Restricted cash consists of cash on deposit at a financial institution
securing letters of credit and lines of credit.
Securities Transactions, Revenues, and Related Expenses:
Securities transactions and related revenues and expenses, including
commissions revenues and expenses, are recorded on a trade date basis. Data
service revenues represent fees charged to customers for real-time access to
various financial data. These fees are recorded as earned.
Securities Owned and Sold, Not Yet Purchased:
Securities owned and securities sold, not yet purchased are stated at
market or fair values, with resulting unrealized gains and losses reflected in
the consolidated statements of operations. Market value is generally based on
listed market prices. If listed market prices are unattainable, fair value is
determined based on other relevant factors including broker or dealer price
quotes.
F-7
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
2. Summary of Significant Accounting Policies -- (Continued)
Property and Equipment:
Computer equipment, furniture and fixtures, and leasehold improvements are
carried at cost and depreciated on the straight-line basis over their estimated
useful lives, generally three to five years.
Construction-in-progress, upon occupancy, will be amortized on a
straight-line basis over the shorter of the useful life of the leasehold
improvement or the term of the lease, generally ten years upon occupancy.
Deferred rent incentives, which represent construction costs reimbursed by the
lessor of the Company's office space, will be amortized on a straight-line basis
over the term of the lease, which is ten years.
Computer software is amortized on the straight-line basis over a period of
three years. The cost of internally developed computer software is capitalized
when management commits to funding a project it believes will be completed and
used to perform the functions intended. The capitalized software is not
amortized until the projects are complete. Pilot projects and projects where
expected future economic benefits are less than probable are not eligible for
capitalization.
Use of Estimates:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities in
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Stock Options:
The Company accounts for stock option grants to employees in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, recognizes no compensation expense
related to such grants. In cases where the Company grants options below the fair
market value of the stock at the date of grant, the difference between the
strike price and the fair market value is treated as compensation expense and
amortized over the vesting period of the option. Stock options granted to
consultants and others in lieu of cash compensation are recorded based upon
management's estimate of fair value of the options or the related services
provided and expensed over the vesting period, if any.
Fair Value of Financial Instruments:
Substantially all of the Company's financial instruments are carried at
fair value or amounts approximating fair value.
Business Development:
The Company expenses all promotional costs as incurred and advertising
costs upon first exhibition of the advertisement.
Income Taxes:
Income taxes have been provided using the liability method under Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
Earnings Per Share:
Per share data is determined based on the weighted average number of common
shares outstanding each year.
F-8
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
2. Summary of Significant Accounting Policies -- (Continued)
Statement of Cash Flows:
The Company defines cash equivalents as highly liquid investments with
original maturities of three months or less, other than those held for sale in
the ordinary course of business.
3. Net Capital Requirement
A.B. Watley is subject to the SEC's Uniform Net Capital Rule 15c3-1 (the
"Net Capital Rule") which requires A.B. Watley to maintain minimum net capital
such that the ratio of aggregate indebtedness to net capital, both as defined,
shall not exceed 15 to 1. The Net Capital Rule also requires that equity capital
may not be withdrawn or cash dividends paid if A.B. Watley's resulting net
capital ratio would exceed 10 to 1. At September 30, 1998, A.B. Watley had net
capital, as defined, of $161,128 which was $61,128 in excess of its required net
capital of $100,000. The aggregate indebtedness to net capital ratio was 7.4 to
1. At December 31, 1998, A.B. Watley had net capital, as defined, of $187,875
which was $87,875 in excess of its required net capital of $100,000. The
aggregate indebtedness to net capital ratio was 3.3 to 1.
4. Financial Instruments with Off-Balance Sheet Risk or Concentrations of
Credit Risk
Pursuant to clearing agreements, the clearing and depository operations for
A.B. Watley's and customers' securities transactions are provided by two
clearing broker-dealers. A.B. Watley has agreed to indemnify its clearing
brokers for losses that the clearing brokers may sustain from the customer
accounts introduced by A.B. Watley. A.B. Watley, through its clearing brokers,
seeks to control the risks associated with these activities by requiring
customers to maintain margin collateral in compliance with various regulatory
and internal guidelines. The clearing brokers monitor required margin levels
daily and, pursuant to such guidelines, request customers to deposit additional
collateral or reduce securities positions when necessary. All customer
transactions pending as of September 30, 1998 settled without material adverse
effect to the Company.
Also, in the normal course of business, customers may sell securities
short. Subsequent market fluctuations may require the clearing firms to obtain
additional collateral from A.B. Watley's customers. It is the policy of the
clearing firms to value the short positions and to obtain additional deposits
where deemed appropriate.
The Company may at times maintain inventories in equity securities on both
a long and short basis. While long positions represent the Company's ownership
of securities, short positions represent obligations of the Company.
Accordingly, both long and short positions may result in gains or losses to the
Company as market values of securities fluctuate. To manage the risk of losses,
the Company marks long and short positions to market daily and continuously
monitors the market fluctuations.
F-9
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Computer equipment ...................................... $ 1,961,113 $ 1,115,626
Software ................................................ 697,377 62,356
Construction-in-progress ................................ 1,503,338 --
Furniture, fixtures, and leasehold improvements ......... 19,807 --
----------- -----------
4,181,635 1,177,982
Less accumulated depreciation and amortization .......... 530,892 167,774
----------- -----------
$ 3,650,743 $ 1,010,208
=========== ===========
</TABLE>
At September 30, 1998, software includes $602,363 of software under
development. (See Note 2). Construction-in-progress represents amounts related
to leasehold improvements being made on the Company's office space. The Company
expects to occupy such space in early fiscal 1999. (See Note 2).
6. Subordinated Borrowings
Borrowings of $530,000 at September 30, 1998 and 1997 are subordinated to
the claims of general creditors, and mature in the amounts of $200,000, $150,000
and $55,000 on October 31, 1999 and $125,000 on April 30, 2000. The subordinated
borrowings bear interest at annual rates of 15%, 13%, 0% and 12%, respectively.
The loans are covered by agreements approved by the National Association of
Securities Dealers, Inc. and are included by A.B. Watley for purposes of
computing net capital under the Net Capital Rule. To the extent that such
borrowings are required for A.B. Watley's continued compliance with minimum net
capital requirements, they may not be repaid. Of the total subordinated
borrowings, $180,000 is from an officer and shareholder of the Company. For the
years ended September 30, 1998 and 1997, interest expense on the subordinated
loans amounted to $64,500 and $62,000, respectively.
7. Notes Payable
Effective February 13, 1998 and April 16, 1998, the Company issued
promissory notes in the amount of $200,000 and $50,000, respectively, to three
individuals, two of whom are minority stockholders of the Company. The notes
bear interest at 8% per annum. The principal plus accrued interest on the notes
is payable on the earlier of (a) the consummation of an initial public offering
("IPO") of the Company's equity securities, or (b) if such IPO does not occur on
or before the first anniversary of the issue date of the notes, the principal
plus accrued interest shall be payable in twelve equal monthly installments,
unless the holders agree to extend such maturity date. For the year ended
September 30, 1998, interest expense on the notes amounted to $11,833.
Upon execution of these promissory notes, the holders were granted options
on the common stock of the Company for a total price of $250. Pursuant to the
Option Agreements, the options become exerciseable upon consummation of an IPO,
and the number of shares to be issued will be determined by dividing the initial
principal amount of the promissory notes by the IPO price. The fair value of the
options is accounted for as a debt servicing fee, and is being amortized over a
one year period. The unamortized amount of the debt service fee is included as
"Option costs, net" in Stockholders' Equity. Amortization expense related to the
debt servicing fee for the year ended September 30, 1998 amounted to $149,395.
F-10
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
7. Notes Payable -- (Continued)
Effective October 2, 1998, the Company borrowed $500,000 from New York
Small Business Venture Fund, LLC ("NYSB") under the condition that the proceeds
of the loan be used as working capital to further the corporate purposes of the
Company and not to repay any debt or redeem any equity interests. The loan
accrues interest at 12% per annum which is payable first in 24 monthly
installments of $5,000 beginning December 1, 1998. Commencing December 1, 2000,
the principal amount of the loan is payable in 35 monthly installments of $8,333
plus interest on the unpaid balance, except for the last installment which shall
be in the amount of $208,345 plus interest on the unpaid balance.
As collateral for the loan, NYSB received a security interest in the
Company's assets, and certain officers and directors of the Company have
personally guaranteed all amounts due. Under the terms and conditions of the
loan agreement, NYSB received warrants expiring October 2, 2003 to acquire
191,250 shares of the Company's common stock at an exercise price equal to the
IPO price. In the event there has been no IPO within five years from the closing
of the loan, the number of shares to be acquired under the terms of the warrant
are reduced to 100,000 and NYSB shall have the right to put its ownership
interest at a price as defined in the warrant agreement and cause the Company to
repurchase all or part of such interest at any time thereafter. The fair value
of the warrants (approximately $191,250) has been accounted for as a debt
servicing fee and is being amortized over the life of the loan. The unamortized
amount of the debt servicing fee is included as "Option costs, net" in
Stockholders' Equity.
8. Bank Loan
The bank loans at September 30, 1998 and 1997 consist of an unsecured term
loan, with the full principal amount due September 29, 2000, and an interest
rate of 8.5% per annum.
9. Related Party Transactions
Included in loans receivable from related party at September 30, 1998 on
the consolidated statement of financial condition are notes of $103,000, plus
accrued interest of $12,711, due from a shareholder and officer of the Company.
The notes generally bear interest at an annual rate of 6% and are payable on
demand.
Other contributions of $115,000 on the consolidated statement of changes in
stockholders' equity represent compensation forgiven by two significant
stockholders and officers of the Company. For consolidated financial statement
purposes, the unpaid compensation is considered an expense and a contribution of
capital.
10. Commitments and Contingencies
The Company has entered into two lease agreements for office space which
expire on June 23, 2009 and September 15, 1999, respectively. Both lease
agreements are noncancellable and contain escalation provisions. As of September
30, 1998, the aggregate minimum future rental payments required were as follows:
Year Ended September 30
-----------------------
1999 ............................................. $ 158,538
2000 ............................................. 454,279
2001 ............................................. 463,947
2002 ............................................. 492,940
2003 ............................................. 492,940
Thereafter ....................................... 2,235,945
-----------
$ 4,298,589
===========
F-11
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
10. Commitments and Contingencies -- (Continued)
Rent expense for the years ended September 30, 1998 and 1997 was $170,101
and $98,934, respectively.
In December 1998, the Company obtained a $500,000 line of financing from
General Electric Capital Corporation ("GECC") which is to be used for the
purchase or leasing of additional equipment and software. The Company is
required to deliver to GECC a letter of credit in the amount of 50% of any
amount borrowed under this financing. In addition, the Company has granted the
lender a security interest in certain of the Company's existing equipment as
well as in all equipment purchased using funds under this financing.
In the ordinary course of business, the Company is party to several legal
proceedings, the outcome of which, either singularly or in the aggregate, is not
expected to have a material impact on the Company's financial position.
11. Acquisitions
Effective October 2, 1998, and as subsequently modified, the Board of
Directors approved the issuance of 38,260 shares of the Company's common stock
for all the shares of capital stock of Computer Strategies, Inc. ("CSI"). CSI
provided software support, research and development to the Company with the
Company serving as CSI's primary customer. The acquisition was accounted for as
a purchase. The Company recorded approximately $60,000 in goodwill from the
acquisition which is being amortized over 3 years, and approximately $59,000 in
capitalized software attributable to costs incurred in the application
development stage of the Company's software development. At the date of
acquisition, CSI owed $85,580 to the sole shareholder of CSI, who became an
officer of the Company. This amount is included in notes payable to related
party and was paid to Mr. Ferguson in January and February 1999.
12. Stock Options
Under the Company's 1998 and 1997 Stock Option Plans (the "Plans"),
employees, non-employee directors and officers, and consultants are generally
granted options (both incentive stock options and nonqualified stock options) to
purchase shares of common stock at prices not less than the estimated fair
market value of the common stock on the date the option is granted. The options
are exercisable at either the date of grant, in ratable installments or
otherwise, generally over a period of one to three years from the date of grant.
The options generally expire within ten years after the date of grant. The
number of shares delivered in the aggregate under the 1998 and 1997 Plans cannot
exceed 600,000 and 400,000 shares, respectively, (1,000,000 shares in total). No
option shall be granted under the 1998 Plan after March 16, 2008 or under the
1997 Plan after January 26, 2007.
A summary of the Company's stock option activity (exclusive of the options
discussed in Note 7 and the information discussed in Note 16) and related
information for the years ended September 30, 1998 and 1997 is as follows:
F-12
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
12. Stock Options -- (Continued)
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
----------- -----------------
<S> <C> <C>
Outstanding at October 1, 1996 .................. -- $ --
Granted, year ended September 30, 1997 ......... 375,000 1.90
------- -------
Outstanding at September 30, 1997 ............... 375,000 1.90
Granted, year ended September 30, 1998 ......... 45,100 8.89
------- -------
Outstanding at September 30, 1998 ............... 420,100 $ 2.34
======= =======
Exercisable at September 30, 1997 ............... 50,000 $ 2.00
======= =======
Exercisable at September 30, 1998 ............... 312,500 $ 1.88
======= =======
</TABLE>
Included in the table above are non-employee option grants of 20,000 and
85,000 shares, respectively, for the years ended September 30, 1998 and 1997.
The estimated fair values of the grants to non-employees are amortized over the
vesting period of the grants, if any. For the years ended September 30, 1998 and
1997 the amount charged to expense for non-employee options was $76,832 and
$21,367, respectively, and is included in professional services.
The weighted average fair value of options granted during the years ended
September 30, 1998 and 1997 was $1.13 and $0.57, respectively. The fair value of
each option grant was estimated at the date of grant using the Black-Scholes
option valuation model. The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. Because the Company's stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options. In calculating the fair values of the stock options, the following
weighted average assumptions were used:
1998 Grants 1997 Grants
------------- ------------
Dividend yield ................... 0% 0%
Average expected life:
Employees ....................... 5.4 years 5.4 years
Non-employees ................... 0.5 years 5.5 years
Risk-free interest rate .......... 5.4% 6.6%
Expected volatility .............. 0% 0%
Pro forma information regarding net income is required under Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if the Company had accounted for all
the 1998 and 1997 stock option grants on the fair value method. For purposes of
the pro forma information, the fair values of the 1998 and 1997 option grants to
employees are amortized over the vesting period. The pro forma information for
the years ended September 30, 1998 and 1997 is as follows:
F-13
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
12. Stock Options -- (Continued)
Year ended September 30
---------------------------------
1998 1997
-------------- ----------------
Net loss as reported ................... $ (632,410) $ (1,059,973)
Net loss pro forma ..................... $ (674,499) (1,082,707)
Net loss per share as reported ......... $ (.12) $ (.30)
Net loss per share pro forma ........... $ (.13) $ (.31)
Additional information regarding options outstanding as of September 30,
1998 (exclusive of the options discussed in Note 7 and the information discussed
in Note 16) is as follows:
Weighted Average
Remaining
Exercise Number Number Contractual Life
Price Outstanding Exercisable (Years)
- --------------- ------------- ------------- -----------------
$ .02 125,000 125,000 8.33
2.00 180,500 130,500 9.52
5.00 69,500 19,500 10.93
8.00 25,100 17,500 9.99
10.00 20,000 20,000 0.58
------- -------
Total 420,100 312,500
======= =======
During October and November 1998, three employees exercised stock options
which were granted during 1997 at a strike price of two cents per share, and
were issued 125,000 shares of the Company's common stock.
Effective November 19, 1998, the Board of Directors agreed to: (1) grant
for no additional consideration 16,200 additional options at a strike price of
$5.00 per share to two employees who were granted $5.00 options in September
1997; and (2) amend the option grants to all option holders who were granted
$8.00 options in November 1997 to reflect a strike price of $6.00 per share.
Effective November 20, 1998, the Board of Directors agreed to amend the
option grants to all option holders who were granted $10.00 options in April
1998 to reflect a strike price of $6.00 per share.
13. Income Taxes
The Company files a consolidated federal income tax return with A.B.
Watley. For all periods presented, the Company provides for income taxes as
required under SFAS No. 109. The Company records income taxes using a liability
approach for financial accounting and reporting which results in the recognition
and measurement of deferred tax assets based upon the likelihood of realization
of tax benefits in future years.
The provision for income taxes for the years ending September 30, 1998 and
1997 is comprised of New York State and New York City taxes in the amount of
$12,765 and $2,776, respectively. No benefit has been provided for the Company's
net operating losses.
The difference between the U.S. federal tax rate and the Company's
effective tax rate for the years ending September 30, 1998 and 1997 follows:
F-14
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
13. Income Taxes -- (Continued)
Year ended September 30
---------------------------
1998 1997
------------ ------------
Tax benefit at federal statutory rate .......... (34.0%) (34.0%)
State taxes, net of federal tax effect ......... 2.9% 0.3%
Valuation allowance ............................ 33.9% 34.8%
Other .......................................... (0.3%) (0.8%)
----- -----
Effective tax rate ............................. 2.5% 0.3%
===== =====
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's deferred tax assets and liabilities as of September 30, 1998 and 1997
are as follows:
Year ended September 30
---------------------------
1998 1997
------------ ------------
Net operating loss ....................... $ 638,238 $ 369,197
Mark-to-market loss on inventory ......... 10,932 10,931
Depreciation ............................. (82,221) (33,441)
Other .................................... 6,927 9,867
---------- ----------
Total deferred tax assets ................ 573,876 356,554
Valuation reserve ........................ (573,876) (356,554)
---------- ----------
Net deferred tax asset ................... $ -- $ --
========== ==========
At September 30, 1998, the Company has net operating loss carryforwards
for federal tax purposes of $1,382,065 that will expire no sooner than September
30, 2013.
14. Capital Stock
Effective January 24, 1997, the Company's certificate of incorporation was
amended to reflect the total number of shares authorized to issue as 10,000,000
shares with a par value of $.001 per share.
On October 1, 1998, and as subsequently modified, the Company's Board of
Directors authorized the sale of up to 2,000,000 shares of common stock (subject
to increase at the discretion of the Company's executive officers), plus a 15%
over-allotment option to the underwriter, in an IPO at an estimated gross
offering price of not less than $7.00 per share. The Board of Directors approved
the following, conditional on the effectiveness of the IPO: (1) the issuance of
3,000 shares of common stock with a three year restriction provision for nominal
consideration to certain employees of the Company, and (2) grants of 519,350 and
14,500 stock options with an exercise price of $7.00 per share to certain
employees and non-employees, respectively, of the Company. These options vest
over a period of up to three years. The estimated fair value of non-employee
options and the 3,000 shares issued to certain employees will be expensed upon
the effectiveness of the IPO.
15. Earnings Per Share
The weighted average number of shares outstanding for the years ended
September 30, 1998 and 1997 reflect the 70,771 shares discussed in Note 16 below
as though the shares were outstanding as of the beginning of each year. Since
the Company recognized a net loss in both years, diluted earnings per common
share is the same as earnings per common share for both years.
F-15
<PAGE>
Internet Financial Services Inc.
Notes to Consolidated Financial Statements -- (Continued)
Years ended September 30, 1998 and 1997 (unaudited with
respect to data as of December 31, 1998 and for the three-month
periods ended December 31, 1998 and December 31, 1997)
16. Subsequent Events (Unaudited)
On January 14, 1999, the Board of Directors agreed to amend the Company's
certificate of incorporation to increase the authorized number of shares of
common stock to 20,000,000, and to authorize and delineate the terms under which
preferred stock may be issued. In addition, the Board agreed to issue, subject
to the effectiveness of the IPO, 70,771 additional shares of common stock for
nominal additional consideration to certain stockholders who purchased private
placement shares during the year ended September 30, 1998.
During January 1999, the Board of Directors approved the issuance of
221,500 shares of the Company's common stock in a private placement offering.
The common stock was issued at a price of $4.80 per share (total gross proceeds
of $1,063,200) and was restricted with regard to sale or disposition for a
period of one year. Two employees of the Company purchased an aggregate of
102,000 shares as part of this offering.
Effective January 28, 1999, the Company borrowed $400,000 from New York
Community Investment Company, L.L.C. ("NYCIC"), an affiliate of NYSB, under the
conditions that the proceeds of the loan be used as working capital to further
the corporate purposes of the Company and not to repay any debt or redeem any
equity interests. The loan accrues interest at 12% per annum which is payable
first in 24 monthly installments of $4,000 beginning March 1, 1999. Commencing
March 1, 2001, the principal amount of the loan is payable in 35 monthly
installments of $6,667 plus interest on the unpaid balance, except for the last
installment which shall be in the amount of $166,665 plus interest on the unpaid
balance.
As collateral for the loan, NYCIC received a security interest in the
Company's assets. Under the terms and conditions of the loan agreement, NYCIC
received warrants expiring January 28, 2004 to acquire 140,000 shares of the
Company's common stock at an exercise price equal to the IPO price. In the event
there has been no IPO within five years from the closing of the loan, the number
of shares to be acquired under the terms of the warrant are reduced to 80,000
and NYCIC shall have the right to put its ownership interest at a price defined
in the warrant agreement and cause the Company to repurchase all or part of such
interest at any time thereafter. The fair value of the warrants (approximately
$140,000) will be accounted for as a debt servicing fee and amortized over the
life of the loan. The unamortized amount of the debt servicing fee will be
included as "Option costs, net" in Stockholders' Equity.
On January 31, 1999, the subordinated borrowings maturing on October 31,
1999 were amended to extend the maturity date to October 31, 2000.
On March 24, 1999 the Company amended its 1998 Stock Option Plan to
increase the number of shares covered thereunder to 800,000 shares. In addition
the Company agreed to issue as of the effective date of its IPO options covering
an aggregate of 224,750 shares to certain employees at an exercise price of
$7.00 per share.
F-16
<PAGE>
[LOGO AND DIAGRAM]
<PAGE>
================================================================================
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this prospectus.
You must not rely on any unauthorized information. This prospectus does not
offer to sell or buy any shares in any jurisdiction where it is unlawful.
-----------------------------------
TABLE OF CONTENTS
Page
Prospectus Summary ....................... 3
Risk Factors ............................. 7
Use of Proceeds .......................... 14
Dilution ................................. 15
Dividends ................................ 16
Capitalization ........................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ......................... 17
Business ................................. 23
Management ............................... 35
Principal Stockholders ................... 41
Certain Transactions ..................... 42
Description of Securities ................ 43
Shares Eligible for Future Sale .......... 44
Underwriting ............................. 45
Legal Matters ............................ 47
Experts .................................. 47
Additional Information ................... 47
Index to Financial Statements ............ F-1
-----------------------------------
Until , 1999, all dealers effecting transactions in the registered
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
2,000,000 Shares
INTERNET FINANCIAL
SERVICES INC.
Common Stock
--------------
PROSPECTUS
--------------
Whale Securities Co., L.P.
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporation to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit a director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following: (i) breaches of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts or
omissions not made in good faith or which involve intentional misconduct of
knowing violations of law; (iii) liability for dividends paid or stock
repurchased or redeemed in violation of the Delaware General Corporation law; or
(iv) any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the ability of
the company or its stockholders to obtain injunctive relief, specific
performance or other equitable relief against directors.
Article Eighth of the Registrant's Certificate of Incorporation provides
that the personal liability of the directors of the Registrant be eliminated to
the fullest extent permitted under Section 102(b) of the Delaware General
Corporation law.
Article Ninth of the Registrant's Certificate of Incorporation and the
Registrant's By-laws provides that all persons who the Registrant is empowered
to indemnify pursuant to the provisions of Section 145 of the Delaware General
Corporation Law (or any similar provision or provisions of applicable law at the
time in effect), shall be indemnified by the Registrant to the full extent
permitted thereby. The foregoing right of indemnification shall not be deemed to
be exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors, or otherwise.
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors, officers
or persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefor unenforceable.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the underwriter agrees to indemnify
the directors and certain officers of the Registrant and certain other persons
against certain civil liabilities.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than the underwriting
discounts and commissions and the Underwriter's Non-Accountable Expense
Allowance) expected to be incurred in connection with the issuance and
distribution of the securities being registered.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration .................................................... $ 4,496.51
NASD Filing Fee ..................................................... $ 2,341.01
Legal Fees and Expenses* ............................................ $ 130,000.00
Printing and Engraving Costs* ....................................... $ 110,000.00
Accounting Fees* .................................................... $ 180,000.00
Blue Sky Expenses and Counsel Fees .................................. $ **
Boston Stock Exchange and NASDAQ Listing Fees and Related Expenses* . $ 40,000.00
Miscellaneous* ...................................................... $ **
------------
Total ............................................................. $ 630,000.00
============
</TABLE>
- ------------
* Estimated
** To be provided by amendment.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Since January 1997, the Registrant has issued securities without
registration under the Securities Act in the following transactions:
1. In January 1997, the Registrant issued an aggregate of 431,538 shares of
Common Stock, $.001 par value ("Common Stock"), valued at $80,000, to Steven
Malin and Robert Malin, the co-founders of the Registrant, in exchange for all
of the issued and outstanding shares of A.B. Watley, Inc.
2. In January 1997, the Registrant issued an aggregate of 3,568,462 shares
of Common Stock to nine investors for aggregate proceeds of $71,369. These
investors are directors, executive officers and/or employees of the Registrant
and two family members of two of the directors.
3. In January 1997, the Registrant issued options to purchase an aggregate
of 125,000 shares of Common Stock, exercisable at $.02 per share, to three
executive officers of the Registrant.
4. In April 1997, the Registrant issued an aggregate of 1,050,000 shares of
Common Stock to forty-two investors for aggregate proceeds of $2,100,000. All of
these investors were accredited investors, of which 38 were individuals, 1 was a
Profit Sharing Plan, 1 was a Trust and 2 were foreign investors.
5. In April 1997, the Registrant issued options to purchase an aggregate of
180,500 shares of Common Stock, exercisable at $2.00 per share, to ten employees
under the Registrant's stock option plans.
6. In September 1997, the Registrant issued options to purchase an
aggregate of 87,700 shares of Common Stock, exercisable at $5.00 per share, to
seven employees under the Registrant's stock option plans.
7. In November 1997, the Registrant issued options to purchase an aggregate
of 20,600 shares of Common Stock, exercisable at $6.00 per share, to six
employees under the Registrant's stock option plans.
8. In January 1998, the Registrant issued 50,000 shares of Common Stock to
a foreign accredited investor for $500,000.
9. In March 1998, the Registrant issued 20,000 shares of Common Stock and
warrants to purchase 20,000 shares of Common Stock to a foreign accredited
investor for $200,000.
10. In May 1998, the Registrant issued 17,500 shares of Common Stock to a
foreign accredited investor for $175,000.
11. In October 1998, the Registrant issued 38,260 shares of Common Stock,
valued at $183,648, to Leon Ferguson in exchange for all the shares of Computer
Strategies, Inc.
12. In October 1998, the Registrant issued warrants to purchase 191,250
shares of Common Stock to New York Small Business Venture Fund, LLC, an
accredited investor, as partial consideration for making a $500,000 loan to the
Registrant.
13. In October 1998, the Registrant issued 25,000 shares of Common Stock to
an executive officer upon exercise of options, for proceeds of $500.
14. In November 1998, the Registrant issued an aggregate of 100,000 shares
of Common Stock to two executive officers upon exercise of options, for
aggregate proceeds of $2,000.
15. In December 1998, the Registrant issued an aggregate of 3,000 shares of
Common Stock to five employees for aggregate proceeds of $1,500.
16. In January 1999, the Registrant issued an aggregate of 70,771 shares
of Common Stock to three stockholders for no or nominal consideration. These
stockholders were non-U.S. investors.
17. In January 1999, the Registrant issued an aggregate of 221,500 shares
of Common Stock to twelve investors for aggregate net proceeds of $1,050,000.
All of these investors were accredited investors, of which 10 were individuals
(including one executive officer, one proposed director (to take office upon the
effectiveness of the offering) and a trust for the benefit of an executive
officer) and two were corporate entities.
18. In January 1999, the Registrant issued warrants to purchase 140,000
shares of Common Stock to New York Community Investment Company, L.L.C., an
accredited investor, as partial consideration for making a $400,000 loan to the
Registrant.
II-2
<PAGE>
The sales and issuances of the Common Stock, options and warrants described
above were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(2), Regulation 506 and/or Regulation 701 thereof as
transactions not involving a public offering. The Registrant made a
determination that each of the purchasers was a sophisticated investor. The
purchasers in such private offerings represented their intention to acquire the
securities for investment only and not with a view to the distribution thereof.
Appropriate legends were affixed to the stock certificates and warrants issued
in such transactions. All purchasers had adequate access, through their
employment or other relationships, to sufficient information about the
Registrant to make an informed investment decision. None of the securities were
sold through an underwriter and, accordingly, there were no underwriting
discounts or commissions involved.
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company and form of amendment thereto.*
3.2 By-Laws of the Company, as amended.
4.1 Specimen Common Stock Certificate.
4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.
5.1 Form of Opinion of Hartman & Craven LLP on legality of securities being registered.
10.1 1997 Stock Option Plan.*
10.2 Second Amended and Restated 1998 Stock Option Plan.
10.3 Employment Agreement dated as of May 1, 1997 between the Company and Steven Malin
and Amendment to Employment Agreement dated as of October 1, 1998 between the
Company and Steven Malin.*
10.4 Employment Agreement dated as of June 1, 1997 between the Company and Harry Simpson
and Amendment to Employment Agreement dated October 1, 1998 between the Company and
Harry Simpson.*
10.5 Employment Agreement dated as of January 1, 1999 between the Company and Robert
Malin.*
10.6 Employment Agreement dated as of June 1, 1997 between the Company and Anthony G.
Huston and Amendment to Employment Agreement dated as of October 1, 1998 between the
Company and Anthony G. Huston.*
10.7 Employment Agreement dated as of March 1, 1998 between the Company and Eric
Steinberg.*
10.8 Office lease dated as of June 20, 1997 between 40 Wall Development Associates, LLC,
as Landlord and the Company as Tenant for premises located at 40 Wall Street, New
York, New York.
10.9 [Intentionally omitted]
10.10 [Intentionally omitted]
10.11 Co-Branding Agreement dated October 11, 1996 between PC Quote, Inc. and A.B. Watley, Inc.,
as amended.**
10.12 Computer Software License Agreement dated December 8, 1996 between Townsend Analytics,
Ltd. and A.B. Watley, Inc., as amended.**
10.13 Fully Disclosed Clearing Agreement dated October 3, 1996 and Amendment dated June 8, 1998
between Penson Financial Services, Inc. and A.B. Watley, Inc.*
10.14 Fully Disclosed Correspondent Agreement dated November 18, 1996 between Weiss, Peck &
Greer, L.L.C. and A.B. Watley, Inc.*
10.15 License Agreement dated as of October 1, 1998 between Ethos Corporation and A.B. Watley,
Inc.**
10.16 Service Marketing Representative Agreement dated as of January 29, 1998 between S&P Common
Stock, Inc. and A.B. Watley, Inc.+
10.17 Master Lease Agreement dated December 17, 1998 between General Electric Capital Corporation
and the Company.
10.18 Security Agreement dated December 17, 1998 between General Electric Capital Corporation and
the Company.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- -----------
<S> <C>
10.19 Letter of Credit Agreement dated December 17, 1998 between General Electric Capital
Corporation and the Company.
10.20 Loan Agreement dated January 28, 1999 between New York Community Investment Company
L.L.C., the Company and A.B. Watley, Inc.*
10.21 Promissory Note of the Company and A.B. Watley, Inc. dated January 28, 1999 issued to the
New York Community Investment Company L.L.C.*
10.22 Security Agreement dated January 28, 1999 between New York Community Investment Company
L.L.C. and A.B. Watley, Inc.*
10.23 Security Agreement dated January 28, 1999 between New York Community Investment Company
L.L.C. and the Company.*
23.1 Consent of Hartman & Craven LLP (contained in, and incorporated herein by reference
to Exhibit 5.1 of this Registration Statement).
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of William Brawer.*
23.4 Consent of Elizabeth Chambers.*
23.5 Consent of Mark Chambre.*
23.6 Consent of Stanley Weinstein.*
24.1 Power of Attorney.*
27.1 Financial Data Schedule.
</TABLE>
- ------------
* Previously filed
** Previously filed in redacted form pursuant to Rule 406 promulgated under the
Securities Act. Filed separately in unredacted form subject to a request for
confidential treatment pursuant to Rule 406 under the Securities Act.
+ Filed herewith an amendment to the redacted form previously filed pursuant to
Rule 406 promulgated under the Securities Act. Filed separately in unredacted
form subject to a request for confidential treatment pursuant to Rule 406
under the Securities Act.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) include any additional or changed material information on the plan
of distribution;
(2) for determining liability under the Securities Act, treat each such
post-effective amendment as a new registration of the securities offered,
and the offering of such securities at that time to be initial bona fide
offering; and
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
II-4
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Securities and Exchange Commission declares it effective; and (3) that for
the purpose of determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement
herein, and treat the offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned in the City
of New York, State of New York, on April 7, 1999.
INTERNET FINANCIAL SERVICES INC.
By: /s/ Steven Malin
------------------------------------
Steven Malin,
Chairman and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven Malin Chairman of the Board, Chief Executive April 7, 1999
- ------------------------------ Officer and Director (Principal Executive
Steven Malin Officer and Principal Financial Officer)
/s/ Michael Fielman Vice President -- Finance April 7, 1999
- ------------------------------ (Principal Accounting Officer)
Michael Fielman
/s/ Harry Simpson President, Chief Operating Officer April 7, 1999
- ------------------------------ and Director
Harry Simpson
/s/ Robert Malin Director April 7, 1999
- ------------------------------
Robert Malin
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Company and form of amendment thereto.*
3.2 By-Laws of the Company, as amended.
4.1 Specimen Common Stock Certificate.
4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.
5.1 Form of Opinion of Hartman & Craven LLP on legality of securities being registered.
10.1 1997 Stock Option Plan.*
10.2 Second Amended and Restated 1998 Stock Option Plan.
10.3 Employment Agreement dated as of May 1, 1997 between the Company and Steven Malin
and Amendment to Employment Agreement dated as of October 1, 1998 between the
Company and Steven Malin.*
10.4 Employment Agreement dated as of June 1, 1997 between the Company and Harry Simpson
and Amendment to Employment Agreement dated October 1, 1998 between the Company and
Harry Simpson.*
10.5 Employment Agreement dated as of January 1, 1999 between the Company and Robert Malin.*
10.6 Employment Agreement dated as of June 1, 1997 between the Company and Anthony G.
Huston and Amendment to Employment Agreement dated as of October 1, 1998 between the
Company and Anthony G. Huston.*
10.7 Employment Agreement dated as of March 1, 1998 between the Company and Eric Steinberg.*
10.8 Office lease dated as of June 20, 1997 between 40 Wall Development Associates, LLC,
as Landlord and the Company as Tenant for premises located at 40 Wall Street, New
York, New York.
10.9 [Intentionally omitted]
10.10 [Intentionally omitted]
10.11 Co-Branding Agreement dated October 11, 1996 between PC Quote, Inc. and A.B. Watley, Inc.,
as amended.**
10.12 Computer Software License Agreement dated December 8, 1996 between Townsend Analytics,
Ltd. and A.B. Watley, Inc., as amended.**
10.13 Fully Disclosed Clearing Agreement dated October 3, 1996 and Amendment dated June 8, 1998
between Penson Financial Services, Inc. and A.B. Watley, Inc.*
10.14 Fully Disclosed Correspondent Agreement dated November 18, 1996 between Weiss, Peck &
Greer, L.L.C. and A.B. Watley, Inc.*
10.15 License Agreement dated as of October 1, 1998 between Ethos Corporation and A.B. Watley,
Inc.**
10.16 Service Marketing Representative Agreement dated as of January 29, 1998 between S&P Common
Stock, Inc. and A.B. Watley, Inc.+
10.17 Master Lease Agreement dated December 17, 1998 between General Electric Capital Corporation
and the Company.
10.18 Security Agreement dated December 17, 1998 between General Electric Capital Corporation and
the Company.
10.19 Letter of Credit Agreement dated December 17, 1998 between General Electric Capital
Corporation and the Company.
10.20 Loan Agreement dated January 28, 1999 between New York Community Investment Company
L.L.C., the Company and A.B. Watley, Inc.*
10.21 Promissory Note of the Company and A.B. Watley, Inc. dated January 28, 1999 issued
to the New York Community Investment Company L.L.C.*
10.22 Security Agreement dated January 28, 1999 between New York Community Investment Company
L.L.C. and A.B. Watley, Inc.*
10.23 Security Agreement dated January 28, 1999 between New York Community Investment Company
L.L.C. and the Company.*
23.1 Consent of Hartman & Craven LLP (contained in, and incorporated herein by reference
to Exhibit 5.1 of this Registration Statement).
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of William Brawer.*
23.4 Consent of Elizabeth Chambers.*
23.5 Consent of Mark Chambre.*
23.6 Consent of Stanley Weinstein.*
24.1 Power of Attorney.*
27.1 Financial Data Schedule.
</TABLE>
- ------------
* Previously filed
** Previously filed in redacted form pursuant to Rule 406 promulgated under the
Securities Act. Filed separately in unredacted form subject to a request for
confidential treatment pursuant to Rule 406 under the Securities Act.
+ Filed herewith an amendment to the redacted form previously filed pursuant to
Rule 406 promulgated under the Securities Act. Filed separately in unredacted
form subject to a request for confidential treatment pursuant to Rule 406
under the Securities Act.
<PAGE>
EXHIBIT 1.1
Internet Financial Services Inc.
2,000,000 Shares of Common Stock
(Par Value $.001 Per Share)
UNDERWRITING AGREEMENT
----------------------
Whale Securities Co., L.P. New York, New York
650 Fifth Avenue ___________, 1999
New York, New York 10019
Dear Sirs:
Internet Financial Services Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Whale Securities Co., L.P. (the
"Underwriter") Two Million (2,000,000) shares (the "Offered Shares") of the
common stock, par value $.001 per share, which Offered Shares are presently
authorized but unissued shares of the common stock par value $.001 per share
(individually, a "Common Share" and collectively the "Common Shares"), of the
Company. In addition, the Underwriter, in order to cover over-allotments in the
sale of the Offered Shares, may purchase up to an aggregate of Three Hundred
Thousand (300,000) Common Shares (the "Optional Shares"; the Offered Shares and
the Optional Shares are hereinafter sometimes collectively referred to as the
"Shares"). The Shares are described in the Registration Statement and the
Prospectus, as defined below. The Company also proposes to issue and sell to the
Underwriter for its own account and the accounts of its designees, warrants to
purchase up to an aggregate of Two Hundred Thousand (200,000) Common Shares at
an exercise price of $11.55 per share (the "Underwriter's Warrants"), which sale
will be consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant filed as an exhibit to the Registration Statement.
The Company hereby confirms its agreement with the Underwriter
as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriter, and the Underwriter agrees to purchase the Offered
Shares from the Company, at a purchase price of $6.35 per share. The Underwriter
plans to offer the Shares to the public at a public offering price of $7.00 per
Offered Share.
<PAGE>
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, at the offices of the
Underwriter, 650 Fifth Avenue, New York, New York 10019, against delivery of the
Offered Shares to the Underwriter. Such payment and delivery will be made at
10:00 A.M., New York City time, on the third business day following the
Effective Date (as hereinafter defined) (the fourth business day following the
Effective Date in the event that trading of the Offered Shares commences on the
day following the Effective Date), the date and time of such payment and
delivery being herein called the "Closing Date." The certificates representing
the Offered Shares to be delivered will be in such denominations and registered
in such names as the Underwriter may request not less than two full business
days prior to the Closing Date, and will be made available to the Underwriter
for inspection, checking and packaging at the office of the Company's transfer
agent or correspondent in New York City, American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005 not less than one full
business day prior to the Closing Date.
(b) On the Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners (collectively, the "Underwriter's
Designees"). The Underwriter's Warrants will be in the form of, and in
accordance with, the provisions of the Underwriter's Warrant attached as an
exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is One Hundred Dollars ($100.00). The Underwriter's
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of one (1) year from the Effective Date, except to the Underwriter's
Designees. Payment for the Underwriter's Warrants will be made to the Company by
check or checks payable to its order on the Closing Date against delivery of the
certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and such
names as the Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any over- allotments in
connection with the distribution and sale of the Offered Shares as contemplated
by the Prospectus, the Underwriter is hereby granted an option to purchase all
or any part of the Optional Shares from the Company. The purchase price to be
paid for the Optional Shares will be the same price per Optional Share
-2-
<PAGE>
as the price per Offered Share set forth in Section 1 hereof. The option granted
hereby may be exercised by the Underwriter as to all or any part of the Optional
Shares at any time within 45 days after the Effective Date. The Underwriter will
not be under any obligation to purchase any Optional Shares prior to the
exercise of such option.
(b) The option granted hereby may be exercised by the
Underwriter by giving oral notice to the Company, which must be confirmed by a
letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two full business days thereafter. In either event, the date so set
forth will not be more than 15 full business days after the date of such notice.
The date and time set forth in such notice is herein called the "Option Closing
Date." Upon exercise of such option, through the Underwriter's delivery of the
aforementioned notice, the Company will become obligated to convey to the
Underwriter, and, subject to the terms and conditions set forth in Section 3(d)
hereof, the Underwriter will become obligated to purchase, the number of
Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be made
to the Company by wire transfer or certified or official bank check or checks
payable to its order in New York Clearing House funds, at the office of the
Underwriter, against delivery of the Optional Shares purchased to the
Underwriter. The certificates representing the Optional Shares to be delivered
will be in such denominations and registered in such names as the Underwriter
requests not less than two full business days prior to the Option Closing Date,
and will be made available to the Underwriter for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Underwriter to purchase and pay
for any of the Optional Shares is subject to the accuracy and completeness (as
of the date hereof and as of the Option Closing Date) of and compliance in all
material respects with the representations and warranties of the Company herein,
to the
-3-
<PAGE>
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, set forth in Section
3(b) hereof, and to the delivery to the Underwriter of opinions, certificates
and letters dated the Option Closing Date substantially similar in scope to
those specified in Section 5, 6(b), (c), (d) and (e) hereof, but with each
reference to "Offered Shares" and "Closing Date" to be, respectively, to the
Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, to own or lease, as the case may be,
and operate its properties, whether tangible or intangible, and to conduct its
business as described in the Registration Statement and to execute, deliver and
perform this Agreement and the Underwriter's Warrant Agreement and to consummate
the transactions contemplated hereby and thereby. The Company has no
subsidiaries other than A.B. Watley, Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of New York
("Watley"), and Computer Strategies, Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas ("CSI") (each
individually a "Subsidiary" and together the "Subsidiaries"). Unless the context
otherwise requires, all references to the "Company" in this Agreement shall
include the Subsidiaries. Each of the Subsidiaries has full power and authority,
corporate and other, necessary to own or lease, as the case may be, and operate
its properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. Each of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
where failure so to qualify could have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company or any Subsidiary.
The Company owns all of the issued and outstanding shares of
capital stock of the Subsidiaries, free and clear of any security interests,
liens, encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
-4-
<PAGE>
options or warrants for the purchase of, or other rights to purchase or acquire,
or outstanding securities convertible into or exchangeable for, any capital
stock or other securities of any Subsidiary. Other than the Subsidiaries, the
Company has no equity interests in any entity.
(b) This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding obligation of the Company, and
each of the Underwriter's Warrant Agreement and the Consulting Agreement
described in Section 5(r) hereof (the "Consulting Agreement"), when executed and
delivered by the Company on the Closing Date, will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. The execution, delivery and performance of this
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement by
the Company, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms of this
Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement have
been duly authorized by all necessary corporate action and do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the Certificate of Incorporation or By-Laws, each as
amended, of the Company or any Subsidiary; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company, any Subsidiary
or any of their respective properties or assets is or may be bound or affected;
(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, any Subsidiary or any of their respective
properties or businesses; or (iv) have any effect on any permit, certification,
registration, approval, consent order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any Subsidiary to own
or lease and operate their respective properties and to conduct their respective
businesses or the ability of the Company to make use thereof.
(c) No Permits of any court or governmental agency or body,
other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the
-5-
<PAGE>
Shares to the Underwriter, and (ii) the consummation by the Company of the
transactions contemplated by this Agreement, the Consulting Agreement or the
Underwriter's Warrant Agreement.
(d) The conditions for use of a registration statement on
Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied
with respect to the Company, the transactions contemplated herein and in the
Registration Statement. The Company has prepared in conformity with the
requirements of the Act and the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-71783) on Form SB-2 and has
filed one or more amendments thereto, covering the registration of the Shares
under the Act, including the related preliminary prospectus or preliminary
prospectuses (each thereof being herein called a "Preliminary Prospectus") and a
proposed final prospectus. Each Preliminary Prospectus was endorsed with the
legend required by Item 501(a)(5) of Regulation S-B of the Regulations and, if
applicable, Rule 430A of the Regulations. Such registration statement including
any documents incorporated by reference therein and all financial schedules and
exhibits thereto, as amended at the time it becomes effective, and the final
prospectus included therein are herein, respectively, called the "Registration
Statement" and the "Prospectus," except that, (i) if the prospectus filed by the
Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus,
the term "Prospectus" will also include the prospectus filed pursuant to Rule
424(b), and (ii) if the Registration Statement is amended or such Prospectus is
supplemented after the date the Registration Statement is declared effective by
the Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge after due investigation, 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 after due
investigation, threatened to institute any proceedings with respect to such an
order.
(f) The Registration Statement when it becomes effective,
the Prospectus (and any amendment or supplement thereto) when it is filed with
the Commission pursuant to Rule 424(b), and both documents as of the Closing
Date and the Option Closing Date, referred to below, will contain all statements
which are required to be stated therein in accordance with the Act and the
Regulations and will in all material respects conform
-6-
<PAGE>
to the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or 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, except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. Based on the assumptions stated in
the Registration Statement and the Prospectus, the Company will have on the
Closing Date the adjusted stock capitalization set forth therein. Except as set
forth in the Registration Statement or the Prospectus, on the Effective Date and
on the Closing Date, there will be no options to purchase, warrants or other
rights to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of the Company's capital
stock or any such warrants, convertible securities or obligations. Except as set
forth in the Prospectus, no holders of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to have such securities registered
under the Act.
(h) The descriptions in the Registration Statement and the
Prospectus of contracts and other documents are accurate and present 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 as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) Ernst & Young LLP, the accountants who have certified
certain of the consolidated financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The consolidated financial statements and schedules and the notes thereto filed
as part of the Registration Statement and included in the Prospectus are
complete, correct and present fairly the financial position of the Company as of
the dates thereof, and the results of operations and changes in financial
position of the Company for the periods indicated therein, all in conformity
with generally
-7-
<PAGE>
accepted accounting principles applied on a consistent basis throughout the
periods involved except as otherwise stated in the Registration Statement and
the Prospectus. The selected financial data set forth in the Registration
Statement and the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited and unaudited
financial statements included in the Registration Statement and the Prospectus.
(j) Each of the Company and the Subsidiaries has filed with
the appropriate federal, state and local governmental agencies, and all
appropriate foreign countries and political subdivisions thereof, all tax
returns, including franchise tax returns, which are required to be filed or have
duly obtained extensions of time for the filing thereof and have paid all taxes
shown on such returns and all assessments received by them to the extent that
the same have become due; and the provisions for income taxes payable, if any,
shown on the consolidated financial statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic 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 Underwriter, neither the Company nor any Subsidiary has executed
or filed with any taxing authority, foreign or domestic, any agreement extending
the period for assessment or collection of any income taxes and is not a party
to any pending action or proceeding by any foreign or domestic governmental
agency for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company or any Subsidiary.
(k) The outstanding Common Shares and outstanding options
and warrants to purchase Common Shares have been duly authorized and validly
issued. The outstanding Common Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Shares constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms. The Company has duly reserved a sufficient number of Common Shares from
its authorized but unissued Common Shares for issuance upon exercise of the
outstanding options and warrants. None of the outstanding Common Shares or
options or warrants to purchase Common Shares has been issued in violation of
the preemptive rights of any stockholder of the Company. None of the holders of
the outstanding Common Shares is subject to personal liability solely by reason
of being such a holder. The offers and sales of the outstanding Common Shares
and outstanding options and warrants to purchase Common Shares were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and
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outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
Except as set forth in the Registration Statement and the Prospectus, on the
Effective Date and the Closing Date, there will be no outstanding options or
warrants for the purchase of, or other outstanding rights to purchase or
acquire, Common Shares or securities convertible into Common Shares.
(l) 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.
(m) The issuance and sale of the Shares have been duly
authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
will not be subject to preemptive rights of any stockholder of the Company.
(n) The issuance and sale of the Common Shares issuable
upon exercise of the Underwriter's Warrants have been duly authorized and, when
such Common Shares have been duly delivered against payment therefor, as
contemplated by the Underwriter's Warrant Agreement, such Common Shares will be
validly issued, fully paid and nonassessable. Holders of Common Shares issuable
upon the exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Common Shares issuable upon exercise thereof will be subject to
preemptive rights of any stockholder of the Company. The Company has reserved a
sufficient number of Common Shares from its authorized but unissued Common
Shares for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(o) Neither the Company nor any Subsidiary is in violation
of, or in default under, (i) any term or provision of its Certificate of
Incorporation or By-Laws, each as amended; (ii) any material term or provision
or any financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or
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decree of any governmental agency or court, domestic or foreign, or self
regulatory organization, including the National Association of Securities
Dealers, Inc. (the "NASD"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX"), having jurisdiction over the Company, any Subsidiary or
any of the Company's or any Subsidiary's properties or businesses. Each of the
Company and the Subsidiaries owns, possesses or has obtained all governmental
and other (including those obtainable from third parties) Permits, necessary to
own or lease, as the case may be, and to operate their properties, whether
tangible or intangible, and to conduct their respective business and operations
as presently conducted and all such Permits are outstanding and in good
standing, and there are no proceedings pending or, to the best of the Company's
knowledge after due investigation, threatened, or any basis therefor, seeking to
cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, pending, or, to the best of the
Company's knowledge after due investigation, threatened against the Company or
any Subsidiary or involving the Company's or any Subsidiary's properties or
business which, if determined adversely to the Company or any Subsidiary, would,
individually or in the aggregate, result in any material adverse change in the
financial position, stockholders' equity, results of operations, properties,
business, management or affairs or business prospects of the Company or any
Subsidiary or which question the validity of the capital stock of the Company or
a Subsidiary or this Agreement or of any action taken or to be taken by the
Company pursuant to, or in connection with, this Agreement; nor, to the best of
the Company's knowledge after due investigation, is there any basis for any such
claim, action, suit, proceeding, arbitration, investigation or inquiry. There
are no outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal naming the Company or any Subsidiary and enjoining the
Company or any Subsidiary from taking, or requiring the Company or any
Subsidiary to take, any action, or to which the Company or any Subsidiary, or
the Company's or any Subsidiary's properties or business is bound or subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) Each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, copyrights,
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rights, trade secrets, confidential information, processes and formulations used
or proposed to be used in the conduct of their businesses as described in the
Prospectus (collectively the "Intangibles"); to the best of the Company's
knowledge, neither the Company nor any Subsidiary has infringed nor is
infringing upon the rights of others with respect to the Intangibles; and
neither the Company nor any Subsidiary has received any notice of conflict with
the asserted rights of others with respect to the Intangibles which could,
singly or in the aggregate, materially adversely affect its business as
presently conducted or the prospects, financial condition or results of
operations of the Company or any Subsidiary, and the Company knows of no basis
therefor; and, to the best of the Company's knowledge, no others have infringed
upon the Intangibles of the Company or any Subsidiary.
(s) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and the Company's latest
consolidated financial statements, neither the Company nor any Subsidiary has
incurred any material liability or obligation, direct or contingent, or entered
into any material transaction, whether or not incurred in the ordinary course of
business, and has not sustained any 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; and since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there have not been, and prior
to the Closing Date referred to below there will not be, any changes in the
capital stock or any material increases in the long-term debt of the Company or
any material adverse change in or affecting the general affairs, management,
financial condition, stockholders' equity, results of operations or prospects of
the Company or any Subsidiary, otherwise than as set forth or contemplated in
the Prospectus.
(t) Neither the Company nor the Subsidiaries owns any real
property. Each of the Company and the Subsidiaries has good title to all
personal property (tangible and intangible) owned by it, free and clear of all
security interests, charges, mortgages, liens, encumbrances and defects, except
such as are described in the Registration Statement and Prospectus or such as do
not materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or any Subsidiary. The leases, licenses or other contracts or
instruments under which the Company and the Subsidiaries lease, hold or are
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do
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not interfere with the use of such property made, or proposed to be made, by the
Company or any Subsidiary, and all rentals, royalties or other payments accruing
thereunder which became due prior to the date of this Agreement have been duly
paid, and neither the Company nor any Subsidiary, nor, to the best of the
Company's knowledge after due investigation, any other party is in default
thereunder and, to the best of the Company's knowledge after due investigation,
no event has occurred which, with the passage of time or the giving of notice,
or both, would constitute a default thereunder. Neither the Company nor any
Subsidiaries has received notice of any violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or leased
properties. Each of the Company and the Subsidiaries has adequately insured
their properties against loss or damage by fire or other casualty and maintain,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses located in their geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company or a Subsidiary is a party or
by which their properties or businesses is or may be bound or affected and to
which reference is made in the Prospectus has been duly and validly executed, is
in full force and effect in all material respects and is enforceable against the
parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company or the Subsidiary, and neither the
Company nor any Subsidiary, nor, to the best of the Company's knowledge after
due investigation, any other party, is in default thereunder and, to the best of
the Company's knowledge after due investigation, no event has occurred which,
with the lapse of time or the giving of notice, or both, would constitute a
default thereunder.
None of the material provisions of such contracts or
instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court or self regulatory
organization, including, without limitation, the NASD, NYSE and AMEX, having
jurisdiction over the Company or the Subsidiaries or any of their respective
assets or businesses, including, without limitation, those promulgated by the
Commission, and comparable state and local regulatory authorities.
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants and between the Subsidiaries and their respective officers,
employees and consultants, described in the Registration Statement, are binding
and enforceable obligations upon the respective parties thereto in
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accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
or arrangements affecting creditors' rights generally and subject to principles
of equity.
(w) Except as set forth in the Prospectus, neither the
Company nor the Subisidiaries has employee benefit plans (including, without
limitation, profit sharing and welfare benefit plans) or deferred compensation
arrangements that are subject to the provisions of the Employee Retirement
Income Security Act of 1974.
(x) To the best of the Company's knowledge after due
investigation, no labor problem exists with any of the Company's or any
Subsidiary's employees or is imminent which could adversely affect the Company
or any Subsidiary.
(y) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(z) The Shares have been approved for listing on the Nasdaq
SmallCap Market and the Boston Stock Exchange or Pacific Stock Exchange.
(aa) The software and hardware operated by each of the
Company and the Subsidiaries are capable of providing or are being adapted to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 and date-dependent
data in substantially the same manner and with the same functionality as such
software records, stores, processes and presents such calendar dates and
date-dependent data as of the date hereof, except as would not have a material
adverse effect on the Company or any Subsidiary.
(ab) The Company has provided to Tenzer Greenblatt LLP,
counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated August 1, 1998 and
supplemented diligence requests dated December 1, 1998 and January 11, 1999.
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Any certificate signed by an officer of the Company or by
an officer of a Subsidiary and delivered to the Underwriter or to Underwriter's
Counsel shall be deemed to be a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Shares by the
Underwriter or a dealer, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Underwriter has not been
previously advised and furnished a copy, or to which the Underwriter shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Underwriter
immediately, and, if requested by the Underwriter, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information; and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the Underwriter, without
charge, from time to time until the Effective Date, as many copies of each
Preliminary Prospectus as the Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
a
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<PAGE>
signed copy of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration Statement
becomes effective, a copy of all exhibits filed therewith and a signed copy of
all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information as may
be required and otherwise cooperate in qualifying the Shares for offering and
sale under the securities or Blue Sky laws relating to the offering in such
jurisdictions as the Underwriter may reasonably designate, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its
securityholders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Underwriter and Underwriter's Counsel as soon as practicable and
in any event not later than 45 days after the end of its fiscal quarter in which
the first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(g) For a period of five years from the Effective Date, the
Company will deliver to the Underwriter and to Underwriter's Counsel on a timely
basis (i) a copy of each report or document, including, without limitation,
reports on Forms 8-K, 10-K (or 10-KSB), 10-Q (or 10-QSB) and exhibits thereto,
filed or
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<PAGE>
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD") on the date each such report or
document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
securityholders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 received or prepared by the Company from time to time; (iv)
monthly statements setting forth such information regarding the Company's
results of operations and financial position (including balance sheet, profit
and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company; and (v) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense. The
Company will furnish to its stockholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that controls, is
controlled by or is under common control with the Company will take any action
designed to or which might be reasonably expected to cause or result in the
stabilization or manipulation of the price of the Common Shares.
(i) If the transactions contemplated by this Agreement are
consummated, the Underwriter shall retain the $50,000 previously paid to it, and
the Company will pay or cause to be paid the following: all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including, but not limited to, the fees and expenses of accountants
and counsel for the Company; the preparation, printing, mailing and filing of
the Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto; the printing and mailing of the Selected Dealer Agreement, the issuance
and delivery of the Shares to the Underwriter; all taxes, if any, on the
issuance of the Shares; the fees, expenses and other costs of qualifying the
Shares for sale under the Blue Sky or securities laws of those states in which
the Shares are to be offered or sold, including fees and disbursements of
counsel in connection therewith, and including those of such local counsel as
may have been retained for such purpose; the filing fees incident to securing
any required review by the NASD and either the Boston Stock Exchange or Pacific
Stock Exchange; the cost of printing and mailing the "Blue Sky Survey"; the cost
of furnishing to the Underwriter copies of the Registration Statement,
Preliminary Prospectuses and the Prospectus as herein provided; the costs of
placing "tombstone
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advertisements" in any publications which may be selected by the Underwriter;
and all other costs and expenses incident to the performance of the Company's
obligations hereunder which are not otherwise specifically provided for in this
Section 5(i).
In addition, at the Closing Date or the Option Closing
Date, as the case may be, the Underwriter will deduct from the payment for the
Offered Shares or any Optional Shares three percent (3%) of the gross proceeds
of the offering (less the sum of $50,000 previously paid to the Underwriter), as
payment for the Underwriter's nonaccountable expense allowance relating to the
transactions contemplated hereby, which amount will include the fees and
expenses of Underwriter's Counsel (other than the fees and expenses of
Underwriter's Counsel relating to Blue Sky qualifications and registrations,
which, as provided for above, shall be in addition to the three percent (3%)
nonaccountable expense allowance and shall be payable directly by the Company to
Underwriter's Counsel on or prior to the Closing Date).
(j) If the transactions contemplated by this Agreement or
related hereto are not consummated because the Company decides not to proceed
with the offering for any reason or because the Underwriter decides not to
proceed with the offering as a result of a breach by the Company of its
representations, warranties or covenants in the Agreement or as a result of
adverse changes in the affairs of the Company, then the Company will be
obligated to reimburse the Underwriter for its accountable expenses up to the
sum of $75,000, inclusive of the $50,000 previously paid to the Underwriter by
the Company. In all cases other than those set forth in the preceding sentence,
if the Company or the Underwriter decide not to proceed with the offering, the
Company will only be obligated to reimburse the Underwriter for its accountable
expenses up to $50,000, and inclusive of $50,000 previously paid to the
Underwriter by the Company. In no event, however, will the Underwriter, in the
event the offering is terminated, be entitled to retain or receive more than an
amount equal to its actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the
sale of the Shares for the purposes set forth in the Prospectus. Except as set
forth in the Prospectus, no portion of the net proceeds from the sale of the
Shares will be used to repay any indebtedness.
(l) During the period of twelve (12) months from the
Effective Date hereof, neither the Company nor any of its officers, directors or
securityholders will offer for sale or sell or otherwise dispose of, directly or
indirectly, any
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securities of the Company, in any manner whatsoever, whether pursuant to Rule
144 of the Regulations or otherwise (except that, notwithstanding the foregoing,
a group of securityholders beneficially owning up to five percent (5%) of the
outstanding Common Shares in the aggregate may be excluded from the prohibitions
of this Section 5(l) provided no securityholder owning .25% or more of the
Common Shares is included in such group), and no holder of registration rights
relating to securities of the Company will exercise any such registration
rights, in either case, without the prior written consent of the Underwriter.
During the 12 month period commencing one year from the date hereof, no officer,
director or securityholder who beneficially owns or holds 5% or more of the
outstanding Common Shares (calculated in accordance with Rule 13d-3(d)(i) under
the Exchange Act) may sell any Common Shares in excess of the amount that they
would be allowed to sell if they were deemed "affiliates" of the Company and
their shares were deemed "restricted," as those terms are defined in Rule 144
promulgated under the Securities Act, without the prior written consent of the
Underwriter.
(m) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the twelve (12) months from the
Effective Date, without the Underwriter's prior written consent.
(n) 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.
(o) The Company will use its best efforts to maintain the
listing of the Shares on the Nasdaq SmallCap Market and will, if so qualified,
list the Shares, and maintain such listing for so long as qualified, on the
Nasdaq National Market System.
(p) The Company will, concurrently with the Effective Date,
register the class of equity securities of which the Shares are a part under
Section 12(b) or 12(g) of the
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Exchange Act and the Company will maintain such registration for a minimum of
five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares, the
Underwriter and its successors will have the right to designate a nominee for
election, at its or their option, either as a member of or a non-voting advisor
to the Board of Directors of the Company (which board, during such period, shall
be comprised of a minimum of five (5) persons and a majority of which, during
such period, shall be persons not otherwise affiliated with the Company, its
management or its founders), and the Company will use its best efforts to cause
such nominee to be elected and continued in office as a director of the Company
or as such advisor until the expiration of five (5) years from the Effective
Date. Each of the Company's current officers, directors and stockholders agree
to vote all of the Common Shares owned by such person or entity so as to elect
and continue in office such nominee of the Underwriter. Following the election
of such nominee as a director or advisor, such person shall receive no more or
less compensation than is paid to other non-officer directors of the Company for
attendance at meetings of the Board of Directors of the Company and 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 indemnify and hold such director or advisor harmless, to
the maximum extent permitted by law, against any and all claims, actions, awards
and judgments arising out of his service as a director or advisor and, in the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, to include such director or advisor as
an insured under such policy. The rights and benefits of such indemnification
and the benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be or may be alleged to be responsible for such
director or advisor.
If the Underwriter does not exercise its option to
designate a member of or advisor to the Company's Board of Directors, the
Underwriter shall nonetheless 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. The Company agrees to give the Underwriter notice of
each such meeting and to provide the Underwriter with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
(r) The Company agrees to employ the Underwriter or a
designee of the Underwriter as a financial consultant on a non-exclusive basis
for a period of two (2) years from the Closing Date, pursuant to a separate
written consulting agreement
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between the Company and the Underwriter and/or such designee (the "Consulting
Agreement"), at an annual rate of Thirty Thousand Dollars ($30,000) (exclusive
of any accountable out-of-pocket expenses) payable in full, in advance on the
Closing Date. In addition, the Consulting Agreement shall provide that the
Company will pay the Underwriter a finder's fee in the event that the
Underwriter originates a merger, acquisition, joint venture or other transaction
to which the Company is a party. The Company further agrees to deliver a duly
and validly executed copy of said Consulting Agreement, in form and substance
acceptable to the Underwriter, on the Closing Date.
(s) The Company shall retain a transfer agent for the
Common Shares, reasonably acceptable to the Underwriter, for a period of five
(5) years from the Effective Date. In addition, for a period of five (5) years
from the Effective Date, the Company, at its own expense, shall cause such
transfer agent to provide the Underwriter, if so requested in writing, with
copies of the Company's daily transfer sheets, and, when requested by the
Underwriter, a current list of the Company's securityholders, including a list
of the beneficial owners of securities held by a depository trust company and
other nominees.
(t) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to the Underwriter and Underwriter's Counsel,
within a reasonable period from the date hereof, four bound volumes, including
the Registration Statement, as amended or supplemented, all exhibits to the
Registration Statement, the Prospectus and all other underwriting documents.
(u) The Company shall, as of the date hereof, have applied
for listing in Standard & Poor's Corporation Records Service (including annual
report information) or Moody's Industrial Manual (Moody's OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to have
the Company listed in such manual and shall maintain such listing for a period
of five (5) years from the Effective Date.
(v) For a period of five (5) years from the Effective Date,
the Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the Underwriter
more frequently than annually if prepared more frequently by management, and
revised forecasts shall be prepared and provided to the Underwriter when
required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
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(w) For a period of five (5) years from the Effective Date,
or until such earlier time as the Common Shares are listed on the New York Stock
Exchange or the American Stock Exchange, the Company shall cause its legal
counsel to provide the Underwriter with a list, to be updated at least annually,
of those states in which the Common Shares may be traded in non- issuer
transactions under the Blue Sky laws of the 50 states.
(x) For a period of three (3) years from the Effective
Date, the Company shall continue to retain Ernst & Young LLP (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent public accountants.
(y) For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(x) above, to review (but not audit) 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 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to stockholders.
(z) For a period of twenty-five (25) days from the
Effective Date, the Company will not issue press releases or engage in any other
publicity without the Underwriter's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(aa) The Company will not increase or authorize an increase
in the compensation of its five (5) most highly paid employees greater than
those increases provided for in their employment agreements with the Company in
effect as of the Effective Date and disclosed in the Registration Statement,
without the prior written consent of the Underwriter, for a period of three (3)
years from the Effective Date.
(ab) For a period of three (3) years from the Effective
Date, the Company will promptly submit to the Underwriter copies of accountant's
management reports and similar correspondence between the Company's accountants
and the Company.
(ac) For a period of three (3) years from the Effective
Date, the Company will not offer or sell any of its securities (i) pursuant to
Regulation S promulgated under the Act or (ii) at a discount to market or in a
discounted transaction, without the prior written consent of the Underwriter,
other than the issuance of Common Shares upon exercise of options and warrants
outstanding on the Closing Date and described in the Prospectus.
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(ad) For a period of three (3) years from the Effective
Date, the Company will provide to the Underwriter ten day's written notice prior
to any issuance by the Company or its subsidiaries of any equity securities or
securities exchangeable for or convertible into equity securities of the
Company, except for (i) Common Shares issuable upon exercise of currently
outstanding options and warrants or conversion of currently outstanding
convertible securities and (ii) options available for future grant pursuant to
any stock option plan in effect on the Effective Date and the issuance of shares
of Common Shares upon the exercise of such options.
(ae) Prior to the Effective Date and for a period of three
(3) years thereafter, the Company will retain a financial public relations firm
reasonably acceptable to the Underwriter.
(af) For a period of five (5) years from the Effective
Date, the Company will cause its Board of Directors to meet, either in person or
telephonically, a minimum of four (4) times per year and will hold a
stockholder's meeting at least once per annum.
(ag) Prior to the Effective Date, the Company shall have
obtained Director's and Officer's insurance naming the Underwriter as an
additional insured party, in an amount equal to twenty-five percent (25%) of the
gross proceeds of the offering, and the Company will maintain such insurance for
a period of at least three (3) years from the Closing Date.
6. Conditions of the Underwriter's Obligation to Purchase the
Offered Shares from the Company. The obligation of the Underwriter to purchase
and pay for the Offered Shares which it has agreed to purchase from the Company
is subject (as of the date hereof and the Closing Date) to the accuracy of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy of the statements of the Company or its
officers made pursuant hereto, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement will have become effective
not later than 10:00 A.M., New York City time, on the day following the date of
this Agreement, or at such later time or on such later date as the Underwriter
may agree to in writing; prior to the Closing Date, no stop order suspending the
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effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Underwriter's or the Company's knowledge, will be contemplated
by the Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriter a signed opinion
of Hartman & Craven LLP, counsel for the Company ("Company Counsel"), dated as
of the date hereof or the Closing Date, as the case may be (and any other
opinions of counsel referred to in such opinion of Company Counsel or relied
upon by Company Counsel in rendering their opinion), reasonably satisfactory to
Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority, corporate and other, and with all Permits
necessary to own or lease, as the case may be, and operate its properties,
whether tangible or intangible, and to conduct its business as described in the
Registration Statement. To the best of Company Counsel's knowledge, the Company
has no subsidiaries, other than A.B. Watley, Inc., a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
("Watley"), and Computer Strategies Inc., a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas ("CSI") (each
individually a "Subsidiary", and together the "Subsidiaries"). Unless the
context otherwise requires, all references to the "Company" shall include the
Subsidiaries. Each of the Subsidiaries has full power and authority, corporate
and other, with all Permits necessary to own or lease, as the case may be, and
operate its properties, whether tangible or intangible, and to conduct its
business as described in the Registration Statement. Each of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary and
failure so to qualify could have a material adverse effect on the financial
condition, results of operations, business or properties of the Company or any
of the Subsidiaries.
To the best of Company Counsel's knowledge, the Company owns
all of the issued and outstanding shares of capital stock of the Subsidiaries,
free and clear of any security interests, liens, encumbrances, claims and
charges of any nature whatsoever, except as set forth in the Registration
Statement and all of such shares have been duly authorized and validly issued
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and are fully paid and nonassessable. There are no options or warrants for the
purchase of, or other rights to purchase or acquire, or outstanding securities
convertible into or exchangeable for, any capital stock or other securities of
any Subisidary. To the best of Company Counsel's knowledge, other than the
Subsidiaries, the Company has no equity interests in any entity.
(ii) The Company has full power and authority,
corporate and other, to execute, deliver and perform this Agreement, the
Consulting Agreement and the Underwriter's Warrant Agreement and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement, the Consulting Agreement and the Underwriter's
Warrant Agreement by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement, the Consulting Agreement and the Underwriter's
Warrant Agreement have been duly authorized by all necessary corporate action,
and this Agreement has been duly executed and delivered by the Company. This
Agreement is (assuming for the purposes of this opinion that it is valid and
binding upon the other party thereto) and, when executed and delivered by the
Company on the Closing Date, each of the Consulting Agreement and the
Underwriter's Warrant Agreement will be, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions set forth in Section 7 hereof
and the contribution provisions set forth in Section 8 hereof may be limited by
the federal securities laws or public policy underlying such laws.
(iii) The execution, delivery and performance of this
Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement by
the Company, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms of this
Agreement, the Consulting Agreement and the Underwriter's Warrant Agreement do
not, and will not, with or without the giving of notice or the lapse of time, or
both, (A) result in a violation of the Certificate of Incorporation or By-Laws,
each as amended, of the Company or any Subsidiary, (B) result in a breach of or
conflict with any terms or provisions of, or constitute a default under, or
result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any
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indenture, mortgage, note, contract, commitment or other material agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company, any Subsidiary or any of the Company's or any Subsidiary's properties
or assets are or may be bound or affected; (C) violate any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court, domestic or foreign, or self regulatory organization, including, without
limitation, the NASD, NYSE and AMEX, having jurisdiction over the Company, any
Subsidiary or any of the Company's or any Subsidiary's properties or business;
or (D) have any effect on any Permit necessary for the Company or any Subsidiary
to own or lease, as the case may be, and operate their respective properties or
conduct their businesses or the ability of the Company or any Subsidiary to make
use thereof.
(iv) To the best of Company Counsel's knowledge, no
Permits of any court or governmental agency or body (other than under the Act,
the Regulations and applicable state securities or Blue Sky laws) are required
for the valid authorization, issuance, sale and delivery of the Shares or the
Underwriter's Warrants to the Underwriter, and the consummation by the Company
of the transactions contemplated by this Agreement, the Consulting Agreement or
the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective
under the Act; to the best of Company 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, threatened
or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as
of the Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and other financial
data included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement
and the Prospectus of statutes, regulations, government classifications,
contracts and other documents (including opinions of such counsel); and the
response to Item 13 of Form SB-2 have been reviewed by Company Counsel, and,
based upon such review, are accurate in all material respects and present fairly
the information required to be disclosed, and there are no material statutes,
regulations or
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government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or
instruments described above violates any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, or self regulatory organization, including, without
limitation, the NASD, NYSE and AMEX, having jurisdiction over the Company, any
Subsidiary or any of their respective assets or businesses, including, without
limitation, those promulgated by the Commission and comparable state and local
regulatory authorities.
(viii) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of the preemptive rights of
any stockholder of the Company. None of the holders of the outstanding Common
Shares is subject to personal liability solely by reason of being such a holder.
The offers and sales of the outstanding Common Shares and outstanding options
and warrants to purchase Common Shares were at all relevant times either
registered under the Act and the applicable state securities or Blue Sky laws or
exempt from such registration requirements. The authorized Common Shares and
outstanding options and warrants to purchase Common Shares conform to the
descriptions thereof contained in the Registration Statement and Prospectus. To
the best of Company Counsel's knowledge, except as set forth in the Prospectus,
no holders of any of the Company's securities has any rights, "demand",
"piggyback" or otherwise, to have such securities registered under the Act.
(ix) The issuance and sale of the Shares have been duly
authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and nonassessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The Shares
are not subject to preemptive rights of any stockholder of the Company. The
certificates representing the Shares are in proper legal form.
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(x) The issuance and sale of the Common Shares issuable
upon exercise of the Underwriter's Warrants have been duly authorized and, when
such Common Shares have been duly delivered against payment therefor, as
contemplated by the Underwriter's Warrant Agreement, such Common Shares will be
validly issued, fully paid and nonassessable. Holders of Common Shares issuable
upon exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Common Shares issuable upon exercise thereof will be subject to
preemptive rights of any stockholder of the Company. The Company has reserved a
sufficient number of Common Shares from its authorized, but unissued Common
Shares for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Offered Shares to the
Underwriter against payment therefor as provided in this Agreement, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
Uniform Commercial Code) will acquire good title to the Offered Shares, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exercises the
over-allotment option to purchase any of the Optional Shares and makes payment
therefor in accordance with the terms of this Agreement, upon delivery of the
Optional Shares to the Underwriter hereunder, the Underwriter (assuming it is a
bona fide purchaser within the meaning of the Uniform Commercial Code) will
acquire good title to such Optional Shares, free and clear of any liens,
encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or the Subsidiary, or involving the Company's or any
Subsidiary's properties or businesses, other than as described in the
Prospectus, such description being accurate, and other than litigation incident
to the kind of business conducted by the Company which, individually and in the
aggregate, is not material.
(xiv) Each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks,
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copyrights, rights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of
Company Counsel's knowledge, neither the Company nor any Subsidiary has
infringed nor is infringing with the rights of others with respect to the
Intangibles; and, to the best of Company Counsel's knowledge, neither the
Company nor any Subsidiary has received any notice that it has or may have
infringed, is infringing upon or is conflicting with the asserted rights of
others with respect to the Intangibles which might, singly or in the aggregate,
materially adversely affect its business, results of operations or financial
condition and such counsel is not aware of any licenses with respect to the
Intangibles which are required to be obtained by the Company or any Subsidiary
other than those licenses which the Company and the Subsidiaries have obtained.
The opinions described in this Section 6(b)(xiv) may be given by Company Counsel
in reliance on the opinion of an attorney, reasonably acceptable to
Underwriter's Counsel, practicing in the patent area.
Company Counsel has participated in reviews and
discussions in connection with the preparation of the Registration Statement and
the Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
or omitted 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 that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each counsel giving an opinion must give the opinion set
forth in this paragraph as to such subject matter of its opinion.
In rendering its opinion pursuant to this Section 6(b),
Company Counsel may rely upon the certificates of government officials and
officers of the Company as to matters of fact, provided that Company Counsel
shall state that they have no reason to believe, and do not believe, that they
are not justified in relying upon such opinions or such certificates of
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government officials and officers of the Company as to matters of fact, as the
case may be.
The opinion letter delivered pursuant to this Section
6(b) shall state that any opinion given therein qualified by the phrase "to the
best of our knowledge" is being given by Company Counsel after due investigation
of the matters therein discussed.
(c) At the Closing Date, there will have been delivered to
the Underwriter a signed opinion of Underwriter's Counsel, dated as of the
Closing Date, to the effect that the opinions delivered pursuant to Section 6(b)
hereof appear on their face to be appropriately responsive to the requirements
of this Agreement, except to the extent waived by the Underwriter, specifying
the same, and with respect to such related matters as the Underwriter may
require.
(d) At the Closing Date (i) the Registration Statement and
the Prospectus and any amendments or supplements thereto will contain all
material statements which are required to be stated therein in accordance with
the Act and the Regulations and will 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 will
contain any untrue statement of a material fact or 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; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative
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agency wherein an unfavorable decision, ruling or finding would materially
adversely affect the business, property, financial condition or results of
operations of the Company, other than as set forth in the Registration Statement
and the Prospectus. At the Closing Date, there will be delivered to the
Underwriter a certificate signed by the Chairman of the Board or the President
or a Vice President of the Company, dated the Closing Date, evidencing
compliance with the provisions of this Section 6(d) and stating that the
representations and warranties of the Company set forth in Section 4 hereof were
accurate and complete in all material respects when made on the date hereof and
are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants and complied with all
conditions required by this Agreement to be performed or complied with by the
Company prior to or as of the Closing Date; and that, as of the Closing Date, no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or, to the best
of his knowledge, are contemplated or threatened. In addition, the Underwriter
will have received such other and further certificates of officers of the
Company as the Underwriter or Underwriter's Counsel may reasonably request.
(e) At the time that this Agreement is executed and at the
Closing Date, the Underwriter will have received a signed letter from Ernst &
Young, LLP, dated the date such letter is to be received by the Underwriter and
addressed to it, confirming that it is a firm of independent public accountants
within the meaning of the Act and Regulations and stating that: (i) insofar as
reported on by them, in their opinion, the financial statements of the Company
included in the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable Regulations;
(ii) on the basis of procedures and inquiries (not constituting an examination
in accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim financial statements of the Company, if any,
appearing in the Registration Statement and the Prospectus and the latest
available unaudited interim financial statements of the Company, if more recent
than that appearing in the Registration Statement and Prospectus, inquiries of
officers of the Company responsible for financial and accounting matters as to
the transactions and events subsequent to the date of the latest audited
financial statements of the Company, and a reading of the minutes of meetings of
the stockholders, the Board of Directors of the Company and any committees of
the Board of Directors, as set forth in the minute books of the Company, nothing
has come to their attention which, in their judgment, would indicate that (A)
during the period from the date of the latest financial
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statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with the corresponding period in the preceding year or any change in the
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) 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.
(f) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no objection
to the underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(h) No action shall have been taken by the Commission or
the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriter's or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the
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date hereof, and shall represent as of the Closing Date or Option Closing Date,
as the case may be, that it has no knowledge that any such action is in fact
contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing and
proposed criteria for inclusion of the Shares on Nasdaq SmallCap Market.
(j) All proceedings taken at or prior to the Closing Date
or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Underwriter and to Underwriter's Counsel, and such
counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 6(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered
to the Underwriter the written undertakings of its officers, directors and
securityholders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 5(l) and (q).
If any of the conditions specified in this Section 6 have
not been fulfilled, this Agreement may be terminated by the Underwriter on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
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contained (i) in the Registration Statement, in any Preliminary Prospectus or in
the Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or
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supplemented) or (ii) in any application (including any application for
registration of the Shares under state securities or Blue Sky laws), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the commencement of
any action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or parties shall have the right to employ a
single counsel to represent the indemnified parties who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the indemnified parties thereof against the indemnifying party, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any party against whom indemnification may be sought under
this Section 7 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent, which consent shall not be unreasonably
withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 7 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution
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under the Act, the Exchange Act, or otherwise, then the Company (including, for
this purpose, any contribution made by or on behalf of any director of the
Company, any officer of the Company who signed the Registration Statement and
any controlling person of the Company) as one entity and the Underwriter
(including, for this purpose, any contribution by or on behalf of each person,
if any, who controls the Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act and each officer, director, partner,
employee and agent of the Underwriter) as a second entity, shall contribute to
the losses, liabilities, claims, damages and expenses whatsoever to which any of
them may be subject, so that the Underwriter is responsible for the proportion
thereof equal to the percentage which the underwriting discount per Share set
forth on the cover page of the Prospectus represents of the initial public
offering price per Share set forth on the cover page of the Prospectus and the
Company is responsible for the remaining portion; provided, however, that if
applicable law does not permit such allocation, then, if applicable law permits,
other relevant equitable considerations such as the relative fault of the
Company and the Underwriter in connection with the facts which resulted in such
losses, liabilities, claims, damages and expenses shall also be considered. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission or alleged omission relates
to information supplied by the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Underwriter agree that it would be unjust and inequitable if the
respective obligations of the Company and the Underwriter for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
8. No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. For purposes of this Section
8, each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee and agent of the Underwriter will have the same
rights to contribution as the Underwriter, and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who has signed the Registration
Statement and each director of the Company will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8. Anything in this
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Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriter, the Company or any of its directors and officers, or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Shares for public offering. The time when the
Underwriter "releases the Offered Shares for public offering" for the purposes
of this Section 10 means the time when the Underwriter releases for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Shares and the obligation to purchase the Optional
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or such
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock
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<PAGE>
Exchange or the American Stock Exchange will have been suspended; (iv) limited
or minimum prices will have been established on either such Exchange; (v) a
banking moratorium will have been declared either by federal or New York State
authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, including the Offered Shares or the Optional Shares, will be
established by either of such Exchanges, by the Commission, by any other federal
or state agency, by action of the Congress or by Executive Order; (vii) trading
in any securities of the Company shall have been suspended or halted by any
national securities exchange, the NASD or the Commission; (viii) there has been
a materially adverse change in the condition (financial or otherwise), prospects
or obligations of the Company; (ix) the Company will have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity; (x) any action has been taken by the government of the United States
or any department or agency thereof which, in the judgment of the Underwriter,
has had a material adverse effect upon the market or potential market for
securities in general; or (xi) the market for securities in general or
political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Offered Shares or the Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 10 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriter to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering
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price, as such information appears in any Preliminary Prospectus and in the
Prospectus.
12. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telegraphed to, the
following addresses: if to the Underwriter, to Whale Securities Co., L.P.,
Attention: William G. Walters, 650 Fifth Avenue, New York, New York 10019, with
a copy to Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405
Lexington Avenue, New York, New York 10174; if to the Company, addressed to it
at Internet Financial Services Inc., 40 Wall Street, New York, New York 10005,
Attention: Steven Malin, with a copy to Hartman & Craven LLP, Attention: Edward
I. Tishelman, Esq., 460 Park Avenue, New York, New York 10022.
This Agreement shall be deemed to have been made and
delivered in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
13. Parties in Interest. This Agreement is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from the
Underwriter, as such purchaser.
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If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
INTERNET FINANCIAL SERVICES INC.
By_______________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By _______________________________
Name:
Title:
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<PAGE>
BYLAWS
OF
INTERNET FINANCIAL SERVICES INC.
(A Delaware corporation)
ARTICLE I
Meeting of Stockholders
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of INTERNET FINANCIAL SERVICES INC. (hereinafter, the
"Corporation") for the election of directors and for the transaction of such
other proper business shall be held on such date and at such time as may be
fixed by the Board of Directors or, if no date and time are so fixed, on the
first Thursday in March of each year at the office of the Corporation or at such
other place and at such hour as shall be designated by the Board of Directors
or, if no such time be fixed, then at 10:00 a.m.
SECTION 2. Special Meetings. Special meetings of the
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Board of Directors or by the holder or holders of at least 10% of the
outstanding shares of Common Stock entitled to vote at such meeting.
SECTION 3. Notice of Meetings. Written notice of each meeting
of the stockholders, which shall state the place, date and hour of the meeting
and the purpose or purposes for which it is called, shall be given not less than
ten nor more than sixty days before the date of such meeting to each stockholder
entitled to vote at such meeting, and if mailed, it shall be
<PAGE>
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. Any
such notice for any meeting other than the annual meeting shall indicate that it
is being issued at the direction of the Board. Whenever notice is required to be
given, a written waiver thereof signed by the stockholder entitled thereto,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a stockholder at a meeting shall constitute a waiver of
notice of such meeting, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 4. Quorum. At any meeting of the stockholders, the
holders of the majority of the shares, issued and outstanding and entitled to
vote, shall be present in person or represented by proxy in order to constitute
a quorum for the transaction of any business. In the absence of a quorum, the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote may adjourn the meeting from time to time. At any such
adjourned meeting at which a quorum may be present, the Corporation may transact
any business which might have been transacted at the original meeting. Shares of
its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the Corporation, shall
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neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
SECTION 5. Organization. At each meeting of the stockholders,
the President or, in his absence or inability to act, a Vice President of the
Corporation or, in his absence or inability to act, any person chosen by the
majority of those stockholders present in person or represented by proxy shall
act as chairman of the meeting. The Secretary or, in his absence or inability to
act, any person appointed by the chairman of the meeting shall act as secretary
of the meeting and keep the minutes thereof.
SECTION 6. Order of Business. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 7. Voting. Unless otherwise provided in the
Certificate of Incorporation and subject to Section 213 of the General
Corporation Law of the State of Delaware regarding fixing the date for the
determination of stockholders of record, each stockholder shall be entitled to
one vote for each share of capital stock held by such stockholder.
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. Any
such proxy shall be delivered to the secretary of such meeting at or prior to
the time designated in the order of business for so delivering such proxies.
Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Except as otherwise required by statute, by
the Certificate of Incorporation, or by these Bylaws, a
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majority of the votes cast at a meeting of the stockholders shall be necessary
to authorize any other corporate action to be taken by vote of the stockholders.
Unless required by statute or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his proxy if there
be such proxy, and shall state the number of shares voted.
SECTION 8. List of Stockholders. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city or other municipality or
community where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this section or the books of the Corporation, or to vote at any meeting of
stockholders.
SECTION 9. Inspectors. The Board may, but need not, in advance
of any meeting of stockholders, appoint one or more inspectors of election to
act at such meeting or any adjournment thereof. If an inspector or inspectors
shall not be so appointed the chairman of the meeting may, but need not, appoint
one or more inspectors. In case any person who may be
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appointed as an inspector fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
chairman of the meeting. Each inspector, if any, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors, if any, shall determine the number of
shares of stock outstanding and the voting power of each, the number of shares
of stock represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the chairman of the meeting or any stockholder
entitled to vote thereat, the inspector or inspectors, if any, shall make a
report in writing of any challenge, question or matter determined by him or them
and shall execute a certificate of any fact found by him or them. No director or
candidate for the office of director shall act as an inspector of an election of
directors. Inspectors need not be stockholders. Except as otherwise required by
subsection (e) of Section 231 of the General Corporation Law of the State of
Delaware, the provisions of that Section shall not apply to the Corporation.
SECTION 10. Consent of Stockholders in Lieu of Meeting. Any
action required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take
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such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors.
The Board may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of
Office. The Board of Directors shall consist of at least one, but no more than
nine Directors, as determined by a majority vote of the entire Board of
Directors. Each director shall hold office until the annual meeting of
stockholders of the Corporation next succeeding his election and until his
successor is duly elected and qualified. Directors need not be stockholders. The
Board of Directors, by the vote of a majority of the entire Board, may increase
the number of Directors to a number not exceeding nine. The Board of Directors,
by the vote of a majority of the entire Board, may decrease the number of
Directors to a number not less than one but any such decrease shall not affect
the term of office of any Director. Vacancies occurring by reason of any such
increase shall be filled in accordance with Section 13 of this Article II.
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SECTION 3. Place of Meeting. The Board of Directors shall hold
its meetings at such place, within or without the State of Delaware, as it may
from time to time determine or as shall be specified in the notice of any such
meeting.
SECTION 4. Annual Meeting. The Board shall meet for the
purpose of organization, the election of officers and the transaction of other
business as soon as practicable after each annual meeting of the stockholders,
on the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. Such meeting may be held at any other
time or place, within or without the State of Delaware, which shall be specified
in a notice thereof given as hereinafter provided in Section 7 of this Article
II.
SECTION 5. Regular Meetings. Regular meetings of the Board
shall be held at such time as the Board may fix. If any day fixed for a regular
meeting shall be a legal holiday at the place where the meeting is to be held,
then the meeting which would otherwise be held on that day shall be held at the
same hour on the next succeeding business day. Notice of regular meetings of the
Board need not be given except as otherwise required by statute or these Bylaws.
SECTION 6. Special Meetings. Special meetings of the Board may
be called by the President or by a majority of the entire Board.
SECTION 7. Notice of Meetings. Notice of each special meeting
of the Board (and of each regular meeting for which notice shall be required)
shall be given by the Secretary as hereinafter provided in this Section 7, in
which notice shall be stated the time and place of the meeting. Except as
otherwise required by these Bylaws, such notice need not state the purposes of
such meeting. Notice of each such meeting shall be mailed, postage prepaid, to
each director, addressed to him at his residence or usual place or business, by
first-class mail, at least five (5)
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days before the day on which such meeting is to be held, or shall be sent
addressed to him at such place by telegraph, telex, cable or wireless, or be
delivered to him personally, by facsimile or by telephone, at least 24 hours
before the time at which such meeting is to be held. A written waiver of notice,
signed by the director entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance by a director
at a meeting shall constitute a waiver of notice of such meeting, except when
the director attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
SECTION 8. Quorum and Manner of Acting. Except as herein
provided, a majority of the entire Board shall be present in order to constitute
a quorum for the transaction of business at such meeting; and, except as
otherwise required by the Certificate of Incorporation or these Bylaws, the act
of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board. In the absence of a quorum at any meeting
of the Board, a majority of the directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called. The
directors shall act only as a Board and the individual directors shall have no
power as such.
SECTION 9. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members
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of the Board consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board.
SECTION 10. Telephonic Participation. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation in such a
meeting shall constitute presence in person at such meeting.
SECTION 11. Organization. At each meeting of the Board, the
President or, in his absence of inability to act, another director chosen by a
majority of the directors present shall act as chairman of the meeting and
preside thereat. The Secretary or, in his absence or inability to act, any
person appointed by the chairman shall act as secretary of the meeting and keep
the minutes thereof.
SECTION 12. Resignations. Any director may resign at any time
upon written notice to the Corporation. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 13. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. If there are no directors in office,
then a special meeting of stockholders for the election of directors may be
called and held in the manner provided by statute. If, at the time of filling
any vacancy or any newly created directorship, the directors then in office
shall constitute less than a majority of the
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whole Board (as constituted immediately prior to any such increase), the Court
of Chancery may, upon application of any stockholder of stockholders holding at
least ten person of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office, in the manner provided by
statute. When one or more directors shall resign from the Board, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office until the next election
of directors and until their successors shall be elected and qualified.
SECTION 14. Removal of Directors. Any director or the entire
Board of Directors may be removed, either with or without cause, at any time, by
the affirmative vote of the holders of record of a majority of the issued and
outstanding stock entitled to vote for the election of directors of the
Corporation given at a special meeting of the stockholders called and held for
such purpose; and the vacancy or vacancies in the Board caused by such removal
may be filled by such stockholders at such meeting, or, if the stockholders
shall fail to fill such vacancy or vacancies, as provided by these Bylaws.
SECTION 15. Compensation. The Board of Directors shall have
authority to fix the compensation, including fees and reimbursement of expenses,
of directors for services to the Corporation in any capacity.
ARTICLE III
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<PAGE>
Executive and Other Committees
SECTION 1. Executive and Other Committees. The Board may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence of disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Corporation with the exception of any authority the delegation of
which is prohibited by Section 141 of the General Corporation Law of the State
of Delaware, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Each committee shall keep written minutes of its
proceedings and shall report such minutes to the Board when required.
SECTION 2. General. A majority of any committee may determine
its action and fix the time and place of its meetings unless the Board shall
otherwise provide. Notice of such meeting shall be given to each member of the
committee in the manner provided for in Article II, Section 7. The Board shall
have power at any time to fill vacancies in, to change the membership of, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the Board
from appointing one or more committees consisting in whole or in part of persons
who are not directors
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<PAGE>
of the Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board.
SECTION 3. Action Without a Meeting. Any action required or
permitted to be taken at any meeting by any committee may be taken without a
meeting if all of the members of the committee consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the
committee.
SECTION 4. Telephone Participation. Members of a committee may
participate in a meeting by means of conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at the meeting.
ARTICLE IV
Officers
SECTION 1. Number and Qualifications. The officers of the
Corporation shall include the Chairman, the President, the Treasurer and the
Secretary. Any number of offices may be held by the same person. Such officers
shall be elected from time to time by the Board. Each officer shall hold his
office until his successor is elected and qualified or until his earlier
resignation or removal. The Board may from time to time elect such other
officers (including one or more Vice Presidents (including Executive Vice
Presidents and Senior Vice Presidents), one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board.
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<PAGE>
SECTION 2. Resignations. Any officer may resign at any time
upon written notice to the Corporation. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3. Removal. Any officer or agent of the corporation
may be removed, either with or without cause, at any time, by the Board at any
meeting of the Board.
SECTION 4. Vacancies. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise, shall be filled for
the unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these Bylaws for the regular election to such office.
SECTION 5A. The Chairman. The Chairman shall be the Chairman
of the Board of Directors and, so long as he is present, shall preside at all
meetings of the Board of Directors and at all meetings of the stockholders. In
addition, unless otherwise provided by the resolution of the Board of Directors
electing the Chairman, the Chairman shall be the Chief Executive Officer and, in
such capacity, have the duty of general and active management of the business
and affairs of the Corporation and general and active supervision and direction
over the other officers, agents and employees and shall see that their duties
are properly performed subject, however, to the control of the Board of
Directors. He shall perform all duties incident to the office of Chairman and
such other duties as from time to time may be assigned to him by the Board of
Directors or these By-Laws.
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<PAGE>
SECTION 5B. The President. The President shall be the Chief
Operating Officer of the Corporation and shall perform his duties, subject,
however, to the control of the Chairman and the Board of Directors. He shall
perform all duties incident to the office of President and such other duties as
from time to time may be assigned to him by the Chairman, the Board of
Directors, or these By-Laws.
SECTION 6. Vice Presidents. Each Vice President, including any
Executive Vice President, shall have such powers and perform such duties as from
time to time may be assigned to him by the Board.
SECTION 7. The Treasurer. The Treasurer shall
(a) have charge and custody of, and be
responsible for, all the funds and securities of the
Corporation;
(b) keep full and accurate accounts of
receipts and disbursements in books belonging to the
Corporation;
(c) cause all monies and other valuables to
be deposited to the credit of the Corporation in such
depositories as may be designated by the Board;
(d) receive, and give receipts for, monies
due and payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation
and supervise the investment of its funds as ordered or
authorized by the Board, taking proper vouchers therefor; and
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<PAGE>
(f) in general, have all the powers and
perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him
by the Board or the President.
SECTION 8. The Secretary. The Secretary shall
(g) record the proceedings of the meetings
of the stockholders and directors in a minute book to be kept
for that purpose;
(h) see that all notices are duly given in
accordance with the provisions of these Bylaws and as required
by law;
(i) be custodian of the records and the
seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation
under its seal;
(j) see that the books, reports,
statements, certificates and other documents and records
required by law to be kept and filed are properly kept and
filed; and
(k) in general, have all the powers and
perform all the duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him
by the Board or the President.
SECTION 9. Officers' Bonds or Other Security. The Corporation
may secure the fidelity of any or all of its officers or agents by bond or
otherwise, in such amount and with such surety or sureties as the Corporation
may require.
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<PAGE>
SECTION 10. Compensation. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time to
time by the Board; provided, however, that the Board may delegate to the
President the power to fix the compensation of officers and agents. An officer
of the Corporation shall not be prevented from receiving compensation by reason
of the fact that he is also a director of the Corporation, but any such officer
who shall also be a director (except in the event there is only one director of
the Corporation) shall not have any vote in the determination of the amount of
compensation paid to him.
ARTICLE V
Shares, etc.
SECTION 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by the President or a Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him in the Corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may nevertheless be
issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 2. Books of Account and Record of Stockholders. The
books and records of the Corporation may be kept at such places, within or
without the State of Delaware,
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<PAGE>
as the Board of Directors may from time to time determine. The stock record
books and the blank stock certificates shall be kept by the Secretary or by any
other officer or agent designated by the Board of Directors.
SECTION 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation may hold any such stockholder of
record liable for calls and assessments and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof. Whenever any transfers of shares shall be made for
collateral security and not absolutely, and both the transferor and transferee
request the Corporation to do so, such fact shall be stated in the entry of the
transfer.
SECTION 4. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these Bylaws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer
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<PAGE>
clerks and one or more registrars and may require all certificates for shares of
stock to bear the signature or signatures of any of them.
SECTION 5. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or entitled to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall (i) not
be more than sixty nor less than ten days before the date of such meeting, (ii)
not be more than ten days after the date upon which the resolution fixing the
record date for consent to corporate action in writing is adopted by the Board
of Directors, and (iii) not be more than sixty days prior to such payment,
exercise of rights or such other action.
SECTION 6. Lost, Stolen or Destroyed Stock Certificates. The
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may, in its discretion, require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient, as the Corporation in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Anything herein to the
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<PAGE>
contrary notwithstanding, the Corporation, in its absolute discretion, may
refuse to issue any such new certificate, except pursuant to judicial
proceedings under the laws of the State of Delaware.
ARTICLE VI
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 1. Execution of Contracts. Except as otherwise
required by statute, the Certificate of Incorporation or these Bylaws, any
contract or other instrument may be executed and delivered in the name and on
behalf of the Corporation by such officer or officers (including any assistant
officer) of the Corporation as the Board may from time to time direct. Such
authority may be general or confined to specific instances as the Board may
determine. Unless authorized by the Board or expressly permitted by these
Bylaws, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it pecuniarily liable for any purpose or to any amount.
SECTION 2. Loans. Unless the Board shall otherwise determine,
the President or any Vice President may effect loans and advances at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual, and for such loans and advances may make,
execute and deliver promissory notes, bonds or other certificates or evidences
of indebtedness of the Corporation, but no officer or officers shall mortgage,
pledge, hypothecate or transfer any securities or other property of the
Corporation other than in connection with the purchase of chattels for use in
the Corporation's operations, except when authorized by the Board.
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<PAGE>
SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of
exchange or other orders for the payment of money out of the funds of the
Corporation, and all notes or other evidence of indebtedness of the Corporation,
shall be signed in the name and on behalf of the Corporation by such persons and
in such manner as shall from time to time be authorized by the Board.
SECTION 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
may from time to time designate or as may be designated by any officer or
officers of the Corporation to whom such power of designation may from time to
time be delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, checks, drafts and other
orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation.
SECTION 5. General and Special Bank Accounts. The Board may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these Bylaws, as it
may deem expedient.
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<PAGE>
ARTICLE VII
Offices
SECTION 1. Registered Office. The registered office and
registered agent of the Corporation will be as specified in the Certificate of
Incorporation of the Corporation.
SECTION 2. Other Offices. The Corporation may also have such
offices, both within or without the State of Delaware, as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall be so determined by
the Board of Directors.
ARTICLE IX
Seal
The seal of the Corporation shall be circular in form, shall
bear the name of the Corporation and shall include the words and numbers
"Corporate Seal", "Delaware" and the year of incorporation.
ARTICLE X
Indemnification
SECTION 1. General. Each person who was or is a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding,
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<PAGE>
whether civil, criminal, administrative or investigative (hereinafter a
"Proceeding"), by reason of the fact that he or she, or a person of whom he or
she is or was the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such Proceeding is an alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement), actually and reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 of this Article X, the
Corporation shall indemnify any such person seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
such Proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article X shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such Proceeding in advance of its final
disposition; provided, however,
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<PAGE>
that, if the General Corporation Law of the State of Delaware requires the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer, (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a Proceeding, such advancement shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article X or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
SECTION 2. Claims. If a claim under Section 1 of this Article
X is not paid in full by the Corporation within thirty days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful as a whole or in part, the claimant also shall be
entitled to be paid the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred by defending any Proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior
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<PAGE>
to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall not create a presumption that the
claimant has not met the applicable standard of conduct.
SECTION 3. Non-Exclusivity of Rights. The right to
indemnification and the payment of expenses incurred in defending a Proceeding
in advance of its final disposition conferred in this Article X shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, these Bylaws,
agreement, vote of stockholders or disinterested directors, or otherwise.
SECTION 4. Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware.
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<PAGE>
ARTICLE XI
Amendment
The Bylaws may be adopted, amended, or repealed by vote of the
holders of a majority of the shares of stock at the time entitled to vote in the
election of directors, except as otherwise provided in the Certificate of
Incorporation. The Bylaws may also be adopted, amended or repealed by the Board
of Directors, but any Bylaw adopted by the Board of Directors may be amended,
repealed or altered by the stockholders entitled to vote thereon as herein
provided.
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<PAGE>
INTERNET FINANCIAL SERVICES INC.
IF
CUSIP 46059H 10 5
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.001
PER SHARE OF
- --------------------------------------------------------------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
INTERNET FINANCIAL SERVICES INC.
Dated:
SECRETARY
CHAIRMAN
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
[GRAPHIC OMITTED]
<PAGE>
The Corporation will furnish without charge TO EACH STOCKHOLDER WHO SO
REQUESTS THE powers, designations, preferences and RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
the qualifications, limitations OR restrictions of such preferences and/OR
rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -____________ Custodian ____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER
THE SECURITIES EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL
BANK, TRUST COMPANY OR SAVINGS ASSOCIATION, CREDIT UNION OR MEMBER OF
THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK
EXCHANGE OR MIDWEST STOCK EXCHANGE.
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT dated as of _________, 1999 between Internet
Financial Services Inc., a Delaware corporation (the "Company"), and Whale
Securities Co., L.P. (hereinafter referred to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
warrants (the "Warrants") to purchase up to 200,000 (as such number may be
adjusted from time to time pursuant to Article 8 of this Agreement) shares (the
"Shares") of common stock, par value $.001 per share (the "Common Stock"), of
the Company; and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated ____________, 1999
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed public offering (the "Public Offering") of 2,000,000
shares of Common Stock (the "Public Shares") at an initial public offering price
of $7.00 per Public Share; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or to its designees who are
officers and partners of the Underwriter or to members of the selling group
participating in the distribution of the Public Shares to the public in the
Public Offering and/or their respective officers or partners (collectively, the
"Designees"), in consideration for, and as part of the
<PAGE>
Underwriter's compensation in connection with, the Underwriter acting as the
Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of ONE HUNDRED DOLLARS ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Underwriter and/or the Designees are hereby granted the
right to purchase, at any time from ____________, 2000 until 5:00 P.M., New York
time, on _______, 2004 (the "Warrant Exercise Term"), up to 200,000 fully-paid
and non-assessable Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $11.55 per Share.
2. Warrant Certificates.
The warrant certificates delivered and to be delivered
pursuant to this Agreement (the "Warrant Certificates") shall be in the form set
forth in Exhibit A attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant.
3.1. Cash Exercise. The Warrants initially are exercisable
at a price of $11.55 per Share, payable in cash or by check to the order of the
Company, or any combination thereof, subject to adjustment as provided in
Article 8 hereof. Upon surrender of the Warrant Certificate with the annexed
Form of
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<PAGE>
Election to Purchase duly executed, together with payment of the Exercise Price
(as hereinafter defined) for the Shares purchased, at the Company's principal
offices in New York (currently located at 33 West 17th Street, New York, New
York 10011) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Shares so purchased. The purchase rights represented by each Warrant Certificate
are exercisable at the option of the Holder thereof, in whole or in part (but
not as to fractional Shares). In the case of the purchase of less than all the
Shares purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3.2. Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at the Holder's option, exchange, in whole or in
part, the Warrants represented by such Holder's Warrant Certificate (a "Warrant
Exchange"), into the number of Shares determined in accordance with this Section
3.2, by surrendering such Warrant Certificate at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Warrants to be so
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company
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<PAGE>
(the "Exchange Date"). Certificates for the Shares issuable upon such Warrant
Exchange and, if applicable, a new Warrant Certificate of like tenor
representing the Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) days following the
Exchange Date. In connection with any Warrant Exchange, the Holder shall be
entitled to subscribe for and acquire (i) the number of Shares (rounded to the
next highest integer) which would, but for the Warrant Exchange, then be
issuable pursuant to the provision of Section 3.1 above upon the exercise of the
Warrants specified by the Holder in its Notice of Exchange (the "Total Number")
less (ii) the number of Shares equal to the quotient obtained by dividing (a)
the product of the Total Number and the existing Exercise Price (as hereinafter
defined) by (b) the Market Price (as hereinafter defined) of a Public Share on
the day preceding the Warrant Exchange. "Market Price" at any date shall be
deemed to be the last reported sale price, or, in case no such reported sales
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or as reported in the NASDAQ National Market System, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the NASDAQ National Market System, the closing bid price as
furnished by (i) the National Association of Securities Dealers, Inc.
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through Nasdaq or (ii) a similar organization if Nasdaq is no longer reporting
such information.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares purchased shall be made forthwith (and in any event
within three (3) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing
the Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive Officer or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. Warrant
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<PAGE>
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear a legend substantially similar
to the following:
"The securities represented by this certificate have not been
registered for purposes of public distribution under the Securities Act
of 1933, as amended (the "Act"), and may not be offered or sold except
(i) pursuant to an effective registration statement under the Act, (ii)
to the extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) upon the delivery by the holder to the Company of an opinion
of counsel, reasonably satisfactory to counsel to the Company, stating
that an exemption from registration under such Act is available."
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by the Holder's
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to the Designees.
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $11.55 per Share. The adjusted exercise
price per Share shall be the price which shall result from time to time from any
and all adjustments of
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<PAGE>
the initial exercise price per Share in accordance with the provisions of
Article 8 hereof.
6.2. Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
7.1. Registration Under the Securities Act of 1933. None
of the Warrants or Shares have been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
7.2. Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for the subsequent public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable
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<PAGE>
Security" as is appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Article 7.
7.3. Piggyback Registration. If, at any time following
the effective date of the Public Offering, the Company proposes to prepare and
file one or more post-effective amendments to the registration statement filed
in connection with the Public Offering or any new registration statement or
post-effective amendments thereto covering equity or debt securities of the
Company, or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or pursuant to
Form S-8 or successor form), (for purposes of this Article 7, collectively, the
"Registration Statement"), it will give written notice of its intention to do so
by registered mail ("Notice"), at least thirty (30) business days prior to the
filing of each such Registration Statement, to all holders of the Registrable
Securities. Upon the written request of such a holder (a "Requesting Holder"),
made within twenty (20) business days after receipt of the Notice, that the
Company include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall, as to each such Requesting
Holder, use its best efforts to effect the registration under the Act of the
Registrable Securities which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders (except as provided in Section 7.5(b) hereof).
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<PAGE>
7.4. Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(c) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company (except as provided in Section 7.5(b) hereof), a Registration Statement
and such other documents, including a prospectus, as may be necessary (in the
opinion of both counsel for the Company and counsel for such Majority Holder),
in order to comply with the provisions of the Act, so as to permit a public
offering and sale of the Registrable Securities by the holders thereof. The
Company shall use its best efforts to cause the Registration Statement to become
effective under the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof. Once effective, the Company will
use its best efforts to maintain the effectiveness of the Registration Statement
until the earlier of (i) the date that all of the Registrable Securities have
been sold or (ii) the date that the holders of the Registrable Securities
receive an opinion of counsel to the Company that all of the Registrable
Securities may be freely traded (without limitation or restriction as to
quantity or timing and without
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<PAGE>
registration under the Act) under Rule 144(k) promulgated under the Act or
otherwise.
(b) The Company covenants and agrees to give written
notice of any Demand Registration Request to all holders of the Registrable
Securities within ten (10) business days from the date of the Company's receipt
of any such Demand Registration Request. After receiving notice from the Company
as provided in this Section 7.4(b), holders of Registrable Securities may
request the Company to include their Registrable Securities in the Registration
Statement to be filed pursuant to Section 7.4(a) hereof by notifying the Company
of their decision to have such securities included within ten (10) days of their
receipt of the Company's notice.
(c) The term "Majority Holder" as used in Section 7.4
hereof shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of shares of Common Stock (including Shares already issued and
Shares issuable pursuant to the exercise of outstanding Warrants) as would
constitute a majority of the aggregate number of Shares (including Shares
already issued and Shares issuable pursuant to the exercise of outstanding
Warrants) included in all the Registrable Securities.
7.5. Covenants of the Company With Respect to Registration.
The Company covenants and agrees as follows:
(a) In connection with any registration under Section
7.4 hereof, the Company shall file the Registration
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<PAGE>
Statement as expeditiously as possible, but in any event no later than twenty
(20) days following receipt of any demand therefor, shall use its best efforts
to have any such Registration Statement declared effective at the earliest
possible time, and shall furnish each holder of Registrable Securities such
number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses
(other than underwriting fees, discounts and nonaccountable expense allowance
applicable to the Registrable Securities and the fees and expenses of counsel
retained by the holders of Registrable Securities) in connection with all
Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which may
be required in qualifying or registering the Registrable Securities included in
the Registration Statement for offering and sale under the securities or blue
sky laws of such states as are reasonably requested by the holders of such
securities.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or Section 20(a) of
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<PAGE>
the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such Registration Statement to the same extent and with
the same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriter as set forth in Section 7 of the Underwriting
Agreement and to provide for just and equitable contribution as set forth in
Section 8 of the Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and such holder's successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such holder, or such
holder's successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions pursuant
to which the Underwriter has agreed to indemnify the Company as set forth in
Section 7 of the Underwriting Agreement and to provide for just and equitable
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<PAGE>
contribution as set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be
construed as requiring any Holder to exercise the Warrants held by such Holder
prior to the initial filing of any Registration Statement or the effectiveness
thereof.
(g) If the Company shall fail to comply with the
provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of Registrable Securities, be
liable for any or all incidental, special and consequential damages sustained by
the holders of Registrable Securities, requesting registration of their
Registrable Securities.
(h) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement to each holder of Registrable Securities
included for such registration in such Registration Statement pursuant to
Section 7.3 hereof or Section 7.4 hereof requesting such correspondence and
memoranda and to the managing underwriter, if any, of the offering in connection
with which such holder's Registrable Securities are being registered and shall
permit each holder of Registrable Securities and such underwriter to do such
reasonable investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably
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<PAGE>
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such holder of
Registrable Securities or underwriter shall reasonably request.
8. Adjustments of Exercise Price and Number of Shares.
8.1. Computation of Adjusted Price. In case the Company
shall at any time after the date hereof pay a dividend in shares of Common Stock
or make a distribution in shares of Common Stock, then upon such dividend or
distribution the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares
of Common Stock outstanding immediately prior to such dividend or distribution
multiplied by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in
accordance with the provisions of this Section 8.1, the Common Stock issuable by
way of dividend or other distribution on any stock of the Company shall be
deemed to have been issued immediately after the opening of business on the date
following
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<PAGE>
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution.
8.2. Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.3. Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
8.4. Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
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<PAGE>
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares of Common Stock issuable
upon exercise of the Holder's Warrants and (y) the Exercise Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holders had exercised the
Warrants.
8.5. Determination of Outstanding Shares of Common
Stock. The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares of Common Stock issued and the aggregate
number of shares of Common Stock issuable upon the exercise of options, rights,
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
8.6. Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants make any distribution of its assets to holders of
its Common Stock as a liquidating or a partial liquidating dividend, then the
holder of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Stock entitled to such
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<PAGE>
distribution of assets as a liquidating or partial liquidating dividend shall be
entitled to receive for the Warrant Price per Warrant, in addition to each share
of Common Stock, the amount of such distribution (or, at the option of the
Company, a sum equal to the value of any such assets at the time of such
distribution as determined by the Board of Directors of the Company in good
faith) which would have been payable to such holder had he been the holder of
record of the Common Stock receivable upon exercise of his Warrant on the record
date for the determination of those entitled to such distribution. At the time
of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
8.6.
8.7. Subscription Rights for Shares of Common Stock or
Other Securities. In the case that the Company or an affiliate of the Company
shall at any time after the date hereof and prior to the exercise of all the
Warrants issue any rights, warrants or options to subscribe for shares of Common
Stock or any other securities of the Company or of such affiliate to all the
shareholders of the Company, the Holders of unexercised Warrants on the record
date set by the Company or such affiliate in connection with such issuance of
rights, warrants or options shall be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise of the Warrants,
to receive such rights, warrants or options that such Holders would have been
entitled to receive had they been, on such record date, the holders of record of
the number of whole shares of Common
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Stock then issuable upon exercise of their outstanding Warrants (assuming for
purposes of this Section 8.7), that the exercise of the Warrants is permissible
immediately upon issuance).
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense,
upon the surrender thereof by the registered Holder at the principal executive
office of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrant Certificate, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Shares.
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<PAGE>
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available
out of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all Shares issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted by Nasdaq or listed on such national
securities exchange, in the event the Common Stock is listed on a national
securities exchange.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution
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payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed; or
(d) reclassification or change of the outstanding
shares of Common Stock (other than a change in par value to no
par value, or from no par value to par value, or as a result
of a subdivision or combination), consolidation of the Company
with, or merger of the Company into, another corporation
(other than a consolidation or merger in which the Company is
the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common
Stock, except a change as a result of a subdivision or
combination of such shares or a change in par
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<PAGE>
value, as aforesaid), or a sale or conveyance to another
corporation of the property of the Company as an entirety is
proposed; or
(e) The Company or an affiliate of the Company shall
propose to issue any rights to subscribe for shares of Common
Stock or any other securities of the Company or of such
affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have
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been duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company;
or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the
Company may designate by notice to the Holders.
14. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business
on __________, 2007. Notwithstanding the foregoing, this Agreement
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will terminate on any earlier date when all Warrants have been exercised and all
the Shares issuable upon exercise of the Warrants have been resold to the
public; provided, however, that the provisions of Section 7 shall survive any
termination pursuant to this Section 16 until the close of business on
_________, 2010.
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company and the Underwriter and any
other registered holder or holders of the Warrant Certificates, Warrants or the
Shares any legal or equitable right, remedy or claim under this Agreement; and
this Agreement shall be for the sole and exclusive benefit of the Company and
the Underwriter and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] INTERNET FINANCIAL SERVICES, INC.
By:__________________________________
Name:
Title:
Attest:
_________________________
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:__________________________________
Name:
Title:
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EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED FOR PURPOSES OF PUBLIC
DISTRIBUTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2004
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________
___________________ or registered assigns, is the registered holder of
____________ (________) Warrants to purchase, at any time from ____________,
2000 until 5:00 P.M. New York City time on ___________, 2004 ("Expiration
Date"), up to _________ fully-paid and non-assessable shares ("Shares") of
common stock, par value $.001 per share (the "Common Stock"), of Internet
Financial Services Inc., a Delaware corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $11.55 per Share upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of
____________, 1999 between the Company and Whale Securities Co., L.P. (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is
<PAGE>
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1999 INTERNET FINANCIAL SERVICES INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
__________________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ shares of
Common Stock and herewith tenders in payment for such securities cash or a
certified or official bank check payable in New York Clearing House Funds to the
order of Internet Financial Services Inc. in the amount of $________, all in
accordance with the terms hereof. The undersigned requests that a certificate
for such securities be registered in the name of _______________________________
____________________ , whose address is __________________, and that such
Certificate be delivered to __________________, whose address is _____________.
Dated: Signature:_____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________________________
hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:_____________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
________________________________
________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
April ___, 1999
Internet Financial Services Inc.
40 Wall Street
New York, New York 10005
Gentlemen:
We have acted as counsel to Internet Financial Services Inc. (the
"Company"), a corporation organized under the laws of the State of Delaware, in
connection with the preparation of a Registration Statement on Form SB-2 (the
"Registration Statement") relating to the offer and sale of up to 2,300,000
shares (the "Shares") of common stock of the Company, par value $.001 per share
("Common Stock").
We have examined copies of the Certificate of Incorporation and By-Laws
of the Company, the Registration Statement, all resolutions adopted by the
Company's Board of Directors (the "Board"), consents of the Board and other
records and documents that we have deemed necessary for the purpose of this
opinion. We have also examined such other documents, papers, statutes and
authorities as we have deemed necessary to form a basis for the opinion
hereinafter expressed. We have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinion, we have relied on statements and
certificates of officers and representatives of the Company and others.
Based on the foregoing, we are of the opinion that the Shares, when
duly sold, issued and paid for in accordance with the terms of the Prospectus
included as part of the Registration Statement, will be validly and legally
issued and will be fully paid and non-assessable.
<PAGE>
Internet Financial Services Inc.
April___, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus included as part of the Registration Statement. As
described under such caption, Edward I. Tishelman is a member of our firm and
the owner of 112,500 shares of Common Stock. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended and the Rules
and Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
HARTMAN & CRAVEN LLP
By:
-----------------------------
Edward I. Tishelman,
a partner
EIT/bh
<PAGE>
INTERNET FINANCIAL SERVICES INC.
SECOND AMENDED AND RESTATED 1998 STOCK OPTION PLAN
SECTION 1. Establishment. There is hereby established the
Second Amended and Restated INTERNET FINANCIAL SERVICES INC. 1998 Stock Option
Plan ("Plan"), pursuant to which employees (including officers), directors,
consultants and other persons who perform substantial services for or on behalf
of INTERNET FINANCIAL SERVICES INC. and/or its subsidiaries (the "Company") may
be granted options to purchase shares of common stock of the Company, par value
$.001 per share ("Common Stock"), and thereby share in the future growth of the
business. The subsidiaries of the Company included in this Plan (the
"Subsidiaries") shall be any subsidiary of the Company as defined in Section 424
of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 2. Status of Options. The options which may be granted
pursuant to this Plan will constitute either incentive stock options within the
meaning of Section 422 of the Code ("Incentive Stock Options") or options which
are not Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock
Options and Non-incentive Stock Options shall be collectively referred to herein
as "Options".
SECTION 3. Eligibility. All employees (including officers,
whether or not they are members of the Board of Directors) of the Company or any
of its Subsidiaries who are
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<PAGE>
employed at the time of the adoption of this Plan or thereafter, any directors
of the Company, and any consultants and other persons who perform substantial
services for or on behalf of the Company, any of its Subsidiaries or affiliates,
or any entity in which the Company has an interest (collectively, the
"Grantees") shall be eligible to be granted Non-incentive Stock Options under
this Plan. All employees (including officers, whether or not they are members of
the Board of Directors) of the Company or any of its Subsidiaries who are
employed at the time of adoption of this Plan or thereafter shall be eligible to
be granted Incentive Stock Options under this Plan.
SECTION 4. Number of Shares Covered by Options; No Preemptive
Rights. The total number of shares which may be issued and sold pursuant to
Options granted under this Plan shall be 800,000 shares of Common Stock (or the
number and kind of shares of stock or other securities which, in accordance with
Section 9 of this Plan, shall be substituted for such shares of Common Stock or
to which said shares shall be adjusted; hereinafter, all references to shares of
Common Stock are deemed to be references to said shares or shares so adjusted.)
The issuance of shares upon exercise of an Option shall be free from any
preemptive or preferential right of subscription or purchase on the part of any
shareholder. If any outstanding Option granted under this Plan expires or is
terminated, for any reason, the shares of Common Stock subject to the
unexercised portion of the Option will again be available for Options issued
under this Plan.
2
<PAGE>
SECTION 5. Administration.
(a) This Plan shall be administered by the Board of Directors
of the Company (the "Board"). Subject to the express provisions of this Plan,
the Board shall have complete authority, in its discretion, to interpret this
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective option agreements (which
need not be identical), to determine the Grantees to whom, and the times and the
prices at which, Options shall be granted, the option periods, the number of
shares of the Common Stock to be subject to each Option and, as limited by
Section 3 hereof, whether each Option shall be an Incentive Stock Option or a
Non-incentive Stock Option, and to make all other determinations necessary or
advisable for the administration of the Plan. Each Option shall be clearly
identified at the time of grant as to its status. In making such determinations,
the Board may take into account the nature of the services rendered by the
respective Grantees, their present and potential contributions to the success of
the Company and such other factors as the Board, in its discretion, shall deem
relevant. Nothing contained in this Plan shall be deemed to give any Grantee any
right to be granted an Option to purchase shares of Common Stock except to the
extent and upon such terms and conditions as may be determined by the Board. The
Board's determination on all of the matters referred to in this Section 5 shall
be conclusive.
(b) The Board may at its election provide in any option
agreement covering the grant of Options under this Plan that, upon the exercise
of such Options, the Company will loan to the holder thereof such amount as
shall equal the purchase price of the shares of Common Stock issuable upon such
exercise, such loan to be on terms and conditions deemed appropriate by the
Board.
3
<PAGE>
(c) Notwithstanding any provision hereof to the contrary, the
Board shall have sole and exclusive authority with respect to the grant of
Options to directors.
SECTION 6. Terms of Incentive Stock Options. Each Incentive
Stock Option granted under this Plan shall be evidenced by an Incentive Stock
Option Agreement which shall be executed by the Company and by the person to
whom such Incentive Stock Option is granted, and shall be subject to the
following terms and conditions:
(a) The price at which shares of Common Stock covered by each
Incentive Stock Option may be purchased pursuant thereto shall be determined in
each case on the date of grant by the Board, but shall be an amount not less
than the par value of such shares and not less than the fair market value of
such shares on the date of grant. For purposes of this Section and Section 7,
the fair market value of shares of Common Stock on any day shall be (i) in the
event the Common Stock is not publicly traded, the fair market value on such day
as determined in good faith by the Board or (ii) in the event the Common Stock
is publicly traded, the last sale price of a share of Common Stock as reported
by the principal quotation service on which the Common Stock is listed, if
available, or, if last sale prices are not reported with respect to the Common
Stock, the mean of the high bid and low asked prices of a share of Common Stock
as reported by such principal quotation service, or, if there is no such report
by such quotation service for such day, such fair market value shall be the
average of (i) the last sale price (or, if last sale prices are
4
<PAGE>
not reported with respect to the Common Stock, the mean of the high bid and low
asked prices) on the day next preceding such day for which there was a report
and (ii) the last sale price (or, if last sale prices are not reported with
respect to the Common Stock, the mean of the high bid and low asked prices) on
the day next succeeding such day for which there was a report, or as otherwise
determined by the Board in its discretion pursuant to any reasonable method
contemplated by Section 422 of the Code and any regulations issued pursuant to
that Section.
(b) The price of the shares to be purchased pursuant to each
Incentive Stock Option shall be paid in full in cash, or by delivery (i.e.,
surrender) of shares of Common Stock of the Company then owned by the Grantee,
at the time of the exercise of the Incentive Stock Option. Shares of Common
Stock so delivered will be valued on the day of delivery for the purpose of
determining the extent to which the option price has been paid thereby, in the
same manner as provided for the purchase price of Incentive Stock Options as set
forth in paragraph (a) of this Section, or as otherwise determined by the Board,
in its discretion, pursuant to any reasonable method contemplated by Section 422
of the Code and any regulations issued pursuant to that Section.
(c) Each Incentive Stock Option Agreement shall provide that
such Incentive Stock Option may be exercised by the Grantee, in such parts and
at such times as may be specified in such Agreement, within a period not
exceeding ten years after the date on which the Incentive Stock Option is
granted (hereinafter called the "Incentive Stock Option Period") and, in any
event, only during the continuance of the employee's employment by the Company
or any of its
5
<PAGE>
Subsidiaries or during the period of three months after the termination of such
employment to the extent that the right to exercise such Incentive Stock Option
had accrued at the date of such termination; provided, however, that if
Incentive Stock Options as to 100 or more shares are held by a Grantee, then
such Incentive Stock Options may not be exercised for less than 100 shares at
any one time, and if Incentive Stock Options for less than 100 shares are held
by a Grantee, then Incentive Stock Options for all such shares must be exercised
at one time; and provided, further, that if the Grantee, while still employed by
the Company or any of its Subsidiaries, shall die or become disabled (within the
meaning of Section 22(e)(3) of the Code) within the Incentive Stock Option
Period, the Incentive Stock Option may be exercised, to the extent specified in
the Incentive Stock Option Agreement, and as herein provided, but only prior to
the first to occur of:
(i) the expiration of the period of one year after the
date of the Grantee's death or disability, or
(ii) the expiration of the Incentive Stock Option
Period,
by the person or persons entitled to do so under the Grantee's will, or, if the
Grantee shall fail to make testamentary disposition of said Incentive Stock
Option, or shall die intestate, by the Grantee's legal representative or
representatives.
(d) Each Incentive Stock Option granted under this Plan shall by
its terms be non-transferable by the Grantee except by will or by the laws of
descent and distribution, and each
6
<PAGE>
Incentive Stock Option shall by its terms be exercisable during the Grantee's
lifetime only by him.
(e) Notwithstanding the foregoing, if an Incentive Stock Option
is granted to a person at any time when such person owns, within the meaning of
Section 424(d) of the Code, more than 10% of the total combined voting power of
all classes of stock of the employer corporation (or a parent or subsidiary of
such corporation within the meaning of Section 424 of the Code), the price at
which each share of Common Stock covered by such Incentive Stock Option may be
purchased pursuant to such Incentive Stock Option shall not be less than 110% of
the fair market value (determined as in paragraph (a) of this Section) of the
shares of Common Stock at the time the Incentive Stock Option is granted, and
such Incentive Stock Option must be exercised within a period specified in the
Incentive Stock Option Agreement which does not exceed five years after the date
on which such Incentive Stock Option is granted.
(f) The Incentive Stock Option Agreement entered into pursuant
hereto may contain such other terms, provisions and conditions not inconsistent
herewith as shall be determined by the Board including, without limitation,
provisions (i) requiring the giving of satisfactory assurances by the Grantee
that the shares are purchased for investment and not with a view to resale in
connection with a distribution of such shares, and will not be transferred in
violation of applicable securities laws, (ii) restricting the transferability of
such shares during a specified period and (iii) requiring the resale of such
shares to the Company at the option price if the employment of the employee
terminates prior to a specified time. In addition, the Board, in its discretion,
may afford to holders of Incentive Stock Options granted under this Plan the
right to
7
<PAGE>
require the Company to cause to be registered under the Securities Act of 1933,
as amended, for public sale by the holders thereof, shares of Common Stock
subject to such Incentive Stock Options upon such terms and subject to such
conditions as the Board may determine to be appropriate.
(g) In the discretion of the Board, a single Stock Option
Agreement may include both Incentive Stock Options and Non-incentive Stock
Options, or those options may be included in separate stock option agreements.
SECTION 7. Terms of Non-incentive Stock Options. Each
Non-incentive Stock Option granted under this Plan shall be evidenced by a
Non-incentive Stock Option Agreement which shall be executed by the Company and
by the person to whom such Non-incentive Stock Option is granted, and shall be
subject to the following terms and conditions:
(a) The price at which shares of Common Stock covered by each
Non-incentive Stock Option may be purchased pursuant thereto shall be an amount
not less than the par value of such shares and not less than the fair market
value of such shares on the date of grant.
(b) Each Non-incentive Stock Option Agreement shall provide that
such Non-incentive Stock Option may be exercised by the Grantee, in such parts
and at such times as may be specified in such Agreement, within a period up to
and including ten years after the date on which the Non-incentive Stock Option
is granted.
8
<PAGE>
(c) Each Non-incentive Stock Option granted under this Plan
shall by its terms be non-transferable by the optionee except by will or by the
laws of descent and distribution, and each Non-incentive Stock Option shall by
its terms be exercisable during the Grantee's lifetime only by him.
(d) The Non-incentive Stock Option Agreement entered into
pursuant hereto may contain such other terms, provisions and conditions not
inconsistent herewith as shall be determined by the Board, in its sole
discretion, including without limitation the terms, provisions and conditions
set forth in Section 6(f) with respect to Incentive Stock Option Agreements.
SECTION 8. Limit on Option Amount.
(a) Notwithstanding any provision contained herein, the
aggregate fair market value (determined under Section 6(a) as of the time
Incentive Stock Options are granted) of the shares of Common Stock with respect
to which Incentive Stock Options are first exercisable by any employee during
any calendar year (under all stock option plans of the employee's employer
corporation and its parent and subsidiary corporation within the meaning of
Section 424 of the Code) shall not exceed $100,000. If an Incentive Stock Option
exceeds this $100,000 limitation, the portion of such Option which is
exercisable for shares of Common Stock in excess of the $100,000 limitation
shall be treated as a Non-incentive Stock Option. The limit in this paragraph
shall not apply to Options which are designated as Non-incentive Stock Options,
and, except as otherwise provided herein, there shall be no limit on the amount
of such Options which may be first exercisable in any year.
9
<PAGE>
(b) Notwithstanding any provision contained herein, grants of
options under this Plan to any one optionee who is an employee of the Company
shall be limited to Options to purchase no more than 150,000 shares of Common
Stock per calendar year (subject to adjustment in the event of a stock split).
SECTION 9. Adjustment of Number of Shares.
(a) In the event that a dividend shall be declared upon the
shares of Common Stock payable in shares of Common Stock, the number of shares
of Common Stock then subject to any Option granted hereunder, and the number of
shares reserved for issuance pursuant to this Plan but not yet covered by an
Option, shall be adjusted by adding to each of such shares the number of shares
which would be distributable thereon if such share had been outstanding on the
date fixed for determining the shareholders entitled to receive such stock
dividend. In the event that the outstanding shares of Common Stock shall be
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, merger
or consolidation, then there shall be substituted for each share of Common Stock
subject to any such Option and for each share of Common Stock reserved for
issuance pursuant to the Plan but not yet covered by an Option, the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock shall be so changed or for which each such share shall be
exchanged; provided, however, that in the event that such change or exchange
results from a merger or consolidation, and in the judgment of the Board such
substitution cannot be effected or would be inappropriate, or if the Company
shall sell all or substantially all of its assets,
10
<PAGE>
the Company shall use reasonable efforts to effect some other adjustment of each
then outstanding Option which the Board, in its sole discretion, shall deem
equitable. In the event that there shall be any change, other than as specified
above in this Section 9(a), in the number or kind of outstanding shares of
Common Stock or of any stock or other securities into which such shares of
Common Stock shall have been changed or for which they shall have been
exchanged, then, if the Board shall determine that such change equitably
requires an adjustment in the number or kind of shares theretofore reserved for
issuance pursuant to the Plan but not yet covered by an Option and of the shares
then subject to an Option or Options, such adjustment shall be made by the Board
and shall be effective and binding for all purposes of this Plan and of each
stock option agreement. Notwithstanding the foregoing, if any adjustment in the
number of shares which may be issued and sold pursuant to Options is required by
the Code or regulations issued pursuant thereto to be approved by the
stockholders in order to enable the Company to issue Incentive Stock Options
pursuant to this Plan, then no such adjustment shall be made without the
approval of the stockholders. In the case of any such substitution or adjustment
as provided for in this Section 9(a), the option price in each stock option
agreement for each share covered thereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 9. No adjustment or
substitution provided for in this Section 9 shall require the Company, in any
stock option agreement, to sell a fractional share, and the total substitution
or adjustment with respect to each stock option agreement shall be limited
accordingly. Notwithstanding the foregoing, in the case of Incentive Stock
Options, if the effect of the adjustments or substitution is to cause the
Incentive Stock Option to fail to continue to
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<PAGE>
qualify as an Incentive Stock Option or to cause a modification, extension or
renewal of such Incentive Stock Option within the meaning of Section 424 of the
Code, the Board of Directors shall use reasonable efforts to effect such other
adjustment of each then outstanding option as the Board of Directors, in its
sole discretion, shall deem equitable.
(b) In the event that the Company shall effect a distribution,
other than a normal and customary cash dividend, upon shares of Common Stock,
the Board may, in order to prevent significant diminution in the value of
Options as a result of any such distribution, take such measures as it deems
fair and equitable, including, without limitation, the adjustment of the option
price per share for shares not issued and sold hereunder prior to the record
date for said distribution.
SECTION 10. Amendments. This Plan may be terminated or amended
from time to time by vote of the Board; provided, however, that no such
termination or amendment shall materially adversely affect or impair any then
outstanding Option without the consent of the Grantee thereof and no amendment
which shall (i) change the total number of shares which may be issued and sold
pursuant to Options granted under this Plan, or (ii) change the designation or
class of employees or other persons eligible to receive Incentive Options or
Non-incentive Options, shall be effective without the approval of the
stockholders. Notwithstanding the foregoing, the Plan may be amended by the
Board to incorporate any amendments made to the Code or regulations promulgated
thereunder which the Board deems to be necessary or desirable to preserve (i)
incentive stock option status for outstanding Incentive Stock Options and the
ability
12
<PAGE>
to issue Incentive Stock Options pursuant to the Plan, and (ii) the
deductibility by the Company pursuant to Section 162(m) of the Code of amounts
taxed to Plan participants as ordinary compensation income.
SECTION 11. Effective Date and Termination. The Plan shall
become effective on the date hereof, subject to timely adoption and approval by
the stockholders of the Company. Except to the extent necessary to govern
outstanding Options, this Plan shall terminate on, and no additional Options
shall be granted after, ten years from the date of first adoption of the Plan
and approval by the stockholders. (March 16, 1998)
13
<PAGE>
---------------------------------------
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
---------------------------------------
Agreement of Lease, made as of this 20 day of June 1997,
between 40 Wall Development Associates, LLC, a limited liability company having
an office at 725 Fifth Avenue, New York, NY 10022
Party of the first part, hereinafter referred to as OWNER/ and
or Landlord and Internet Financial Services, Inc., a Delaware corporation and
A.B. Watley, Inc., a New York corporation, each having an office at 33 West 17th
Street, New York, NY 10011, jointly and severally constituting the party of the
second part, hereinafter referred to as TENANT, WITNESSETH: owner hereby leases
to Tenant and Tenant hereby hires from Owner the entire twenty-seventh (27th)
floor as shown on Exhibit A-1 and part of the twenty-eight (28th) floor as shown
on Exhibit A-2 in the Building known as 40 Wall Street, in the Borough of
Manhattan, City of New York, for the term of as specified in Article 37.01
hereof, at an annual rental rate of specified in Article 38.01 (a) hereof
Which Tenant agrees to pay in lawful money of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, in equal monthly installments in advance on the
first day of each month during said term, at the office of Owner or such other
place as Owner may designate, without any set off or deduction whatsoever,
except that Tenant shall pay the first monthly installment(s) on the execution
hereof (unless this lease be a renewal).
The parties hereto, for themselves, their heir, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
convent 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 the
purposes specified in Article 44 here.
Tenant Alterations
3. Tenant shall make no changes in or to the demised premises
of any nature without Owner's prior written consent. Subject to the prior
written consent of Owner (1), 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 (2) approved by Owner. Tenant shall, before
making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approval and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractor to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may (2) require. If any mechanic lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to be have been
done for, or material furnished, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant (3), at Tenant's expense, by
filing the bond required by law (4). Nothing in this Article shall be construed
to give Owner title to or to prevent Tenant's removal of trade fixtures, movable
office furniture and equipment, but upon removal of any such from the premises
or upon removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the condition
existing prior to installation and repair any damage to the demised premises or
the building due to such removal. All property permitted or required to be
removed, by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner, at Tenant's expense.
<PAGE>
Maintenance and Repairs
4. Tenant shall, throughout the term of this lease, take good
care of the demised premises and the fixtures and appurtenances therein. Tenant
shall be responsible for all damage or injury to the demised premises (5) or any
other part of the building and the systems and equipment thereof, whether
requiring structural or nonstructural repairs caused by or resulting form
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees or licensees, or and for no other
purposes which arise out of any work, labor, service or equipment done for or
supplied to Tenant or any subtenant or arising out of the installations, use or
operation of the property or equipment of Tenant or any subtenant. Tenant shall
also repair all damage to the building and the demised premises caused by the
moving of Tenant's fixtures, furniture and equipment. Tenant shall promptly
make, at Tenant's expense, all repairs in and to the demised premises for which
Tenant is responsible, using only the contractor for the trade or trades in
question, selected from a list of at least two contractors per trade submitted
by Owner. Any other repairs in or to the building or the facilities and systems
thereof for which Tenant is responsible shall be performed by Owner at the
Tenant's expense. Owner shall maintain in good working order and repair the
exterior and the structural portions of the building, including the structural
portions of its demised premises, and the public portions of the building
interior and the building plumbing, electrical, heating and ventilating
systems(to the extent such systems presently exist) serving the demised
premises. Tenant agrees to give prompt notice of any defective condition in the
premises for which Owner may be responsible hereunder. There shall be no
allowance to Tenant for diminution of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business arising
from Owner or others making repairs, alterations, additions or improvements in
or others making repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. It is specifically agreed that Tenant shall
not be entitled to any setoff or reduction of rent by reason of any failure of
Owner to comply with the covenants of this or any other article of this Lease.
Tenant agrees that Tenant's sole remedy at law in such instance will be by way
of an action for damages for breach of contract. The provisions of this Article
4 shall not apply in the case of fire or other casualty which are dealt with in
article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned form outside in violation of
Section 202 or the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
<PAGE>
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 or the New York Board of Fire
Underwriters, Insurance Services Office, or any similar body which shall impose
any violation, order or duty upon Owner or Tenant with respect to the demised
premises, whether or not arising out of Tenant's (6) use or manner of use
thereof, (including tenant's permitted use) or, with respect to the building if
arising out of Tenant's (7) use or manner of the premises or the building
(including the (7) use permitted under the lease). Nothing herein shall require
Tenant to make structural repairs or alternations unless Tenant has, by its
manner of use of the demised premises or method of operation therein, violated
any such laws, ordinances, orders, rules, regulations or requirements with
respect thereto. Tenant may, after securing Owner to Owner's (8) satisfaction
limited to, reasonable attorney's fees, by cash deposit or by surety bond in an
amount and in a company (2) satisfactory to Owner, contest and appeal any such
laws, ordinances, orders, rules, regulations or requirements provided same is
done with all reasonable promptness and provided such appeal shall not subject
Owner to prosecution for a criminal offense or constitute a default under any
lease or mortgage under which Owner may be obligated, or cause the demised
premises or any part thereof to be condemned or vacated. Tenant shall not do or
permit any act 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 (9) at any time carried by or for the benefit or
Owner with respect to the demised premises or the building of which the demised
premises form a part, or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of 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 premises in a manner which will increase the insurance
rate for the building or any property located therein over that in effect (10)
the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses,
fines, penalties, or damages, which may be imposed upon Owner by reason Tenant's
failure to comply with the provisions of this article and if by reason of such
failure the fire insurance rate shall, at the beginning of this lease or at any
time thereafter, be higher than it otherwise would be (11) then Tenant shall
reimburse Owner, as additional rent hereunder, for that portion of all fire
insurance premiums thereafter paid by owner which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" of rate for the building or demised
premises issued by the New York Fire Insurance Exchange, or other body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the in the fire
insurance rates then applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations shall be placed and maintained by
Tenant, at tenant's expense, in setting sufficient, in Owner's (8) judgement, to
absorb and prevent, vibration, noise and annoyance.(see Article 46 of Rider)
Subordination:
7. (See Article 41 of Rider)
<PAGE>
Property Loss, Damage, Reimbursement, Indemnity:
8. Owner of 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 (12) of Owner, (13) its
agents, servants or employees. Owner or its agents will not be liable for any
such damage caused by other tenants or persons in, upon or about said building
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, if required by law) for any reason
whatsoever including, but not limited to Owner's own acts, Owner shall not be
liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall not be reimbursed by insurance, including reasonable
attorney's fees, paid, suffered or incurred as a result of any breach by Tenant,
Tenant's agents, contractors, employees, invitees, or licensees, of any covenant
or condition of this lease, or the carelessness, negligence or improper conduct
(?) of the Tenant, Tenant's agents, contractors, employees, invitees or
licensees. Tenants liability under this lease Extends to the acts sand omissions
of any sub-tenant, and any agent, contractor, employee, invitee or licensee of
any sub-tenant. In case any action or proceeding is brought against Owner by
reason of any such claim, Tenant upon written notice from Owner, will at
Tenant's expense, resist or defend such action or proceeding by counsel (?)
approved by Owner in writing, such approval not to be unreasonably withheld
(14).
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part of thereof shall be
damaged by fire or other casualty, Tenant shall give immediate notice thereof to
Owner and this lease shall continue in full force and effect except as
hereinafter set forth. (b) If the demised premises are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto shall
be substantially completed, shall be apportioned from the day following the
casualty according to the part of the premises which is usable. (15) (c) If the
demised premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the rent shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner, subject to Owner's right to elect not
to restore the same as ion hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within (16) days after
such fire or casualty, specifying a date for the expiration of the lease, which
date shall not be more than (17) days after the giving of such notice the term
of this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Landlord's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a termination
notice as provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable expedition,
subject to delays to adjustment of insurance claims, labor troubles and causes
beyond Owner's control. (18) After any such casualty, Tenant shall cooperate
with Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume (19)
days after written notice from Owner that the premises are substantially ready
for Tenant's occupancy. (e) Nothing contained herein above shall relieve Tenant
from liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery against the
other or anyone claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefiting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver or subrogation. Tenant acknowledges that owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
<PAGE>
Eminent Domain:
10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public use or purpose, then and
in that event, the term of this lease shall cease and terminate from the date of
title vesting in such proceeding and Tenant shall have no claim for the value of
any unexpired term of said lease and assigns to Owner, Tenants, entire interest
in any such award. (20) (See Article 54 of Rider)
Assignment, Mortgage, Etc.:
11. Tenant, for itself , its heirs, distributees, executors,
administrators, legal representatives, succcessors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of owner in each instance.
Transfer of the majority of the stock of corporate Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting. (See Article 42 of Rider)
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 Owners
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 Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain (21).
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times (22) to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which Owner may elect to perform. Tenant shall permit Owner to use
and maintain and replace pipes and conduits therein provided they are concealed
within the walls, floor, or ceiling (23). Owner may, during the progress of any
work in the demised premises, take all necessary materials and equipment into
said premises without the same constituting and 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 or otherwise (24). Throughout the term
hereof Owner shall have the right (25) to enter the demised premises at
reasonable hours for the purpose of showing the same to prospective purchasers
or mortgages of the building, and during the last six months of the term for the
purpose of showing the same to prospective tenants. If Tenant is not present to
open and permit an entry into the premises (26) Owner or Owner'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, such entry shall not render Owner or its agents, liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
<PAGE>
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and / or occupy, is
to be used and / or occupied under a revocable license, and if any such license
be revoked, or if the amount of such space or area be diminished or required by
any federal, state or municipal authority or public utility, owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy, issued for the building
of which the demised premises are part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no representation as to the condition of
the premises and Tenant agrees to accept the same subject to violations, whether
or not of record (27)
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease maybe cancelled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant (28) as the debtor; or (2) the making by
Tenant or an assignment or any other arrangement for the benefit or creditors
under any state statue. Neither Tenant (28) not any person claiming through or
under Tenant (28) or by reason of any statue or order of court, shall thereafter
be entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
differences 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 differences
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 rate of (29) per annum. If such premises or any part
thereof be relet by the Owner for the unexpired term of said lease, or any part
thereof, before presentation of proof of such liquidated damages to any court,
commission or tribunal, the amount of rent reserved upon such 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 Owner to prove for and
obtain as liquidated damages by reason of such, termination, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred above.
<PAGE>
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants
of this lease, or if the demised premises become vacant (30) or deserted; or if
any execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant; or if this lease be rejected under $235 of Title 11 of the
U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take
possession of the premises within fifteen (15) days after the commencement of
the term of this lease, then, in any one or more such events, upon Owner serving
a written thirty (30) days notice upon Tenant specifying the nature of said
default and upon the said expiration of said thirty (30) 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 thirty (30) day period, and if Tenant shall not
have diligently commenced curing such default within such five (5) day period,
and shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such three (3) day period were the
day herein definitely fixed for the end and expiration of this lease and the
term thereof and Tenant shall then quit and surrender the demised premises to
Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof have shall
been given, and the term shall expire as aforesaid; then and in any of such
events Owner may without (31) 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 as if this lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Owner may cancel and terminate such renewal or extension agreement by
written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charges a higher rental than that in this lease and /or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's convents
herein contained, any deficiency between the rent hereby reserved and /or
covenanted to be paid and the pet amount, if any, of the rents collected on
account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner as owner may incur in connections with re-letting, such as legal expenses,
attorneys' fees, brokerage, advertising and for keeping the demised premises in
good order or for preparing the same for re-letting. Any such liquidated damages
shall be paid in monthly installments by Tenant on the rent day specified in
this lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Owner to collect the
deficiency for any subsequent month by a similar proceeding. Owner, in putting
the demised premises in good order or preparing the same for re-rental may, at
Owner" option, make such alterations, repairs, replacing and/or decorations in
the demised premises as Owner, in Owner's sole judgement, considers advisable
and necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacement, and/or decorations shall not operate
or be construed to release Tenant from liability hereunder as aforesaid. Owner
shall in no event be liable in any way whatsoever for failure to re-let the
demised premises, or in any event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event shall
Tenant be entitled to receive any excess, if any, of such net rents collected
over the sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present future laws in the event of Tenant being evicted or dispossessed for any
cause, or in the event of Owner obtaining possession of demised premises, by
reason of the violation by Tenant of any of the covenants and conditions of this
lease, or otherwise.
<PAGE>
Fees an Expenses
19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed (32) under
or by virtue of any of the terms or provisions in any article of this lease,
then unless otherwise provided elsewhere in this lease. Owner may immediately or
at any time thereafter and without (31) notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with any
default by Tenant in the covenant to pay rent hereunder, makes any expenditures
or incurs any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any action or (33),
then Tenant will reimburse Owner for such sums so paid or obligations incurred
with interest and costs. The foregoing expenses incurred by reason of Tenant's
default shall be deemed to be additional rent hereunder and shall be paid by
Tenant to Owner within (34) days of rendition of any bill or statement Tenant
therefor. If Tenant's lease term shall have expired at the time of making of
such expenditures or incurring of such obligations, such sums shall be
recoverable by Owner as damages.
Building Alterations and Management
20. Owner shall have the right at any time without the same
constituting an eviction an 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 (35). There shall be no allowance to Tenant for diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making any
repairs in the building or any such alterations, additions and improvements
(35). Furthermore, Tenant shall not have any claim against Owner by reason of
Owner's imposition of such controls of the manner of access to the building by
Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
No Representations by Owner:
21: Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical conditions 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 by implication or otherwise
except as expressly set forth in the provisions of this lease. Tenant has
inspected the building and the demised premises and is thoroughly acquainted
with their condition and agrees to take the same "as is" and acknowledges that
the taking of possession of the demised premises by Tenant shall be conclusive
evidence that the said premises and the building of which the same form a part
were in good and satisfactory condition at the same time such possession was so
taken, except as to latent defects. (36) All understandings an agreements
heretofore made between the parties hereto are merged in this contract, which
alone fully and completely expresses the agreement between Owner and Tenant and
any executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part, unless such
executory agreement in writing and signed by the party against whom enforcement
of the change, modification, discharge or abandonment is sought.
End of Term:
22. Upon the expiration or other termination of the term of
this lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted and Tenant
shall remove all its property. (37) Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of this lease.
If the last day of the term of this Lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it be a
legal holiday in which case it shall expire at noon on the preceding business
day. (See Article 54 of Rider)
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
Nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore metioned.
<PAGE>
Failure to Give Possession:
24. If Owner is unable to give possession of the demised
premises on the date of the commencement of the term hereof, because of the
holding-over or retention of possession of any tenant, undertenant of occupants
or if the demised premises are located in a building being constructed, because
such building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured of for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's liability to obtain
possession) until after Owner shall have given Tenant written notice that the
premises are substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or to occupy
premises other than the demised premises prior to the date specified as the
commencement of the term of this lease, Tenants covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
No Waiver:
25. The failure of Owner (38) to seek redress for violation
of, or to insist upon the strict performance of any covenant or condition of
this lease or of any of the Rules or Regulations, set forth or hereafter adopted
by Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent with knowledge of the breach of any
covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lessor amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of the keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises.
Waiver of Trial by Jury :
26. It is mutually agreed by and between Owner and Tenant that
the respective parties hereto shall and they hereby do waive trial by jury in
any action, proceeding or Counterclaim by either of the parties hereto against
the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease , the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory remedy. It is further mutually agreed that in the
event Owner commences any summary proceeding for possession of the premises,
Tenant will not interpose any counterclaim of whatever nature of description in
any such proceeding including a counterclaim under Article 4 (39).
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or excused
because Owner is unable to fulfill any of its obligations under this lease or to
supply or delayed in supplying and service expressly or implied to be supplied
or unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including, but in limited to government
preemption in connection with a Nation Emergency or reason of any rule, order or
regulation of any department or subdivision thereof of any government agency or
by reason of the conditions of the supply and demand which have been or are
affected by war or other emergency.
<PAGE>
Bills and Notices:
28. Except as otherwise in this lease provided, a bill,
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing (40),
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 time
of the rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant
to Owner must be served by registered or certified mail addressed to Owner at
the address first hereinabove given or at such other address at Owner (38) shall
designate by written notice (41).
Services Provided by Owners:
29. As long as Tenant is not in default under any of the
covenants of this lease, Owner shall provide: (a) necessary elevator facilities
on business days from 8 a.m to 6p.m and have one elevator subject to call at all
times; (b) heat to the required premises when and as required by law, on
business days from 8a.m to 6 p.m: (c) water for ordinary lavatory purposes , but
if Tenant uses or consumes water for any other purposes on in unusual quantities
(of which fact Owner shall be the sole judge), Owner may install a water meter
at Tenant's expense in good working order and repair to register such water
consumption and Tenant shall pay for water consumed as shown on said meter as
additional rent as and when bills are rendered; (d)cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner satisfactory to
Owner and no one other than persons approved by Owner shall be permitted to
enter said premises or the building of which they are a part for such purpose.
Tenant shall pay Owner the cost of removal of any of Tenant's refuse and rubbish
from the building; (e)if the demised premises are serviced to by Owner's
air-conditioning /cooling and ventilating system, air conditioning/cooling will
be furnished to tenant from May 15th through September 30th on business days
(Mondays through Fridays , holidays excepted0 from 8:00 am to 6:00p.m., and
ventilation will be furnished on business days during the aforesaid hours except
when air conditioning/cooling is being furnished as aforesaid. If Tenant
requires air conditioning/cooling or ventilation for more extended hours on
Saturdays, Sundays, or on holidays. Owner will furnish the same at Tenant's
expense. (f) Owner reserves the right to stop services of the heating,
elevators, plumbing , air-conditioning, power systems or cleaning or other
services, if any, when necessary by reason of accident or for repairs,
alterations, replacement or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually-operated
elevator service, Owner at any time may substitute automatic-control elevator
service and upon ten days' written notice to Tenant, proceed with alterations
necessary therefor without any wise affecting this lease or the obligation of
Tenant hereunder. The same shall be done with a minimum of inconvenience to
Tenant and Owner shall pursue the alteration with due diligence. (See Article 55
of Ride)
Captions:
30. The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
lease nor the intent of any provisions thereof.
<PAGE>
Definitions:
31. The term "office" or "offices", wherever used in this
lease, shall not be construed to mean premises used as a store or stores, for
the sale or display, at any time, of goods, wares or merchandise, of any kind,
or as a restaurant , shop, booth, bootblack of other stand barber shop or for
other similar purposes or for manufacturing. The term "Owner" means a landlord
or lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building , or of the land and
building of which the demised premises form a part so that in the event of any
sale or sales of said land and building or of said lease, or in the event of a
lease of said building, or of the land and building, the said Owner shall be and
hereby is entirely freed and relieved of all covenants and obligations of Owner
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or of the
land and building, that the purchaser or the lessee of the building has assumed
agreed to carry out any and all covenants and obligations of Owner hereunder.
The words "re-enter" and "re-entry" as used in this lease are not restricted to
their technical legal meaning. The term "business days" as used in this lease
shall exclude Saturdays (except such portion thereof as is covered by specific
hours in Article 29 hereof), Sunday's and all days observed by the State or
Federal Government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
Adjacent, Excavation- Shoring:
32. If an excavation shall be made upon land adjacent to the
demised premises, or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
Rules and Regulations:
33. Tenant and Tenant's servants, employees, agents, visitors,
and licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as Owner
or Owner's agents may from time to time adopt (42), Notice of any additional
rules or regulations shall be given in such manner as Owner may elect. In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
determination shall be final and conclusive upon the parties hereto. The right
to dispute the reasonableness Of any additional Rule or Regulation upon Tenant's
part shall be deeemed waived unless the same shall be asserted by service of
notice, in writing upon Owner within ten (10) days after the giving of notice
thereof. Nothing in this lease contained shall be construed to impose upon Owner
any duty or obligation to enforce the Rules and Regulations or terms, covenants
or conditions in any other lease, as against any other tenant and Owner shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
Security:
34. (See Article ?????)
<PAGE>
Estoppel Certificate:
35. Tenant, at any time, and from time to time, upon at least
10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner,
and/or to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and , if so, specifying each such default.
Successors and Assigns:
36. The covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
<PAGE>
Articles 37 through 61, inclusive, are annexed hereto and incorporated herein.
In Witness Whereof, Owner and Tenant have respectively signed
and sealed this lease as of the day and year first above written.
Witness for Owner: 600 Third Avenue Associates
By: Sumitomo Corporation of America, its
General Partner
.................................... By:.................................
Witness for Tenant: A.B. Watley, Inc.
.................................... By:.................................
ACKNOWLEDGMENTS
<TABLE>
<CAPTION>
CORPORATE OWNER COROPORATE OWNER
STATE OF NEW YORK, STATE OF NEW YORK,
County of County of
<S> <C>
On this.......day of.....................19....., before me On this.........day of...........19....., before me to
personally came personally came
to me known, who being by me duly sworn, did depose to me known, who being by me duly sworn,
and say that he resides did depose and say that he
in in
that he is the.......................of.................... that he is the................of.......................
the corporation described in and which executed the corporation described in and which
the foregoing instrument, as the corporation executed the foregoing instrument, as
described in and which TENANT; that he knows the seal of said
OWNER: that he knows the seal of said corporation; corporation; that the seal affixed to said
that the seal affixed to said instrument is such corporate seal; that
instrument is such corporate seal; that it was so it was so affixed by order of the Board
affixed by order of the Board of of Directors of said corporation
Directors of said corporation, and that he signed and that he signed his name thereto by
his name thereto by like order. Like order
........................................................... ...............................................
INDIVIDUAL OWNER INDIVIDUAL TENANT
STATE OF NEW YORK, STATE OF NEW YORK,
County of County of
On this ................day of ....................19...... On this ........day of ..............19........
before me before me
Personally came personally came
To me known and known to me to be the individual to me know to me to be the individual
Describe in and who, as OWNER, executed the described in and who, as TENANT,
foregoing instrument and executed the foregoing instrument
Acknowledged to me that.............................he and acknowledged to me that
executed the same ...................he executed the same.
.................................................. ..................................................
</TABLE>
<PAGE>
INDEX-RIDER
-----------
ARTICLE PAGE
- ------- ----
37 Commencement and Expiration Dates, Delivery of Possession.......... 1
38 Rents.............................................................. 2
39 Tax Escalation..................................................... 3
40 Expense Escalation................................................. 5
41 Subordination, Notice to Lessors and Mortgages..................... 8
42 Assignment and Subletting.......................................... 10
43 Brokers............................................................ 18
44 Use................................................................ 18
45 Waivers............................................................ 18
46 Legal Compliance - ADA and Hazardous Materials..................... 19
47 Signs; Lobby Directory Space....................................... 20
48 Delinquent Payments................................................ 20
49 Holdover........................................................... 20
50 Tenant's Remedies.................................................. 21
51 Alterations........................................................ 21
52 Not an offer....................................................... 22
53 Tenant's Property.................................................. 22
54 Eminent Domain..................................................... 23
55 Heating and Air Conditioning....................................... 23
56 Non-Liability and Indemnification.................................. 23
57 Insurance.......................................................... 24
58 Parties Bound...................................................... 26
59 Arbitration........................................................ 27
60 Electricity........................................................ 27
61 Curing Tenant's Defaults, Additional Rent.......................... 29
62 Ground Lease Provisions............................................ 29
63 Trump Name......................................................... 30
64 ICIP, Tax and Energy Abatements.................................... 31
65 Security........................................................... 32
66 Tenant's Right of Cancellation..................................... 34
67 Tenant's Right of First Offer...................................... 34
Exhibit A - Floor Plan
Exhibit B - Decsription of Land
Exhibit C - Rent Schedule
Exhibit D - Work Letter
Exhibit E - Definitions
Exhibit F - sCleaning Schedule
<PAGE>
ADDITIONAL CLAUSES attached to and forming a part of Lease
dated June 20, 1997, by and between
40 Wall Development Associates, LLC, Landlord, or Owner,
and Internet Financial Services and A.B. Watley, INC., Tenants.
- --------------------------------------------------------------------------------
The Provisions of this Rider shall supersede any inconsistent
provisions contained in the printed portion of the Lease.
37. COMMMENCEMENT AND EXPIRATION DATES; DELIVERY OF PROSSESSION.
-----------------------------------------------------------
37.01 The term of this lease shall commence on a date (hereinafter
referred to as the "Commencement Date") which shall be the later of (a) the day
on which the Preliminary Installations as defined in Exhibit D in the Demised
Premises have been completed Landlord or (b) 90 days from the date this lease is
executed and shall end at noon on the last day of the month which is ten (10)
years after the Rent Commencement Date (which ending date is hereinafter
referred to as the "Expiration Date" ) or shall end on such earlier date upon
which said term may expire or be cancelled or terminated pursuant to any of the
conditions or covenants of this lease or pursuant to law. Promptly following the
Commencement Date Landlord and Tenant shall enter into a recordable
supplementary agreement fixing the dates of the Commencement Date and the
Expiration Date and if they cannot agree theron within fifteen (15) days after
Landlord's request therefore, such dates shall be determined by arbitration in
the manner provided in Article 59.
37.02 The Demised Premises shall be completed and prepared for Tenant's
occupancy utilizing the materials, fixtures and equipment, as and to the extent
set forth in the plans and specifications to be submitted by Tenant pursuant to
Exhibit D annexed hereto and made a part hereof.
37.03 All installations, materials and work which may be required or
desired by Tenant to alter, improve, equip, decorate and furnish the Demised
Premises for Tenant's occupancy shall be accordance with Exhibit D.
37.04 It shall be conclusively presumed that the Demised Premises were
in satisfactory condition as of the date Landlord completes the Preliminary
Installations, unless within (30) days after the Commencement Date, Tenant shall
give Landlord notice specifying the respects in which the Demised Premises were
not in satisfactory condition. Notwithstanding the
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<PAGE>
taking of possession by Tenant, Landlord shall be obligated to complete and
defective or incomplete portion of Landlord's work as promptly and diligently as
reasonably possible.
37.05 Provided Tenant shall not hamper or delay Landlord's completion
of the Preliminary Installations, Tenants shall have the right to enter the
demised Premises and begin its installation upon the execution and delivery of
this lease, upon all of the terms, covenants and conditions of this lease except
for the covenant to pay rent and additional rent.
38. RENTS
-----
38.01 The rents reserved under this lease, for the term thereof, shall
be and consist of:
(a) "rent" or "fixed rent" as specified on Exhibit C annexed
hereto and made a part hereof.
Fixed rent shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the term this lease (except
that Tenant shall pay, upon the execution and delivery of this lease by Tenant,
an amount equal to the first month's rent becoming due under this lease); and
(b) "additional rent" consisting of all such other sums of money
as shall become due from and payable by Tenant to Landlord hereunder (for
default in payment of which Landlord shall have the same remedies as for a
default in payment of fixed rent);
All fixed rent and additional rent shall be paid to Landlord and its office, or
such other place, or to such agent and at such place, as Landlord may designate
by notice to Tenant, in lawful money of the United States of America.
38.02 Tenant shall pay the fixed rent and additional rent herein
reserved promptly as and when the same shall become due and payable, without any
abatement, deduction or setoff whatsoever, except as and to the extent expressly
provided in this lease and except as to additional rent, without demand
38.03 The "Rent Commencement Date" shall be the date which is seventeen
(17) months after the Commencement Date. If the Commencement Date occurs on a
day other than the first day of calendar month, the fixed rent for such calendar
month shall be prorated and the balance of the first month's fixed rent
theretofore paid shall be credited against the next monthly installment of fixed
rent.
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<PAGE>
39. TAX ESCALATION.
--------------
39.01 For the purposes of this Article 39:
(a) "Taxes" shall mean the real estate taxes and assessments and
special assessments (including, but not limited in any respect to any business
improvement district assessments) imposed upon the Property. If at any time
during the term of this lease the methods of taxation prevailing on the
Commencement Date shall be altered so that in lieu of or as an addition to or as
a substitute for the while or any part of the taxes, assessments, levies,
impositions or charges now levied, assessed or imposed on the Property, there
shall be levied, assessed or imposed (i) a tax, assessment, levy, imposition or
charge wholly or partially as capital levy or otherwise on the rents received
therfrom, or (ii) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon the Demised Premises and imposed upon Landlord,
or (iii) a license fee measured by the rents payable by Tenant to Landlord, then
all such taxes, assessments, levies, impositions or charges, or the part thereof
so measured or based, shall be deemed to be included within the term "Taxes" for
the purposes hereof;
(b) "Base Tax Rate" shall mean the Taxes (as finally determined)
assessed against the Property for calendar year 2000;
(c) "Tax Year" shall mean the fiscal or calendar year for which
Taxes are levied by the governmental authority;
(d) "Tenant's Proportionate Share" shall mean for purposes of
this Article 39 and all calculations in connection herewith 1.672%, which has
been computed on the basis of a fraction, the numerator of which is the agreed
rentable square foot area of the Building as set forth below. The parties agree
that the rentable square foot area of the Demised Premises shall be deemed to be
19,331 square feet and that the agreed rentable square foot area of the Building
shall be deemed to be 1,156,005 square feet.
(e) "Tenant's Projected Share of Taxes" shall mean the "Tax
Payment" (as hereinafter defined), if any, made by Tenant for the immediately
preceding Tax Year ( or in the case of the first Tax Year during which Landlord
shall be entitled to a Tax Payment) divided by twelve (12) and payable monthly
by Tenant to Landlord as additional rent.
39.02 If the Taxes for any Tax Year, including the Tax Year in effect
on the Commencement Date, shall be more than the Base Tax Rate, Tenant shall
pay, as additional rent for such Tax Year, an amount equal to Tenant's
Proportionate Share of the amount by which the Taxes for such Tax Year are
greater than the Base Tax Rate. (The amount payable by Tenant is hereinafter
referred to as the "Tax Payment".) The Tax Payment shall be prorated, if
necessary,
3
<PAGE>
to correspond with that portion of a Tax Year occurring within the Term of this
lease. The Tax Payment shall be payable by Tenant within ten (10) days after
receipt of a demand from Landlord therefor, which demand shall be accompanied by
a copy of the tax bill together with Landlord's computation of the Tax Payment.
If the Taxes for any Tax Year are payable to the taxing authority or Land lord's
mortgage on an installment basis, Landlord may serve demands upon , and the Tax
Payment with respect to such Tax Year shall be payable by, Tenant on a
corresponding installment basis.
39.03 Notwithstanding the fact that the increase in rent is measured by
an increase in taxes, such increase is additional rent and shall be paid by
Tenant as provided herein regardless of the fact that the Tenant may be exempt,
in whole or in part, from the payment of any taxes by reason of the Tenant's
diplomatic or other tax exempt status or for any other reason whatsoever.
39.04 Only Landlord shall be eligible to institute tax reduction or
other proceedings to reduce the assessed valuation of the Property. Should
Landlord be successful in any such reduction proceedings and obtain a rebate or
a reduction in assessment for periods during which Tenant has paid or is
obligated to pay Tenant' Proportionate Share of increases in Taxes, or received
the benefit of any decreases, Landlord shall, after deducting its expenses,
including without limitation, customary attorneys' fees and disbursements in
connection with such rebate, reduction other benefit to Tenant (such expenses
being hereafter referred to as "Tax Expenses"), either (i) return Tenant's
Proportionate Share of such rebate to Tenant or, (ii) if a reduction in
assessment is obtained prior to the date Tenant would be required to pay
Tenant's Proportionate Share of such increase in Taxes, Tenant shall pay to
Landlord, upon written request, Tenant's Proportionate Share of such Tax
Expense.
39.05 After the Commencement Date Landlord shall furnish Tenant with a
statement setting forth the Base Tax Rate and, at the expiration of any Tax Year
thereafter Landlord shall furnish Tenant with a statement setting forth Tenant's
Proportionate Share of Taxes. The statement furnished under this section 39.05
is hereinafter referred to as a "Tax Statement". Commencing on the first day of
the first calendar month of the first Tax Year for which Landlord shall be
entitled to receive a Tax Payment, and on the first day of each calendar month
thereafter throughout the term hereof, Tenant shall pay to Landlord, as
additional rent for the then Tax Year, Tenant's Projected Shares of Taxes. Upon
each date that a tax payment or and installment on account thereof shall be due
from Tenant pursuant to the terms of Section 39.02 hereof, Landlord shall apply
the aggregate of the installments of Tenant's Projected Share of Taxes then on
account with Landlord against the Tax Payment or installment thereof then due
from Tenant. In the event the aggregate amount previously paid by Tenant shall
be insufficient to discharge full such Tax Payment or installment , Landlord
shall so notify Tenant in a demand served upon Tenant pursuant to the terms of
Section 39.02, and Tenant shall forthwith pay the amount of such insufficiency
to Landlord. If, however, such aggregate amount shall be greater than the Tax
Payment or installment, Landlord shall upon Tenant's request either (i) pay the
amount of excess directly to Tenant concurrently with the notice or (ii) credit
the amount of such excess against the next payment of Tenant's Projected Share
of Taxes hereunder and, if the credit of such
4
<PAGE>
payment is not sufficient to liquidate the entire amount of such excess,
Landlord shall then pay the amount to any difference to Tenant.
39.06 Tenant shall pay to Landlord as additional rent, any occupancy
tax or rent tax imposed, levied or assessed by any laws and/ or requirements of
public authorities, whether now in effect or hereinafter enacted, if payable by
Landlord in the first instance or here after required to be paid by Land lord
based upon Tenant's occupancy of the Demised Premises; provided , however, that
Tenant shall not be required to pay any income, franchise, profits or similar
taxes personal to Landlord, except as otherwise provided in Section 39.01 (a)
hereof.
40. EXPENSE ESCALATION.
------------------
40.01 For purposes of this Article 40:
(a) "Operating Expenses" shall mean any or all expenses incurred
by Landlord in connection with the operation of the Property including all
expenses incurred as a result of Landlord's compliance with any of its
obligations hereunder other than Landlord's Work and such expenses shall
include: (i) salaries, wages, medical, surgical and general welfare benefits,
(including group life insurance) pension payments and other fringe benefits of
employees of Landlord engaged in the operation and maintenance of the Property;
(ii) payroll taxes, worker's compensation, uniforms and dry cleaning for the
employees referred to in subdivision (i); (iii) the cost of all charges for
steam, heat, ventilation, air conditioning and water (including sewer rental)
furnished to the Building and/or used in the operation of all of the service
facilities of the building and the cost of all charges for electricity furnished
to the public and service areas of the Property and/or used in the operation of
all of the service facilities of the Property including any taxes on any of such
utilities; (iv) the cost of all charges for rent, casualty, war risk insurance
(if obtainable from the United States government) and of liability insurance for
the property to the extent that such insurance is required to be carried by
Landlord under any superior mortgage or if not required under any superior lease
or superior mortgage then to the extent such insurance is carried by owners of
Property comparable to the Property; (v) the cost of all building and cleaning
supplies for the property and charges for telephone for the Building; (vi) the
cost of all charges for management, security, cleaning, rubbish removal, waste
recycling and service contracts for the Property (if no management, security,
cleaning, rubbish removal, waste recycling and service contracts for the
Property ( if no managing agent employed by Landlord, there may be included in
Operating Expenses a sum not exceeding 4% of all rents, additional rents and
other charges collected from tenants or other permitted occupants of the
Property); (vii) the cost of rental of equipment used in the maintenance and
operation of the Building and of capital equipment designed to result in savings
or reductions in Operating Expenses and (viii) the cost incurred in connection
with the maintenance and repair of the Property. Provision in this lease for an
expense item to be Landlord's expense or at Landlord's expense shall not affect
the inclusion thereof, to the extent above provided, in Operating Expenses.
Operating Expenses shall not include (A) administrative wages and salaries; (B)
renting commissions; (C) franchise taxes or income taxes of Landlord; (D) Taxes
on the Property; (E) costs of initial improvements, painting and decorating of
any occupant's space; (F) interest and amortization under mortgages; and (G)
expenditures for capital improvements except (1) for capital improvements which
under generally applied real estate practice are expensed or
5
<PAGE>
regarded as deferred expenses and (2) for capital improvements required by law
or (3)for capital improvements which are designed to result in a saving in the
amount of Operating Expenses, in any of such cases the cost thereof shall be
included in Operating Expenses for the Operational Years, on a straight line
basis, to the extent that such items are amortized over an appropriate period,
but, not more than ten years, with an interest factor equal to two (2%) percent
above the prime rate of Citibank, N.A. at the time of Landlord's having incurred
said expenditure;
If during all or part of the "Base Operational Year" or any other
"Operational Year" (as such terms are hereinafter defined), Landlord shall not
furnish any particular item(s) of work service (which would otherwise constitute
an Operating Expense hereunder) to office portions of the Building due to the
fact that (i) such portions are not occupied or leased, (ii) such item of work
or service or required or desired by the tenant of such portion, or (iii) such
tenant is itself obtaining and providing such item and for such period shall be
deemed to be increased by an amount equal to the additional costs and expenses
which would reasonably have been incurred during such period by Landlord if it
had its own expense furnished such item of work or services to such portion of
the Building or to such tenant.
(b) "Operational Year" shall mean each calendar year during the team
hereof after the Base Operational Year (as hereinafter defined);
(c) "Base Operational Year" shall be calendar 1998;
(d) "Tenant's Proportionate Share" shall mean purposes of Article 40
of this lease and all calculations in connection herewith 1.778%, which has been
computed on the basis of a fraction, the numerator of which is the agreed
rentable square foot area of the Demised Premises as set forth below and the
denominator of which is the agreed rentable square foot area of the Building as
set forth below excluding the ground floor, mezzanine and second floor retail
space. The parties agree that the rentable square foot area of the building
excluding the ground floor and second floor retail space shall be deemed to the
1,087,178 square feet; and
(e) "Tenant's Projected Share of Operating Expenses" shall mean
Tenant's "Operating Expense Payment" (as hereinafter defined), if any, for the
prior Operational Year (or in the case of the calendar year 1999, an amount
equal to Landlord's reasonable good faith estimate of the first Operating
Expense Payment) divided by twelve (12) and payable monthly by Tenant to
Landlord as additional rent.
40.02 After the expiration of the Base Operational Year, Landlord shall
furnish Tenant with a statement (hereinafter referred to as the "Base
Statement") of the Operating Expenses for the Base Operational Year. After the
expiration of each Operational Year thereafter, Landlord shall furnish Tenant
with a written detailed statement setting forth the aggregate amount of the
6
<PAGE>
Operating Expenses for the prior Operational Year. The statement furnished under
the second sentence of this Section 40.02 is hereinafter referred to as an
"Operating Statement"
40.03 If the Operating Expenses for any Operational Year shall be
more than the Operating Expenses in the Base Optional Year, Tenant shall pay, as
additional rent for such Operational Year, an amount equal to Tenants
Proportionate Share of the amount by which the Operating Expenses for such
Operational Year are greater than the Operating Expenses in the Base Operational
Year. (The amount payable by Tenant is hereinafter referred to as the
"Operating Expense Payment"). The Operating Expense Payment shall be prorated,
if necessary, to correspond with that portion of an Operational Year occurring
within the Term of this lease. The Operating Expense Payment shall be payable by
Tenant within (10) day after receipt of the Operating Statement.
40.04 Commencing with the first Operational Year after Landlord shall
be entitled to receive an Operating Expense Payment, Tenant shall pay to
Landlord as additional rent for the then Operational Year, Tenants Projected
Share of Operating Expenses. If the Operating Statement furnished by the
Landlord to Tenant at the end of then Operational year shall indicate that
Tenant's Projected Share of Operating Expenses exceeded the Operating Expense
Payment, Landlord shall forthwith, at Tenant's request either (i) pay the amount
of excess directly to tenant concurrently with the notice or (ii) permit Tenant
to credit the amount of such excess against the subsequent payment of rent due
hereunder; if such Operating Statement furnished by Landlord to Tenant hereunder
shall indicate that the Operating Expense Payment exceeded the aggregate of
Tenant's Projected Share of Operating Expenses for the then Operational Year,
Tenant shall forthwith pay the amount of such excess to Landlord.
40.05 The Base Statement and every Operating Statement given by
Landlord pursuant to Section 40.02 shall be conclusive and binding upon Tenant
unless (a) within sixty (60) days after the receipt of the Base Statement or
such Operating Statement, as the case may be, Tenant shall notify Landlord that
it disputes the correctness of the Base Statement or Operating Statement, as the
case may be, specifying in detail the particular respects in which the Base
Statement or Operating Statement, as the case may be, is claimed to be
incorrect, and (b) if such dispute shall not have been settled by agreement by
the parties then Landlord and Tenant shall each appoint a disinterested person
to act as their arbitrator to attempt to settle the dispute within 30 days after
their appointment. If the arbitrators so appointed by Landlord and Tenant cannot
reach an agreement, then they shall appoint a third impartial and disinterested
person to resolve the dispute. If Landlord's and Tenant's arbitrators cannot
agree on a disinterested third person to act as arbitrator, the arbitrator shall
be appointed by the American Arbitration Association. Pending the determination
of such dispute by agreement or arbitration as aforesaid, Tenant shall, within
thirty (30) days after receipt of any Operating Statement, pay additional rent,
if due, in accordance with the Operating Statement and such payment shall be
without prejudice to Tenant's claim in connection with such dispute. If the
dispute shall be determined in Tenant's favor, Landlord shall, on demand, pay
Tenant the amount of Tenant's overpayment of additional rent, if any, resulting
from compliance with the Operating Statement. Landlord agrees to grant Tenant
reasonable access to Landlord's books and records for the purpose of verifying
Operating
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Expenses incurred by Landlord and to have and make copies of any and all
available bills and vouchers relating thereto, subject to reimbursement by
Tenant of the expense therefor.
40.06 In the event that during the Base Operational Year or any
Operational Year the Building shall have less than 95% occupancy then, and in
any such event, the Operating Expenses for the Base Operational Year, or any
Operational Year, as the case may be, shall be adjusted to reflect what
Operating Expenses would have been were the Building 95% occupied during such
periods.
40.07 Landlord's failure during the lease term to prepare and deliver
any of the tax bills, statements, notice or bills set forth in Articles 39 or
40, or Landlord's failure to make a demand, shall not in any way cause Landlord
to forfeit or surrender its rights to collect any of the foregoing items of
additional rent which may have become due during the term of this lease.
Tenant's liability for the amounts due under Article 39 or this Article 40 shall
survive the expiration of the Term.
40.08 If all or any part of the fixed rent or additional rent payable
hereunder shall at any time become uncollectible, reduced or required to be
refunded by virtue of any laws and/or requirements of public authorities
(including, without limitation, rent control or stabilization laws) then for the
period prescribed thereby Tenant shall pay to Landlord the maximum amounts of
fixed rent and additional rent permitted pursuant thereto. Upon the expiration
of the applicable period of time during which such amounts shall be
uncollectible, reduced or refunded, Tenant shall pay to Landlord as additional
rent, with fifteen (15) days after written demand, all such uncollected, reduced
or refunded amounts that would have been payable for the period absent such laws
and/or requirements of public authorities; provided that the retroactive
collection thereof shall then by lawful.
41. SUBORDINATION, NOTICE TO LESSORS AND MORTGAGES.
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41.01 This lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate in all respects to all ground leases, overriding leases
of the Property now or hereafter existing and to all mortgages which may now
hereafter affect Property and/or any of such leases, to each and every advance
made or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such mortgages and
spreaders and consolidations of such mortgages. This sections shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute and deliver
any instrument that Landlord, the lessor of any such lease of the holder of any
such mortgage or any of their respective successors in interest may reasonably
request to evidence such subordination. The leases to which this lease is at the
time referred to, subject and subordinate pursuant to this Article are
herinafter sometimes referred to as "superior leases" and the mortgages to which
this lease is, at the time referred to, subject and subordinate are hereinafter
sometimes referred to as "superior mortgages" and the lessor of a superior lease
or its successor in interest at the time referred to is sometimes hereinafter
called a "lessor".
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41.02 In the event of any act or omission of Landlord which would give
Tenant the right, immediately or after lapse of a period of time, to cancel or
terminate this lease, or to claim a partial or total eviction, Tenant shall not
exercise such right (a) until it has given written notice of such act or
omission to the holder of each mortgage and the lessor of each superior lease
whose name and address shall previously have been furnished to Tenant in
writing, and (b) unless such act or omission shall be one which is not capable
of being remedied by Landlord or such mortgage holder or lessor within a
reasonable period of time, until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when such holder or lessor shall have become entitled under such
superior mortgage or superior lease, as the case may be, to remedy the same
(which reasonable period shall in no event be less than the period to which
Landlord would be entitled under this lease otherwise, after similar notice, to
effect such remedy), provided such holder or lessor shall with due diligence
give Tenant written notice of intention to, and commence and continue to remedy
such act or omission.
41.03 If the lessor of a superior mortgage shall succeed to the rights
of Landlord under this lease, whether through possession of foreclosure action
or delivery of a new lease or deed, then at the request of such party succeeding
to Landlord's rights (herein sometimes referred to as "successor landlord") and
upon successor Landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such successor landlord as Tenant's under
this lease, and shall promptly execute and deliver and instrument that such
successor landlord may reasonably request to evidence such attornment. Upon such
attornment this lease shall continue in full force and effect as, or as if it
were, a direct lease between the successor landlord and Tenant upon all of the
terms, conditions and covenants as are set forth in this lease and shall be
applicable after such attornment except that the successor landlord shall not
be:
(a) liable for any previous act or omission of Landlord (or its
predecessor in interest) under this lease;
(b) bound by any previous modification of this lease, not
expressly provided for in this lease, or by any previous prepayment of more than
one month's fixed rent, unless such modification or prepayment shall have been
expressly approved in writing by the lessor of the superior lease or the holder
of the superior mortgage through or by reason of which the successor landlord
shall have succeeded to the rights of Landlord under this lease.
(c) Responsible for any monies owing Tenant from Landlord;
(d) Subject to any credits, offsets, claims, counterclaims,
demands or defenses which Tenant may have against Landlord (or its predecessors
in interest);
(e) Bound by any covenant to undertake or complete any work in
Demised Premises or nay portion thereof;
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(f) Required to account for any security deposit other than any
security deposit actually delivered to the successor landlord;
(g) Bound by any obligation to make any payment to Tenant or
grant or be subject to any credits, except for services, repairs, maintenance
and restoration (provided, with respect to restoration, to the extent that the
successor landlord shall have received sufficient casualty insurance proceeds or
condemnation awards, as the case may be, to complete such restoration) provided
for under this lease to be performed after the date of attornment, it being
expressly understood, however, that the successor landlord shall not be bound by
any obligation to make payment to Tenant with respect to any work performed by
or on behalf of Tenant at the Demised Premise.
41.04 If, in connection with obtaining financing or refinancing for
Landlord's interest in the Land and Building a lender shall request reasonable
modifications to this lease as a condition to such financing or refinancing,
Tenant will not withhold, delay or defer its consent thereto provided that such
modifications do not materially increase the obligations of Tenant hereunder
requirement that the consent of any such lender be given for any modification of
this lease or subject to the provisions of this lease, for any assignment or
sublease, be deemed to materially adversely affect the leasehold interest hereby
created. In the event Tenant fails to execute and deliver to Landlord a duly
executed modification or amendment of this lease incorporating such modification
within (15) days of request therefor, Landlord may execute such amendment or
modification for and on behalf of Tenant as its attorney-in-fact coupled with an
interest solely to execute and deliver any instruments required to carry out the
intent of this Section 41.04 on behalf of Tenant.
42. ASSIGNMENT AND SUBLETTING (Supplementing Article 11).
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42.01 If Tenant shall at any time or times during the term of this
lease desire to assign this lease or sublet all or part of the Demised Premises,
Tenant shall send a notice (hereinafter referred to as the "A/S Notice") thereof
to Landlord, which notice shall be accompanied by (a) a conformed or photostatic
copy of proposed assignment or sublease, the effective or commencement date of
which shall be not less than thirty (30) nor more than one hundred eighty (180)
days after the giving of such notice, (b) a statement setting forth in
reasonable detail the identity of the proposed assignee or subtenant, the nature
of its business and its proposed use of Demised Premises, and (c) current
financial information with respect to the proposed assignee or subtenant,
including, without limitation, its most recent financial report. Such notice
shall be deemed an offer from Tenant to Landlord whereby Landlord (or Landlord's
designee) may at its option (hereinafter referred to as "Landlord's Option"),
(i) sublease such space may at its option (hereinafter referred to as "Leaseback
Space") from Tenant upon the terms and conditions hereinafter set forth , (ii)
terminate this lease (if the proposed transaction is an assignment or a sublease
of all or substantially all of the Demised Premises for the remainder of the
Term), or (iii) terminate this lease with respect to the Leaseback space (if the
proposed transaction is a (iii) terminate this lease with respect to the
Leaseback space (if the proposed transaction is a sublease of part of the
Demised Premises for the remainder of the Term). Landlord's Option may be
exercised by Landlord by notice to Tenant at any time within sixty (60) days
after such
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notice has been given by Tenant to Landlord; and during such 60-day period
Tenant shall not assign lease nor sublet such space to any person.
42.02 If Landlord exercises Landlord's Option to terminate this lease
in the case where Tenant desires either to assign this lease or sublet all or
substantially all of the Demised Premises, then, this lease shall end and
expire on the date that such assignment or sublet was to be effective or
commence, as the case may be, and the fixed rent and additional rent shall be
paid and apportioned to such date.
42.03 Landlord exercises Landlord's Option to terminate this lease in
part in any case where Tenant desires to sublet part of the Demised Premises,
then, (a) this lease shall end and expire with respect to such part of the
Demised Premises on the date that the proposed sublease was to commence; (b)
from and after such date the fixed rent and additional rent shall be adjusted,
based upon the proportion that the rentable area of the Demised Premises
remaining bears to the total rentable area of the Demised Premises; and (c)
Tenant shall pay to Landlord, upon demand, the reasonable out-of pocket costs to
third parties incurred by Landlord in physically separating such part of the
Demised Premises from the balance of the Demised and in complying with any laws
and requirements of any public authorities relating to such separation.
42.04 If Landlord exercises Landlord's Option to sublet the Leaseback
Space under Section 42.01, such sublease to Landlord or its designee (as
subtenant) shall be at the lower of (i) the rental rate per rentable square foot
or fixed rent and additional rent then payable pursuant to this lease or (ii)
the rentals set forth in the proposed sublease, and shall be for the same term
as that of the proposed subletting, and such sublease shall:
(a) be expressly subject to all of the covenants, agreements,
terms, provisions and conditions of this lease except such as are irrelevant or
inapplicable, and except as otherwise expressly set forth to the contrary in
this Section;
(b) be upon the same terms and conditions as those contained in
the proposed sublease, except such as are irrelevant or inapplicable, and except
as otherwise expressly set forth to the contrary in this Section;
(c) give the sublessee the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease or any interest therein
and/or to sublet the Leaseback Space or any part or parts of the Leaseback Space
and to make any and all changes, alterations, and improvements in the space
covered by such sublease and if the proposed sublease will result in all or
substantially all of the Demised Premises being sublet, grant Landlord or its
designees the option to extend the term of such sublease for the balance of the
term of this lease less (1) day;
(d) provide that any assignee or further subtenant, of Landlord
or its designee, may, at the election of Landlord, be permitted to make
alterations, decorations and
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installations in the Leaseback Space or any part thereof without liability to
Tenant and shall also provide in substance that any such alterations,
decorations, and installations in the Leaseback Space therein made by any
assignee or subtenant of Landlord or its designee may be removed, in whole or in
part, by such assignee or subtenant, at its option, prior to or upon the
expiration or other termination of such sublease provided that such assignee or
subtenant, at its expense, shall repair any damage and injury to that portion of
the Leaseback Space so sublet caused by such removal; and
(e) also provide that (i) the parties to such sublease expressly
negate any intention that any estate created under such sublease be merged with
any other estate held by either of said parties, (ii) any assignment or
subletting by Landlord or its designee (as the subtenant) may be for any purpose
or purposes that Landlord, in Landlord's uncontrolled discretion, shall deem
suitable or appropriate, (iii) Tenant, at Tenant's expense, shall and will at
all times provide and permit reasonably appropriate means of ingress to and
egress from the Leaseback Space so sublet by Tenant to Landlord or its designee,
(iv) Landlord, at Tenant's expense, may make such alterations as may be required
or deemed necessary by Landlord to physically separate the Leaseback Space from
the balance of the Demised Premises and to comply with any laws and requirements
of public authorities relating to such separation, and (v) that at the
expiration of the term of such sublease, Tenant will accept the space covered by
such sublease in its then existing condition, subject to the obligations of the
sublessee to make such repairs thereto as may be necessary to preserve the
premises demised by such sublease in order and condition.
42.05 (a) If Landlord exercises Landlord's Option to sublet the
Leaseback Space, Landlord shall indemnify and save Tenant harmless from all
obligations under this lease as to the Leaseback Space during the period of time
it is so sublet to Landlord or with respect to any acts of the sublessee (or
persons acting through or under authority of such sublessee including assignees
and invitees of such sublessee);
(b) Performance by Landlord, or its designee, under a sublease
of the Leaseback Space shall be deemed performance by tenant of any similar
obligation under this lease and any default under any such sublease shall not
give rise to a default under a similar obligation contained in this Lease, nor
shall Tenant be liable for any default under this lease or deemed to be in
default hereunder if such default is occasioned by or arises from any act or
omission of the Tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease;
(c) Tenant shall have no obligation, at the expiration or earlier
termination of the term of this lease, to remove any alteration, installation or
improvement made in the Leaseback Space by Landlord.
42.06 In the event Landlord does not exercise Landlord's Option
pursuant to Section 42.01 and providing that Tenant is not in default of any of
Tenant's obligations under this lease after notice and the expiration of any
applicable grace period, Landlord's consent (which must be
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in writing and in form reasonably satisfactory to Landlord) to the proposed
assignment or sublease shall not be unreasonably withheld or delayed, provided
and upon condition that:
(a) Tenant shall have complied with the provisions of Section
42.01 and Landlord shall not have exercised Landlord's Option under said Section
42.01 within the time permitted therefor;
(b) In Landlord's reasonable judgment the proposed assignee or
subtenant in engaged in business and the Demised Premises, or the relevant part
thereof, will be used in manner which (i) is in keeping with the then standards
of the Building, (ii) is limited to the use expressly permitted under this
lease, and (iii) will not violate any negative covenant as to use contained in
any other lease of space in the Building;
(c) The proposed assignee or subtenant is reputable person of
good character and with sufficient financial worth considering the
responsibility involved, and Landlord has been furnished with reasonable proof
thereof;
(d) Neither (i) the proposed assignee or sublessee nor (ii) any
person which, directly or indirectly, controls, is controlled by, or is under
common control with, the proposed assignee or sublessee or any person who
controls the proposed assignee (all of the foregoing being defined as an
"Affiliate" or sublessee, is then an occupant of any part of the Building;
(e) The proposed assignee or sublessee is not a person with whom
Landlord is currently negotiating or has, within six (6) months prior to the
date of the A/S Notice, negotiated with to lease space in the Building provided
the Landlord has appropriate space available in the Building to lease to such
assignee or sublessee;
(f) The form of the proposed sublease shall be in the form
reasonably satisfactory to Landlord and shall comply with the applicable
provisions of this Article;
(g) There shall not be more than two entities excluding
Affiliates but including Landlord or its designee occupying the Demised Premises
at any time;
(h) The amount of the aggregate rent to the paid by the proposed
subtenant is not less than the then current rent per rentable square foot for
the Demised Premises then being paid by Tenant (or if lower, the rent then being
charged by Landlord in the Building), and the rental and other terms and
conditions of the sublease are the same as those contained in the proposed
sublease furnished to Landlord pursuant to Section 42.01;
(i) Tenant shall reimburse Landlord on the demand for any reason
able costs that may be incurred by Landlord in connection with said assignment
or sublease, including, without limitation, the costs of making investigations
as to the acceptability of the proposed assignee or subtenant and reasonable
legal costs incurred in connection with the review of any term sheets, proposed
assignment or sublease or any documentation in connection
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therewith and in the preparation of any documentation in connection with any
request for consent whether or not granted;
(j) Tenant shall not have (i) advertised or publicized in any way
the availability of the Demised Premises without prior notice to and approval by
Landlord (which approval shall not be unreasonably withheld or delayed), nor
shall any advertisement state the name (as distinguished from the address) of
the Building or the proposed rental, (ii) listed the Premises for sublettting
or assignment, with a broker, agent or representative other than the then
managing agent of the Building or other agent designated by Landlord, or
otherwise at a rental rate less than the greater of (1) the fixed rent and
additional rent at which Landlord is then offering to lease other space in the
Building; and
(k) The sublease shall not allow the use of the Demised Premises
or any part thereof for (i) the preparation and/or sale of food for on or off
premises consumption or (ii) for use by a foreign or domestic governmental
agency.
Except for any subletting by Tenant to Landlord or its designee
pursuant to the provisions of this Article, each subletting pursuant to this
Article shall be subject to all of the covenants, agreements, terms, provisions
and conditions contained in this lease. Notwithstanding any such subletting to
Landlord or any such subletting to any other subtenant and/or acceptance of rent
or additional rent by Landlord or any such subtenant, Tenant shall and will
remain fully liable for the payment of the fixed rent and additional rent due
and to become due hereunder and for the performance of all covenants,
agreements, terms, provisions and conditions contained in this lease on the part
of Tenant to be performed and all acts and omissions of any licensee or
subtenant or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this lease, and any such violation shall
be deemed to be a violation by Tenant. Tenant further agrees that
notwithstanding any such subletting, no other and further subletting of the
Premises by Tenant or any person claiming through or under Tenant (except as
provided in Section 42.04) shall or will be made except upon compliance with and
subject to the provisions of this article. If Landlord shall decline to give its
consent to any proposed assignment or sublease, or if Landlord shall exercise
any of its options under Section 42.01, Tenant shall indemnify, defend and hold
harmless Landlord against and from any and all loss, liability, damages, costs
and expenses (including reasonable counsel fees) resulting from any claims that
may be made against Landlord by the proposed assignee or sublessee or by any
brokers or other persons claiming a commission or similar compensation in
connection with the proposed assignment or sublease.
42.07 In the event that (a Landlord fails to exercise Landlord's
Option under Section 42.01 and consents to a proposed assignment or sublease,
and (b) Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within 90 days after the giving of such consent, then Tenant
shall again comply with all of the provisions and conditions of Section 42.01
before assigning this lease or subletting all or part of the Demised Premises.
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42.08 With respect to each and every sublease or subletting authorized
by Landlord under the provisions of this lease, it is further agreed:
(a) No subletting shall be for a term ending later that one (1)
day prior to the expiration date of this lease;
(b) No sublease shall be valid, and no subtenant shall take
possession of the Demand Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(c) each sublease shall provide that it is subject and
subordinate to this lease and to the matters to which this lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess by
Landlord under this lease Landlord may at its option, take over all of the
right, title and interest of Tenant, as sublessor, under such sublease, and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then
executory provisions of such sublease, except that Landlord shall not be:
(i) Liable for any previous act or omission of Tenant (or its
predecessor in interest) under the sublease;
(ii) Bound by any previous modification of the sublease, or
by any previous prepayment of more than one months fixed rent, unless such
modification or prepayment shall have been expressly approved in writing by the
Landlord;
(iii) Responsible for any monies owing to subtenant from
Tenant;
(iv) Subject to any credits, offsets, claims, counterclaims,
demands or defenses which subtenant may have against Tenant (or its predecessors
in interest);
(v) Bound by any covenant to undertake or complete any work
in the Demised Premises or any portion thereof;
(vi) required to account for any security deposit other than
any security deposit actually delivered to the Landlord;
(vii) Bound by any obligation to make any payment to
subtenant or grant or be subject to any credits, except for services, repairs,
maintenance and restoration (provided, with respect to restoration, to the
extent that the Landlord shall have received sufficient casualty insurance
proceeds or condemnation awards, as the case may be, to complete such
restoration) provided for under the sublease to be performed after the date of
attornment, it being expressly understood, however, that the Landlord shall not
be bound by an obligation to make payment to subtenant with respect to any work
performed by or on behalf of subtenant at the Demised Premises.
42.09 If Landlord shall give its consent any assignment of this lease
or to any sublease, Tenant shall in consideration therefor, pay to Landlord, as
additional rent:
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(a) in the case of an assignment, an amount equal to 50% of all
sums and other considerations paid to Tenant by the assignee (except for rent
and additional rent) for or by reason of such assignment (including, but not
limited to, sums paid for the sale of Tenant's fixtures, leasehold improvements,
equipment, furniture, furnishings or other personal property, less, in the case
of sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns) and less the
reasonable costs (hereinafter referred to as the "Assignment Expense") paid by
Tenant for alteration costs (or contributions in lieu thereof), advertising,
brokerage or consulting fees or commissions and legal fees in connection with
such assignment; and
(b) in the case of a sublease, an amount equal to 50% of any
rents, additional charge or other consideration payable under the sublease to
Tenant by the subtenant which is in excess of the fixed rent and additional rent
accruing during the term, of the sublease in respect of the subleased space (at
the rate per square foot payable by tenant hereunder) pursuant to the terms
hereof (including, but not limited to, sums paid for the sale or rental of
Tenant's fixtures, leasehold improvements, equipment, furniture or other
personal property, less in the case of the sale therof, the then net unamortized
or undepreciated cost thereof determined on the basis of Tenant's federal income
tax returns) and less the reasonablecosts (hereinafter referred to as the
"Subletting Expenses") paid by tenant for alteration costs (or contributions in
lieu thereof), of advertising, broverage or consulting fees or commissions and
legal fees in connection with such subletting. The sums payable under Sections
42.09 (a) and (b) shall be paid to Landlord as and when paid by the assignee or
subtenant, as the case may be, to Tenant and upon the execution and delivery of
such assignment or sublease, as the case may be, Tenant shall provide to
Landlord a statement of the Assignment Expenses or Subletting Expenses, as the
case may be, certified as correct by an officer or principal of Tenant.
42.10 If Tenant is a corporation other than a corporation whose stock
is listed and traded on a nationally recognized stock exchange or on the NASDAQ
market, the provisions of Article 11 and this Section 42, shall apply to a
transfer (however accomplished, whether in a single transaction or in a series
of related or unrelated transactions) of stock (or any other mechanism such as,
by way of example, the issuance of additional stock, a stock voting agreement or
change in class(es) of stock) which results in a change of control of Tenant as
if such transfer of stock (or other mechanism) which results in a change of
control of Tenant were an assignment of this lease, and if Tenant is a
partnership, joint venture or a limited liability company, said provisions shall
apply with respect to a transfer (by one or more transfers) of an interest in
the distributions of profits and losses of such partnership, joint venture or a
limited liability company (or other mechanism, such as, by way of example, the
creation of additional general partnership or limited partnership or member
interests) which results in a change of control of such partnership, joint
venture or a limited liability company, as if such transfer of an interest in
the distributions of profits and losses of such partnership, joint venture or a
limited liability company which results in a change of control of such
partnership, joint venture or a limited liability company were an assignment of
this lease. The provisions of Article 11, and Section 42 (except for Sections
42.10, 42.11, and 42.12) shall not apply to transactions as part of a public
offering or a transaction with a corporation into which or with which Tenant is
merged or consolidated or to which all are substantially all of Tenant's assets
are transferred or to any corporation which controls or is
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controlled by Tenant under common control with Tenant, provided that in the
event of such merger, consolidation or transfer of all or substantially all of
Tenant's assets (i) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
greater of (1) the net worth of Tenant herein named on the date of this lease,
and (ii) proof satisfactory to Landlord of such net worth shall have been
delivered to Landlord at least 10 days prior to the effective date of any such
net worth shall have been delivered to Landlord at least 10 days prior to the
effective date of any such transaction. The provisions of Section 42.10 shall
apply to matters or transactions involving either of the two named entities
comprising Tenant.
42.11 Any assignment or transfer, whether made with Landlord's consent
pursuant to Article 11 or without Landlord's consent pursuant to Section 42.10,
shall be made only if , and shall not be effective until, the assignee shall
execute, acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee shall assume the obligations of
this lease on the part of Tenant to be performed or observed and whereby the
assignee shall agree that the provisions in Article 11 shall, notwithstanding
such assignment or transfer, continue to be binding upon in it respect of all
future assignments and transfers. The original named Tenant covenants that,
notwithstanding the acceptance of fixed rent not in violation of the provisions
of this lease, and notwithstanding such assignment or transfer, whether or not
in violation of the provisions of this lease, and notwithstanding the acceptance
of fixed rent and/or additional rent by Landlord from an assignee, transferee,
or any other party, the original named tenant (except if the Tenant is
extinguished as a corporate entity in connection with a transaction permitted
pursuant to Section42.10 hereof), shall remain fully liable for the payment of
the fixed rent and additional rent and for the other obligations of this lease
on the part of Tenant to be performed or observed.
42.12 The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this lease.
42.13 The listing of any name other than that of Tenant, whether on the
doors of the Premises or the Building directory, or otherwise, shall not operate
to vest any right or interest in this lease or in the Premises, nor shall it be
deemed to be the consent of Landlord to any assignment or transfer of this lease
or to any sublease of the Premises or to the use or occupancy thereof by others.
43. BROKERS.
-------
Tenant warrants and represents that it dealt solely with Cushman &
Wakefield, inc. and Joseph P. Day Realty Corp. (hereinafter referred to
collectively as the "Broker") as broker and that to Tenant's knowledge no other
broker was instrumental in bringing about or procuring this Lease. Tenant agrees
to indemnify, defend and hold Landlord harmless from and against the
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claims of other claims of other brokers or agents for compensation by reason of
Tenant's acts. Landlord shall be solely responsible for compensating the Broker
pursuant to separate agreement.
44. USE.
---
44.01 Tenant shall use and occupy the Demised Premises for executive
and general offices in connection with a stock brokerage business and for no
other purpose.
44.02 If any governmental license or permit, other that a Certificate
of Occupancy which shall be obtained by Landlord after completion of the Basic
work, shall be required for the proper and lawful conduct of Tenant's business
in the Demised Premises or in any part thereof, and if failure to secure such
license or permit would in any way affect Landlord, Tenant, at its expense,
shall duly procure and there after maintain such license or permit and submit
the same for inspection by Landlord, Tenant, shall at all times comply with the
terms and conditions of each license or permit.
44.03 Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Demised Premises or do or permit anything to be
done in the Demised Premises or do or permit anything to be done in the Demised
Premises in violation of the Certificate of Occupancy for the Demised Premises
or for the Building.
45. Waivers
-------
(a) Tenant, or Tenant, and on behalf of any and all persons claiming
through or under Tenant, including creditors of all kinds, does hereby waive and
surrender all right and privilege which they or any of them might have under or
by reason of any present or future law, to redeem the Demised Premises or to
have a continuance of this lease for the term hereby demised after being
dispossessed or ejected therefrom by due process of law or under the terms of
this lease or after the termination of this lease herein provided.
(b) In the event that Tenant is in arrears in payment of fixed rent or
additional rent hereunder, Tenant waives Tenant's right, if any , to designate
the items against which any payments made by Tenant are to be credited, and
Tenant agrees that Landlord may apply any payments made by Tenant to any items
its fit, irrespective of and notwithstanding any designation or request by
Tenant as to the items against which any such payments shall be credited.
However, Tenant may bring a separate lawsuit against Landlord or may refuse to
waive its rights hereunder if such waiver prohibits the Tenant from bringing a
separate lawsuit against Landlord.
(c) Landlord and Tenant hereby waive trial by injury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any matter whatsoever arising out of or in any
way connected with this lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Demised Premises, including any claim of injury or
damage, or any emergency or other statutory remedy with respect thereto.
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(d) The provisions of Articles 29, 47, and 55 shall be considered
expressed agreements Governing the services furnished by Landlord, and Tenant
agrees that any laws and/or requirements public authorities, now or hereafter in
force, shall have no application in connection with any enlargement of
Landlord's obligations with respect to such services unless Tenant agrees, in
writing, to pay to Landlord, as additional rent, Landlord's reasonable charges
for any additional services provided to Tenant if and to the extent Landlord
shall make them available to Tenant.
46. LEGAL COMPLIANCE - ADA AND HAZARDOUS MATERIALS.
----------------------------------------------
(Supplementing Article 6)
46.01 Tenant agrees that it shall be solely responsible, at its
expense, to cause the Demised Premises to comply with the provisions of the
Americans With Disabilities Act of 1990 and any regulations and amendments
promulgated pursuant thereto (hereinafter referred to as the "ADA"), following
the Commencement Date, and Landlord shall have no obligation whatsoever in
connection therewith. Except as herein provided, Landlord agrees that it shall
be responsible to comply with the provisions of ADA as to the common areas of
the Building and the Preliminary Installations. Within (10) days after receipt,
Tenant shall advise Landlord in writing, and provide Landlord with copies, of
any notices alleging violations of the ADA relating to any portion of the
Demised Premises; any claims made or threatened in writing regarding
non-compliance with the ADA and relating to any portion of the Demised Premises;
or any governmental or regulatory actions or investigations instituted or
threatened regarding non-compliance with the ADA relating to any portion of the
Demised Premises.
46.02 Except for fire extinguishers (not utilizing "halon"), Tenant
shall not cause, suffer or allow any "Hazardous Material" (as hereinafter
defined) to be brought upon, kept or used in or about the Demised Premises.
Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, judgements, damages, penalties, fines, costs, liabilities or
losses(including reasonable attorney's fees) which arise during or after the
term of this lease as a result of Tenant's breach of its obligations hereunder.
The foregoing indemnification includes, without limitation, costs incurred in
connection with any investigation of conditions or any clean-up, remedial work,
removal or restoration work in the Demised Premises. Without limiting the
foregoing, if the presence of any Hazardous Materials within the Demised
Premises caused or permitted by Tenant results in any Hazardous Materials within
the Demised Premises caused or permitted by Tenant results in any contamination
of the Demised Premises, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Demised Premises to the condition
existing prior to the introduction of any such Hazardous Materials to the
Demised Premises. As used in this paragraph, the term "Hazardous Material"
means : (I) polychlorinated biphenyls (PCBs) and (II) hazardous or toxic
materials, wastes and substances, including but not limited in any respect to
asbestos or asbestos containing materials, which are defined, determined or
identified as such pursuant to any applicable federal, state and municipal
governmental laws, rules or regulations. Tenant shall also comply with all rules
and regulations imposed by Landlord with respect to recycling waste, if required
by applicable governmental regulations. Landlord shall have the obligation to
remove any Hazardous Materials existing in the Demised Premises prior to the
Commencement Date.
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47. SIGNS; LOBBY DIRECTORY SPACES.
-----------------------------
47.01 Subject to prior written approval of Landlord, Tenant shall be
permitted to install a sign indicating Tenant's name on the exterior of the main
entrance door to the Demised Premises. The sign shall conform to Landlord's
guidelines for Tenants of the Building.
47.02 Landlord, at its expense, and on Tenant's request, shall maintain
Tenant's proportionate share of the listings on the Building directory based on
the size of the Demised Premises. In the event Tenant shall require additional
or substitute listings on the Building directory, Landlord shall, provided space
for such additional or substitute listings is available, maintain such listings
and Tenant shall pay to Landlord an amount equal to Landlord's reasonable charge
for such listings.
48. DELINQUENT PAYMENTS
-------------------
If any amount of fixed rent or additional rent required to be paid by
Tenant to Landlord is not paid within 10 days after the date such payment is
due, then, Landlord shall be entitles to bill and collect, and Tenant shall pay,
as additional rent interest on such sums from the due date until paid, at a rate
(hereinafter referred to as the "Agreed Rate") which is lesser of (a) the
greater of (I) 4% above the prime rate of Chemical Bank (or any successor
thereto or, if Chemical Bank or its successor shall not then be announcing a
prime rate, the prime rate of the largest bank by capital and assets then
announcing a prime rate in the City of New York) at that time or (iii) 18% per
annum or (b) the maximum rate then permitted under applicable law. This
paragraph shall not be construed to permit Tenant to delay payment, or to
postpone or waive any rights of Landlord to collect any fixed rent or additional
rent, with interest and expenses, by legal action or otherwise. If any legal
action or proceeding is commenced by Landlord to collect unpaid fixed rent or
additional rent, Landlord shall be entitled to recover the amount of any
expenses incurred in connection with such action or proceeding.
48. HOLD OVER.
---------
Tenant acknowledges the importance to Landlord of obtaining possession
of the Demised Premises at the stated expiration or sooner termination of this
lease, and in the condition required by this lease, so that Landlord can prepare
and re-rent such premises for a term commencing promptly after the expiration or
termination of this lease. If Tenant shall holdover or retain possession of the
Demised Premises after the expiration or termination of this lease, Tenant shall
pay Landlord, upon written demand, as liquidated damages, one hundred fifty
percent(150%) of the amount of the fixed rent and shall pay all of the
additional rent in effect on the date of such expiration or termination,
prorated for each day that Tenant so holds over or retains possession. The
provisions of the foregoing sentence shall in no way be deemed a waiver of any
rights or remedies which Landlord may have against Tenant to obtain immediate
possession of the Demised Premises, and the demand or acceptance by Landlord of
such payment shall not be construed as a consent by Landlord to such holding
over. Any obligation under this lease for Tenant to pay fixed rent, additional
rent or other sum shall survive and continue after the termination of this
lease.
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50. TENANT'S REMEDIES.
-----------------
If Tenant shall request Landlord's consent and Landlord shall fail or
refuse to give such consent, Tenant shall not be entitled to any damages for any
withholding by Landlord of its consent, it being intended that Tenant's sole
remedy shall be an action for specific performance or injunction, and that such
remedy shall be available only in those cases where Landlord has expressly
agreed in writing not to unreasonably withhold its consent or where as a matter
of law Landlord may not unreasonably withhold its consent.
51. ALTERATIONS (Supplementing Article 3).
------------------------------------
51.01 Tenant may from time to time during the term of this lease, at
its expense, make such other alterations, additions, installations,
substitutions, improvements an decorations (hereinafter collectively referred to
as "changes") and, as applied to changes provided for in this Article, "Tenant's
Changes" in and to the Demised Premises, excluding structural changes, as Tenant
may reasonably consider necessary for the conduct of its business in the Demised
Premises, on the following conditions:
(a) the outside appearance or the strength of the Building or of
any of its structural parts shall not be affected;
(b) no part of the Building outside of the Demised Premises shall
be physically affected;
(c) the proper functioning of any of the mechanical, electrical,
sanitary and other service systems of the Building shall not be adversely
affected or the usage of such systems by Tenant shall be increased;
(d) in performing the work involved in making such changes,
Tenant shall be bound by and observe all of the conditions and covenants
contained in Article 3
(e) before proceeding with any Tenant's Changes, Tenant will
advise Landlord thereof and shall submit to Landlord proof reasonably
satisfactory of the cost thereof and shall submit the names of the contractors
or subcontractors who will be performing Tenant's Changes for Landlord's
approval, which approval shall not be unreasonably withheld or delayed.
Additionally, before proceeding with any Tenant's Changes, Tenant shall submit
to Landlord plans and specifications and all changes and revisions thereto, for
the work to be done for Landlord's approval which approval shall not be
unreasonably withheld or delayed and Tenant shall, upon demand of Landlord, pay
to Landlord the reasonable costs incurred by Landlord for the review of such
plans and specifications and all changes and revisions thereto by its architect,
engineer and other consultants. Landlord may as a condition of its approval
require Tenant to make revisions in and to the plans and specifications and to
post a bond or other security reasonably satisfactory to Landlord to insure the
completion of such change.
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Notwithstanding the foregoing, Landlord's approval of plans and specifications
shall not be required in connection with any non-structural change or changes,
the estimated cost of which the aggregate, does not exceed $50,000.00, exclusive
of the costs of decorating work and Tenant's Property (as defined in Section
53.02 hereof) and any architect's and engineer's fees.
52. NOT AN OFFER.
------------
This Lease is submitted by Landlord to Tenant for signature and return
with the understanding that there shall be no liability upon the part of
Landlord or Tenant and it shall not bind Landlord or Tenant unless and until it
is executed by both Landlord and Tenant and an executed copy delivered to
Tenant.
53. TENANT'S PROPERTY.
-----------------
53.01 All fixtures, equipment, improvements and appurtenances (other
than trade fixtures) attached to or built into the Demised Premises at the
commencement of or during the term of this lease, whether or not by or at the
expense of Tenant, shall be and remain a part of the Demised Premise, shall be
deemed the property of Landlord and shall not be removed by Tenant, except as
hereinafter in this Article expressly provided.
53.02 All business and trade fixtures, machinery and equipment,
communications equipment and office equipment, whether or not attached to or
built into the Demised Premises, which are installed in the Demised Premises by
or for the account of Tenant and not paid for out of Landlord's Share (as
defined in Part F of Exhibit D), and can be removed without permanent structural
damage to the Building, and all furniture, furnishings and other articles of
movable personal property owned by Tenant and located in the Demised Premises,
(all of which are sometimes referred to collectively as "Tenant's Property")
shall be and shall remain the property of Tenant and may be removed by it at any
time during the term of this lease; provided that if any of Tenant's Property is
removed, Tenant or any party or person entitled to remove same shall repair or
pay the cost of repairing and damage to the Demised Premises or to the Building
resulting from such removal. Any equipment or other property for which Landlord
shall have granted any allowance or credit to Tenant or which has replaced such
items originally provided by Landlord at Landlord's expense shall not be
considered Tenant's Property.
53.03 At or before the Expiration Date, or the date of any earlier
termination of this lease, or as promptly as practicable after such an earlier
termination date, Tenant at its expense, shall remove from the Demised Premises
all of tenant's Property except such items thereof as Tenant shall have
expressly agreed in writing with Landlord were to remain and to become the
property of Landlord, and shall fully repair any damage to the Demised Premises
or the Building resulting from such removal. Tenant's obligation herein shall
survive the termination of the lease.
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54. EMINENT DOMAIN, (Supplementing Article 10)
-----------------------------------------
Nothing in Article 10 of this lease shall be deemed to prohibit Tenant
from making a separate claim with the condemning authority for moving expenses,
tenant improvements and other permissible items provided, however, that any such
claims shall not reduce the amount of Landlord's award.
55. HEATING, AIR CONDITIONING AND CLEANING.(Supplementing Article 29)
--------------------------------------
55.01 Use of the Demised Premises, or any part thereof, in a manner
exceeding the design conditions (including occupancy and connected electrical
load) specified for the systems or rearrangements of partitioning which
interferes with normal operations of the heat, ventilation and air-conditioning
("HVAC")in the Demised Premises, may require changes in the heat, ventilation
and air-conditioning system servicing the Demised Premises. Such changes, so
occasioned, shall be made by Tenant, at its expense, pursuant to Article 53 and
51 hereof. Tenant agrees to use its best efforts to keep or cause to be kept
closed all windows in the Demised Premises whenever the air-conditioning system
is in operation. In addition, Tenant agrees at all times to cooperate fully with
Landlord and to abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper functioning and protection of the HVAC
System.
55.02 In the event that Tenant shall require HVAC at any time in
addition to the times specified in Article 20, Landlord shall, upon reasonable
advance notice, furnish such overtime HVAC to the Demised Premises at Landlord's
cost plus 10% for overhead and other administrative costs.
55.03 Throughout the term of this lease, Landlord agrees to clean the
Demised Premises in accordance with the standards set forth on Exhibit F annexed
hereto and made a part hereof.
56. NON-LIABILITY AND INDEMNIFICATION.
---------------------------------
(a) Neither Landlord nor any agent or employee of Landlord shall be
liable to Tenant for any injury or damage to Tenant or to any other person or
for any damage to, or loss (by theft or otherwise)of, any property of Tenant or
of any other person, irrespective of the cause of such injury or damage, or loss
caused by or due to the negligence of Landlord, its agents or employees occuring
within the scope of their respective employment, without negligence on the part
of Tenant, it being understood that no property, other than such as might
normally be brought upon or kept in the Demised Premised as an incident to the
reasonable use of the Demised Premises for the purpose herein permitted, will be
brought upon or kept in the Demised Premises.
(b) Tenant shall indemnify and save harmless Landlord and its agents
against and from (i) any and all claims (x) arising from (A) the conduct or
management of the Demised
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Premises or of any business therein, or (B) any work or thing whatsoever done,
or any condition created (other than by Landlord for Landlord's or Tenant's
account) in or about the Demised Premises during the term of this lease or
during the period of time, if any, prior to the Commencement Date that Tenant
may have been given access the Demised Premises, or (y) arising from any
negligent or otherwise wrongful act or omission of Tenant or any of its
subtenants or licenses or its or their employees, agents or contractors, and
(ii) all costs, expenses and liabilities incurred in or in connection with each
such claim or action or proceeding brought thereon. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall resist and defend such action or proceeding with
counsel reasonably acceptable to Landlord.
57. INSURANCE. (Supplementing Article 6)
---------
(a) Tenant covenants to provide on or before the Commencement Date and
to keep in force during the term hereof the following insurance coverage:
(i) For the benefit of Landlord and Tenant and any superior lessor,
in which Landlord and such superior lessor shall be named as an additional
insured, a comprehensive policy of liability insurance protecting Landlord,
Tenant and any such superior lessor against any liability whatsoever occasioned
by accident on or about the Demised Premises or any appurtenances thereto.
(ii) Fire and extended coverage in an amount adequate to cover the
cost of replacement of all leasehold improvements, personal property, fixtures,
furnishing and equipment, including, but not limited to Tenant's Changes and
Tenant's Property located in the Demised Premises. Such policy shall be written
by good and solvent insurance companies authorized to do business in the State
of New York.
(iii) Prior to the time such insurance is first required to be
carried by Tenant and thereafter, at least fifteen (15) days prior to the
expiration of any such policies, Tenant agrees to deliver to Landlord either
duplicate originals of the aforesaid policies or certificates evidencing such
insurance, and said certificates shall contain an endorsement that such
insurance may not be modified or cancelled except upon thirty (30) days notice
to Landlord sent certified mail, return receipt requested, at the address for
Landlord provided in this lease, together with evidence of payment for the
policy.
(iv) Tenant's failure to provide and keep in force the
aforementioned insurance shall be a material default of Tenant's obligations
under this lease, entitling Landlord to exercise any or all of the remedies as
provided in this lease or available at law or in equity, in the event of
Tenant's default. Landlord may at any time and from time to time during the term
hereof, inspect and /or copy, at the Demised Premises, the originals of any and
all insurance policies required to
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be obtained by Tenant pursuant to the provisions of this lease, and Tenant shall
make such policies available to Landlord for such purpose;
(v) Each such policy shall contain a clause that such policy and
the coverage evidenced thereby shall be primary with respect to the policies of
insurance, if any, carried by Landlord, and that coverage, if any, carried by
Landlord shall be excess insurance;
(vi) Each such policy may be furnished by Tenant under a blanket
policy carried by it governing the Demised Premises and other locations of
Tenant; provided any such policy shall contain an endorsement that names
Landlord and any superior lessor as an additional insured, specifically
references the Demised Premises, and guarantees a minimum limit of insurance
coverage available for the Demised Premises and appurtenances thereto equal to
the insurance amounts required pursuant to this lease;
(vii) Tenant shall not carry separate insurance, concurrent in
coverage and contributing in the event of loss with any insurance required to be
furnished by Tenant under the provisions of this Article 57, if the effect of
such separate insurance would be to reduce the protection or the payment to be
made under said insurance required to be furnished by Tenant, unless Landlord
and superior lessor is included as an additional named insured thereunder.
Tenant shall promptly notify Landlord of the issuance of any such separate
insurance and shall cause such policies to be delivered to Landlord as herein
above provided;
(viii) Notwithstanding anything herein above provided, if in the
Landlord's reasonable opinion the amount of insurance carried by Tenant
hereunder is inadequate, Landlord shall have the right, exercised on no less
than thirty (30) days notice to Tenant, to require Tenant to increase the amount
and/or the type of insurance required to be carried by Tenant under this lease,
to an amount reasonably sufficient to protect Landlord's interests, and Tenant
agrees that within thirty (30) days of the date of Landlord's said notice,
Tenant will obtain and shall thereafter maintain the type of insurance coverage
and/or insurance limits so required by Landlord. Any dispute as to insurance
coverage shall be submitted to arbitration in accordance with Article 59.
(b) Landlord and Tenant shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage policy
obtained by it and covering the Building, the Demised Premises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against said third party. The waiver of subrogation or permission for waiver of
any claim herein before referred to shall extend to the agents of each party and
its employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying or using the Demised Premises in accordance with the
terms of this lease. If and to the extent that such waiver or permission can be
obtained only upon payment of an additional charge then, except as provided in
the following two paragraphs, the party benefiting from the waiver or permission
shall pay such charge upon demand, or shall be deemed to have agreed that the
party obtaining the insurance coverage in
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question shall be free of any further obligations under the provisions hereof
relating to such waiver or permission.
In the event that Landlord shall be unable at any time to obtain one of
the provisions referred to above in any of its insurance policies, at Tenant's
option Landlord shall cause Tenant to be named in such policy or policies as one
of the assureds, but if any additional premium shall be imposed for the
inclusion of Tenant as such as assured, Tenant shall pay such additional premium
upon demand. In the event that Tenant shall have been named as one of the
assureds in any of Landlord's policies in accordance with the foregoing, Tenant
shall endorse promptly to the order of Landlord, without recourse, any check,
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with said policy and
Tenant hereby irrevocably waives any and all rights in and to such proceeds and
payments.
In the event that Tenant shall be unable at any time to obtain one of
the provisions referred to above in any of its insurance policies, Tenant shall
cause Landlord to be named in such policy or policies as one of the assureds,
but if any additional premium shall be imposed for the inclusion of Landlord as
such an assured, Landlord shall pay such additional premium upon demand or
Tenant shall be excused from its obligations under this paragraph with respect
to the insurance policy or policies for which such additional premiums would be
imposed. In the event that Landlord shall have been named as one of the assureds
in any of Tenant's policies in accordance with the foregoing, Landlord shall
endorse promptly to the order of Tenant, without recourse, any check, draft or
order for the payment of money representing the proceeds of any such policy or
any other payment growing out of or connected with said policy and Landlord
hereby irrevocably waives any and all rights in and to such proceeds and
payments.
Subject to the foregoing provisions of this Section 57(b), and insofar
as may be permitted by the terms of the insurance policies carried by it, each
party hereby releases the other with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damages or destruction with respect to its property by fire or other casualty
(including rental value or business interruption, as the case may be) occurring
during the term of this lease.
58. PARTIES BOUND
-------------
(a) The obligations of this lease shall bind and benefit the successors
and assigns of the parties with the same effect as if mentioned in each instance
where a party is named or referred to, except that no violation of the
provisions of Articles II or 42 shall operate to vest any rights in any
successor or assignee of Tenant. However, the obligations of Landlord under this
lease shall not be binding upon Landlord herein named with respect to any period
subsequent to the transfer of its interest in the Building as owner or lessee
thereof and in the event of such transfer, said obligations shall thereafter be
binding upon each transferee of the interest of Landlord herein named as such
owner or lessee of the Building, but only with respect to the period ending with
a subsequent transfer within the meaning of this Article.
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(b) if Landlord shall be an individual, joint venture, tenancy in
common, co-partnership, limited liability company or limited liability
partnership, unincorporated association, or other unincorporated aggregate of
individuals and/or entities or a corporation, Tenant shall look only to such
Landlord's estate and property in the Building and, where expressly so provided
in this lease, to offset against the rents payable under this lease, 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 by Landlord hereunder, and no other property or assets of such Landlord
or any partner, member, shareholder, officer or director thereof, disclosed or
undisclosed, shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy
of the Demised Premises.
59. ARBITRATION.
-----------
(a) Either party may request arbitration of any matter in dispute
wherein arbitration is expressly provided in this lease as the appropriate
remedy and no other method of dispute resolution is specified. The party
requesting arbitration shall do so by giving notice to that effect to the other
party, and both parties shall promptly thereafter jointly apply to the American
Arbitration Association (or any organization successor thereto) in the City and
County of New York for the appointment of a single arbitrator.
(b) The arbitration shall be conducted in accordance with the then
prevailing rules of the American Arbitration Association (or any organization
successor thereto) in the City and County of New York. In rendering such
decision and award, the arbitrator shall not add to, subtract from or otherwise
modify the provisions of this lease.
(c) The decision of the arbitrator shall be binding upon all parties to
the dispute and a judgment therefor may be entered by either party in a court
having jurisdiction thereof
(d) All the expenses of the arbitration shall be borne by the parties
equally.
60. ELECTRICITY.
-----------
60.01 Landlord shall furnish electricity to the Demised Premises 24
hours a day, 365 days a year. Notwithstanding the foregoing, however, Tenant
agrees that Landlord shall not in any wise be liable or responsible to Tenant
for any loss, damage, or expense that Tenant may sustain or incur if either the
quantity or character of electrical service is changed, is no longer available,
or is unsuitable for Tenant's requirements. At Landlord's option, Tenant shall
purchase from Landlord or its agent all lamps, starters, ballasts, or bulbs used
in the Demised Premises.
60.02 Tenant covenants and agrees that, at all times, its use of
electric current shall never exceed the capacity of the feeders to the Building
or the risers or wiring installation thereof In connection therewith, Tenant
expressly agrees that all installations, alterations and
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additions of and to the electrical fixtures, appliances, or equipment within the
Demised Premises shall be subject to Landlord's prior written approval (which
approval shall not be unreasonably withheld or delayed), and, if such approval
shall be given, rigid conduit only shall be permitted. If, in connection with
any request for such approval, Landlord shall, in its sole judgment, determine
that the risers of the Building servicing the Demised Premises shall be
insufficient to supply Tenant's electrical requirements with respect thereto,
Landlord shall, at the reasonable cost and expense of Tenant after notice,
install any additional feeders that Landlord shall deem necessary with respect
thereto, provided, however, that, if Landlord shall determine, in its sole
judgment, that the same will cause permanent damage or injury to the Building or
to the Demised Premises, cause or create a dangerous or hazardous condition,
entail excessive or unreasonable alterations, repairs, or expense, or interfere
with, or disturb, the other tenants or occupants of the Building, then Landlord
shall not be obligated to make such installation, and Tenant shall not make the
installation, alteration, or addition with respect to which Tenant requested
Landlord's consent. 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 necessary and proper in connection therewith, subject to the aforesaid
terms and conditions. All of the aforesaid costs and expenses are chargeable and
collectible as additional rent, and shall be paid by Tenant to Landlord within
ten (1O) days after rendition of any bill or statement to Tenant therefor.
60.03 Provided that it is physically possible for Tenant to receive
electric current in the Demised Premises directly from the public utility
company serving the area in which the Building is located, Landlord may
discontinue the aforesaid service upon sixty (60) days notice to Tenant without
being liable to tenant therefor and without in any way affecting this lease or
the liability of Tenant hereunder, and the same shall not be deemed to be a
lessening or diminution of services within the meaning of any law, rule, or
regulation now or hereafter enacted, promulgated, or issued. In the event that
Landlord gives such notice of discontinuance, Landlord shall permit Tenant to
receive such service directly from such public utility company and shall pen-nit
Landlord's wires and conduits, to the extent available, suitable and safely
capable, to be used for such purpose. Any additional wires, conduits, or other
equipment necessary and proper in connection therewith shall be installed by
Landlord, at Landlord's expense, in accordance with the terms of, and subject to
the conditions contained in, Section 60.02. In the event that Landlord exercises
its rights under, this Section 60.03, then Tenant shall contract for such
electrical service directly with the said public utility for all of Tenant's
electric current requirements. In no event shall Tenant's electric service be
discontinued until Tenant is able to obtain such service directly from the
public utility without interruption to Tenant's business.
60.04 For purposes of Section 60.04:
(a) Usage shall mean the number of kilowatt hours and kilowatts
of electric current consumed in the Demised Premises, as measured by a meter or
meters through which the electric current supplied to the Demised Premises is
drawn, for each calendar month or such other period as Landlord shall determine
during the term of this lease;
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(b) Rate shall mean the amount per kilowatt hour (including
energy and demand) that would be charged, at the time in question, by the public
utility company supplying electric current to the Building, at the rate schedule
payable by Landlord (including the demand factors for the Building), if the
Usage were the total current being purchased;
(c) Tenant's Cost shall mean 108% of an amount equal to the
product of the Rate multiplied by the Usage. Tenant's Cost includes Landlord's
expenses incurred in connection with submetering.
60.05 Landlord shall, from time to time, furnish Tenant with a
statement indicating the appropriate period during which the Usage was measured
and the amount of Tenant's Cost payable by Tenant to Landlord for furnishing
electrical current. Within ten (10) days after receipt of each such statement,
Tenant shall pay the amount of Tenant's Cost set forth thereon to Landlord as
additional rent.
61. CURING TENNANTS DEFAULT, ADDITIONAL RENT.
----------------------------------------
61.01 If Tenant shall default in the performance of any of Tenant's
obligations under this lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency, and in any other
case, only if such default continues after the expiration of ten (10) business
days from the date Landlord gives Tenant notice of Landlord's intention so to
do.
61.02 Bills for any expenses incurred by Landlord in connection with
any such performance by it for the account of Tenant, and bills for all costs,
expenses and disbursements of every kind and nature whatsoever, including
reasonable counsel fees, involved in collecting or endeavoring to collect the
fixed rent or additional rent or any part thereof or enforcing or endeavoring to
enforce any rights against Tenant, under or in connection with this lease, or
pursuant to law, including any such cost, expense and disbursement involved in
instituting and prosecuting sununary proceedings, as well as bills for any
property, material, labor or services provided, furnished, or rendered, by
Landlord or at its instance to Tenant, may be sent by Landlord to Tenant
monthly, or immediately, at Landlord's option, and, shall be due and payable in
accordance with the terms of such bills. Any unpaid item shall bear interest at
the Agreed Rate from the due date until paid.
62. GROUND LEASE PROVISIONS.
-----------------------
62.01 Tenant acknowledges that Landlord is not a fee owner of the land
but the holder of the Ground Lease (as defined in Exhibit E). Landlord
represents that the Ground Lease is presently in full force and effect and no
consent is required from the Ground Lessor (as defined in Exhibit E) in
connection with the making of this Lease.
62.02 In the event that Tenant shall send Landlord a notice of any
default on the part of Landlord, under this Lease, Tenant shall send a copy
thereof to Ground Lessor at the address listed in Section 62.04 or such other
address as tenant shall have been notified in writing. Tenant
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agrees that Ground Lessor shall have the right, but not the obligation to cure
any such default within:
(a) Ten (10) days from the date of such notice in the event such
default shall consist of a failure to pay a sum of money; or (b) Thirty (30)
days from the date of such notice to cure any other default which is susceptible
of being cured with due diligence within said 30 days; or
(c) If such default is not susceptible of being cured with due
diligence within said 30 days then Ground Lessor shall have the right to
continence to cure such default within 30 days from the date of such notice and
diligently present such cure to completion.
62.03 Tenant further agrees that:
(a) This Lease shall not terminate or be terminable by Tenant by
reason of any termination of the Ground Lease by summary proceedings or
otherwise except in the case of an institution of any summary or other
proceeding by Ground Lessor, this Lease may be terminated if the Tenant is named
by Ground Lessor as a party and served with process sufficient to recover
possession of the Demised Premises in such proceeding and a warrant or judgment
for possession of the Demised Premises is issued in such proceeding; and
(b) Tenant shall attorn to Ground Lessor if this Lease is not
terminated by the service of process on Tenant in any proceeding for recovery of
possession of the Demised Premises or in any proceeding seeking the termination
of the Ground Lease.
62.04 Any notice from Tenant to the Ground Lessor shall be addressed as
follows:
Nautilus Real Estate, Inc.
and Scandic Wall Limited Partnership
c/o The Pyne Companies, Ltd.
555 Madison Avenue
New York, New York 10022
63. TRUMP NAME.
----------
63.01 Tenant agrees that notwithstanding the designation of the
Building as a "Trump Building" neither Tenant nor any subtenant, concessionaire,
licensee nor any of their respective parties, officers, agents or employees or
affiliates thereof, at any time throughout the lease term, or any renewal or
extension thereof, or after the expiration or sooner, termination of the lease
term, use any name which contains the name "Trump" in any form, combination or
manner including any and all advertising) except with the prior consent of the
owner of the name in each instance.
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64. ICIP, TAX AND ENERGY ABATEMENTS.
-------------------------------
64.01 Tenant acknowledges that Landlord is seeking benefits under the
Industrial and Commercial Incentive Program ("ICIP") and that in connection
therewith:
(a) Tenant shall not be required to pay taxes or charges which
become due because of the willful neglect or fraud by the Landlord in connection
with the ICIP Program. Tenant shall not relieve or indemnify Landlord from any
personal liability arising under Administrative Code Section 11-265 except where
imposition of such taxes, charges or liability is occassioned by actions of the
Tenant in violation of the Lease;
(b) Tenant agrees to report to the Landlord, upon request:
(i) The number of workers permanently engaging in employment
in the Demised Premises;
(ii) The nature of the worker's employment;
(iii) The New York City residency of each worker.
(c) Tenant agrees that it will provide access to the Demised
Premises by agents of the Department of Finance at all reasonable times upon
Landlord's request.
64.02 Tenant acknowledges that Landlord will file an application for
abatement of real property taxes for the Demised Premises in connection with
Title 4 of Article 4 of the RPTL. In accordance with said provisions, it is
agreed as follows:
(a) The rent, including all amounts payable by the Tenant on
account of real property taxes, will accurately reflect any abatement of real
property taxes for the Demised Premises granted pursuant to Title 4 of Article 4
of the RPTL.
(b) All abatements granted pursuant to Title 4 of Article 4 of
the RPTL will be revoked if, during the benefit period, real estate taxes or
water or sewer charges or other lienable charges are unpaid for more than one
year, unless such delinquent amounts are paid as provided in Subdivision 4 of
Section 499F of Title 4.
(c) Tenant's percentage share of the benefits granted under Title
4 of Article 4 of the RPTL is 1.672%.
(d) Not less than $35.00 per square foot of the Demised Premises
will be spent on improvements to the Demised Premises and/or the common areas of
the Building.
64.03 To the extent applicable, Landlord shall attempt to obtain the
benefits of the Lower Manhattan Energy Program relating to special rebates of
energy charges. To the extent Landlord is successful in obtaining rebates,
Tenant shall be entitled to its share of any rebate.
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64.04 Landlord and Tenant agree to cooperate in the execution of such
documents which may be required to obtain any of the benefits available under
any of the programs mentioned in this Article as well as the real property tax
and commercial rent tax benefits which are available under the Commercial
Revitalization Program.
65. SECURITY. (Supplementing Article 34)
--------
65.01 Tenant has deposited with Landlord the sum of ("the
"Security") either in cash or by Letter of Credit as provided in Section 65.02,
as security for the faithful performance and observance by tenant of the terms,
provisions and conditions of this lease. Landlord agrees that in the event
Tenant deposits a cash security as aforesaid, Landlord shall maintain said cash
security in an interest bearing account, in a bank or savings and loan
association to be selected, from time to time, by Landlord in its sole
discretion which account shall be insured by the Federal Deposit Insurance
Corporation, so long as such insurance shall be available, and all interest
earned thereon (except with respect to Landlord's administrative expense as set
forth below) shall be retained in such account and be deemed added to the cash
security deposited hereunder or upon request of Tenant be delivered to Tenant
annually within twenty (20) days after such request. Landlord agrees further to
hold the said cash security in such an account for the entire term hereof,
subject, however, to the terms of this Article 65 with respect to the
application of the security in the event of Tenant's default hereunder. To the
extent permitted by law, Tenant agrees that Landlord shall be entitled to
receive and retain per such sum from time to time as Landlord shall determine,
in its sole discretion. Landlord shall not be required to credit any of the cash
security with interest for any period during which Landlord does not receive
interest thereon. It is agreed that in the event Tenant defaults after notice
and the expiration of any applicable cure period hereunder, 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
the whole or any part of the cash security so deposited and any interest thereon
then held by Landlord, or Landlord may notify the "Issuing Bank" (as such term
is defined in Section 65.02) and thereupon receive all of the monies represented
by the said Letter of Credit and use, apply or retain the whole or any part of
such proceeds, as the case may be, to the extent required for the payment of any
rent and additional rent or any other sum as to which Tenant is in default,
after notice and any cure period provided herein, or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default after
notice and the expiration of any applicable cure period hereunder, in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency accrued before or after summary
proceedings or other re-entry by Landlord. In the event that Landlord applies or
retains any portion or all of such cash security and interest held thereon, or
proceeds of such Letter of Credit, as the case may be, Tenant shall forthwith
restore the amount so applied or retained so that at all times, the amount
deposited shall be equal to the Security plus the amount of any interest held
thereon immediately prior to such application or retention in the event of a
cash security deposit. In the event that Tenant shall fully and faithfully
comply with all of the terms, provisions, covenants and conditions of this
lease, the cash security and any interest thereon then held by Landlord, or
Letter of Credit, as the case may be, shall be returned to Tenant within fifteen
(15) days following the date fixed as the end of the lease and after delivery of
entire possession of the Demised Premises to Landlord.
65.02 In lieu of a cash deposit, Tenant may deliver to Landlord a
clean, irrevocable and unconditional letter of credit (hereinafter referred to
as the "Letter of Credit") which shall (a) be issued by and drawn upon any
commercial bank (hereinafter referred to as the
32
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"Issuing Bank") with offices for banking purposes in the City of New York and
which is a member of the New York Clearing House Association and having a net
worth of not less than Five Hundred Million and 00/100 ($500,000,000.00)
Dollars, (b) have an initial term of not less than one year, (c) be in form and
content satisfactory to Landlord, (d) be for the account of Landlord (e) be in
the amount equal to the Security (f) provide that it shall be deemed
automatically renewed, without amendment, for consecutive periods of one (1)
year each thereafter during the term of this lease, unless Issuing Bank sends
written notice (hereinafter referred to as the "Non-Renewal Notice") to Landlord
by certified or registered mail, return receipt requested, not less than thirty
(30) days next preceding the then expiration date of the Letter of Credit that
it elects not to have such Letter of Credit renewed, and (g) provide that
Landlord, within twenty (20) days of its receipt of the Non-Renewal Notice,
shall have the right, exercisable by means of a sight draft, to receive the
monies represented by the Letter of Credit and hold such proceeds pursuant to
the terms of Section 65.01 as a non-interest bearing cash security.
65.03 In the event of a sale of the Landlord's interest in the Ground
Lease or a leasing of the entire Building, Landlord shall have the right to
transfer the cash security and any interest thereon then held by Landlord, or
Letter of Credit, as the case may be, deposited hereunder to the vendee or
lessee, and Landlord shall thereupon be released by Tenant from all liability
for the return of such cash security and interest, or Letter of Credit. In such
event, Tenant agrees to look solely to the new Landlord for the return of said
cash security and interest, or Letter of Credit, as the case may be. It is
agreed that the provisions hereof shall apply to every transfer or assignment
made of said cash security and interest, or Letter of Credit, to a new Landlord.
65.04 Tenant covenants that it will not assign or encumber, or attempt
to assign or encumber, the monies or Letter of Credit deposited hereunder as
security, and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment, or attempted
encumbrance.
65.05 Notwithstanding the provisions of Section 65.02 hereof, Tenant
may deliver to Landlord a Letter of Credit which is not automatically renewable
(but which otherwise complies with the provisions of Section 65.02) and which
provides for a stated term of not less than one (1) year (hereinafter referred
to as the "One Year L/C"); provided that not less than thirty (30) days prior to
the date of expiration of any Letter of Credit, Tenant shall deliver to Landlord
a new Letter of Credit complying with the provisions of Section 65.02 hereof, or
which is a One Year L/C. In the event Landlord shall fail to receive a new
Letter of Credit from Tenant as herein above provided on or before the thirtieth
(30th) day next preceding the date of expiration of any Letter of Credit,
Landlord shall have the right to obtain from the Issuing Bank the proceeds of
the expiring Letter of Credit then held by Landlord and shall hold the proceeds
pursuant to the provisions of Article 65 hereof, pending the delivery to
Landlord of a new Letter of Credit complying with the provisions of this Article
65 or the default of Tenant hereunder.
65.06 In the event that at any time during the Term, Landlord, in
Landlord's reasonable opinion, believes (a) that the net worth of the Issuing
Bank shall be less than the minimum amount specified in Section 65.02, or (b)
that circumstances have occurred indicating that the Issuing Bank may be or may
imminently become incapable of, unable to, or prohibited from honoring the then
existing Letter of Credit (hereinafter referred to as the "Existing L/C") in
accordance with the terms hereof, then, upon the happening of either of the
foregoing, Landlord may send written notice to Tenant (hereinafter referred to
as the "Replacement Notice") requiring Tenant within ten (IO) days to replace
the Existing L/C with a new Letter of Credit (hereinafter referred to as the
"Replacement L/C") from an Issuing Bank meeting the qualifications described in
Section 65.02. Landlord agrees to make the Existing L/C available for a
simultaneous exchange of the Existing L/C for a Replacement L/C meeting the
33
<PAGE>
qualifications of Section 65.02 or 65.05. In the event that (i) a Replacement
L/C meeting the qualifications of Section 65.02 is not received by Landlord
within the time specified, or (ii) Landlord reasonably believes an emergency
exists whereby Landlord's ability to draw upon the Existing L/C (regardless of
Tenant's default hereunder) and receive the full proceeds thereof will be or may
likely be extinguished, then in either event, the Existing L/C may be presented
for payment by Landlord and the proceeds thereof shall be held by Landlord in
accordance with Section 65.01 subject, however, to Tenant's right, at any time
thereafter prior to a Tenant's default hereunder, to replace such cash security
with a new Letter of Credit meeting the qualifications of Section 65.02 or
65.05. Landlord agrees to make such cash proceeds available for a simultaneous
exchange of such cash proceeds for a new Letter of Credit meeting the
qualifications of Section 65.02 or 65.05.
65.07 In the event the Tenant is not then in default beyond any
applicable grace period at the end of the fifth (5th) Lease Year, the Security
shall be reduced to
66. TENANT'S RIGHT OF CANCELLATION.
------------------------------
66.01 Subject to force majeure, in the event that Landlord fails to
compete the Preliminary Installations within six (6) months after Tenant's Plans
have been finalized and agreed to by Landlord and Tenant, (the "Outside Date")
Tenant shall have the right to cancel this lease by sending Landlord a written
notice (the "Cancellation Notice") in accordance with Section 66.02.
66.02 The Cancellation Notice shall specify a date (the "Effective
Date") on which the lease will be deemed cancelled. The Effective Date shall be
not less than thirty (30) days from the date of the Cancellation Notice and in
the event Landlord substantially completes the Preliminary Installations prior
to the Effective Date, the Cancellation Notice shall be deemed nullified and of
no force and effect whatsoever. Tenant's right of cancellation shall be its sole
and exclusive remedy in the event Landlord fails to complete the Preliminary
Installations by the Outside Date.
67. TENANT'S RIGHT OF FIRST OFFER.
-----------------------------
67.01 At any time during the first ten(1O)years of the term of this
Lease, after Landlord has reached an agreement on the terms of a proposed lease
or sublease of all or part of the remaining portion of the 28th Floor (the
"Option Space") with a third party not affiliated with Landlord containing the
items specified in-Section 67.02 but before execution of a lease, Landlord shall
send Tenant a written notice (the "Availability Notice") to Tenant indicating
what portion of the Option Space is about to be rented to a third party.
67.02 The Availability Notice shall specify the following items (the
"Landlord's Offer"):
(a) The square footage of the of the Option Space about to be
rented;
(b) The Fixed Rent;
(c) The base rates for tax escalation and operating expense
escalation;
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<PAGE>
(d) The value of the Work to be performed by Landlord in the
Option Space;
(e) The amount of any rental concession being granted by Landlord
in connection with, the Option Space;
(f) The term of the lease or sublease for the Option Space
including the anticipated date of commencement;
(g) Any other monetary consideration provided to prospective
tenant.
67.03 Not later than ten (1O) business days after receipt of Landlord's
Availability Notice, Tenant shall send Landlord either (a) a written notice (
the "Tenant's Acceptance") whereby Tenant agrees to lease the Option Space on
the same terms contained in Landlord's Offer or (b) a written notice (the
"Tenant's Rejection") whereby Tenant elects not to lease the Option Space. If
Tenant sends an Acceptance Notice, Landlord shall prepare a new lease for the
Option space containing the terms set forth in the Landlord's Offer and other
terms of this lease to the extent they are consistent with Landlord's Offer. In
the event Tenant sends an Acceptance Notice and fails to execute the new lease
submitted by Landlord within 15 days after its receipt, Tenant's Acceptance
Notice shall be void and Tenant shall have no further rights as to the Option
Space.
67.04 In the event Tenant (a) sends Tenant's Rejection or (b) fails to
send an Acceptance Notice, as provided in Section 67.03, then Tenant shall have
no further rights as to the Option Space referred to in the Availability Notice,
unless and until Landlord should decide to substantially lease such Option Space
within the first ten (1O) years of the term of the lease.
35
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FOOTNOTE RIDER ANNEXED TO LEASE
DATED JUNE 20, 1997
BETWEEN 40 WALL DEVELOPMENT ASSOCIATES, LLP, AS OWNER
AND INTERNET FINANCIAL SERVICES, INC. AND A.B. WATLEY INC.,
AS TENANTS
This footnote rider consisting of 4 pages is annexed to and made a part of this
lease to which it is attached and in each instance in which the provisions of
this footnote rider shall contradict or be inconsistent with the provisions of
the printed portion of this lease or any other rider attached to this lease, the
provisions of this footnote rider shall prevail and govern and the contradicted
or inconsistent provisions of the printed portion of this lease or any other
rider attached to this lease shall be deemed amended accordingly.
The numbered inserts contained in this footnote rider are deemed inserted where
indicated by the corresponding number located on the printed portion of this
lease.
1
<PAGE>
FOOTNOTES
---------
1. "which shall not be unreasonably withheld"
2. "reasonably"
3. "after forty-five (45) days written notice to Tenant"
4. "or otherwise"
5. "caused by Tenant, its agent, or employees"
6. "particular (as opposed to mere office)"
7. "particular (as opposed to mere office)"
8. "reasonable"
9. "on the Commencement Date"
10. "at"
11. "as a direct result of Tenant's business in the Demised Premises, other
than business permitted pursuant to Article 2 hereof,"
12. "or willful act"
13. "contractors"
14. "or delayed"
15. "unless the remainder of the demised premises which is not damaged
cannot be operated by Tenant in an economically feasible manner, in
which case the fixed rent and additional rent payable hereunder shall
be fully abated until restoration of the demised premises."
16. "45"
17. "30"
18. "Provided, however, if as a result of fire or other casualty the
Demised Premises shall be damaged in whole or in part and owner fails
to substantially complete the repair and restoration thereof by the
earlier to occur of (i) nine (9) months following the date of such
destruction, as extended by any delay due to any cause beyond Owner's
reasonable control including, without limitation, strike, labor
2
<PAGE>
troubles, scarcity of materials or labor, governmental regulations or
governmental pre-emption or priorities or other controls in connection
with a national or other public emergency or fuel shortages or acts of
God and (ii) twelve(12) months following the date of such destruction,
without extension, Tenant may terminate this Lease by giving Owner
written notice which shall state the termination date of this Lease,
which date shall be not less than five(5) nor more than sixty(60) days
after the giving of such notice, whereupon the term hereof shall end on
the date specified in such notice as if such date were the original
date set forth herein for the expiration of the term. In addition to
the foregoing, within ninety (90) days following the damage or
destruction, Owner shall deliver to tenant a certificate from an
independent contractor or architect stating the period of time which
will be required substantially to repair the Building and/or the
demised premises. In the event that such period shall exceed nine (9)
months following the date of such destruction, then Tenant shall have
ten (10) days within which to elect to terminate this lease by written
notice to Owner specifying a date for termination of this Lease which
date shall not be more than sixty (60) days after the giving of such
notice, an upon such date specified in such notice the term of this
Lease shall expire as if it were the expiration date of this Lease and
Tenant shall vacate the Demised Premises."
19. "fifteen (15)"
20. "but Tenant shall have the right to make its own claim for personal
property, trade fixtures, leasehold improvements paid for by Tenant and
which may be removed upon expiration of the term, and moving expenses
from the condemning authority provided such claim shall not reduce the
Landlord's award.
21. "unless caused by Landlord's or its agents, contractors' or employees'
negligence."
22. "on notice to Tenant and at reasonable hours."
23. "and further provided the cubic area of the premises are not materially
reduced."
24. ",provided Landlord shall use its reasonable efforts to cause the least
practicable interference and disturbance with Tenant's business.
Landlord agrees, at its expense, to repair and restore the Demised
Premises subsequent to conducting any work therein to a condition as
good as that existing prior thereto."
25. "on notice to Tenant"
26. "after notice, except in the event of an emergency"
3
<PAGE>
27. "provide Tenant's use of the Demised Premises shall not be adversely
affected thereby. Landlord agrees that Tenant shall have access to and
the right to use and occupy the Demised Premises 24 hours per day, 7
days per week during the term hereof."
28. "actually in possession"
29. "eight percent (8%)"
30. "abandoned"
31. "further"
32. "after notice and the expiration of any applicable grace or cure
periods"
33. "provided Landlord shall prevail in any such action or a settlement
thereof"
34. "Ten(10)"
35. "unless the same materially adversely affect Tenant's use of or access
to the Demised Premises"
36. "and other matters not reasonably ascertainable after due diligence."
37. ",except as otherwise herein set forth"
38. "or Tenant"
39. "unless the failure to interpose such counterclaim will result in its
waiver."
40. "return receipt requested or by recognized overnight courier"
41. "to the other"
42. "All rules and regulations shall be promulgated and enforced on a
non-discriminatory basis as to Tenant."
4
<PAGE>
15. All references in this lease to numbered Articles, numbered Sections
and lettered Exhibits are references to Article and Sections of this lease, and
Exhibits annexed to (and thereby made part of) this lease, as the case may be,
unless expressly otherwise designated in the context.
16. Definitions from various Sections of the lease:
Additional Rent or additional rent - as defined in Section 38.01(b)
Affiliate - as defined in Section 42.01
Agreed Rate - as defined in Article 48
A/S Notice - as defined in Section 42.01
Assignment Expense - as defined in Section 42.09(a)
Availability Notice - as defined in Section 67.01
Base Operational Year - as defined in Section 40.01(c)
Base Statement - as defined in Section 40.02
Base Tax Rate - as defined in Section 39.01(c)
Broker - as defined in Article 43
Building - the structure known as 40 Wall Street and all appurtenances
thereto
Building Standard - as defined in Section b Part E of Exhibit D
Cancellation Notice - as defined in Section 66.01
Changes - as defined in Section 51.01
Commencement Date - as defined in Section 37.01
Demised Premises, demised premises or premises shall mean the space in
the Building leased to Tenant as shown on Exhibit A
Effective Date - as defined in Section 66.02
Existing L/C - as defined in Section 65.06
3
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Option Space - as defined in Section 67.01
Outside Date - as defined in Section 66.01
Owner - 40 Wall Development Associates, LLP or any successor thereof
Preliminary Installations - as defined in Section (d) Part E of
Exhibit D
Property - shall mean the Land and Building
Rate - as defined in Section 60.04 (b)
Rent, rent or fixed rent - as defined in Section 38.01(a)
Rent Commencement Date - as defined in Section 38.03
Replacement L/C - as defined in Section 65.06
Replacement Notice - as defined in Section 65.06
Revised Tenant's Plans - as defined in Section 2 Part C of Exhibit D
Revisions - as defined in Section 4 Part C of Exhibit D
Security - as defined in Section 65.01
Soft Costs - as defined in Section (f) of Part E of Exhibit D
Subletting Expenses - as defined in Section 42.09 (b)
Successor landlord - as defined in Section 41.03
Superior Lease - as defined Section 41.01
Superior Mortgage- as defined in Section41.01
Tax Expenses- as defined in Section 39.04
Tax Payment- as defined in Section 39.02
Tax Statement - as defined in Section 39.05
Tax Year - as defined in Section 39.01 (c)
Taxes- as defined in Section 39.01 (a)
5
<PAGE>
Tenant- as defined in Exhibit E Item 12
Tenant Changes- as defined in Section 51.01
Tenant's Acceptance - as defined in Section 67.03
Tenant's Cost- as defines in Section 60.04 (c)
Tenant's Plans- as defined in Section 1 Part C of Exhibit D
Tenant's Projected Share of Taxes- as defined in Section 39.01 (e)
Tenant's Property- as defined in Section 53.02
Tenant's Proportionate Share- as defined in Section 39.01 (d)
Tenant's Rejection - as defined in Section 67.03
Tenant's Share - as defined in Part F of Exhibit D
Usage- as defined in Section 60.04 (a)
Work - as defined in Subdivision (c) of Part E of Exhibit D
Work Cost- as defined in Subdivision (a) of Part E of Exhibit D
6
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7. Fill toilet tissue and paper towel holders, soap dispensers and
sanitary receptacles.
WEEKLY
- ------
1. Vacuum clean all carpeting and rugs.
2. Wipe clean all interior metal an remove fingermarks.
MONTHLY
- -------
1. Dust all vertical surfaces such as walls, partitions, door louvers
and other surface with a person's reach.
QUARTERLY
- ---------
High dust premises if required, including the following:
1. Dust all pictures, frames, charts, graphs and similar wallhangings
not reach in nightly cleaning.
2. Dust clean all vertical surfaces such as walls, partitions, doors,
bucks and other surfaces not reached in nightly or monthly cleaning.
3. Dust all pipes, ventilating and air-conditioning louvers, ducts,
high molding and other high areas not reached in nightly or weekly
cleaning.
4. Dust all venetian blinds.
PERIODICALLY
- ------------
Wash the interior of all exterior windows at least four (4) times a
year and wash the exterior of all exterior windows at least two (2) times a
year.
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EXHIBIT B - DESCRIPTION
All that plot of land in the borough of Manhattan, City, County and State of New
York, bounded and described as follows:
BEGINNING at a point on the northerly side of Wall Street distant 70 feet 1 inch
westerly from the corner formed by the intersection of the said northerly side
of Wall Street with the westerly side of William Street; running.
THENCE Northerly along a line which forms an angle of 87 degrees 05 minutes 15
seconds on its westerly side with said northerly side of Wall Street, 123 feet
and 1/4 of an inch;
THENCE Westerly along a line which forms an angle of 92 degrees 33 minutes 30
seconds on its southerly side with the last course, 14 feet 2-1/2 inches;
THENCE Northerly along a line which forms an angle of 94 degrees 00 minutes 45
seconds on its easterly side with the last course, 71 feet 7-1/2 inches to the
southerly side of Pine Street;
THENCE Westerly along said southerly side of Pine Street, 45 feet 9-3/4 inches
to an angle in said southerly side of Pine Street;
THENCE containing Westerly along said southerly side of Pine Street, 163 feet
5-3/4 inches;
THENCE Southerly along a line which forms an angle of 87 degrees 31 minutes 10
seconds on its easterly side with said southerly side of Pine Street, 74 feet
9-5/8 inches;
THENCE Easterly along a line which forms an angle of 91 degrees 19 minutes 10
seconds on its northerly side with the last course, 40 feet 3-3/4 inches;
THENCE continuing Easterly along a line which forms an angle of 179 degrees 41
minutes 00 seconds on its northerly side with the last course, 35 feet 4 inches;
THENCE Southerly along a line which forms an angle of 91 degrees 45 minutes 00
seconds on its westerly side with the last course, 18 feet 4-1/2 inches;
THENCE continuing Southerly along a line which forms an of 180 degrees 38
minutes 50 seconds on its westerly side with the last course, 102 feet 11 inches
to the said northerly side of Wall Street;
THENCE Easterly along said northerly side of Wall Street, 75 feet 1-1/4 inches
to an angle in said northerly side of Wall Street;
THENCE continuing Easterly along said northerly side of Wall Street, 74 feet
11-1/2 inches to the point or place of Beginning.
<PAGE>
EXHIBIT D
WORK LETTER
PART A: BASIC WORK
After completion of the Preliminary Installation (as hereinafter
defined), Tenant shall provide and install the following facilities and
materials and complete the following work (the "Basic Work") as part of the
"Work Cost" (as hereinafter defined) in accordance with Tenant's Plans (as
defined in Part C1 hereof). For purposes of this lease, the Basic Work shall be
at least the following:
1. Partitions:
Furnish and install partitions consisting of one layer 5/8" gypsum
board each side of 2 1/2" steel studs, 24" o.c. One layer of gypsum board to
extend to underside of structure. Joint treatment to be 3 coats. Partitions
ending at the exterior wall of the Building shall meet either a mullion or a
column without interfering with access to the peripheral enclosure. A gasket
closure and an acoustic "pillow" will be provided, wherever a partition
perpendicularly intersects a column or a mullion; acoustic rating of the
"pillow' will match the acoustic rating of the Standard Partition.
2. Doors, Frames, Hardware:
Furnish and install building standard doors and frames as required.
Frames to be 16 gauge welded construction, full height. Doors to be 18 gauge
with rolled seam construction, hollow metal flush design, full height.
Hardware to include Building Standard lockset/ latchset, 1 1/2 pair
butts, floor or wall stop and silencers. All hinges to be factory prime painted.
Elevator bucks must meet Building Standard specifications to insure
uniformity throughout the Building.
3. Electrical Construction:
(a) Lighting: Furnish and install one 2'x 4' aluminum parabolic lay-in
fluorescent light fixture with sockets for 3 standard 40w fluorescent bulbs per
100 sq. ft. of rental space; lamping by Tenant;
(b) Wiring: Electrical services capable of 5 watts per square foot. (2
watts per square foot at 120/208 volts and 3 watts per square foot at 265
volts.)
(c) Power and Telephone Outlets: Furnish and install standard duplex,
and standard telephone outlets, as required.
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4. Heating, Ventilation and Air Conditioning:
Furnish and install system to meet following criteria
Summer: Inside.......78 degrees D.B., 50% RH
Outside......95 degrees D.B., 75 degrees W.B.
Winter: Inside.........68 degrees D.B.
Outside........ 5 degrees D.B.
HVAC design based upon interior loads as follow:
Lights and appliances = 3 watts/sq.ft.
Population............= one person per 100 sq.ft.
5. Ceiling:
Furnish and install building Standard Acoustic Tile ceilings with a
1'x 1' concealed or "T" bar spline system using fissured acoustical tile.
Molding to be standard white. Ceiling height to be standard white. Ceiling
height to be 8'-6" (unless structural or mechanical components conflict with
same).
6. Flooring:
Furnish and install Building Standard carpeting- color selection by
Tenant.
7. Painting:
Hollow metal doors, frames, convector
Enclosures: two coats semi-gloss
Partitions: one prime, two finish coats eggshell or flat
Colors to be selected from Landlord's Building Standard Color
Chart
8. Blinds:
Furnish and install one Building Standard venetian blind in Building
Standard color for each exterior window. No substitutions will be permitted.
9. Sprinkler:
Furnish and install recessed or flush Tenant sprinkler heads per floor
in accordance with "normal" density (as same defined in New York City Building
code Reference Standard). No high density or "deluge" type heads for Tenant
interconnecting stairs or hazardous locations are included. Furnish and install
all panels, devices, wiring and connection points necessary for connection of
the fire system in the Demised Premises. Landlord's general contractor (Fire
Quencher) shall be use and the system shall interface and be connected and
reprogrammed as necessary.
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10. Structure:
Floor slab has been designed for a live load of 75 psf. Any special
openings or loading such as file rooms, libraries, are above Building Standard,
(and will have to be cleared through the Landlord's structural Engineer, in any
event).
PART B: SUPPLEMENTARY WORK
Tenant shall perform in accordance with Tenant's Plans, (as hereinafter
defined) any additional or non-standard work over and above the Basic Work and
all labor and materials which are to be furnished in connection therewith is
herein called the "Supplementary Work" and shall be performed by Tenant's
contractor or sub-contractors as part or the Work Cost.
1. Promptly after receipt of Landlord's approval of Tenant's Plans, Tenant will
procure and negotiate bids from contractors and sub-contractors of its choosing
but reasonably acceptable to Landlord and will advise Landlord which of the bids
Tenant intends to accept. Landlord agrees to promptly notify Tenant of the
acceptability of any prospective contractors and their bids.
2. All engineering for electrical, structural, plumbing and HVAC services
required for any of the Work shall be performed by Tenant's engineer subject to
review by Landlord's engineer for the Building, and the cost of all engineering
work shall be included in the Work Cost.
3. During performance of the Work, Landlord will permit Tenant and its agents to
enter the Demised Premises prior to the Commencement Date for the purpose of the
making inspections, verifying performance, taking measurements therein, provided
that (I) the construction of the Building and the Demised Premises and all
installations required to be made by Landlord therein shall have reached a point
which, in Landlord's sole judgement, will not delay or hamper Landlord in the
completion of the Building and/or the Demised Premises and (II) Tenant's access
to the Demised Premises shall be subject to all of the terms and provisions of
the Lease, except as to the payment of rent. Landlord may deny Tenant or its
contractor access to the Demised Premises and may require that Tenant withdraw
therefrom and cease all work being performed by it or on its behalf by any
person, firm or corporation other than Landlord if Landlord shall determine that
the commencement and/or continuance thereof interferes with, hampers or prevents
Landlord from processing with the completion of the Building and the Demised
Premises at the earliest date. Any entry by tenant in the Building or the
Demised before the Commencement Date shall be at Tenant's sole risk, and subject
to Tenant obtaining Landlord's prior permission, which Landlord shall not
unreasonably withhold.
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PART C: TENANT PLANS, SPECIFIC ATIONS AND DRAWINGS
1. Tenant, at its sole cost and expense, shall prepare and submit to
Landlord, for Landlord's approval, the following descriptive information,
detailed architectural drawings. and specifications prepared by Tenant's
architect herein refer-red to as "Tenant's Plans" for any work to be done by
Landlord under Part A or Part B hereof in connection with Tenant's layout of the
Demised Premises, on or before the dates listed below. Utilizing the information
shown on Tenant's Plans, Landlord shall cause mechanical and structural plans to
be prepared as part of the Work Cost.
Phase 1: On or before July 31, 1997
a. Estimated total electrical load, including lighting for entire
space and location of electrical and telephone outlets, and
showing amount and location of areas requiring loads in excess
of Building Standard.
b. Location, loads and dimensions of telephone equipment rooms.
c. Partition locations, and type.
d. Door locations, size and type, hardware schedule.
e. Reflected ceiling plans.
f. Any structural architectural installations.
g. Air conditioning loads.
h. Specific plumbing requirements, including plans and sections.
i. Cabinet work and any other information affecting other trades.
j Non-building standard ceiling heights and/or materials, and any
other information not specified in Phase 2 below.
Phase 2: On or before
a. Decorative plans, including paint schedule, carpeting,
draperies, wall coverings;
b. Non-structural architectural detailing.
2. All plans and specifications for all work to be performed in and to
the Demised Premises (including, without limitation, Tenant's Plans) are subject
to Landlord's
4
<PAGE>
prior written approval, which, as to non-structural work shall not be
unreasonably withheld. Within ten (10) days after notification from Landlord of
any objections to Tenant's Plans, Tenant shall submit to Landlord new plans (the
"Revised Tenant's Plans") curing Landlord's objections. If Tenant's Plans, the
Revised Tenant's Plans or Revisions (as hereinafter defined) require any
materials, services, or installations that will result in a delay in
construction of the Preliminary Installations, Landlord may reject those items
of Tenant's Plans, the Revised Tenant's Plans or Revisions which will occasion
such delay.
3. Tenant's Plans and the Revised Tenant's Plans shall comply with and
confom-1 to the plans of the Building filed with the Department of buildings of
the City of New York, and with all rules, regulations and/or other requirements
of any governmental department having jurisdiction over the construction of the
Building ands/or the Demised Premises. Landlord shall, as part of the Work Cost,
file all necessary architectural plans, together with any mechanical plans and
specifications, in such form (building notice, alteration, or other form) as may
be necessary, with the appropriate governmental agencies. Any changes required
by any governmental department affecting the construction of the Building and/or
the Demised Premises shall be complied with by Landlord in completing said
Building and/or the Demised Premises and shall not be deemed to be a violation
of Tenant's Plans or the Revised Tenant's Plans or any provisions of this Work
letter, and shall be deemed automatically accepted and approved by Tenant.
4. Tenant shall have the right to make changes from time to time in
Tenant's Plans or the Revised Tenant's Plans (other than changes necessitated by
Landlord's objections) by submitting to Landlord revised plans and
specifications (herein called the "Revisions"). All Revisions shall be subject
to Landlord's prior written approval, which as to non-structural work shall not
be unreasonably withheld. Upon receipt and approval of any Revisions, Tenant
shall submit the Revisions so approved to its general contractor or construction
manager.
PART D: DELAYS BY TENANT:
Tenant has been advised of the importance to Landlord of completing the
Building and the Demised Premises as quickly as possible and the great financial
loss to Landlord resulting from a delay in such completion. If (i) Tenant, or
persons within Tenant's control, delay the progress of completion of work
required to be performed by Landlord hereunder or pursuant to any separate
agreement by (a) failing to submit to Landlord within the time period set forth
in Part C hereof any phase of Tenant's Plans, or failing to make necessary
revisions in Tenant's Plans within the time required or delaying any selections
of materials to be made by Tenant or (b) otherwise interfering or delaying
Landlord's completion of the Building or the Preliminary Installations in the
Demised Premises; and (ii) the condition giving rise to such delay shall
continue after Landlord shall have given Tenant notice that the continuation of
such condition would result in delay; then the date of completion of the
Preliminary Installations shall be deemed to be the date upon which the
Preliminary Installations would have been substantially completed but for the
acts or omissions of Tenant or persons within tenant's control, and Tenant shall
reimburse Landlord for fixed and additional rent for the period of such delay
within five days after submission of a bill therefor, whether or not the Lease
has commenced. The above provisions shall be in addition to, and not in
limitation of, any other rights Landlord shall have under the lease or at law.
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PART E: DEFINITIONS:
(a) "Work Cost" shall mean the aggregate of (i) the contract or
purchase price charged by subcontractors, under subcontracts made by
Tenant ("Subcontract Costs"), plus $25,000 of Subcontract Costs to
Landlord to cover Landlord's share of performing general conditions,
owner's insurance, all indirect costs, use of freight elevator for
construction and move-in purposes, overhead and supervision costs, plus
(ii) filing fees and permit costs incurred in connection with the Work
plus (iii) the actual cost to Landlord for engineering and architectural
fees in connection with the Work. The term "general conditions" as used
herein shall have the meaning generally given such term by the
construction industry in the City of New York for similar projects, and
shall include, without limitation, rubbish removal, rubbish trucking,
laborers for miscellaneous general conditions work, water and power and
landlord' supervision. At least 75% of the Work Cost shall be used for
Hard Costs (as defined in subdivision (e) hereof. The remaining 25% may be
used for Soft Costs as defined in subdivision (f) hereof.
(b) "Building Standard" shall mean such materials as Landlord
designates for use as a part of standard construction substantially
throughout the Building.
(c) "Work" shall mean the Basic Work under Part A and the Supplementary
Work under Part B hereof.
(d) "Preliminary Installations" shall mean the following basic
installations which will be performed by Landlord in the Demised Premises
at Landlord's sole cost and expense prior to commencement of the Basic
Work and which shall not be included as part of the Work Cost:
(i) The perimeter radiation with sheet metal, prime painted
enclosures will be in place and ready for painting;
(ii) All mechanical rooms, electrical closets, telephone closets
to be delivered finished and operational. Perimeter walls
and ceilings and elevator lobby walls and ceilings to be
delivered as is, except Landlord will provide at Landlord's
expense elevator lanterns and call buttons.
(iii) The sprinkler stub-out (but not sprinkler heads or branch
lines) will be in place. Landlord will supply fire alarm
equipment and fire accessories necessary to comply with the
Building Code, including exit signs and fire extinguishers
to the extent required;
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(iv) The floor will be bare throughout the Demised Premises but
leveled and patched as required to provide relatively flat
floor surfaces;
(v) The existing Demised Premises shall be demolished and
delivered free of all previous tenant installations,
including ceilings, HVAC distribution ductwork, and
electrical distribution wiring. New trunk duct out from
air-handling rooms will be provided and the electrical
panel next to a window on the 27th floor shall be removed.
(vi) All free standing and engaged columns will be stripped
(gutted) and sprayed with fireproofing to meet code.
(vii) Toilet rooms to be delivered in compliance with the
Americans with Disabilities Act (ADA) and include new
ceramic tile floors, tiled wet walls, acoustical tiled
ceilings, and all code required fixtures and toilet
accessories.
(viii) FIRE PROTECTION:
1. Sprinkler System
Preliminary Installations shall include the sprinkler
stub-out. The sprinkler line has been designed to support a
fully sprinklered building with zone control valves, tamper
switches and alarm flow switches provided. The sprinkler
system will be connected to a combined fire standpipe,
risers and mains. Design shall be based on density of one
(1) head/190 rentable square feet.
2. Fire Stopping
Preliminary Installations shall include all fire topping of
floor penetrations as required by code.
3. Standpipe System
Preliminary Installation shall include standpipe risers
complete with 2 & 1/2" or applicable fire department
valves, reducers to I & 1/2" and capped outlets for fire
hose attachment. Number and location of hose stations will
provide complete coverage based on 100 ft. Of hose plus 30
ft. of stream.
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4. Fire Alarm System
Preliminary Installation shall include complete fire
detection and annunciation (speaker/strobes) system for
core area (bathrooms, elevator lobby) connected to the
building Class E system.
(ix) Preliminary Installations shall include connection of
Tenant's HVAC equipment into the building (BMS) system. All
new panels and associated wiring to be provided by Tenant
as part of Work Cost.
Tenant may elect to have Landlord upgrade any or all of the items
in subdivision (vii) but the additional cost incurred shall be
included in the Work Cost. Tenant shall be entitled to any saving
received by Landlord by reason of elimination or substitution of
any of the aforesaid items or of any HVAC equipment which Landlord
would have installed as part of Preliminary Installations had
Tenant not elected to provide alternative equipment.
(e) "Hard Costs" shall mean the cost of labor and materials for
partitioning, flooring, lighting fixtures, HVAC Systems, plumbing work,
electrical work, painting, decorating and sprinkler system.
(f) "Soft Costs" shall mean cost for fixtures, furniture and equipment,
fees of architects, engineers or other professionals engaged in the Work, and
moving expenses incurred by Tenant.
PART F: PAYMENT OF WORK COSTS:
Dollars (the "Landlord's Share") of the Work Cost shall be home by the
Landlord, and any excess (the "Tenant's Share") above the Landlord's Share shall
be home by the Tenant. Landlord shall, from time to time, upon request but not
more than once a month, pay Landlord's Share to Tenant's general contractor
within ten (10 days after receipt of the following:
(a) Acknowledgment from the parties performing the Work for which
reimbursement was previously made, that prior invoices have
been paid;
(b) A certification from Tenant's architect that the Work has been
performed in accordance with Tenant's Plans;
(c) A requisition from Tenant or Tenant's general contractor
specifying: (i) the total cost of the Work for each trade for
which payment is requested the percentage of completion of the
work perf6inied by such trade (iii) the amount paid to date to
such trade;
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(d) A certification from Tenant or Tenant's general contractor
that all monies previously requisitioned have been paid to the
trades for whom reimbursement was requested.
(e) A waiver of lien signed by Tenant's general contractor for all
monies covered by all requisitions.
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EXHIBIT E
DEFINITIONS
1. The term mortgage shall include an indenture of mortgage and deed of
trust to a trustee to secure an issue of bonds, and the term mortgagee shall
include such a trustee.
2. The terms include, including and such as shall each be construed as
if followed by the phrase "without being limited to".
3. The term obligations of this lease, and words of like import, shall
mean the covenants to pay rent and additional rent under this lease and all of
the other covenants and conditions contained in this lease. Any provision in
this lease that one party or the other or both shall do or not do or shall cause
or permit or not cause or permit a particular act, condition, or circumstance
shall be deemed to mean that such party so covenants or both parties so
covenant, as the case may be.
4. The term Tenant's obligations hereunder, and words of-like import,
and the term Landlord's obligations hereunder, and words of like import, shall
mean the obligations of this lease which are to be performed or observed by
Tenant, or by Landlord, as the case may be. Reference to performance of either
party's obligations under this lease shall be construed as "performance and
observance".
5. Reference to Tenant being or not being in default hereunder, or
words of like import, shall mean that Tenant is in default in the performance of
one or more of Tenant's obligations hereunder, or that Tenant is not in default
in the performance of any of Tenant's obligations hereunder, or that Tenant is
not in default in the performance of any of Tenant's obligations hereunder, or
that a condition of the character described in Article 17 has occurred and
continues or has not occurred or does not continue, as the case may be.
6. References to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean that Tenant is not entitled to terminate
this lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution of rent, or to be relieved in any manner of
any of its other obligations hereunder, or to be compensated for less or injury
suffered or to enforce any other kind of liability whatsoever against Landlord
under or with respect to this lease or with respect to Tenant's use or occupancy
of the Demised Premises.
7. The term laws and/or requirements of public authorities and words of
like import shall mean laws and ordinances of any or all of the Federal, state,
city, county and borough governments and rules, regulations, orders and/or
directives of any or all departments, subdivisions, bureaus, agencies or offices
thereof, or of any other
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governmental, public or quasi-public authorities, having jurisdiction in the
premises, and the specific direction of any public officer pursuant to law.
8. The term requirements of insurance bodies and words of like import
shall mean rules, regulations, orders and other requirements of the New York
Board of Fire Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction of the Building and/or the Demised Premises.
9. The term repair shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working order
and condition.
10. Reference to termination of this lease includes expiration or
earlier termination of the term of this lease or cancellation of this lease
pursuant to any of the provisions of this lease or to law. Upon a termination of
this lease, the term and estate granted by this lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this lease and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided for
in this lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this lease, may be, performed
after such termination, and, in any event, unless expressly otherwise provided
in this lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this lease.
11. The term in full force and effect when herein used in reference to
this lease as a condition to the existence or exercise of a right on the part of
Tenant shall be construed in each instance as including the further condition
that at the time in question no default on the part of tenant exists, and no
event has occurred which has continued to exist for such period of time (after
the notice, if any, required by this lease), as would entitle Landlord to
terminate this lease or to dispossess Tenant.
12. The term Tenant shall mean Tenant herein named or any assignee or
other successor in interest (immediate or remote) of Tenant herein named, while
such tenant or such assignee or other successor in interest, as the case may be,
is in possession of the Demised Premises as owner of the Tenant's estate and
interest granted by this lease and also, if Tenant is not an individual or a
corporation, all of the persons, firms and corporations then comprising Tenant.
13. Words and phrases used in the singular shall be deemed to include
the plural and vice versa, and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.
14. The rule of ejusdem generis shall not be applicable to limit a
general statement following or referable to an enumeration of specific matters
to matters similar to the matters specifically mentioned.
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ORIGINAL
MODIFICATION OF LEASE
Agreement dated this 17th day of August 1998, by and between 40 WALL
STREET LLC, a limited liability company, having an office at 725 Fifth Avenue,
New York, New York 10022, (hereinafter called "Landlord") and INTERNET FINANCIAL
SERVICES INC., a Delaware corporation and A.B. WATLEY, INC., a New York
corporation, each having an office at 33 West 17th Street, New York, New York
1001 1, jointly and severally, (hereinafter collectively called "Tenant").
STATEMENT OF FACTS
By lease dated June 20, 1997, (the "Lease"), 40 WALL STREET DEVELOPMENT
ASSOCIATES, LLC, (Landlord's predecessor-in-interest), leased to Tenant the 27th
floor and part of the 28th floor (the "Demised Premises") in 40 Wall Street, New
York, New York. The parties desire to modify the Lease upon the terms herein
contained.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
1. Landlord agrees that it will, at Landlord's cost and expense,
promptly furnish an electrical line or electrical lines sufficient to supply the
Demised Premises with 1,080 amperes of electricity (the "Increased Electrical
Service");
2. In consideration of Landlord's furnishing the Increased Electrical
Service, the annual rental payable by the Tenant under the Lease, shall be as
follows:
7/1/99 - 6/30/2001 $461,097.50 ($38,424.79 per month)
7/1/2001 - 6/30/2005 $499,759.50 ($41,646.63 per month)
7/1/2005 - 6/30/2009 $538,421.50 ($44,868.46 per month)
Except as herein expressly modified, all of the other terms, covenants
and conditions of the Lease, shall remain in full force and effect and binding
upon the parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
40 WALL STREET LLC
By: 40 Wall Street Member Corp.
(Managing Member)
By: /s/ Donald J. Trump
--------------------------------------
Donald J. Trump, President
A.B. WATLEY, INC.
By: /s/ XXXXXXXXX
-------------------------------------
INTERNET FINANCIAL SERVICES, INC.
By: /s/ XXXXXXXXX
-------------------------------------
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[LOGO] THE TRUMP
ORGANIZATION
40 WALL STREET
NEWYORK, N. Y 10005
(212) 480-9026
FACSIMILE (212) 482-6875
January 22, 1998
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Mr. Eric Steinberg
c/o A.B. Watley, Inc. and Internet Financial Services, Inc.
33 West 17th Street
New York, NY I 001 I
Re: Lease dated June 20,1997 - 40 Wall Development Associates, LLC with A.B.
Watley, Inc. and Internet Financial Services, Inc. (jointly and severally) -
Entire 27th Floor, Part 28th Floor - 40 Wall Street
----------------------------------------------------------------------------
Dear Mr. Steinberg:
The Preliminary Installations as described in Exhibit D, Part E, Paragraph (d)
of the above mentioned Lease will be completed by January 23, 1998. This will
advise that the Commencement Date of the above premises shall be January 23,
1998. The Rent Commencement Date shall be June 23, 1999. The Expiration Date
shall be June 30, 2009.
Please acknowledge your consent to the foregoing by signing a copy of this
letter and returning it to me.
Sincerely,
40 Wall Development Associates, LLC
By: /s/ Michael E. Gochman
---------------------------------
Michael E. Gochman
Agreed & consented to:
A.B. Watley, Inc. and Internet Financial Services, Inc.
By: /s/ Eric Steinberg
------------------------
Eric Steinberg
<PAGE>
COMSTOCK SERVICE MARKETING
REPRESENTATIVE AGREEMENT
AGREEMENT, made as of January 29, 1998 ("Effective Date"), by and
between S&P ComStock, Inc. ("SPC"), a New York corporation with offices at 600
Mamaroneck Avenue, Harrison, New York 10528, and A.B. Watley, Inc.
(Representative"), having an office at 33 W. 17th St. New York, N.Y. 10011-5511
WHEREAS, SPC desires to grant a license to Representative to market
SPC's proprietary ComStock on the Net Internet Service to subscribers to such
Service which are located in the United States and Canada.
WHEREAS, Representative desires to obtain such license on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties mutually agree as follows:
1. Definitions.
In this Agreement, the following terms shall have the meanings set
forth herein:
(a) "SPC Datafeed": SPC's proprietary real-time broadcast data feed of
commodities, futures, options, securities and other financial information, in
the SPC format, and described in Schedule 2, attached hereto and incorporated
herein.
(b) "ComStock Service": The SPC Datafeed distributed through the Internet,
distributed as a package service under the name "S&P ComStock".
(c) "Sources": All exchanges and other third party sources of
information included in the SPC Datafeed.
(d) "The Territory": The United States, Canada and International users.
(e) "Subscribers": End-users of the ComStock Service located in the
Territory who have executed SPC's Subscription Agreement.
<PAGE>
2. Marketing License.
(a) Subject to the terms and conditions of this Agreement,
Representative is hereby granted for the term of this Agreement a nonexclusive,
nontransferable right and license to market ComStock on the Net solely to
offices of Subscribers, provided that such offices are located in the Territory.
Representative agrees and understands that it is not permitted to market, sell,
or support the ComStock Service or any component thereof to any third party
which is not a Subscriber as defined herein nor is it permitted to market, sell,
or support the ComStock Service or any component thereof to any Subscriber's
offices which are located outside the Territory without the express prior
written permission of SPC. Representative agrees and understands that it is not
permitted to market, sell or support the ComStock Service to any SPC customer.
Representative further agrees and understands that it is not permitted to
sublicense, transfer, or assign its rights hereunder.
(b) Prior to the receipt of access to the S&P ComStock Service by each
Subscriber, Representative shall obtain from each such Subscriber an executed
copy of the Subscription Agreement for a minimum subscription term of one (1)
month, and shall promptly forward the same to SPC for acceptance by SPC together
with any applicable Source agreements executed by Subscribers; it is understood
by Representative that no access to the ComStock Service shall be provided to a
Subscriber until Representative is notified in writing by SPC that such
acceptance has been granted and that all necessary Source permissions for such
Subscriber have been obtained. The granting of any and all entitlements to
components of the SPC Datafeed to each and every Subscriber are at the sole
discretion of SPC and its Sources. Representative agrees and understands that it
is not authorized to make any material alterations or amendments to the
Subscription Agreement without the express prior written consent of SPC. SPC
shall provide Representative with an adequate supply of copies of its
then-current Subscription Agreement; Representative shall promptly destroy any
unused copies of versions of the Subscription Agreement which are subsequently
superseded.
(c) Representative understands that the equipment which is comprised of
the dedicated phone line, network connection, and any other equipment needed for
said service shall be installed at Representatives site and such equipment and
service management and support shall be performed by A.B. Watley
(d) Representative shall notify SPC of any action by any Subscriber
which comes to its attention which is a material breach of any of the provisions
of the license from Representative or the Subscription Agreement. Representative
shall honor all reasonable requests by SPC to protect SPC's rights in the
ComStock Service in the event of a breach of any of such provisions which
threatens such rights. Representative shall not institute legal proceedings
against any Subscriber relating to SPC's proprietary rights in the ComStock
Service without the prior written permission of SPC, such permission not to be
reasonably denied.
<PAGE>
(e) Representative shall be responsible at its own expense for all
billings to and collections from Subscribers, in accordance with the terms and
conditions of the applicable licenses and such reasonable instructions as it may
receive from SPC from time to time. At Representative's expense, SPC shall honor
all reasonable requests by Representative to protect Representative's rights
vis-a-vis subscribers in the event of a breach of any provision of a
subscriber's contract with the Representative, such obligation shall be limited
to Representative's services at the subscribers location.
3. Permissions from Sources.
(a) Representative shall obtain, or require its Subscribers to obtain
any necessary permissions and licenses and shall have executed in advance any
and all necessary documents, which may be required of Representative or its
Subscribers by the various Sources with respect to the Representative's
marketing of the ComStock Service; SPC shall advise Representative in this
regard, upon request. Representative shall obtain from Subscribers and forward
to SPC executed copies of all necessary Source agreements/permissions as may be
required; it shall be the responsibility of SPC to determine what Source
agreements/permissions are necessary in each case. SPC may discontinue provision
of the SPC Datafeed (or portions thereof) hereunder, without notice, whenever
the terms of SPC's agreements with the Sources require such discontinuance. If
in its reasonable judgment SPC finds a breach by Representative or its
Subscribers of any of the provisions of this Agreement, then SPC may discontinue
provisions of the SPC Datafeed (or portions thereof) hereunder, provided
Representative entitled to a ten (10) business day cure period prior to any
termination by SPC pursuant to foregoing.
(b) It shall be the sole obligation of Representative to determine the
requirements for and to obtain any necessary permissions and licenses, and to
execute any necessary documents which may be required of Representative or its
Subscribers by the various Sources with respect to Representative's Software.
4. Indemnifications and Representations.
(a) Representative agrees to indemnify and hold SPC and its affiliates
harmless from and against any and all losses, damages, liabilities, costs,
charges and expenses, including reasonable attorneys' fees, arising out of: any
failure on the part of Representative with respect to any obligations to obtain
prior approvals from appropriate Sources and to comply with any applicable
conditions, restrictions or limitations imposed by such Sources.
<PAGE>
(b) SPC represents and warrants that it has the rights and licenses
necessary to transmit the SPC Datafeed to Representative and its Subscribers as
provided hereunder, subject to paragraph 5(c) below, and that the license
granted to Representative hereunder does not infringe any proprietary right of
any third party. Each party shall indemnify and hold harmless the other party
with respect to any and all losses, damages, liabilities, costs, charges and
expenses, including reasonable attorneys' fees, arising out of any breach of the
foregoing warranties respectively made by such party.
(c) SPC makes no representation that all portions of the SPC Datafeed
may be distributed to any given Subscriber. It shall be the responsibility of
SPC to confirm with the applicable Sources whether or not all or such portions
of the SPC Datafeed as are selected by each Subscriber pursuant to its
Subscription Agreement may in fact be provided to such Subscriber.
5. Transmission of ComStock Service to Subscribers.
(a) During the term of the Agreement SPC shall distribute the SPC
Datafeed to Subscribers via the Internet, such Data Delivery Equipment to be
installed at A.B. Watley. S&P ComStock shall not be responsible for any Data
Delivery Equipment failures that may occur while in the direct control of A B.
Watley.
(b) Representative shall assist SPC in obtaining any permissions,
licenses, or approvals required in connection with deliveries of the SPC
Datafeed by SPC to Subscribers directly or via third party delivery systems.
(c) A bona fide order must include a fully executed Subscription
Agreement, an advance payment as described herein at paragraph 6(c), and a
completed order form substantially similar to Exhibit A.
(d) Representative shall inform SPC in writing of any changes requested
by Subscribers regarding access to the S&P ComStock Service or access to Sources
provided through the S&P ComStock Service.
(e) Representative understands and agrees that it will take a minimum
of one (1) business day upon receipt of an Executed Subscriber Agreement and/or
notice of a change in service for installing a Subscriber and/or making changes
to Subscriber or Representative service, as long as signed Source agreements
have been received by SPC.
<PAGE>
6. Payments.
In consideration for the license granted to Representative by SPC under
this Agreement, Representative shall make the following payments to SPC:
(a) Representative shall pay to SPC a monthly service charge, payable
on the l5th day of the service month, for a minimum of one (1) month for each
subscriber (client service representatives (Watley) not included), for access to
the ComStock Service as set forth in Exhibit A. The fees set forth at Exhibit A
are exclusive of any fees or charges which may be imposed by any Sources, (if
any) which fees shall be paid by Representative or its Subscribers directly to
any Sources which request such direct payment or, alternatively, billed by SPC
to Representative as set forth at paragraph 6(c) below. It is understood and
agreed that Source fees are subject to change at any time, without notice. SPC
will make every reasonable effort to notify Representative of any such change
within 15 days following the receipt of such fee change notice by SPC.
Representative shall be responsible for the collection and payment to SPC or
directly to the Sources of any and all applicable fees charged to Subscribers by
Sources for such Subscribers' access to the SPC Datafeed. Representative shall
be responsible for payment of any Subscriber's Source fees to SPC or directly to
the Sources in the event of any default by any Subscriber, if any source fees
are applicable.
(b) Representative shall not have to pay to SPC an Advance Fee of
$1,000 for each Subscription location at which the ComStock Service is to be
installed as long as Representative submits payment on a timely basis to SPC. If
Representative becomes delinquent with payments to SPC, then SPC reserves the
right to request direct agreements with Subscribers for payment of SPC's
services. Furthermore, SPC reserves the right to institute an Advance Fee in the
event that Representative becomes delinquent to SPC. This fee shall be remitted
by Representative to SPC at the time of placing any new order, and shall be
applied as a credit against the payments otherwise owing for the installation
and first month's service at that Subscribers location as determined and set
forth at paragraph 6 (a) above.
(c) SPC shall invoice Representative on a monthly basis in advance, for
all fees owing under paragraph 6 (a), including any fees owed to any Sources
which do not bill Representative or Subscriber directly. SPC will be informed in
writing of any charges disputed by Representative within fifteen (15) days from
receipt of invoice by Representative. Both parties will make every reasonable
effort to resolve any disputes related to the invoice within twenty-five (25)
days from receipt of invoice by Representative. Invoices will be due and payable
on the 15th day of the service month noted on the invoice.
<PAGE>
(d) Any amounts payable to SPC by Representative hereunder which are
more than thirty (30) days past due shall bear interest at the rate of 1-1/2%
per month. Any invoice submitted by SPC shall be deemed correct unless
Representative advises SPC in writing or e-mail within 30 days of receipt of
invoice that it disagrees with the invoice and specifies the nature of the
disagreement. While such invoice is under documented dispute interest shall be
suspended until such dispute is resolved. In addition, in the event invoices are
not paid within 30 days of receipt, and such payment is not received by SPC
within five (5) days of notice by SPC to Representative, not withstanding
written notice submitted by Representative disputing such invoice SPC may
discontinue ComStock Service to Representative and all Subscribers. SPC reserves
the right to impose and collect security deposits for any new orders submitted
by Representative to SPC subsequent to any such discontinuance and restoration
of ComStock Service for nonpayment as set forth herein.
(e) Representative shall be responsible for any sales, use, property,
value added, or other similar taxes imposed on any transactions hereunder,
except for taxes based upon income and taxes if the Representative furnishes an
exception certificate. Representative shall be responsible for any customs and
import duties imposed by any U.S. or foreign governmental agency on any
transactions hereunder.
7. Disclaimers; Limitation of Liability.
(a) NEITHER SPC, NOR ANY OF ITS AFFILIATES, NOR ANY SOURCES, MAKE ANY
EXPRESS OR IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE) WITH RESPECT TO THE
S&P COMSTOCK SERVICE OR ANY COMPONENTS THEREOF. NEITHER SPC, NOR ANY OF ITS
AFFILIATES, NOR ANY SOURCES WARRANT THAT THE S&P COMSTOCK SERVICE OR ANY OF ITS
COMPONENTS WILL BE UNINTERRUPTED OR ERROR-FREE. REPRESENTATIVE EXPRESSLY AGREES
THAT ITS USE AND ITS SUBSCRIBERS USE OF THE S&P COMSTOCK SERVICE IS AT THE SOLE
RISK OF REPRESENTATIVE AND ITS SUBSCRIBERS. SPC, ITS AFFILIATES, AND ALL SOURCES
INVOLVED IN CREATING OR PROVIDING THE S&P COMSTOCK SERVICE OR ANY OF ITS
COMPONENTS WILL IN NO WAY BE LIABLE TO REPRESENTATIVE OR ANY SUBSCRIBERS OR
OTHER THIRD PARTIES FOR ANY INACCURACIES, ERRORS OR OMISSIONS, REGARDLESS OF
CAUSE, IN THE SPC DATAFEED OR FOR ANY DEFECTS OR FAILURES IN THE TID HARDWARE OR
THE TID SOFTWARE, OR FOR ANY DAMAGES (WHETHER DIRECT OR INDIRECT, OR
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY, EVEN IF SPC HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES) RESULTING THEREFROM. THE LIABILITY OF SPC AND ITS
AFFILIATES IN ANY AND ALL CATEGORIES, WHETHER ARISING FROM CONTRACT, WARRANTY,
NEGLIGENCE, OR OTHERWISE SHALL, IN THE AGGREGATE, IN NO EVENT EXCEED THE AVERAGE
MONTHLY SERVICE CHARGE (AS SET FORTH IN EXHIBIT C) WHICH IS PAID BY
REPRESENTATIVE TO SPC DURING THE TERM OF THIS AGREEMENT. REPRESENTATIVE AGREES
THAT ITS USE AND ITS SUBSCRIBERS USE OF TAL REAL TRADE ORDER ENTRY SERVICE SHALL
IN NO WAY BE AFFILIATED WITH S&P COMSTOCK AND ITS COMSTOCK ON TO NET SERVICE AND
USE OF TAL'S REAL TRADE ORDER ENTRY SERVICE IS AT THE SOLE RISK OF
REPRESENTATIVE AND ITS SUBSCRIBER.
(b) The provisions of this Section shall survive any termination of
this Agreement.
8. Term.
(a) This Agreement shall take effect upon its execution by an
authorized representative of SPC and of Representative.
<PAGE>
(b) The initial term of this Agreement shall expire on February 1,
2000. Neither SPC nor Representative shall terminate or alter this Agreement
except as stated herein unless written notice of non-renewal is given by one
party to other not later than November l, 1999, this Agreement shall be
automatically renewed until February 1, 2001. Thereafter, unless written notice
of non-renewal is given by one party to the other not later than each one year
anniversary of November 1, 1999, this Agreement shall be automatically renewed
for a further two (2) year term. By way of example (i) if notice of non-renewal
is not received by November l, 2000, this Agreement shall be in full force and
effect through February 1, 2002 and (ii) if notice of non-renewal is not
received by November 1, 2001, this Agreement shall be in full force and effect
through February 1, 2003 and so on. Notice expressing a desire to terminate this
Agreement at the end of the then-current term will be sent by certified mail to
the address specified in this Agreement.
(c) Watley has the right to terminate contract up to 60 days after
installation if service is not satisfactory. Service pertains to accuracy of
data, delivery speed of data, and overall performance of S&P ComStock's
datafeed.
9.Termination; Right to Injunctive Relief.
(a) Either party shall have the right to terminate this Agreement for
material breach by the other party by giving thirty (30) days prior written
notice, such termination to take effect unless the breach is cured or corrected
within such notice period.
(b) If a receiver is appointed for either party's business or if either
party petitions under any bankruptcy and is adjudicated a bankrupt, declared an
insolvent, or makes an assignment for the benefit of creditors, then the other
party shall, upon thirty (30) days prior written notice, have the right to
terminate this Agreement.
(c) In addition to and notwithstanding the above, if Representative, or
any of its employees, agents or representatives, shall attempt to use or dispose
of the S&P ComStock Service or any component thereof, or any confidential
information of SPC, in a manner contrary to the terms of this Agreement, SPC
shall have the right, in addition to such other remedies as may be available to
it, to injunctive relief enjoining such acts or attempt, it being acknowledged
by Representative that legal remedies are inadequate.
10. Prevention of Performance.
Neither party shall have any liability for any default or delay
resulting from force majeure, which shall be deemed to include any circumstances
beyond its control. Such circumstances shall include, but are not limited to,
acts of the government, fires, flood, strikes, power failures or communications
line or network failures.
11. Assignment.
This Agreement may not be assigned, sublicensed or otherwise
transferred by either party, except to a wholly owned subsidiary, without the
written consent of the other party, such consent not to be unreasonably
withheld, provided, however, that no such consent shall be required with respect
to any assignment by SPC to its parent company, or to any SPC affiliates.
<PAGE>
12. General.
(a) This Agreement and its Exhibits embodies the entire agreement
between the parties hereto. There are no promises, representations, conditions
or terms other than those herein contained. No modification, change or
alteration of this Agreement shall be effective unless in writing and signed by
the parties hereto.
(b) The failure of either party to exercise any of its rights under
this Agreement for a breach hereof shall not be deemed to be a waiver of such
rights nor shall the same be deemed to be a waiver of any subsequent breach.
(c) All notices under this Agreement shall be given in writing to the
parties as follows:
To: S&P ComStock, Inc.
600 Mamaroneck Avenue
Harrison, NY 10528
Attn: Paul Zinone
Vice President
To: A B. Watley, Inc.
33 W. 17th St
New York, N.Y. 10011-5511
Attn.: Robert Malin
President
(d) This Agreement shall be governed by the laws of the State of New
York and shall be subject to the jurisdiction of the courts of that State.
IN WITNESS WHEREOF, Representative and SPC have caused this Agreement
to be executed by their duly authorized respective officers, as of the day and
year above written.
S&P COMSTOCK, INC. REPRESENTATIVE
By: /s/ Paul Zinzonc By: /s/ Robert Malin
Title: V.P. of Sales Title: President
Date: 2/19/98 Date: 1/28/98
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1: S&P ComStock Subscriber Agreement
Schedule 2: Information Definition
Exhibit A: Monthly Service Charge
SCHEDULE I
SCHEDULE 2
Exhibit B. Addendums
<PAGE>
DATA COVERAGE
NORTH AMERICA
Equity Exchanges -
Alberta Stock Exchange
American Stock Exchange (AMEX)
Canadian OTC Automated Trading System
(COATS)
Montreal Stock Exchange
NASDAQ
(NMS, OTC Bulletin Board, Mutual Funds, Money Markets, Level II*)
New York Stock Exchange (NYSE)
(Boston, Philadelphia, Cincinnati, Instinet, Midwest, NASD, NYSE
Toronto Stock Exchange
Vancouver Stock Exchange
Future Exchanges -
Chicago Board of Trade (CBT)
Chicago Mercantile Exchange (CME)
Commodities Exchange Center (CEC)
Kansas City Board of Trade
Mid-America Commodity Exchange
Minneapolis Grain Exchange
New York Mercantile Exchange (NYMEX)
New York Commodity Exchange (COMEX)
Winnipeg Commodity Exchange
Option Exchanges -
Option Price Reporting authority
(Equities & Indices: AMEX, CBOE
NYSE, Pacific, Philadelphia, Foreign Currency: Philadelphia)
<PAGE>
INTERNATIONAL
Equity Exchanges -
Amsterdam Stock Exchange
Basle Stock Exchange
Berlin Stock Exchange
Bremen Stock Exchange
Dusseldorf Stock Exchange
Frankfurt Stock Exchange
Hamburg Stock Exchange
Hanover Stock Exchange
Geneva Stock Exchange
London Stock Exchange
Milan Stock Exchange
Munich Stock Exchange
Paris Stock Exchange
SEAQ International
Stutgart Stock Exchange
Zurich Stock Exchange
Future Exchanges -
Amsterdam Futures Association
Hong Kong Futures
International Petroleum Exchange (IPE)
London Commodities Exchange (LCE)
London Int'l Financial Futures Exchange & London Traded Options
(LIFFE)(LTO)
London Metals Exchange (LME)
Mase Westpac Ltd.
MATIF
Rudolf Wolff
Singapore Int'l Monetary Exchange (SIMEX)
Swiss Options & Financial Futures (SOFFEX)
Sydney Futures Exchange
Zurich Futures Exchange
Option Exchanges
Deutsche Terminborse
(DTB)
<PAGE>
News Sources
Equity Analysis -
S&P MarketScope
S&P MarketScope Europe
S&P Fundamental Data
S&P Index Alert
Fixed Income
Bear Stearns/Street Software
Equity News -
Dow Jones Broadtape
S&P MarketScope Alert
Energy Analysis -
Platt's Global Alert
Future News -
Futures World News
Foreign Currency -
S&P ComStock FOREX
MMS Currency
<PAGE>
EXHIBIT A
MONTHLY FEES:
MONTHLY FEES:
- -------------
[*]
ONE-TIME FEES:
Installation $ 0
Dial Backup Installation $ 0
Shipping $ 0
Equipment Deposit $ 0
[*]
- ----------------------
*Confidential treatment requested.
<PAGE>
EXHIBIT B
Addendum
Revenue Sharing
For each client transferred or referred from ComStock on the Net, A.B. Watley
agrees to pay ComStock an additional fee of $.25 per trade executed by the
transferred/referred client ("transfer fee").
Mutual Marketing Agreement
S&P ComStock agrees to the following marketing commitments with A.B. Watley
(Internet Financial Services).
1. Reciprocal site Links and Registration Pages- Watley will provide
ComStock with a link (upon S&P ComStock web site completion) to
registration page that ComStock constructs in order to most
accurately track individuals interested in ComStock's service.
Watley will prominently display the ComStock link on A.B. Watley's
site. In reciprocity, ComStock will provide Watley with a prominent
position on their site (upon S&P ComStock web site completion), such
position to be decided by S&P ComStock, also featuring a process, if
possible, by which potential clients may receive information on
Watley and our products.
2. Contacting existing clients- Watley will provide brochures and
information packets outlining products and services. Brochures and
other collateral material should reflect the current co-branding
relationship and highlight the benefits. This information will be
included in a direct mail piece to be sent to S&P ComStock's
ComStock on the Net clients.
3. Joint Participation in Trade Shows- Watley will have the
opportunity to display with ComStock at (2) two trade shows. The
shows will be determined by Watley but advance notice is required
for any given show. S&P ComStock's responsibility at such shows is
to provide its brand name, representation and marketing literature.
4. Marketing Collateral- Watley will create a one page fact sheet
describing their services to be included in our outgoing materials.
<PAGE>
MASTER LEASE AGREEMENT
Dated as of 12/17/98 ("Agreement")
THIS AGREEMENT, is between General Electric Capital Corporation its
successors and assigns, if any ("Lessor") and lnternet Financial Services Inc.
"Lessee") Lessor has an office at 44 Old Ridgebury Road. Danbury, CT O6810)
Lessee is a corporation organized and existing under the laws of the State of
New York. Lessee's mailing address and chief place of business is 33 West 17th
Street. New York. NY 10011. This Agreement contains the general terms that apply
to the leasing of Equipment from Lessor to Lessee Additional terms that apply to
the Equipment (term, rent. options. Etc) shall be contained on a schedule
("Schedule")
1. LEASING:
(a) Lessor agrees to lease to Lessee, and Lessee agrees to Lease from
Lessor, the equipment ("Equipment") described in Schedule signed by both
parties.
(b) Lessor shall purchase Equipment from the manufacturer or supplier
("Supplier") and lease it to Lessee if on or before the Last Delivery Date
Lessor receives (i) a Schedule for the Equipment. (ii) evidence of insurance
which complies with the requirements of Section 9, and (iii) such other
documents as Lessor may reasonably request. Each of the documents required above
must be in form and substance satisfactory to Lessor. Lessor hereby appoints
Lessee its agent for inspection and acceptance of the Equipment from the
Supplier. Once the Schedule is signed, the Lessee may not cancel the Schedule.
2. TERM. RENT AND PAYMENT:
(a) The rent payable for the Equipment and Lessee's right to use the
Equipment shall begin on the earlier of (i) the date when the Lessee signs the
Schedule and accepts the Equipment or (ii) when Lessee has accepted the
Equipment under a Certificate of Acceptance Lease Commencement Date") The term
of the Agreement shall be the period specified in the applicable Schedule The
word "term" shall include all basic and any renewal terms
(b) Lessee shall pay rent to Lessor at its address stated above, except as
otherwise directed by Lessor. Rent payments shall be in the amount set forth in.
and due as stated in the applicable Schedule. If any Advance Rent (as stated in
the Schedule) is payable, it shall be due when the Lessee signs the Schedule
Advance Rent shall be applied to the first rent payment and the balance, if any,
to the final rent payment(s) under such Schedule. In no event shall any Advance
Rent or any other rent payments be refunded to Lessee If rent is not paid within
ten (10) days of its due date, Lessee agrees to pay a late charge of five cents
($ .05) per dollar on. and in addition to, the amount of such rent but not
exceeding the lawful maximum, if any.
3. RENT AJUSTMENT:
(a) If, solely as a result of Congressional enactment of any law (including,
without limitation, any modification of, or amendment or addition to, the
Internal Revenue Code of 1986, as amended, ("Code")), the maximum effective
corporate income tax rate (exclusive of any minimum tax rate) for calendar-year
taxpayers ("Effective Rate") is higher than thirty-five percent (35%) for any
year during the lease term, then Lessor shall have the right to increase such
rent payments by requiring payment of single additional sum. The additional sum
shall be equal to the product of(i) the Effective Rate (expressed as a decimal)
for such year less .35 (or, in the event that any adjustment has been made
hereunder for any previous year, the Effective Rate (expressed as a decimal)
used in calculating the next previous adjustment) times (ii) the adjusted
Termination Value (defined below), divided by (iii) the difference between the
new Effective Rate (expressed as a decimal) and one (I). The adjusted
Termination Value shall be the Termination Value (calculated as of the first
rent due in the year for which the adjustment is being made)minus the Tax
Benefits that would be allowable under Section 168 of the Code (as of the first
day of the year for which such adjustment is being made and all future years of
the lease term). The Termination Values and Tax Benefits are defined on the
Schedule Lessee shall pay to Lessor the full amount of the additional rent
payment on the later of(i) receipt of notice or (ii) the first day of the year
for which such adjustment is being made.
(b) Lessee's obligations under this Section 3 shall survive any expiration
or termination of this Agreement.
<PAGE>
4. TAXES: If permitted by law, Lessee shall report and pay promptly all taxes,
fees and assessments due. Imposed, assessed or levied against any Equipment (or
purchase, ownership, delivery, leasing, possessions, use or operation thereof),
this Agreement (or any rent receipts hereunder), any Schedule, Lessor or Lessee
by law governmental entity or taxing authority during or related to the term of
this agreement, including, without limitation, all license and registration
fees, and all sales, use, personal property, excise, gross receipts, franchise,
stamp or other taxes, imposts, duties and charges, together with any penalties,
fines or interest thereon (collectively "Taxes") Lessee shall have no liability
for Taxes imposed by the United States of America or any state or political
subdivision thereof which are on or measured by the net income of Lessor except
as provided in Section 3 and 14 (c). Lessee shall show Lessor as the owner of
the Equipment on all tax reports or returns, and send Lessor a copy of each
report or return and evidence of Lessee's payment of taxes upon receipt.
5. REPORTS:
(a) If any tax or other to any Equipment, Lessee will notify Lessor in
writing, within ten (10) days after Lessee becomes aware of the tax or lien. The
notice shall include the full particulars of the tax or lien and the location of
such Equipment on the date upon request.
(b) Lessee will deliver to Lessor's complete financial statements, certified
by a recognized firm of certified public accountants within ninety (90) days of
close of each fiscal year of Lessee. Lessee will deliver to Lessor copies of
Lessee's quarterly financial report certified by the chief financial officer of
Lessee within (90) days of the close of each fiscal quarter of Lessee. Lessee
will deliver to Lessor all Forms 10-K and 10-Q, if any, filed with the
Securities and Exchange Commission within thirty (30) days after the date on
which they are filed.
(c) Lessor may inspect any Equipment during normal business hours giving
Lessee reasonable prior notice
<PAGE>
(d) Lessee will keep the Equipment at the Equipment Location (specified in
the applicable Schedule) and will give Lessor prior written notice of any
relocation of Equipment. If Lessor asks, Lessor will promptly notify Lessor in
writing of the location of any Equipment.
(e) If any Equipment is lost or damaged (where the estimated repair costs
would exceed the greater of ten percent (10%) of the original Equipment cost or
ten thousand and 00/100 dollars($10,000) or otherwise involved in an accident
causing personal injury or property damage. Lessee will promptly and fully
report the event to Lessor in writing.
(f) Lessee will furnish a certificate of an authorized officer of Lessee
stating that he has reviewed the activities of Lessee and that, to his best
knowledge, there exists no default or event which with notice of time (or both)
would become such default within (30) days after any request by Lessor.
6. DELIVERY, USE AND OPERATION:
(a) All Equipment shall be shipped directly from the Supplier to Lessee.
(b) Lessee agrees that the Equipment will used by Lessee solely in the
conduct of its business and in a manner complying with all applicable laws,
regulations and insurance policies and Lessee shall not discontinue us of the
Equipment.
(c) Lessee will not move any equipment from the location specified on the
Schedule, without the prior written consent of Lessor.
(d) Lessee will keep the Equipment free and clear of all liens and
encumbrances other that those which result from acts of Lessor.
(e) Lessor shall not disturb Lessee's quiet enjoyment of the Equipment
during the term of the Agreement unless a default has occurred and is continuing
under this Agreement.
7. MAINTENNANCE:
(a) Lessee will, at its sole expense, maintain each unit of Equipment in
good operating order and repair, normal wear and tear excepted. The Lessee shall
also maintain the Equipment in accordance with manufacturer's recommendations.
Lessee shall make all alterations modifications required to comply with any
applicable law, rule or regulation during the of this Agreement. If Lessor
requests, Lessee shall affix plates, tags or other identifying labels showing
ownership thereof by Lessor. The tags or labels shall be placed in a prominent
position on each unit of Equipment.
(b) Lessee will attach or install anything on any Equipment that will impair
the originally intended function or use of such Equipment without the prior
written consent of Lessor. All additions, parts, supplies, accessories, and
equipment("Addition") furnished or attached to any Equipment that are not
readily removable shall become the property of Lessor. All Additions shall be
made only in compliance with applicable law. Lessee will not attach or install
any Equipment to or in any other personal or real property without the prior
written consent of Lessor.
8. STIPULATED LOSS VALUE: If for any reason any unit of Equipment becomes worn
out, lost, stolen, destroyed, irreparably damaged or unusable ("Casualty
Occurrences") Lessee shall promptly and fully notify Lessor in writing. Lessee
shall pay Lessor the sum of (I) the Stipulated Loss Value (see under this
Agreement on the Payment Date (defined below) for the affected unit. The Payment
Date shall be the next rent payment date after the Casualty Occurrences. Upon
Payment of all sums due hereunder, the term of this lease as to such unit shall
terminate.
<PAGE>
9. INSURANCE:
(a) Lessee shall bear the entire risk of any loss, theft, damage to, or
destruction of, any unit of Equipment from any cause whatsoever from the time
the Equipment is shipped to Lessee.
(b) Lessee agrees, at its own expense, to keep all Equipment insured for
such amounts and against such hazards as Lessor may reasonably require. All such
policies shall be with companies, an on terms, reasonably satisfactory to
Lessor. The insurance shall include coverage for damage to or loss of the
Equipment, Liability for personal injuries, death or property damage. Lessor
shall be named as additional insured with a loss payable clause in favor of
Lessor, as its interest may appear, irrespective of any breach of warranty or
other act or omission of Lessee. The insurance shall provide for liability
coverage in an amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00)
total liability per occurrence, unless otherwise stated in any Schedule. The
casualty property damage coverage shall be in an amount equal to the higher of
the Stipulated Loss Value or the full replacement cost of the Equipment. No
insurance shall be subject to any co-insurance clause. The insurance policies
shall provide that the insurance may not be altered or canceled by the insurer
until after thirty (30) days written notice to Lessor. Lessee agrees to deliver
to Lessor evidence of insurance reasonably satisfactory to Lessor.
(c) Lessee hereby appoints lessor as Lessee's attorney in fact to make proof
of loss and claim for insurance, and to make adjustments with insurers and to
receive payment of and execute or endorse all documents, checks or drafts in
connection with insurance payments. Lessor shall not act as Lessee's attorney in
fact unless Lessee is in default. Lessee shall pay any reasonable expenses of
Lessor in adjusting or collecting insurance. Lessee will not make adjustments
with insurers except with respect to claims for damage to any unit of Equipment
where the repair costs are less that the Lesser that ten percent (10%) of the
original or replace Equipment cost or ten thousand and 00/100 dollars ($10,0000.
Lessor may, at its option, apply proceeds of insurance, in whole or in part, to
(I) repair or replace Equipment or any portion thereof, or (ii) satisfy any
obligations of Lessor under this Agreement.
10. RETURN OF EQUIPMENT:
(a) At the expiration or termination of this Agreement or any Schedule,
Lessee shall perform any testing and repairs required to place the units of
Equipment in the same condition and appearance as when received by Lessee
(reasonable wear and tear excepted) and in good working order for the original
intended purpose of the Equipment. If required the units of Equipment shall be
deinstalled, disassemble and crated by an authorized manufacturer's
representative or such other service person as is reasonably satisfactory to
Lessor. Lessee shall remove installed markings that are not necessary for the
operation, maintenance or repair of the Equipment. All Equipment will be
cleaned, cosmetically acceptable, and in such condition as to be immediately
Installed into use in similar environment for which the Equipment was originally
intended to be used. All waste material and fluid must be removed from the
Equipment and disposed of in accordance with then current waste disposal law's.
Lessee shall return the units of Equipment to a location within the continental
United States as Lessor shall direct. Lessee shall obtain and pay for a policy
of transit insurance for the redelivery period in an amount equal to the
replacement value of the Equipment. The transit insurance must name Lessor as
the loss payee. The Lessee shall pay for all costs to comply with this section.
(b) Until Lessee has fully complied with the requirements of Section 10(a)
above, Lessee's rent payment obligation and all other obligations under this
Agreement shall continue front month to month notwithstanding any expiration or
termination of the lease term. Lessor may terminate the Lessee's right to use
the Equipment upon ten (10) days notice to Lessee.
(c) Lessee shall provide to Lessor a detailed inventory of all components of
the Equipment including model and serial numbers. Lessee shall also provide an
up-to-date copy of all other documentation pertaining to the Equipment. All
service manuals, blue prints, process flow diagrams, operating manuals,
inventory and maintenance records shall be given to Lessor at least ninety (90)
days and not more than one hundred twenty (120) day's prior to lease
termination.
(d) Lessee shall make the Equipment available for on-site operational
inspections by potential purchasers at least one hundred twenty' (120) days
prior to and continuing up to lease termination. Lessor shall provide Lessee
with reasonable notice prior to any inspection. Lessee shall provide personnel,
power and other requirements necessary to demonstrate electrical, hydraulic and
mechanical systems for each item of Equipment.
<PAGE>
11. DEFAULT AND REMEDIES:
(a) Lessor may in writing declare this Agreement in default if: (i) Lessee
breaches its obligation to pay rent or any other sum when due and fails to cure
the breach within ten (10) days; (ii) Lessee breaches any of its insurance
obligations under Section 9, (iii) Lessee breaches any of its other obligations
and fails to cure that breach within thirty (30) days after written notice from
Lessor, (iv) any representation or warranty made by Lessee in connection with
this Agreement shall be false or misleading in any material respect; (v) Lessee
or any guarantor or other obligator for the Lessee's obligations hereunder
("Guarantor") becomes insolvent or ceases to do business as a going concern;
(vi) any Equipment us illegally used. (vii) if Lessee or any Guarantor is a
natural person, any death or incompetency of Lessee or such Guarantor, or (viii)
a petition is filed by or against Lessee or any Guarantor under any bankruptcy
or insolvency laws and in the event of an involuntary petition, the petition is
not dismissed within forty-five (45) day's of the filing date. The default
declaration shall apply to all Schedules unless specifically' excepted by'
Lessor
(b) After a default, at the request of Lessor, Lessee shall comply with the
provisions of Section 10(a). Lessee hereby authorizes Lessor to peacefully enter
any premises where any Equipment may' be and take possession of the Equipment.
Lessee shall immediately pay to Lessor without further demand as liquidated
damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of
the Equipment (calculated as of the rent payment date prior to the declaration
of default), and all rents and other sums then due under this Agreement and all
Schedules. Lessor may terminate this Agreement as to any' or all of the
Equipment. A termination shall occur only upon written notice by Lessor to
Lessee and only as to the units of Equipment specified in any such notice.
Lessor may, but shall not be required to, sell Equipment at private or public
sale, in bulk or in parcels, with or without notice, and `without having the
Equipment present at the place of sale. Lessor may also. but shall not be
required to, lease, otherwise dispose of or keep idle all or part of the
Equipment Lessor may use Lessee's premises for a reasonable period of time for
any or all of the purposes stated above without liability for rent, costs.
damages or otherwise. The proceeds of sale, lease or other disposition, if any,
shall be applied in the following order of priorities. (i) to pay all of
Lessor's costs, charges and expenses incurred in taking, removing, holding,
repairing and selling, leasing or otherwise disposing of Equipment; then, (ii)
to the extent not previously paid by Lessee, to pay Lessor all sums due from
Lessee under this Agreement, then (iii) to reimburse to Lessee any sums
previously paid by Lessee as liquidated damages; and (iv) any surplus shall be
retained by Lessor. Lessee shall immediately pay any deficiency in (i) and (ii)
above.
(c) The foregoing remedies are cumulative, and any or all thereof may' be
exercised instead of or in addition to each other or any' remedies at law, in
equity, or under statute. Lessee waives notice of sale or other disposition (and
the time and place thereof), and the manner and place of any' advertising Lessee
shall pay Lessor's actual attorney's fees incurred in connection with the
enforcement, assertion, Defense or preservation of Lessor's rights and remedies
under this Agreement, or if prohibited by law, such lesser sum as may be
permitted. Waiver of any default shall not be a waiver of any' other or
subsequent default.
(d) Any default under the terms of this or any other agreement between
Lessor and Lessee may be declared by Lessor a default under this and any such
other agreement.
<PAGE>
12. ASSIGNMENT: LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR SUBLET ANY
EQUIPMENT OR THE IN'IEREST OF LESSEE IN THE EQUIPNIENT WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR. Lessor may, without the consent of Lessee, assign this
Agreement,. any Schedule or the right to enter into a Schedule. Lessee agrees
that if Lessee receives written notice of an assignment from Lessor. Lessee will
pay' all rent and all other amounts payable under any assigned Schedule to such
assignee or as instructed by Lessor. Lessee also agrees to confirm in writing
receipt of the notice of assignment as may' be reasonably requested by assignee.
Lessee hereby waives and agrees not to assert against any such assignee any
defense, set-off, recoupment claim or counterclaim which Lessee has or may at
any time have against Lessor for any reason whatsoever.
13. NET LEASE: Lessee is unconditionally obligated to pay all rent and other
amounts due for the entire lease term no matter what happens, even if the
Equipment is damaged or destroyed, if it is defective or if Lessee no longer can
use it. Lessee is not entitled to reduce or set-off against rent or other
amounts due to Lessor or to anyone to whom Lessor assigns this Agreement or any'
Schedule whether Lessee's claim arises out of this Agreement, any Schedule. any
statement by Lessor. Lessor's liability or any manufacturer's liability', strict
liability', negligence or otherwise.
14. INDEMNIFICATION:
(a) Lessee hereby agrees to idemnify Lessor, its agents, employees,
successors and assigns (on an after tax basis) from and against any and al
losses, damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature arising out of or relating to the
Equipment or this Agreement, except to the extent the losses, damages,
penalties, injuries, claims, actions, suits or expenses result from Lessor's
gross negligence or willfull misconduct ("Claims"). This indemnify shall
include, but is not limited to, Lessor's strict liability in tort and Claims,
arising out of (i) the selection, manufacture, purchase, acceptance or rejection
of Equipment, the ownership of Equipment during the term of this Agreement, and
the delivery, lease, possession, maintenance, uses, condition, return or
operation of Equipment (including, without limitation, latent and other defects,
whether or not discoverable by Lessor or Lessee and any claim for patent,
trademark or copyright infringement or environmental damage) or (ii) the
condition of Equipment sold or disposed of after use by Lessee, any sublessee or
employees of Lessee. Lessee shall, upon request, defend any actions based on, or
arising out of, any of the foregoing.
(b) Lessee hereby represents, warrants and covenants that (i) on the Lease
Commencement Date for any unit of Equipment, such unit will qualify for all of
the items of deduction and credit specified in Section C of the applicable
Schedule ("tax Benefits") in the hands of Lessor, and (ii) at no time during the
term of this agreement will Lessee take or omit to take, not will it permit any
sublessee or assignee to take or omit to take, any action (whether or not such
act or omission is otherwise permitted by Lessor or by this Agreement), which
will result in the disqualification of any Equipment for, or recapture of, all
or any portion of such tax benefits.
(c) If as a result of breach of any representation, warranty or covenant of
the Lessee contained in this Agreement or any Schedule (i) tax counsel of lessor
shall determine that Lessor is not entitled to claim on its Federal income tax
return all or any portion of the tax benefits with respect to any Equipment or
(ii) any tax benefits claimed on the federal income tax return of Lessor is
disallowed by the Internet Revenue Service, or (iii) any tax benefit is
recalculated or recaptured (any determination, disallowance, adjustment,
recalculation or recapture being a "Loss"), then Lessee shall pay to Lessor, as
an indemnify and as additional rent, an amount that shall, in the reasonable
opinion of Lessor, cause lessor's after-tax economic yields and cash flows to
equal the Net Economic Return that would have been realized by Lessor if such
Loss had not occurred. Such amount shall be payable upon demand accompanied by a
statement describing in reasonable detail such Loss and the computation of such
amount. The economic yields and cash flows shall be computed on the same
assumptions, including tax rates as were used by Lessor in originally evaluating
the transaction ("Net Economic Return") If an adjustment has been made under
Section 3 then the Effective Rate used in the next preceding adjustment shall be
substituted.
(d) All references to Lessor in this Section 14 include Lessor and the
consolidated taxpayer group of which Lessor is a member. All of Lessor's rights,
privileges and indemnities contained herein are expressly made for the benefit
of, and shall be enforceable by Lessor, its successors and assigns.
<PAGE>
15. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT
ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS
NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
EQUIPMENT LEASED UNDER THIS AGREEMENT OR ANY COMPONENT THEREOF, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN COMPLIANCE WITH SPECIFICATIONS,
QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE,
USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE.
All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without
limiting the foregoing, Lessor shall have no responsibility to Lessee or any
other person with respect to any of the following; (i) any liability, loss or
damage caused or alleged to caused directly or indirectly by any Equipment, any
adequacy thereof, any deficiency or defect (latent or otherwise) of the
Equipment, or any other circumstance in connection with the equipment; (ii) the
use, operation or performance of any equipment or any risks relating to it;
(iii) any interruption of service, loss of business or anticipated profits or
consequential damages, or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of any equipment. If, and so long as, no
default exists under this agreement, lessee shall be, and hereby is, authorized
during the term of this Agreement to assert and enforce whatever claims and
rights lessor may have against any supplier of the Equipment at Lessor's sole
cost and expense, in the name of and for the account of Lessor and/or Lessee, as
their interests may appear.
16. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee makes each of the following
representations and warrants to Lessor on the date hereof and on the date of
execution of each Schedule.
(a) Lessee has adequate power and capacity to enter into, and perform under,
this Agreement and all related documents (together, the "document"). Lessee is
duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Equipment is or
is to be located.
(b) The document have been duly authorized, executed and delivered by Lessee
and constitute valid, legal and binding agreements, enforceable in accordance
with their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws.
(c) No approval, consent or withholding of objections is required from any
governmental authority or entity with respect to the entry into or performance
by Lessee of the Documents except such as have already been obtained.
(d) The entry into and performance by Lessee of the Documents will not: (i)
violate any judgement, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or bylaws; or (ii) result in
any breach of, constitute a default under or result in the creation on any lien,
charge, security interest or other encumbrance upon any indenture, mortgage,
deed, of trust, bank loan or credit agreement or other instrument (other than
this Agreement) to which Lessee is a party.
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Lessee, which if decided against Lessee will have a material adverse effect on
the ability of Lessee to fulfill its obligations under this agreement.
(f) The Equipment accepted under any Certificate of Acceptance is and will
remain tangible personal property.
(g) Each financial statement delivered to Lessor has been prepared in
accordance with generally accepted accounting principles consistently applied.
Since the date of the most recent financial statement, there has been no
material adverse change.
(h) Lessee is and will be at all times validly existing and in good standing
under the laws of the State of its incorporation (specified in the first
sentence of this Agreement).
(i) The Equipment will at all times be used for commercial or business
purposes.
<PAGE>
17.EARLY TERMINATION:
(a) On or after the First Termination Date (specified in the applicable
Schedule), Lessee may, so long as no default exists hereunder, terminate this
Agreement as to all (but not less that all) of the Equipment on such Schedule as
of a rent payment date ("termination Date") Lease must give Lessor at least
ninety (90) days prior written notice of the termination.
(b) Lessee shall, and Lessor may, solicit cash bids for the Equipment on an
AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or
implied ("AS IS BASIS"). Prior to the termination date, lessee shall (i) certify
to lessor any bids received by Lessee and (ii) pay to Lessor (a) the termination
Value (calculated as of the rent due on the termination date)for the equipment,
and (b) all rent and other sums due and unpaid as of the termination date.
(c) If all amounts due hereunder have been paid on the Termination date,
Lessor shall (i) sell the equipment on an AS IS BASIS for cash to the highest
bidder and (ii) refund to proceeds of such sale (net of any related expense) to
Lessee up to the amount of the termination value. If such sale is not
consummated, no termination shall occur and Lessor shall refund the termination
value(less any expenses incurred by lessor) to Lessee.
(d) Notwithstanding the foregoing, lessor may elect by written notice, at
any time prior to the termination date, not to sell the equipment. In that
event, on the termination date lessee shall (i) return the equipment (in
accordance with Section 10) and (ii) pay to Lessor all amounts required under
Section 17(b) less the amount of the highest bid certified by lessee to lessor.
18. Purchase Option:
(a) Lessee may at lease expiration purchase all (but not less than all) of
the equipment in any Schedule on an AS IS BASIS for cash equal to its then fair
market value (plus all applicable sales taxes). Lessee must notify of its intent
to purchase the equipment in writing at least one hundred eighty (180) days in
advance. If Lessee is in default or if the lease has already been terminated
lessee may not purchase the equipment.
(b) "Fair Market Value" shall mean the price that a willing buyer (who is
neither a lessee in possession nor a used equipment dealer) would pay for the
Equipment in an arm's length transaction to a willing seller under no compulsion
to sell. In determining the Fair Market Value the Equipment shall be assumed to
be in the condition in which it is required to be maintained and returned this
agreement. If the equipment is installed it shall be valued on agree on the fair
market value at least one hundred thirty five (135) days before lease
expiration, lessor shall appoint an independent appraiser (reasonably acceptable
to Lessee)to determine fair market value. The independent appraiser's
determination shall be final, binding and conclusive. Lessee shall bear all
costs associated with any such appraisal.
(c) Lessee shall be deemed to have waived this option unless it provides
Lessor with written notice of its irrevocable election to exercise the same
within fifteen (15) days after fair market value is told to lessee.
<PAGE>
19. MISCELLANEOUS:
(a) LESSEE AND LESSOR UNCONDITONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF
ANY CLAIMOR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF
THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, and/or the
relationship that is being established between lessee and lessor. The scope of
this waiver is intended to be all encompassing of any and all disputes that may
be filed in any court. This waiver is irrevocable. This waiver may not be
modified either orally or in writing. The waiver also shall apply to any
subsequent amendments, renewals, supplements or modifications to this agreement,
any related documents, or to any other documents or agreements relating to this
transaction or any related transaction. This agreement may be filed as a written
consent to a trial by the court.
(b) The equipment shall remain Lessor's property unless Lessee purchase the
equipment from lessor and until such time lessee shall only have the right to
use the equipment as a lessee. Any cancellation or termination by Lessor of this
Agreement, any schedule, supplement or amendment hereto, or the lease of any
equipment hereunder shall not release from any then outstanding obligations to
Lessor hereunder. All equipment shall at all times remain personal property of
lessor even though it may be attached to real property. The equipment shall not
become part of any other property by reason of any installation in, or
attachment to, other real or personal property.
(c) Time is of the essence of this agreement. Lessor's failure at any time
to require strict performance by Lessee or any of any of the provisions hereof
shall not waive or diminish Lessor's right at any other time to demand strict
compliance with this agreement. Lessee agrees, upon Lessor's request, to execute
any instrument necessary or expedient for filing, recording or perfecting the
interest of Lessor. All notices required to be given hereunder shall be deemed
adequately given if sent by registered or certified mail to the addressee at its
address stated herein, or at such other place as such addressee may have specify
in writing. This agreement and any schedule and annexes thereto constitute the
entire agreement of the parties with respect to the subject matter hereof. NO
VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS
PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.
(d) If lessee does not comply with any provision of this agreement, lessor
shall have the right, but shall not be obligated, to effect such compliance, in
whole or in part. All reasonable amounts spent and obligations incurred or
assumed by lessor in effecting such compliance shall constitute additional rent
due to lessor. Lessor shall pay the additional rent within five days after the
date lessor sends notice to lessee requesting payment. Lessor's effecting such
compliance shall not be a waiver of lessee's default.
(e) Any rent or other amount not paid to lessor shall bear interest, from
the due date until paid, at the lessor of eighteen percent (18%) per annum or
the maximum rate allowed by law. Any provisions in this agreement and any
schedule that are in conflict with any statute, law or applicable rule shall be
deemed omitted. Modified or altered to confirmed thereto.
(f) Lessee hereby irrevocably authorizes lessor to adjust the capitalized
lessor's cost up or down by no more than ten percent (10%) within each schedule
to account for equipment change orders, equipment returns, invoicing errors, and
similar matters. Lessee acknowledges and agrees that the rent shall be adjusted
as a result of the change in the Capitalized Lessor's Cost. Lessors shall send
lessee a written notice stating the final Capitalized Lessor's Cost, if it has
changed.
<PAGE>
(g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
(h) Any cancellation or termination by lessor, pursuant to the provisions of
this agreement, any Schedule, supplement or amendment hereto, of the lease of
any Equipment hereunder, shall not release lessee from any then outstanding
obligations the lessor hereunder.
(i) To the extent that any schedule would constitute chattel paper, as such
term as defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest therein may be created through the transfer
or possession of this agreement in and of itself without the transfer or
possession of the original of a schedule executed pursuant to this agreement and
incorporating this agreement reference: and no security interest in this
agreement and the schedule may be created by the transfer or possession of any
counterpart of the schedule other than the original thereof, which shall be
identified as the document marked "Original" and all other counterparts shall be
marked "Duplicate".
IN WITHNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed by there duly authorized representatives as of the date first above
written.
LESSOR LESSEE
General Electric Capital Corporation Internet Financial Services Inc.
By: /s/ James J. Trinacrm By: /s/ Harry Simpson
-------------------------------- ----------------------------
Name: James J. Trinacrm Name: Harry Simpson
Title: Senior Risk Analyst Title: President & COO
<PAGE>
EXHIBIT 10.18
SECURITY AGREEMENT
This SECURITY AGREEMENT, made as of _______________________ ("Agreement), by and
between General Electric Capital Corporation, a New York corporation with an
address at 44 Old Ridgebury Road , Danbury, CT 06810 ("Secured Party"), and
Internet Financial Services Inc a corporation, organized and existing under the
laws of the state of New York, with its chief executive offices located at 33
West 17th Street, New York NY 10011 ("Customer").
In consideration of the promises herein contained and of certain other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Customer and Secured Party hereby agree as follows.
1. CREATION OF SECURITY INTEREST:
Customer hereby gives, grants and assigns to Secured Party, its successors and
assigns forever, a security interest in and against any and all property listed
on the collateral schedule annexed hereto or made a part hereof ("Collateral
Schedule"), and in and against any and all additions, attachments, accessories
and accessions thereto, any and all substitutions, replacements or exchanges
therefor, and any and all insurance and/or other proceeds thereof (all of the
foregoing being hereinafter individually and collectively referred to as the
"Collateral') The foregoing security Interest s given to secure the payment and
performance of any and all installments of rent, other amounts, obligations and
liabilities of any kind, nature or description whatsoever (whether due or to
become due) of Account Party to Secured Party under that certain Master Lease
Agreement identified on the Collateral Schedule ("Lease"), this Agreement and/or
any related documents (the Lease, this Agreement and all such related documents
being hereinafter collectively referred to as the "Transaction Documents"), and
any renewals, extensions and modifications of such debts, obligations and
liabilities (all of the foregoing being hereinafter referred to as the
"Indebtedness").
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACCOUNT PARTY:
Customer hereby represents, warrants and covenants that: (a) Customer is, and
will remain, duly organized, existing and in good standing under the laws of the
State set forth in the first paragraph of this Agreement, has its chief
executive offices at the location set forth in such paragraph, and is, and will
remain, duly qualified and licensed in every jurisdiction wherever necessary to
carry on its business and operations; (b) Customer has adequate power and
capacity to enter into, and to perform its obligations, under each of the
Transaction Documents; (c) the Transaction Documents have been duly authorized,
executed and delivered by Customer and constitute legal, valid and binding
agreements enforceable under all applicable laws in accordance with their terms,
except to the extent that the enforcement of remedies may be limited under
applicable bankruptcy and insolvency laws, (d) no approval consent of
withholding of objections is required from any governmental authority or
instrumentality with respect to the entry into, or performance by. Customer of
any of the Transaction Documents, except such as may have already been obtained,
(e) the entry into and performance by Customer of the Transaction Documents will
not (i) violate any of the organizational documents of Customer or any judgment,
order, law or regulation applicable to Customer, or (ii) result ,in any breach
of, constitute a default under, or result in the creation of any lien, claim or
encumbrance on any of Customer's property (except for liens in favor of Secured
Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit
agreement, or other agreement or instrument to which Customer is a party, (f)
there are no suits or proceedings pending or threatened in court or before any
commission, board or other administrative agency against or affecting Customer
which could, in the aggregate, have a material adverse effect on Customer, its
business or operations, or its ability to perform its obligations under the
Transaction Documents, (g) all financial statements delivered to Secured Party
in connection with the Indebtedness have been prepared in accordance with
generally accepted accounting principles, and since the date of the most recent
financial statement, there has been no material adverse change, (h) the
Collateral is not, and will not be, used by Customer for personal, family or
household purposes, (I) the Collateral is, and will remain, in good condition
and repair and Customer will not be negligent in the care and use thereof; (j)
Customer is, and will remain, the sole and lawful owner, and in possession of.
the Collateral. and has the sole right and lawful authority to grant the
security interest described in this Agreement; and (k) the Collateral is, and
will remain, free and clear of all liens, claims and encumbrances of every kind,
nature and description (except for liens in favor of Secured Party)
<PAGE>
3. COLLATERAL:
(a) Until the declaration of any default hereunder, Customer shall remain in
possession of the Collateral; provided, however, that Secured Party shall have
the right to possess (i) any chattel paper, document, certificate of title or
instrument that constitutes a part of the Collateral or possession of which may
be required to perfect Secured Party's interest in the Collateral, and (ii) any
other Collateral which because of its nature may require that Secured Party's
security interest therein be perfected by possession. Secured Party, its
successors and assigns, and their respective agents, shall have the right to
examine and inspect any of the Collateral at any time during normal business
hours. Upon any request from Secured Party, Customer shall provide Secured Party
with notice of the then current location of the Collateral (b) Customer shall
(i) use the Collateral only in its trade or business, (ii) maintain all of the
Collateral in good condition and working order, (iii) use and maintain the
Collateral only in compliance with all applicable laws, and (iv) keep all of the
Collateral free and clear of all liens, claims and encumbrances (except for
liens in favor of Secured Party). (c) Customer shall not, without the prior
written consent of Secured Party, (i) part with possession of any of the
Collateral (except to Secured Party or for maintenance and repair), (ii) remove
any of the Collateral from the continental United States, or (iii) sell, rent,
lease, mortgage, grant a security interest in or otherwise transfer or encumber
(except for liens in favor of Secured Party) any of the Collateral. (d) Customer
shall pay promptly when due all taxes, license fees, assessments and public and
private charges levied or assessed on any of the Collateral, on the use thereof,
or on this Agreement or any of the other Transaction Documents. At its option,
Secured Party may discharge taxes, liens, security Interests or other
encumbrances at any time levied or placed on the Collateral and may pay for the
maintenance, insurance and preservation of the Collateral or to effect
compliance with the terms of this Agreement or any of the other Transaction
Documents. Customer shall reimburse Secured Party, on demand, for any and all
costs and expenses incurred by Secured Party in connection therewith and agrees
that such reimbursement obligation shall be secured hereby (e) Customer shall,
at all times, keep accurate and complete records of the Collateral, and Secured
Party, its successors and assigns, and their respective agents, shall have the
right to examine, inspect, and make extracts from all of Customer's books and
records relating to the Collateral at any time during normal business hours (f)
Any third person at any time and from time to time holding all or any portion of
the Collateral shall be deemed to, and shall, hold the Collateral as the agent
of. and as pledge holder for, Secured Party. At any time and from time to time,
Secured Party may give notice to any third person holding all or any portion of
the Collateral that such third person is holding the Collateral as the agent of,
and as pledge holder for, the Secured Party.
4. INSURANCE:
The collateral shall at all times be held at Customer's risk, and Customer shall
keep it insured against loss or damage by fire and extended coverage perils,
theft burglary, and for any of all Collateral which are vehicles, for risk of
loss by collision, and where requested by Secured Party, against other risks as
required thereby, for the full replacement value thereof, with companies, in
amounts and under policies acceptable to Secured Party. Customer shall, if
Secured Party so requires, deliver to Secured Party policies or certificates of
insurance evidencing such coverage. Each policy shall name Secured Party as loss
payee thereunder, shall provide for coverage to Secured Party regardless of the
breach by Customer of any warranty or representation made therein, shall nor be
subject to co-insurance, and shall provide for thirty (30) days written notice
to Secured Party of the cancellation or material modification thereof. Customer
hereby appoints Secured Party as attorney in fact to make proof of loss, claim
for insurance and adjustments with insurers, and to execute or endorse all
documents, checks or drafts in connection with payments made as result of any
such insurance policies. Proceeds of insurance shall be applied, at the option
of Secured Party, to repair or replace the Collateral or to reduce any of the
Indebtedness secured hereby.
<PAGE>
5. REPORTS:
(a) Customer shall promptly notify Secured Party in the event of (i) any change
in the name of Customer, (ii) any relocation, of its chief executive offices,
(iii) any relocation of any of the Collateral, (iv) any of the Collateral being
lost, stolen, missing, destroyed, materially damaged or worn out, or (v) any
lien, claim or encumbrance attaching or being made against any of the Collateral
(other than liens in favor of Secured Party) (b) Customer agrees to furnish its
annual financial statements and such interim statements as Secured Party may
require in form satisfactory to Secured Party. Any and all financial statements
submitted and to be submitted to Secured Party have and will have been prepared
on a basis of generally accepted accounting principles, and are and will be
complete and correct and fairly present Customer's financial condition as at the
date thereof. Secured Party may at any reasonable time examine the books and
records of Customer and make copies thereof.
6. FURTHER ASSURANCES:
(a) Customer shall, upon request of Secured Party, furnish to Secured Party such
further information, execute and deliver to Secured Party such documents and
instruments (including, without limitation, Uniform Commercial Code financing
statements) and do such other acts and things, as Secured Party may at any time
reasonably request relating to the perfection or protection of the security
interest created by this Agreement or for the purpose of carrying out the intent
of this Agreement. Without limiting the foregoing, Customer shall cooperate and
do all acts deemed necessary or advisable by Secured Party to continue in
Secured Party a perfected first security interest in the Collateral, and shall
obtain and furnish to Secured Party any subordinations, releases, landlord,
lessor, or mortgagee waivers, and similar documents as may be from time to time
requested by, and which are in form and substance satisfactory to, Secured Party
(b) Customer hereby grants to Secured Party the power to sign Customer's name
and generally to act on behalf of Customer to execute and file applications for
title, transfers of title, financing statements, notices of lien and other
documents pertaining to any or all of Collateral. Customer shall, if any
certificate of title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to the Collateral
and promptly deliver same to Secured Party (c) Customer shall indemnify and
defend the Secured Party, its successors and assigns, and their respective
directors, officers and employees, from and against any and all claims, actions
and suits (including, without limitation, related attorneys' fees) of any kind,
nature or description whatsoever arising, directly or indirectly, in connection
with any of the Collateral
7. EVENTS OF DEFAULT:
Customer shall be in default under this Agreement and each of the other
Transaction Documents upon the occurrence of any of the following "Event(s) of
Default" (a) Customer fails to pay any installment or other amount due or coming
due under any of the Transaction Documents within ten (10) days after its due
date; (b) any attempt by Customer, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for liens in favor of Secured Party) any
of the Collateral; (c) Customer fails to procure, or maintain in effect at all
times, any of the insurance on the Collateral in accordance with Section 4 of
this Agreement, (d) Customer breaches any of its other obligations under any of
the Transaction Documents and fails to cure the same within thirty (30) days
after written notice thereof; (e) any warranty, representation or statement made
by Customer in any of the Transaction Documents or otherwise in connection with
any of the Indebtedness shall be false or misleading in any material respect;
(f) any of the Collateral being subjected to, or being threatened with,
attachment, execution, levy, seizure or confiscation in any legal proceeding or
otherwise; (g) any default by Customer under any other agreement between
Customer and Secured Party; (h) any dissolution, termination of existence,
merger, consolidation, change in controlling ownership, insolvency, or business
failure of Customer or any guarantor or other obligor for any of the
Indebtedness (collectively "Guarantor"), or if Customer or any Guarantor is a
natural person, any death or incompetency of Customer or such Guarantor, (i) the
appointment of a receiver for all or of any part of the property of Customer or
any Guarantor, or any assignment for the benefit of creditors by Customer or any
Guarantor, or (j) the filing of a petition by Customer or any Guarantor under
any bankruptcy, insolvency or similar law, or the filing of any such petition
against Customer or any Guarantor if the same is not dismissed within thirty
(30) days of such filing.
<PAGE>
8. REMEDIES ON DEFAULT:
(a) Upon the occurrence of an Event of Default under this Agreement, the Secured
Party, at its option, may declare any or alt of the Indebtedness (including,
without limitation, the Lease) to be immediately due and payable, without demand
or notice to Customer or any Guarantor. The obligations and liabilities
accelerated thereby shall bear interest (both before and after any judgment)
until paid in full at the lower of eighteen percent (18%) per annum or the
maximum rate not prohibited by applicable law (b) Upon such declaration of
default, Secured Party shall have all of the rights and remedies of a Secured
Party under the Uniform Commercial Code, and under any other applicable law.
Without limiting the foregoing, Secured Party shall have the right to (i) notify
any Customer of Customer or any obligor on any instrument which constitutes part
of the Collateral to make payment to the Secured Party, (ii) with or without
legal process, enter any premises where the Collateral may be and take
possession and/or remove said Collateral from said premises. (iii) sell the
Collateral at public or private sale, in whole or in part, and have the right to
bid and purchase at said sale, and/or (iv) lease or otherwise dispose of all or
part of the Collateral, applying proceeds therefrom to the obligations then in
default. If requested by Secured Party, Customer shall promptly assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties. Secured Party may
also render any or all of the Collateral unusable at the Customer's premises and
may dispose of such Collateral on such premises without liability for rent or
costs. Any notice which Secured Party is required to give to Customer under the
Uniform Commercial Code of the time and place of any public sale or the time
after which any private sale or other intended disposition of the Collateral is
to be made shall be deemed to constitute reasonable notice if such notice is
given to the last known address of Customer at least five (5) days prior to such
action. (c) Proceeds from any sale or lease or other disposition shall be
applied; first, to all costs of repossession, storage, and disposition including
without limitation attorneys', appraisers, and auctioneers fees, second. to
discharge the obligations then in default, third, to discharge any other
Indebtedness of Customer to Secured Party, whether as obligor, endorser,
guarantor, surety or indemnitor, fourth, or expenses incurred in paying or
settling liens and claims against the Collateral, and lastly, to Customer, if
there exists any surplus. Customer shall remain fully liable for any deficiency
(d) In the event that any of the Transaction Documents are placed in the hands
of an attorney for collection of money due or to become due or to obtain
performance of any provision hereof, Customer agrees to pay all reasonable
attorneys' fees incurred by Secured Party, and further agrees that payment of
such fees is secured hereunder. Customer and Secured Party agree that such fees
to the extent not in excess of twenty percent (20%) of subject amount owing
after default (if permitted by law, or such lesser sum as may otherwise be
permitted by law) shall be deemed reasonable. (e) Secured Party's rights and
remedies hereunder or otherwise arising are cumulative and may be exercised
singularly or concurrently. Neither the failure nor any delay on the part of the
Secured Party to exercise any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Secured Party shall not be
required deemed to have waived any of its rights hereunder or under any other
agreement, instrument or paper signed by Customer unless such waiver be in
writing and signed by Secured Party. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
CUSTOMER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
AGREEMENT, ANY OF THE OTHER TRANSACTION DOCUMENTS, ANY OF THE INDEBTEDNESS
SECURED HEREBY, ANY DEALINGS BETWEEN CUSTOMER AND SECURED PARTY RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE
RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN CUSTOMER AND SECURED PARTY. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS) THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS.
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER TRANSACTION
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION
OR ANY RELATED TRANSACTION IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
<PAGE>
9. MISCELLANEOUS:
(a) This Agreement, the Lease and/or any of the other Transaction Documents may
be assigned, in whole or in part, by Secured Party without notice to Customer,
and Customer hereby waives any defense, counterclaim or cross-complaint by
Customer against any assignee, agreeing that Secured Party shall be solely'
responsible therefor. (b) All notices to be given in connection with this
Agreement shall be in writing, shall be addressed to the parties at their
respective addresses set forth herein above (unless and until a different
address may be specified in a written notice to the other party). and shall be
deemed given (i) on the date of receipt if delivered in hand or by facsimile
transmission, (ii) on the next business day after being sent by express mail,
and (iii) on the fourth business day after being sent by regular, registered or
certified mail. As used herein, the term "business day" shall mean and include
any day other than Saturdays, Sundays, or other days on which commercial banks
in New York, New York are required or authorized to be closed. (c) Secured Party
may correct patent errors herein and fill in all blanks herein or in the
Collateral Schedule consistent with the agreement of the parties. (d) Time is of
the essence hereof. This Agreement shall be binding, jointly and severally, upon
all parties described as the "Customer" and their respective heirs, executors,
representatives, successors and assigns, and shall inure to the benefit of
Secured Party, its successors and assigns (e) This Agreement and its Collateral
Schedule constitute the entire agreement between the parties with respect to the
subject matter hereof and supercede all prior understandings (whether written,
verbal or implied) with respect thereto. This Agreement and its Collateral
Schedule shall not be changed or terminated orally or by course of conduct, but
only by a writing signed by both parties hereto. Section headings contained in
this Agreement have been included for convenience only, and shall not affect the
construction or interpretation hereof (f) This Agreement shall continue in full
force and effect until all of the Indebtedness has been indefeasibly paid in
full to Secured Party. This Agreement shall automatically be reinstated in the
event that Secured Party is ever required to return or restore the payment of
all or any portion of the Indebtedness (all as though such payment had never
been made).
IN "WITNESS WHEREOF, Customer and Secured Party, intending to be legally bound
hereby, have duly executed this Agreement in one or more counterparts, each of
which shall be deemed to be an original, as of the day and year first aforesaid.
SECURED PARTY: CUSTOMER:
General Electric Capital Corporation Internet Financial Services Inc.
By: ____________________________ By: _________________________
Name: __________________________ Name: _______________________
Title: ____________________________ Title: _________________________
<PAGE>
IN "WITNESS WHEREOF, Customer and Secured Party, intending to be legally bound
hereby, have duly executed this Agreement in one or more counterparts, each of
which shall be deemed to be an original, as of the day and year first aforesaid.
LESSOR: LESSEE:
General Electric Capital Corporation Internet Financial Services Inc.
By: ____________________________ By: _________________________
Name: __________________________ Name: _______________________
Title: ____________________________ Title: _________________________
<PAGE>
LETTER OF CREDIT AGREEMENT
THIS LETTER OF CREDIT AGREEMENT, dated,____________________("Agreement"),
between Internet Financial Services Inc., a corporation organized and existing
under laws of the state of New York ( "Lessee") , and General Electric Capital
Corporation, a New York corporation ("Lessor")
RECITALS:
WHEREAS, Lessee desires to lease from Lessor certain equipment or other
(collectively, "Equipment") pursuant to a Master Lease Agreement dated as of
_____________ (said Master Lease Agreement together with all present and future
schedules thereto, as the same may be from time to time extended, amended,
restated or otherwise modified, being hereinafter collectively referred to as
the "Lease"); and
WHEREAS, Lessor is unwilling to lease the Equipment to Lessee unless
and until Lessee provides Lessor with certain additional assurances in the form
of a letter of credit as hereinafter described;
NOW, THEREFORE, in consideration of the above promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. Concurrently with the execution of this Agreement, Lessee shall, at
its sole cost and expense as additional security for the prompt payment and
performance of all of its obligations (whether now existing or hereafter
arising) under the Lease, deliver or cause to be delivered to Lessor an
irrevocable standby letter of credit. ("Letter of Credit") which shall be (i) in
the amount of One Hundred Fifty-Five Thousand Six Hundred Four and 16/100 US
Dollars (US $155,604.16), (ii) issued by bank which is acceptable to Lessor in
its sole discretion, (iii) substantially in the form of Exhibit A attached
hereto (or in such other form as may be acceptable to Lessor in its sole
discretion), and (iv) for an initial of one year with automatic annual renewals
thereafter (without amendment except for extension of the then current expiry
date by an additional year) until Lessee has received written notice from Lessor
to the effect that the Letter of Credit is being released in its entirely. After
all of Lessee's obligations under the Lease have been indefeasibly paid and
performed in full, Lessor shall, upon the request of Lessee, release the Letter
of Credit and provide Lessee with written notice to that effect. If requested by
Lessor, the Letter of Credit shall, at Lessee's sole cost and expense, be
accompanied by an opinion of counsel regarding its due authorization, execution,
and enforceability (which opinion shall be in form and substance, and from
counsel, acceptable to Lessor in its sole discretion).
2. Lessee shall be in default under this Agreement and the Lease if for
any reason whatsoever: (a) Lessor fails to receive the Letter of Credit in the
time manner required herein; (b) the Letter of Credit is not automatically
renewed as required 1 hereof at least thirty (30) days prior to the expiry of
such Letter of Credit; (c) Lessor receives any notice to the effect that the
Letter of Credit will not be automatically renewed as required herein; (d)
Lessee otherwise breaches any of its obligations hereunder; or (e) Issuer fails
to comply with any terms, agreement or conditions of any Letter of Credit. The
foregoing events of default are in addition to, not in lieu of, those set forth
in the Lease.
3. Upon the occurrence of any default under this Agreement of the
Lease, or upon the filing of any petition by or against Lessee under any
bankruptcy, insolvency or similar laws, then in any such event and at any time
thereafter lessor shall have the right, with or without notice to or demand upon
Lessee, to draw upon the Letter of Credit, by presenting to issuer one or more
sight drafts and any other necessary documents, and to receive (in a lump sum or
in several sums from time to time at the sole discretion of Lessor) and retain
an amount not to exceed, in the aggregate, that available under the Letter of
Credit.
4. If Lessor draws on the Letter of Credit, the proceeds received by
Lessor therefrom shall be applied; first, towards costs and expenses (including,
without limitation, reasonable attorney's fees and disbursements) incurred by
Lessor in connection with such draw or in otherwise enforcing its rights and
remedies hereunder; second, towards any rent or other sums of any kind then due
and unpaid by Debtor under the Lease; the third, at Lessor's option either (I)
towards the Stipulated Loss Value calculated as provided in the Lease or (ii)
Lessor may hold any such proceeds as additional security (commingled with its
owns funds without any need to pay interest or income thereon) for any further
obligations of Lessee under Lease, including ,without limitation, any rent or
other sums of any kind that may become due under the Lease and /or the
Stipulated Loss Value calculated as provided in the Lease. Once all obligations
of Lessee under the Lease have been indefeasibly paid and performed in full, any
remaining excess proceeds from the Letter of Credit shall be remitted by Lessor
to Lessee. In any event, Lessee shall remain liable for any deficiency under
Lease.
<PAGE>
5. Lessor's rights and remedies under this Agreement (including,
without limitation, the right to draw upon the Letter of Credit), the Lease or
otherwise are cumulative and may be exercised singularly or concurrently.
Neither any failure nor delay on the part of Lessor to draw upon the Letter of
Credit or to exercise any other rights or remedies shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or any other right or remedy
howsoever arising. Under no circumstances shall Lessor be deemed or construed to
have waived its right to draw upon the Letter of Credit or to exercise any of
its other rights or remedies unless such waiver of such right or remedy on any
future occasion or as a waiver of any other right or remedy,
6. LESSEE AND LESSOR HEREBY UNCONDITIONALLY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF OR IN CONNECTION WIH, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, THE LETTER OF
CREDIT, THE LEASE, ANY DOCUMENTS RELATING HERETO OR THERETO, ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE
RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN THEM. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT(INCLUDING,WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATORY CLAIMS). THIS WAIVER IS IRREVOCABLE
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORRALLY OR IN WRITING, AND SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF
THIS AGREEMENT, THE LETTER OF CREDIT, THE LEASE OR ANY DOCUMENTS RELATING HERETO
OR THERETO. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO TRIAL BY THE COURT.
7. Any notices to be given in connection herewith shall be delivered in
the manner contemplated by the Lease. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior understandings (whether written, verbal, implied or
otherwise) with respect thereto. None of the terms hereof may be amended, waived
or otherwise modified except pursuant to a written instrument duly executed by
the party to be charged. Lessor may assign its rights hereunder at any time, but
Lessee may not do so without the prior written consent of Lessor. This Agreement
shall be binding upon, and shall inure to the benefit of, Lessor, Lessee, and
their respective successors and permitted assigns.
IN WITNESS WHEREOF, Lessee an Lessor have caused their duly authorized
representatives to execute and deliver this Agreement on the year and day first
above written.
LESSOR: LESSEE:
General Electric Capital Corporation Internet Financial Services Inc.
By: ____________________________ By: ____________________________
Name: __________________________ Name: __________________________
Title: _________________________ Title: _________________________
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Summary Financial
Information" and "Experts" and to the use of our report dated November 13, 1998,
in Amendment No. 1 to the Registration Statement (Form SB-2 No. 33-71783) and
related Prospectus of Internet Financial Services Inc. for the Registration of
2,000,000 shares of its common stock.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
New York, New York
April 7, 1999
