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REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MAY 14, 1998
REGISTRATION NO.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED STATES FINANCIAL GROUP, INCORPORATED
(Exact name of registrant as specified in charter)
110 WALL STREET, NEW YORK, NY
(Address of Principal executive offices and
principal place of business)
TELEPHONE: (212) 785-4545
COPIES TO:
RONALD J. BRESCIA
DOROS & BRESCIA, P.C.
1140 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
(Name and Address of Agent for Service)
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DELAWARE 6749 13-3922249
State of Standard Industrial IRS Employer ID
Incorporation Classification Code No. Number
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement.
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- --------------------------- -------------- ---------------- -------------- ----------------
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COMMON SHARES .............. 3,285,000 $15 $49,275,000 $14,537
</TABLE>
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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>
CROSS REFERENCE SHEET
[S-K ITEM 501(B)]
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ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover of Inside Front Cover and Outside Back Cover
Prospectus of Prospectus
3. Summary Information; Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Risk Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page; Cover Page Notes
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Beneficial Owners and Principal Shareholders
Management
12. Description of Securities to be Registered Cover Page; Description of Securities
13. Interest of Named Experts and Counsel Experts
14. Disclosure of Commission's Position Underwriting
on Indemnification for Securities
Act Liabilities
15. Information with Respect to the Registrant Prospectus Summary; Risk Factors; Dilution;
Management; Description of Securities;
Business; Executive Compensation
and Financial Statements
16. Management's Discussion and Analysis or Plan Management's Discussion and Analysis of
of Operation Financial Condition
and Results of Operations
17. Description of Property Property
18. Certain Relationships and Related Transactions Certain Transactions
19. Market for Common Equity and Related Outside Front Cover
Stockholder Matters
20. Executive Compensation Management--Executive Compensation
21. Financial Statements Consolidated Financial Statements
</TABLE>
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
110 WALL STREET
NEW YORK, NY 10005
TELEPHONE: (212) 785-4545
3,000,000 SHARES
OFFERING PRICE $15.00 PER SHARE
United States Financial Group, Incorporated ("USFG" or the "Company") is
offering 3,000,000 shares of its common stock (the "Common Stock" or
"Shares"), par value $.0001 per share, at a price of $15.00 per Share (the
"Maximum Offering"). A minimum of 666,667 Shares at a price per Share of $15
must be sold in this offering before the offering may close (the "Minimum
Offering"). This Prospectus also relates to the offering of 275,000 shares of
Common Stock by a selling stockholder (the "Selling Stockholder"). Until the
Minimum Offering is sold, investor funds will be placed in an escrow account.
Upon selling the Minimum Offering, the funds will be released from escrow to
the Company. The offering will close at such time as the Maximun Offering is
sold or earlier if determined by the Company after the Minimum Offering is
sold. If the Minimum Offering has not been sold within six months from the
date of this Prospectus, the offering will not close and all investor funds
will be returned. The Common Stock has been approved for listing on the
NASDAQ National Market under the symbol , subject to official notice of
issuance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED
BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT (SEE
"INTRODUCTORY STATEMENTS AND RISK FACTORS").
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UNDERWRITING
PRICE TO DISCOUNTS AND THE PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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Per Share ........ $15.00 $1.88 $13.12
Total (3):
Minimum Offering $10,000,000 $1,250,000 $ 8,750,000
Maximum Offering $45,000,000 $5,625,000 $39,375,000
</TABLE>
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- ------------
(1) See "Underwriting" for indemnification arrangements with the
Underwriter.
(2) These amounts represent the proceeds to the Company after
underwriting commissions and nonaccountable expenses but before
deduction of additional offering expenses of approximately $500,000
($425,000 if the Minimum Offering is sold) for legal and accounting
fees, printing costs, filing fees and miscellaneous expenses.
(3) Excludes shares being registered on behalf of the Selling
Stockholder.
UNDERWRITER
KLEIN, MAUS & SHIRE, INC.
110 WALL STREET
NEW YORK, NY 10005
(212) 785-4545
The date of this Prospectus is May , 1998.
<PAGE>
The Shares are offered on a "best efforts" basis by the Underwriter
subject to prior sale, acceptance of an offer to purchase, and to withdrawal
or cancellation of the offering without notice.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THE COMPANY, UPON COMPLETION OF THIS OFFERING, AND AT LEAST FOR THE
CURRENT FISCAL YEAR IN WHICH THE REGISTRATION STATEMENT BECOMES EFFECTIVE,
WILL BE REQUIRED TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORTS ON FORM 10-Q PROVIDING SPECIFIED COMPARATIVE FINANCIAL DATA
FOR EACH OF THE FIRST THREE FISCAL QUARTERS OF EACH FISCAL YEAR: AN ANNUAL
REPORT ON FORM 10-K CONTAINING A NARRATIVE DESCRIPTION OF THE COMPANY AS WELL
AS AUDITED FINANCIAL STATEMENTS AND INFORMATION REGARDING MANAGEMENT, CERTAIN
TRANSACTIONS, AND PRINCIPAL SHAREHOLDERS: AND PERIODIC REPORTS OF CERTAIN
SPECIFIED OR OTHER MATERIAL EVENTS AS THEY OCCUR. ALTHOUGH NOT SUBJECT TO THE
PROXY SOLICITATION RULES OF THE SECURITIES AND EXCHANGE COMMISSION, THE
COMPANY PROPOSES TO PROVIDE TO SHAREHOLDERS WITHIN A REASONABLE TIME
FOLLOWING THE END OF EACH FISCAL YEAR AN ANNUAL REPORT CONTAINING A GENERAL
DESCRIPTION OF ITS BUSINESS OPERATIONS AND FINANCIAL STATEMENTS WHICH HAVE
BEEN EXAMINED AND REPORTED ON, WITH AN OPINION EXPRESSED BY AN INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT. HOWEVER, SUCH ANNUAL REPORT WITH FINANCIAL
STATEMENTS WILL NOT NECESSARILY DISCLOSE THE SAME INFORMATION REQUIRED TO BE
DISCLOSED UNDER THE PROXY SOLICITATION RULES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OR SOLICITATION WITH
RESPECT TO THESE SECURITIES BY THE COMPANY TO ANY PERSON WHO MAY BE
CONSIDERED TO BE AN UNDERWRITER: OR TO ANY PERSON IN ANY STATE IN WHICH SAID
OFFERING OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF OR IN WHICH
THE PERSON MAKING SAID OFFERING OR SOLICITATION IS NOT QUALIFIED TO ACT AS
DEALER OR BROKER OR OTHERWISE TO MAKE SUCH OFFERING OR SOLICITATION.
THE SECURITIES BEING SOLD PURSUANT TO THIS PROSPECTUS ARE HIGHLY
SPECULATIVE IN NATURE AND NO GUARANTEES OR OTHER WARRANTIES TO THE CONTRARY
ARE MADE BY THE ISSUER.
THE ISSUER MAY UNDERTAKE TO MAKE POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT TO WHICH THIS PROSPECTUS RELATES AND TO REFLECT
THEREIN ANY FACTS OR EVENTS ARISING AFTER THE DATE HEREOF WHICH REPRESENT A
FUNDAMENTAL OR MATERIAL CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN SAID
REGISTRATION STATEMENT. ANY SUCH AMENDMENTS, WHICH RELATE TO THIS PROSPECTUS,
WILL BE DISSEMINATED TO STOCKHOLDERS AND WARRANT HOLDERS OF THE COMPANY AFTER
THE REQUIRED FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION HAVE BEEN
MADE.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the information
appearing elsewhere in this Prospectus.
THE COMPANY
United States Financial Group, Incorporated ("USFG" or the "Company") is a
diversified holding company, incorporated under the laws of the State of
Delaware. USFG's main business purpose is to acquire undervalued or
reasonably priced companies in industries well suited for roll up
consolidation transactions. These roll up or consolidation candidates operate
in industry or market niches that are well established, are served in a
fragmented way and do not compete directly with large competitors.
Furthermore, these target companies have to have experienced management teams
and do not require significant expenditures for research and development.
USFG has begun to implement this strategy through the acquisition and/or
establishment of four companies and has assembled a management team that is
experienced in mergers and acquisitions.
The Company has four subsidiaries, two of which are currently active.
Klein, Maus & Shire, Inc. ("KMS"), an investment banking firm and a
broker-dealer of securities duly registered with the Securities and Exchange
Commission (the "SEC") and is a member firm of the National Association of
Securities Dealers, Inc. (the "NASD"), Municipal Securities Rulemaking Board
(known as the "MSRB"), and Securities Insurance Protection Corporation
("SIPC"). Sureal International, Inc. ("Sureal"), a sales and direct marketing
company that sells health and other consumer products in Russia and other
republics of the former Soviet Union through a network of independent
distributors was acquired in December 1997 in a pooling of interest
transaction.
The two inactive subsidiaries were formed for specific purposes. KMS Asset
Management Group, Incorporated will be an asset management and international
financial consultancy company and will take advantage of USFG's contacts. US
Military Resale Group, Incorporated ("Military Resale Group") was established
to acquire military commissaries and other suppliers of consumer products to
the Army and Air Force Exchange System.
KMS is an investment bank providing full service investment banking,
trading, research and advisory services to over 3,000 high net worth
individuals and institutions around the world. The key to KMS' current and
future success is its principal client base of high net worth international
investors and institutions. KMS' access to this client base through its
senior management puts it in a strong position to expand its investment
banking activities without reliance on cold calling, high pressure marketing
activities. KMS' growth plans are based on a corporate policy emphasizing
generating revenues at a non-retail level, and maintaining a small sales
force comprised of experienced financial consultants with impeccable records.
KMS is located at 110 Wall Street in New York where it occupies two floors
totaling 14,000 square feet.
KMS Asset Management Group, Incorporated was formed to serve as an advisor
to institutions, individuals and governments. Its strategy will be to expand
its money management business by increasing assets under management and by
increasing its international consultancy business by becoming advisors to
additional institutions and governments of developing countries. It currently
acts as an advisor to several international corporations and individuals and
to the governments of Grenada, South Korea and Pakistan. It is acting as an
advisor to Grenadine government on its tourism and infrastructure development
project and to the government of Pakistan on establishing the first
"Technology Industrial Park" in Pakistan.
Military Resale Group was established for the purpose of effecting mergers
and acquisitions of military commissaries and other suppliers of consumer
products to the Army and Air Force Exchange System. USFG perceives this
marketplace as well suited for rollup transactions. Military Resale Group's
mission will be to provide the Military Resale Market with the widest variety
of products at below market prices. Military Resale Group will introduce new
consumer products to the military resale market and
3
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acquire companies serving the military resale market worldwide to expand
revenues. Military Resale Group has targeted several distributors of consumer
products to the military resale market for acquisition, although no formal
discussions will take place until after the completion of this Offering.
Sureal is a direct marketing company that was acquired by USFG in a
pooling of interests transaction completed in December 1997. Management
believes that Sureal will grow through acquisitions in addition to expanding
its present revenues. Sureal is a direct marketing company involved in the
distribution and sale of high quality nutritional and other products in
Russia and other republics of the former Soviet Union. It commenced its
operations in July 1995 using a network of 333 independent distributors in
Russia. The number of distributors in the network increased to 4,972 at
December 31, 1995; 94,307 at December 31, 1996 and 172,221 at May 31, 1997,
respectively. Monthly commissionable sales to these distributors rose from
$20,000 in July 1995 to $5,009,000 in February 1997. Sureal is headquartered
in Orem, Utah.
THE OFFERING
Securities offered by the
Company (1) .................. 3,000,000 shares of common stock, par value
$.0001 (666,667 if the Minimum Offering is
sold)
Common Stock outstanding prior
to the Offering (1) ........... 10,985,634 shares.
Common Stock to be outstanding
after the Offering (1): .......
Maximum Offering .............. 13,985,634 shares
Minimum Offering .............. 11,652,301 shares
Trading symbol for Common
Shares ........................
Use of proceeds ............... The net proceeds of this Offering will be
used to expand Sureal's operations, expand
commence the operations of the KMS Asset
Management Group, acquisitions of other
broker dealers, expand KMS' proprietary
trading operations and acquire seats on the
New York and American Stock Exchanges
- ------------
(1) Assumes the conversion of $873,000 of preferred stock into 291,000
shares of Common stock and includes the issuance of 750,000 shares of
Common Stock to effect the Sureal Merger and the 2 for 1 reverse
stock split effected December 8, 1997.
4
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SUMMARY FINANCIAL INFORMATION
The following summary financial data is qualified in its entirety by, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The summary financial data presented below as of December 31,
1997 and 1996 and for the two years then ended are derived from the
Consolidated Financial Statements of the Company, which Financial Statements
have been audited by independent certified public accountants, and are
included elsewhere in this Prospectus. All amounts give retroactive effect to
the (i) acquisition of Sureal in December 1997 in a transaction accounted for
as a pooling of interests and (ii) the two for one reverse stock split
effected December 8, 1997.
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FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1996 1997
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Statement of Operations Data:
Commissionable sales .......................... $21,594,562 $31,720,456
Commissions, trading income and other ........ $ 314,250 $ 2,935,059
Net loss ...................................... $ (863,564) $ (914,098)
Net loss per share ............................ $ (.08) $ (.09)
Weighted average number of shares outstanding 10,694,634 10,694,634
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF 12/31/97 AS OF 12/31/97
12/31/97 AS ADJUSTED(1) AS ADJUSTED(1)
ACTUAL MAXIMUM MINIMUM
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Balance Sheet Data:
Total assets ......... $1,187,876 $38,852,876 $9,302,876
Liabilities .......... 646,424 436,424 436,424
Stockholders' equity 540,679 38,416,542 8,866,542
</TABLE>
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(1) Adjusted to give effect to the sale of Securities offered by the
Company hereby and the application of the estimated net proceeds
therefrom. These amounts do not assume the exercise of the
Underwriter's Overallotment Option.
5
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RISK FACTORS
Any person contemplating an investment in the securities offered herein
should be aware of the risk factors of the Offering and should consider,
among others, those factors set forth below. An investment in the Shares
involves significant risks, including, but not limited to, those discussed or
referred to below.
RISKS RELATED TO THE COMPANY
Limited Operating History
The Company and each of its subsidiaries have operating histories of less
than three years. In addition, each subsidiary intends to change and expand
its operations upon the completion of the Offering. As such, past history and
performance are not necessarily an indication of future performance.
Broad Discretion in Application of Proceeds
Management of the Company has broad discretion to adjust the application
and allocation of the net proceeds of the Offering in order to address
changed circumstances and opportunities. See "Use of Proceeds."
Substantial Control by Officers and Directors
Based upon the number of shares of Common Stock that will be outstanding
upon completion of the Offering, officers and directors of the Company and
persons who may be deemed to be affiliates, as a group, beneficially own
approximately 78 percent (91 percent if the Minimum Offering is sold) of the
Company's outstanding Common Stock. As a result, officers and directors of
the Company and their affiliates may be able to elect all members of the
Board of Directors and may retain the voting power to approve all matters
requiring approval by the shareholders of the Company.
Director Liability
The Company has provisions in its charter, by-laws, or other contracts
providing for indemnification of its officers and directors which allows, the
Company, among other things, to pay for the expenses of an officer or
director in connection with legal proceedings brought about because of the
person's position with the Company. This could have the effect of making it
more difficult for the shareholders to recover against the officers and/or
directors of the Company for alleged breaches of fiduciary duties and other
matters.
Competition
The Company, through its subsidiaries, will compete with numerous other
companies worldwide. There are many other very large and financially stable
competing companies in the United States and in the world with much greater
resources. See "Competition."
Best Efforts, No Commitments to Purchase Shares
Under the terms of the offering, the Shares are being sold on a "best
efforts--all or none" basis with respect to the Minimum Offering of
$15,000,000. Unless the Minimum Offering is sold, no Shares will be issued
and the offering will be withdrawn.
Offering Price
The offering price of the Shares being offered hereby was arbitrarily
determined by the Underwriter. In determining the offering price, the Company
and the Underwriter considered such factors as the financial resources of the
Company, the nature of the Company's assets, estimates of the business
6
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potential of the Company, the amount of equity or control desired to be
retained by the Company's existing stockholders, the amount of dilution to
public investors and the general conditions of the securities markets. The
offering price has no relationship to the book value of the Company or any
other accepted criteria of value.
Lack of Public Market for Common Stock
At present, no market exists for the Company's securities, and there is no
assurance that a regular trading market will develop at the conclusion of
this Offering or, if developed, that it will be sustained. A purchaser of the
Shares may, therefore, be unable to sell the Shares should he desire to do
so. Furthermore, it is unlikely that a lending institution will accept the
Company's Common Stock as pledged collateral for loans unless a regular
trading market develops.
Dependence Upon Key Personnel
The Company is substantially dependent upon the efforts and abilities of
Mohammad Ali Khan, its President, and Asim S. Kohli, its Executive Vice
President, as well as the senior management teams of each subsidiary. The
loss of the services of any of these officers or key employees would
potentially and materially adversely affect the operations and financial
condition of the Company. At present, the Company has no keyman life
insurance on the life of any key officer or employee. See "Management."
Dilution and Benefits Realized by Original Stockholders
Each purchaser of Common Stock in this Offering will suffer immediate and
substantial dilution in the book value per share of Common Stock as compared
to the purchase price thereof. See "Risk Factors." If the Company's future
operations are unsuccessful, the persons who purchase the Shares offered
hereby will sustain the principal losses of cash investment. See "Dilution."
The public shareholders purchasing shares of Common Stock in connection with
this Offering will be bearing the risk for the Company. If it is successful,
the original shareholders will benefit by the investment made by the public
shareholders. If the Company is not successful, the public shareholders'
investment is principally at risk.
Possible Rule 144 Sales
A total of 10,985,634 shares (including 291,000 issuable upon the assumed
conversion of $873,000 of preferred stock) of insider shares of common stock
have been issued by the Company prior to this Offering and are held by
persons who are officers, directors, founders and others. These securities
may be sold in compliance with Rule 144 adopted under the Securities Act of
1933, as amended, which provides, in essence, that officers, directors and
others holding restricted securities (such as those described above) may each
sell in brokerage transactions an amount equal to 1% of the Company's
outstanding common stock every three months. Rule 144 provides that
restricted shares must not be sold until they have been held for a period of
one year from the date they were fully paid for and no sooner than one year
from the date of incorporation. Hence, the possible sale of these restricted
shares under Rule 144 may, in the future, have a depressive effect on the
price of the Company's common stock in the over-the-counter market, if there
is a market. Furthermore, persons holding restricted securities for one year
who are or become non-affiliates of the Company may sell their securities
pursuant to Rule 144 without limitation on the number of shares sold. Shares
of the Company's stock first become eligible for Rule 144 Sales in one year
from incorporation date.
The officers and directors of the Company and its subsidiaries have agreed
to hold their restricted shares of common stock for a period of two years
after the effective date.
Issuance of Additional Shares
There are enough shares of the Company's common stock authorized that the
Board of Directors will have authority to issue a number of shares in excess
of those that will be outstanding if all shares offered hereby are sold. The
issuance of any such shares to persons other than the public would reduce the
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amount of control held by the public following the Offering. There are
presently no commitments, contracts or intentions other than described herein
to issue any additional stock to any other persons, but such contracts or
commitments may occur in the future.
No Dividends
The Company has paid no dividends to date and does not intend to pay cash
dividends in the foreseeable future. Management presently intends to retain
any earnings to help finance the development of the Company's business.
Future dividend policy will depend upon earnings (if any), expansion, capital
requirements and other factors.
RISK FACTORS RELATED TO KMS
Nature of KMS' Business
KMS' securities business by its nature is subject to various risks,
particularly in volatile markets. These include the occurrence of losses from
trading and underwriting of securities, customer inability to meet
commitments (such as margin obligations), customer default and employee
misconduct and errors.
KMS' revenues, like those of other firms in the securities industry, will
be directly related to fluctuations in trading volume and price levels of
securities. Such fluctuations are directly affected by regional, national and
international economic, regulatory and political conditions, broad trends in
business and finance and interest rates. Low trading volume and lack of
increasing securities prices generally result in reduced commissions and
investment banking revenues for firms such as KMS. In the past, heavy trading
volume has caused clearing and processing problems for the securities
industry and may do so in the future. In periods of reduced volume or
decreasing securities prices, profitability for firms such as KMS may be
adversely affected since many costs other than commission compensation are
relatively fixed.
Participation in underwriting of securities will subject KMS to a risk of
loss if it is unable to resell the securities underwritten. In addition, in
connection with underwriting activities, KMS will be subject to risk of
liability and expense resulting from possible claims against the underwriter
under Federal and state securities laws. There can be no assurance that KMS
will not experience significant losses as a result of such activities.
Competition
All aspects of KMS' business are highly competitive. KMS competes or will
compete directly with numerous other securities brokers and dealers,
investment banking firms, life insurance sales agencies, investment advisors,
leveraged buyout firms, venture funds and, indirectly for investment funds,
with commercial banks. Many of KMS' competitors have substantially greater
capital and other resources than does KMS. Some commercial banks and thrift
institutions also offer securities brokerage services and many commercial
banks offer a variety of investment banking services. Competition among
financial services firms also exists for investment representatives and other
personnel.
The securities industry has become considerably more concentrated and more
competitive in recent years as numerous securities firms have either ceased
operation or have been acquired by or merged into other firms. In addition,
companies not engaged primarily in the securities business, but having
substantial financial resources, have acquired leading securities firms.
These developments have increased competition from firms with greater capital
resources than those of KMS. Furthermore, numerous commercial banks have
petitioned the Board of Governors of the Federal Reserve System for
permission to enter into various new business activities from which they are
currently barred, such as underwriting certain mortgage-backed and municipal
revenue securities and securities backed by consumer loans. Various
legislative proposals, if enacted, would also permit commercial banks to
engage in such activities. Ultimately, these developments or other
developments of a similar nature may lead to the creation of integrated
financial service firms that offer a broader range of financial services.
8
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The securities industry has experienced substantial commission discounting
by broker/dealers competing for institutional and individual brokerage
business, including many offering low rates on the Internet. In addition, an
increasing number of specialized firms now offer "discount" services to
individual customers. These firms generally effect transactions for their
customers on an "execution only" basis without offering other services such
as portfolio valuation, investment recommendations and research. The
continuation of such discounting and an increase in the number of new and
existing firms offering such discounts could adversely affect KMS' retail
business.
Risks of Principal Transactions
KMS' securities trading, market making and underwriting activities will
involve the purchase and sale of securities as a principal. These involve the
risks of a change in the market price of such securities and of decreases in
the liquidity of markets, which can limit KMS' ability to sell securities
purchased or to purchase securities sold in such transactions. Trading
securities as a principal and underwriting corporate securities will
represent an important part of KMS' business and subject KMS' capital to
significant risk.
Regulation
KMS' business is, and the securities industry generally is, subject to
extensive regulation at both the Federal and state level by various
regulatory agencies which are charged with protecting the interests of
customers. Self-regulatory organizations such as the National Association of
Securities Dealers, Inc. (the "NASD") and state securities commissions
require strict compliance with their respective rules and regulations.
Failure to comply with any of these laws, rules and regulations could result
in fines, suspension or industry expulsion or criminal prosecution, which
could have a material adverse effect upon KMS.
Certain regulatory bodies perform audits or other procedures to ensure
compliance with their rules and regulations. The NASD completed an audit of
KMS in February 1998, at which time it issued a letter setting forth certain
alleged exceptions and areas of noncompliance noted during the performance of
its audit procedures. Management of KMS, based on its review of the letter,
discussions with counsel and with the NASD auditors, does not believe that
the ultimate resolution of the matters set forth in the letter from the NASD
will have a material adverse effect on KMS' results of operations or
financial condition, although no assurances thereof can be given.
Effect of Net Capital Requirements
The SEC's Net Capital Rule imposes minimum financial requirements for all
registered broker-dealers doing business with the public. KMS is subject to
the requirements of this rule. The Net Capital Rule places limits on certain
of KMS' operations, such as underwriting activities and market making and
other principal trading activities. A decrease below minimum net capital in
the form of a significant operating loss or any unusually large charge
against KMS' net capital could adversely affect the ability of KMS to expand
or even maintain its present levels of business.
Dependence Upon Key Personnel
KMS is dependent, in particular, upon the services of its President,
Mohammed Ali Khan, Asim S. Kohli and other key management members. See
"Management." If Mr. Khan or any of these management members are unable to
perform their duties for whatever reason, KMS' business could be adversely
affected.
Personnel Retention and Recruitment
A substantial portion of KMS' revenue will be generated through the
activities of its securities traders and registered representatives. The
inability to recruit and retain traders or such representatives or the
inhibition of such customer contact by regulation or otherwise could have a
material adverse impact on
9
<PAGE>
KMS' business and financial condition. Similarly, implementation of KMS'
overall strategy will require it to identify, recruit and retain
professionals in the areas of corporate finance, research and similar areas.
No assurance can be given that KMS will be successful in these undertakings.
Use of Proceeds for Venture Capital Investments
KMS may use a portion of the proceeds from the Offering to invest in
venture capital opportunities and/or private placements. Such investment
decisions will be in the sole discretion of Management and the Board of
Directors. Prospective shareholders of the Company will have no control over
decisions to invest in any such capital venture opportunities.
RISK FACTORS OF SUREAL
Reliance Upon Independent Distributors of Sureal
Sureal distributes its products exclusively through independent
distributors who have entered into agreements with Sureal. Sureal depends
exclusively on the efforts and success of its distributors in generating
revenue and growth for the Sureal. The agreement with the distributors allows
the distributor to terminate the relationship at any time. Sureal will
experience turnover in its distributors from year to year. This dependence
requires the continued sponsoring and training of new distributors to
maintain or increase the total number of distributors of Sureal. Sureal will
experience seasonal decreases in distributor sponsoring and product sales in
countries where it operates because of holidays and vacations recognized in
those countries as well as other factors. Additionally, Sureal will
experience fluctuations in the level of distributor sponsorship. Sureal, like
other direct marketing companies, has little or no control over the level of
sponsorship of new distributors. Sureal cannot predict the timing of these
fluctuations or the degree of the fluctuations. There can be no assurance
that Sureal will attract and retain a sufficient distributors to permit
profitable operations because of the number of direct sales opportunities
that exist for potential dealers.
Potential Negative Impact of Distributor Actions
Sureal and its products can be negatively impacted by actions of
distributors. The publicity resulting from distributor activities such as
inappropriate earnings claims and product representations by distributors can
make the sponsoring and retaining of distributors more difficult, thereby
negatively impacting sales. There can be no assurance that distributor
actions will not have a material adverse effect on Sureal's business or
results or operations.
Government Regulation of Direct Selling Activities
Direct selling activities are regulated by various governmental agencies.
These laws and regulations are generally intended to prevent fraudulent or
deceptive schemes, often referred to as "pyramid" or "chain sales" schemes,
that promise quick rewards for little or no effort, require high entry costs,
use high pressure recruiting methods and/or do not involve legitimate
products.
Sureal may receive inquiries from various government regulatory
authorities regarding the nature of its business and other issues such as
compliance with local business opportunity and securities laws. Such
inquiries may result in adverse publicity for Sureal.
Government Regulation of Products and Marketing
Sureal is subject to or affected by extensive governmental regulations not
specifically addressed to network or direct marketing. Such regulations
govern, among other things, (i) product formulation, labeling, packaging and
importation, (ii) product claims and advertising, whether made by Sureal or
distributors, (iii) fair trade and distributor practices, and (iv) taxes,
transfer pricing and similar regulations that affect foreign taxable income
and customs duties.
10
<PAGE>
Sureal cannot determine the effect, if any, that future governmental
regulations or administrative orders may have on the Company's business and
results of operations. Moreover, governmental regulations in countries where
Sureal plans to commence or expand operations may prevent, delay or limit
market entry of certain products or require the reformulation of such
products. Regulatory action, whether or not it results in a final
determination adverse to Sureal, has the potential to create negative
publicity, with detrimental effects on the motivation and recruitment of
distributors and, consequently, on Sureal's sales and earnings.
Reliance on Certain Distributors; Potential Divergence of Interests between
Distributors and Sureal
The Company's Global Compensation Plan allows distributors to sponsor new
distributors. The sponsoring of new distributors creates multiple distributor
levels in the network marketing structure. Sponsored distributors are
referred to as "down line" distributors within the sponsoring distributor's
"down line network". If down line distributors also sponsor new distributors,
additional levels of down line distributors are created, with the new down
line distributors also becoming part of the original sponsor's "down line
network". This structure may result in certain distributors developing large
down line organizations. The loss of such distributors and their down lines
could adversely affect sales and impair its ability to attract new
distributors.
Entering New Markets
Sureal intends to sell its products in additional countries such as the
United States, Mexico, Canada and Japan, each of which represents a new
market. Each of the proposed new markets will present additional unique
difficulties and challenges. Modifications to product lines may be needed to
accommodate the market conditions in each country, while maintaining the
integrity of Sureal's products. No assurance can be given that Sureal will be
able to reformulate its product lines successfully in any of its new markets
or make other adjustments brought about by local customs or tastes to attract
local consumers.
Change in Nature of Business and Current Reliance on and Concentration of
Outside Manufacturers
Until September 1997, Sureal's independent distributors were supplied with
branded products, which brands were not owned or controlled by Sureal. Until
such time, the revenue generated by the sales of those products was
distributed in an agreed upon manner among the supplier, shipper and Sureal
pursuant to the terms of a verbal agreement. In September 1997, Sureal
decided to develop and distribute its own branded products. Although the
product line is similar to that of the past, this change represents a
significant change in the way in which Sureal conducts its business and
requires Sureal to increase its need for working capital to acquire and hold
inventory. Virtually all of Sureal's branded products are sourced through and
are produced by manufacturers unaffiliated with Sureal. Sureal currently has
little or no direct contact with these manufacturers. Sureal's profit margins
and its ability to deliver its existing products on a timely basis are
dependent upon the ability of outside manufacturers to continue to supply
products in a timely and cost-efficient manner. Furthermore, Sureal's ability
to enter new markets and sustain satisfactory levels of sales in each market
is dependent in part upon the ability of suitable outside manufacturers to
reformulate existing products, if necessary, to comply with local regulations
or market environments, for introduction into such markets. Finally, the
development of additional new products in the future will likewise be
dependent in part on the services of suitable outside manufactures.
Sureal currently acquires products or ingredients from sole suppliers or
suppliers that are considered by Sureal to be the superior suppliers of such
ingredients. Sureal's management believes that, in the event that it is
unable to source any products or ingredients from its current suppliers,
Sureal could produce such products or replace such products or substitute
ingredients without a significant disruption to its operations or prohibitive
increases in the cost of goods sold. However, there can be no assurance that
the loss of such a supplier would not have a material adverse effect on
Sureal's business and results of operations. Similarly, no assurances can be
given that Sureal's branded products will gain market acceptance.
11
<PAGE>
Competition
The markets for personal care and nutritional products are large and
intensely competitive. Sureal competes directly with companies that
manufacture and market personal care and nutritional products in each of
Sureal's product lines. Sureal competes with other companies in the personal
care and nutritional products industry by emphasizing the value and premium
quality of the Company's products and the convenience of the company's
distribution system. Many of Sureal's competitors have much greater name
recognition and financial resources than does Sureal. In addition, personal
care and nutritional products can be purchased in a wide variety of channels
of distribution. While Sureal believes that consumers appreciate the
convenience of ordering products from home through a sales person or through
a catalog, the buying habits of many consumers accustomed to purchasing
products through traditional retail channels are difficult to change.
Sureal's product offerings in each product category are also relatively small
compared to the wide variety of products offered by many other personal care
and nutritional product companies. There can be no assurance that Sureal's
business and results of operations will not be affected materially by market
conditions and competition in the future.
Sureal also competes with other direct selling organizations, many of
which have longer operating histories and higher visibility name recognition
and financial resources. The leading network marketing company in Sureal's
markets is Amway Corporation and its affiliates. Sureal competes for new
distributors on the basis of its Global Compensation Plan and its premium
quality products. Management envisions the entry of many more direct selling
organizations into the marketplace as this channel of distribution expands
over the next several years. Sureal also believes that other large,
well-financed corporations may launch direct selling enterprises which will
compete with Sureal in certain of its product lines. There can be no
assurance that Sureal will be able to successfully meet the challenges posed
by this increased competition.
Sureal competes for the time, attention and commitment of its independent
distributor force. Given that the pool of individuals interested in the
business opportunities presented by direct selling tends to be limited in
each market, the potential pool of distributors for Sureal's products is
reduced to the extent other network marketing companies successfully recruit
these individuals into their businesses. Although management believes that
Sureal offers an attractive business opportunity, there can be no assurance
that other network marketing companies will not be able to recruit Sureal's
existing distributors or deplete the pool of potential distributors in a
given market.
Operations Outside the United States; Currency and Political Risks
Sureal's operations are located, and most of its revenues are derived
from, operations outside the United States. The Sureal's operations may be
materially and adversely affected by economic, political and social
conditions in the countries in which it operates. A change in policies by any
government in Sureal's markets could adversely affect Sureal and its
operations through, among other things, changes in laws, rules or
regulations, or the interpretation thereof, confiscatory taxation,
restrictions on currency conversion, currency repatriation or imports, or the
expropriation of private enterprises. Although the general trend in these
countries has been toward more open markets and trade policies and the
fostering of private business and economic activity, no assurance can be
given that the governments in these countries will continue to pursue such
policies or that such policies will not be significantly altered in future
periods. This could be especially true in the event of a change of
leadership, social or political disruption or upheaval, or unforeseen
circumstances affecting economic political or social conditions or policies.
Political Risks Inherent in Russia
A favorable political climate in the Russian Market and the openness of
its markets to United States trade is important to the success of Sureal. The
Russian Federation appears to have embraced political reforms and market
economies. However, there are no local procedures for such vast changes; the
region has known only totalitarianism and a centrally-planned economy for
most of this century. Any reversal in such perceived new political and
economic trends and policies, or in international trade policy generally,
12
<PAGE>
could materially adversely affect Sureal's operations. Moreover, the
political situation in the Russian Federation, where Sureal expects to
generate a substantial portion of its revenues in the near future, remains in
constant transition. Since the arrival of the Yeltsin government in December
1991, the Russian Federation has experienced a proliferation of political
parties, an increase of nationalist sentiment, and a fragmentation of its
economic and political institutions. In addition, there has been a dramatic
increase in crime, including organized crime which may target businesses in
the Russian Federation. The viability of the Russian government has been
tested by various political factions gaining strength and unsuccessful coup
d'etats; there can be no assurance that a coup d'etat will not again be
attempted or that any future attempts will not be successful. In addition,
the privatization process in other parts of the Russian Federation has been
sporadic.
Because the Russian Federation is in the early stages of development of a
market economy, its commercial framework in still developing. New
market-oriented laws are being enacted, but their application is still
uncertain. Although Sureal believes that the Russian Federation has advanced
in the area of commercial law, Russian laws and courts are not well tested in
contract enforcement. Similarly, although Russian law regarding foreign
investment provides protection against nationalization and confiscation,
there is little or no judicial precedent in this area.
The various government institutions and the relations between them, as
well as the government's policies and the political leaders who formulate and
implement them, are subject to rapid and potentially violent change. The
Constitution of the Russian Federation (the "Russian Constitution") gives the
President of the Russian Federation substantial authority, and any major
changes in, or rejection of, current policies favoring political and economic
reform by the President may have a material adverse effect on Sureal.
The Russian Federation is constituted as a federation of republics,
territories, regions (one of which is an autonomous region), cities of
federal importance and autonomous areas, all of which are equal members of
the Russian Federation. The delineation of authority among the regions, the
internal republics and the federal governmental authorities is, in many
instances, uncertain, and in some instances, contested. In Chechnya, for
example, regional and local authorities openly defied the powers of the
federal government, resulting in a protracted military confrontation. Lack of
consensus between local and regional authorities and the federal government
often results in the enactment of conflicting legislation at various levels
and may result in political instability. This lack of consensus may have
negative economic effects, which could be material to Sureal.
Furthermore, the political and economic changes in Russia in recent years
have resulted in significant dislocations of authority, as previously
existing structures have collapsed and new structures are only beginning to
take shape. The local press and international press have reported that
significant organized criminal activity has arisen, particularly in large
metropolitan centers. Moreover, the combination of the sudden loss of the
tight social control that was characteristic of the Soviet Union, a large but
poorly paid police force, an increase in unemployment, an influx of
unemployed persons from outlying areas to metropolitan centers and a decline
in real wages has led to a substantial increase in property crime in large
cities. In addition, the local press and international press have reported
high levels of official corruption in the Moscow Region, and elsewhere in the
Russian Federation. In an effort to decrease the levels of criminal activity
and corruption, President Yeltsin has issued a series of decrees granting the
security forces very broad powers. It has been acknowledged that many
provisions of these anti-crime decrees violate the Russian Constitution, as
well as the Criminal Code of the Russian Federation, and these decrees have
been viewed by many as a threat to civil rights. While the Sureal has not
been adversely affected by these factors to date, no assurance can be given
that the depredations of organized or other crime will not in the future have
a material adverse effect on Sureal.
The failure of many state-controlled enterprises to pay full salaries on a
regular basis, and the failure of salaries and benefits generally to keep
pace with the rapidly increasing cost of living have led in the past, and
could lead, in the future, to labor and social unrest. Such labor and social
unrest may have political, social and economic consequences, such as
increased support for a renewal of centralized authority, increased
nationalism (with restrictions on foreign involvement in the economy of the
Russian Federation) and increased violence, any of which could have a
material adverse effect on Sureal.
13
<PAGE>
The health of Russia's current president, Boris Yeltsin, has been reported
to be poor and, as a result, he could be forced to step down, could become
incapacitated or could die. In such event, under the Russian Constitution the
prime minister would become acting president and would be required to call
new presidential elections. This process could result in a period of
political instability that could have a material adverse effect on companies
operating in Russia.
Currency Risks Associated with Russia
The recent history of trading in the rouble as against the U.S. Dollar has
been characterized by significant declines in value and considerable
volatility. Although in recent months, the rouble has experienced relative
stability against the U.S. Dollar, there is a risk of further declines in
value and continued volatility in the future. The rouble is generally not
convertible outside Russia. A market exists within Russia for the conversion
of roubles into other currencies, but it is limited in size and is subject to
rules limiting the purposes for which conversion may be effected. The limited
availability of other currencies may tend to inflate their values relative to
the rouble and there can be no assurance that such a market will continue to
exist indefinitely. Moreover, the banking system in Russia is not yet as
developed as its Western counterparts and considerable delays may occur in
the transfer of funds within, and the remittance of funds out of, Russia.
All of Sureal's billings to its distributors are denominated in U.S.
dollars. To date, its distributors have always paid such invoices promptly.
However, any delay in these distributors' ability to convert roubles into a
foreign currency in order to make a payment or delay in the transfer of such
foreign currency could have a material adverse effect on Sureal.
Legal Risks Associated with Russia
Russia lacks a fully developed legal system. Russian law is evolving
rapidly and in ways that may not always coincide with market developments,
resulting in ambiguities, inconsistencies and anomalies, and ultimately in
investment risk that would not exist in more developed legal systems. For
example, the ability of a creditor both to obtain a lien or other similar
priority in payment and to enforce such priority is uncertain. Furthermore,
effective redress in Russian courts in respect of a breach of law and
regulation, or in an ownership dispute, may be difficult to obtain.
Risks associated with the Russian legal system include: (i) the untested
nature of the independence of the judiciary and its immunity from economic,
political or nationalistic influences; (ii) the relative inexperience of
judges and courts in commercial dispute resolution, and generally in
interpreting legal norms; (iii) inconsistencies among laws, presidential
decrees and governmental and ministerial orders and resolutions; (iv)
oftentimes conflicting local, regional and national laws, rules and
regulations, particularly in the Russian Federation; (v) the lack of judicial
or administrative guidance on interpreting the applicable rules; and (vi) a
high degree of discretion on the part of government authorities and arbitrary
decision making which increases, among other things, the risk of property
expropriation. The result has been considerable legal confusion, particularly
in areas such as company law, property, commercial and contract law,
securities law, foreign trade and investment law and tax law. No assurance
can be given that the uncertainties associated with the existing and future
laws and regulations of Russia will not have a material adverse effect on
Sureal.
Furthermore, the relative infancy of business and legal cultures in Russia
is reflected in the inadequate commitment of local business people,
government officials and agencies, and the judicial system to honor legal
rights and agreements, and generally to uphold the rule of law. Accordingly,
Sureal may, from time to time, confront threats of, or actual, arbitrary or
illegal revision or cancellation of its licenses and agreements, and face
uncertainty or delays in obtaining legal redress, any of which could have a
material adverse effect on the results of Sureal's operations.
Sureal is incorporated in the State of Delaware. However, a substantial
portion of its assets will be located in the Russian Federation. By reason of
the foregoing, it may not be possible for Sureal to effect
14
<PAGE>
service of process within the United States upon key distributors or
warehouse operators, or to enforce in the United States or outside of the
United States judgments obtained against such entities or individuals. No
treaty exists between the United States and the Russian Federation for the
reciprocal enforcement of foreign court judgments.
Social Risks Inherent in Russia
The political and economic changes in Russia since the breakup of the
former Soviet Union have resulted in significant social dislocations, as
existing structures of authority have collapsed and new ones are only
beginning to take shape. The resulting broad decline in the standard of
living has resulted in substantial political pressure on the government to
slow or even reverse the economic policies currently being pursued.
In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generated businesses, and an increased integration of
Russian organized crime and major international criminal organizations. In
addition, a substantial increase in property crime in large cities has been
reported. Finally, the local and international press have reported high
levels of official corruption in the locations where the Company operates. No
assurance can be given that organized or other crime or claims that Sureal's
independent distributors have been involved in official corruption will not,
in the future, have a material adverse effect on Sureal.
15
<PAGE>
DILUTION
Prior to selling any shares under this Offering, based on the Company's
Consolidated Financial Statements as of December 31, 1997, the Company has
10,985,634 shares of common stock issued and outstanding (including 291,000
issuable upon the conversion of $873,000 in preferred stock) with a net
tangible book value of $540,679(or $.05 per share).
Assuming that the maximum number of 3,000,000 Shares is sold in this
Offering, there would be a total of 13,985,634 (11,652,301 if the Minimum
Offering is sold) shares issued and outstanding with a total net tangible
book value of $38,416,452 or $2.75 per share ($8,886,452 or $.76 per share if
the Minimum Offering is sold). The dilution to the public stockholders would
be $12.25 per share or 82% per share based on a purchase price of $15 per
share ($14.24 or 95% if the Minimum Offering is sold). The public
stockholders would own 21.5% (5.7% if the Minimum Offering is sold) of the
outstanding shares. The present stockholders would benefit by an increase in
net tangible book value of $2.70 ($.71 if the Minimum Offering is sold) per
share.
Net tangible book value per share is obtained by subtracting the total
liabilities from total tangible assets (total assets less intangible assets).
Dilution is the difference between the public offering price and the net
tangible book value of shares immediately after the Offering.
<TABLE>
<CAPTION>
MAXIMUM MINIMUM
--------- ---------
<S> <C> <C>
Public offering price per share ...................... $15.00 $15.00
--------- ---------
Net tangible book value per share before Offering (2). .05 .05
Increase per share attributable to public investors . 2.70 .71
--------- ---------
Net tangible book value per share after Offering (2) . 2.75 .76
--------- ---------
Dilution per share to public investors ............... $12.25 $14.24
========= =========
</TABLE>
- ------------
(1) Before deduction of underwriting commissions and estimated expenses
to be paid by the Company.
(2) Gives effect to the issuance of 750,000 shares pursuant to the Share
Exchange Agreement associated with the acquisition of Sureal (see
"Business" and "Certain Transactions") and the two for one reverse
stock split effective December 8, 1997 and assumes the issuance of
291,000 Common Shares upon the conversion of $873,000 of preferred
stock (see "Description of Capital Stock").
The following table sets forth, after giving effect to the assumed
completion of the Offering, information relating to the number of shares
purchased from the Company, the total consideration paid and the average
price per share paid by existing shareholders and by the public participating
in the Offering.
<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER (1) PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Present Shareholders 10,985,634 78.5 $ 3,401,949 7.0 $ .31
Public Investors:
Maximum Offering ... 3,000,000 21.5 45,000,000 93.0 15.00
------------ --------- ------------- ---------
Total .............. 13,985,634 100.0 $48,401,949 100.0
============ ========= ============= =========
</TABLE>
<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER (1) PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Present
Shareholders........ 10,985,634 94.3 $ 3,401,949 25.4 $ .31
Public Investors:
Minimum Offering .. 666,667 5.7 10,000,000 74.6 15.00
------------ --------- ------------- ---------
Total .............. 11,652,301 100.0 $13,401,949 100.0
============ ========= ============= =========
</TABLE>
- ------------
(1) Gives effect to the issuance of 750,000 shares pursuant to the Share
Exchange Agreement associated with the acquisition of Sureal (see
"Business" and "Certain Transactions") and the two for one reverse
stock split effective December 8, 1997 and assumes the issuance of
291,000 Common Shares upon the conversion of $873,000 of preferred
stock (see "Description of Capital Stock").
16
<PAGE>
USE OF PROCEEDS
The allocations set forth below are the estimates of management as to how
the net proceeds of the Offering (estimated to be $37,875,000 if the Maximun
Offering is sold and $8,325,000 if the Minimum Offering is sold) will be
allocated as set forth below. The determination of net proceeds assumes that
the Company will pay a total of 12.5 percent of gross proceeds to the
Underwriter in the form of commissions and expenses as well as incur expenses
of the offering of $500,000 ($425,000 if the Minimum Offering is sold). For
the purposes of this presentation, commissions and expenses that will be paid
to KMS, a subsidiary of the Company, are shown as expenses and treated as net
reductions of Offering proceeds. This table also excludes possible sales by
the Selling Shareholder because none of the proceeds from such sales will go
to the Company.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
OFFERING OFFERINMG
------------ -------------
<S> <C> <C>
Develop Sureal's business (including repayment of $210,000
principal amount of indebtedness) ................................. $3,000,000 $ 5,000,000
Purchase a seat on the New York Stock Exchange...................... 1,500,000
Purchase a seat on the American Stock Exchange...................... 500,000
Open brokerage office in Bahrain.................................... 4,000,000 4,000.000
Expand KMS' proprietary trading..................................... 7,000,000
Expand KMS Asset Management Group................................... 1,325,000 7,000,000
Effect other acquisitions or strategic investments.................. 12,875,000
------------ -------------
Total............................................................... $8,325,000 $37,875,000
============ =============
</TABLE>
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this Offering based upon the current state of its
business operations, its current plans and current economic and business
conditions and is subject to reapportionment among categories listed above or
to new categories. Future events, including the problems, expenses,
complications and delays frequently encountered by growing businesses, as
well as changing economic conditions, the regulatory environments confronting
the Company's subsidiaries, may make shifts in the allocation of funds
necessary or desirable.
The Company has identified the Direct Marketing and Military Resale
industries as offering attractive rollup opportunities. However, no formal
discussions have taken place with any potential acquiree and no such
discussions are anticipated until following the completion of this Offering.
The funds from the Offering will be invested in United States Treasury
Obligations or a similar instrument until needed for the purposes set forth
above.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Information set forth herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "should" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The Company
cautions readers that important factors may affect the Company's actual
results and could cause such results to differ materially from
forward-looking statements made by or on behalf of the Company. Such factors
include, but are not limited to, changing market conditions, the impact of
competitive products, pricing, acceptance of the Company's products in
development and other risks detailed herein and in other filings that the
Company makes with the SEC.
RESULTS OF OPERATION
The Company
The Company was organized under the laws of the State of Delaware in
December 17, 1996. It had no operating activities in 1996. In 1997, it had no
direct revenues other than those of its operating subsidiaries, KMS and
Sureal, that are described individually in the sections that follow. Its
expenses in 1997 consisted of:
<TABLE>
<CAPTION>
<S> <C>
Officers' compensation .. $342,500
Start-up costs ........... 564,335
Office and administrative 36,523
----------
Total .................... $943,358
==========
</TABLE>
The start-up costs relate principally to the costs of establishing a
brokerage firm in Bahrain to take advantage of KMS' contacts in the Middle
East. The Company is optimistic that all necessary approvals and
authorizations will be obtained, but no assurances thereof can be given.
18
<PAGE>
KMS
1997 Compared to 1996
<TABLE>
<CAPTION>
DESCRIPTION 12/31/97 PERCENT 12/31/96 PERCENT DIFFERENCE
- ----------- ------------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Commissions and trading ..... $ 2,521,870 $ 243,097
Interest and other ........... 392,327 5,892
Total ........................ 2,914,197 100.00% 248,989 100.00% $2,665,208
Expenses:
Compensation and related .... 1,705,207 58.51% 481,678 193.45% 1,223,529
Clearance and floor
brokerage.................... 158,184 5.43% 68,385 27.47% 89,799
Occupancy and administratine . 668,104 22.93% 525,427 211.02% 142,677
Professional services ........ 273,039 9.37% 310,032 124.52% (36,993)
Communications ............... 317,447 10.89% 68,343 27.45% 249,104
Regulatory ................... 93,919 3.22% 44,608 17.92% 49,311
Other ........................ 1,100,754 37.77% 1,100,754
Total ........................ 4,316,654 148.12% 1,498,473 601.82% 2,818,181
Net loss ..................... (1,402,457) (1,249,484)
Less--Intercompany expenses . 818,271 28.08%
Net .......................... $ (584,186) $(1,249,484) $ 665,298
</TABLE>
The periods are not comparable because KMS activities were de minimis
prior to May 1996. Revenues increased as follows:
<TABLE>
<CAPTION>
1997 1996 DIFFERENCE
------------ ----------- ------------
<S> <C> <C> <C>
Commission income ... $ 863,673 $ 355,795 $ 507,878
Trading income - net . 1,658,197 (129,279) 1,789,476
Interest ............. 37,656 5,892 31,674
Other ................ 354,671 16,581 338,090
------------ ----------- ------------
Total .............. $2,914,197 $ 248,989 $2,665,208
============ =========== ============
</TABLE>
The increase in commission income reflects the (i) general increase in
KMS' activities during the period and (ii) the receipt in 1997 of commissions
of $333,755 associated with underwriting activities. The increase in trading
income reflects (i) the increase in resources available for trading and (ii)
the impact of net trading losses of approximately $165,000 during the last
three months of 1996. Other revenues increased because of significant
increases in service and investment banking fees.
The overall level of expenses increased in 1997 because of the increase in
sales and trading activities. Increases not related to increases in activity
included consulting and legal fee increases of approximately $215,000. In
addition, KMS settled a dispute involving a guarantee of a customer/preferred
stockholder obligation for $282,483. Overall executive compensation also
increased by approximately $375,000.
The intercompany expense for 1997 is described in Note 4 to KMS' financial
statements.
No benefit has been recorded for KMS' net operating loss carryforwards
because of the uncertainty of utilizing such carryforwards.
SUREAL
Sureal was formed in August 1995, at which time it acted as the marketing,
sales and administrative arm for Eastern Europe for an existing direct
marketing company specializing in personal care and nutritional products. In
October 1997, it decided to change its strategic focus by developing its own
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<PAGE>
product line. These factors, taken as a whole, distort the comparability of
the data set forth below. Sureal commenced its operations in August 1995
using a network of 333 independent distributors in Russia. The number of
distributors in the network increased to 4,972 at December 31, 1995; 94,307
at December 31, 1996; and 172,221 at May 31, 1997, Commissionable sales
levels, to a large extent, are a function of the number of distributors
selling the product. On the other hand, commissionable sales were impacted in
the last quarter of 1997 while Sureal was developing its own branded product
line. It lacked sufficient inventory levels for its new products until
January 1998.
The nature of Sureal's business is such that it can process significant
volumes of business without increasing administrative expenses. It has a
highly automated administrative function and receives data from the major
independent distributors in electronic form.
1997 Compared to 1996
<TABLE>
<CAPTION>
1997 % 1996 % DIFFERENCE %
------------- ------- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Commissionable sales ......... $31,720,456 $21,594,562 $10,125,894 46.9%
Cost of commissionable sales 30,459,297 20,720,459 9,738,838
Net .......................... 1,261,159 874,103 387,056
Other revenues ............... 67,208 65,261 1,947 3.0%
Gross Margin ................. 1,328,367 939,364 389,003 41.4%
Expenses:
Compensation and related .... 463,693 34.9% 348,309 37.1% 115,384 33.1%
Occupancy and administrative . 251,227 18.9% 205,135 21.8% 46,092 22.5%
Total ........................ 714,920 53.8% 553,444 58.9% 161,476 29.2%
Income (loss) before taxes .. 613,447 46.2% 385,920 41.1% 227,527 59.0%
Proforma income taxes ........ 229,000 17.2% 111,000 11.8% 118,000 106.3%
Proforma Net Income .......... $ 384,447 28.9% $ 274,920 29.3% $ 109,527 39.8%
</TABLE>
Commissionable sales increased because of the greater number of
independent distributors in 1997 compared with 1996. This increase was offset
because Sureal changed its focus in 1997 and decided to introduce its own
branded products. This decision offset the increase because it took several
months to begin obtaining a sufficient quantity of inventory to meet the
demand of the independent distributors and to complete the registration
process for its products. Management believes that this new strategy will
result in significantly higher margins on sales.
Administrative expenses increased principally because of increased office
salaries and related benefits. Facilities costs increased because Sureal
increased the size of its office space to accommodate the growth in office
personnel. No other expense category fluctuated significantly between
periods.
Sureal was an S corporation during the periods covered. The pro forma
income tax provision reflected above represents the amounts that would have
been reported as a provision for income taxes if Sureal was filing a separate
return as a C corporation in each year.
20
<PAGE>
1996 Compared to 1995
<TABLE>
<CAPTION>
1996 % 1995 % DIFFERENCE %
------------- ------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commissionable sales ....... $22,726,683 $480,923 $22,245,760 4625.6%
Other revenues ............. 109,936 142,459 (32,523) (22.8)%
Total ...................... 22,836,619 623,382 22,213,237 3563.3%
Cost of revenues ........... 21,897,254 95.9% 568,417 91.2% 21,328,837 3752.3%
Gross profit ............... 939,365 4.1% 54,965 8.8% 884,400 1609.0%
Expenses:
General and administrative 437,081 1.9% 108,111 17.3% 328,970 304.3%
Selling .................... 95,622 0.4% 18,552 3.0% 77,070 415.4%
Facilities ................. 19,376 0.1% 8,974 1.4% 10,402 115.9%
Other ...................... 1,365 0.0% 823 1.5% 542 65.9%
Total ...................... 553,444 2.4% 136,460 21.9% 416,984 305.6%
Income (loss) before taxes $ 385,921 1.7% $(81,495) (13.1)% $ 467,416
</TABLE>
Sureal began operations in August 1995 and was a start-up operation for
much of the period August 5, 1995 until December 31, 1995. Therefore, the two
periods are not comparable. Other revenues in 1995 consisted principally of
miscellaneous product sales outside the direct marketing network. The amount
of such sales decreased in each subsequent period as the direct marketing
network was put in place.
INFLATION
The Company's business and operations have not been materially affected by
inflation during the period ended December 31, 1997. However, KMS, by the
nature of its business, would be impacted by a period of inflation. Sureal
could be affected to the extent that inflation in the Russian Market causes
its products to be sold at unattractive price points.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had stockholders equity of $540,679,
after giving effect to the merger with Sureal completed in December 1997 and
accounted for as a pooling of interests. Management of the Company believes
that the proceeds from the initial public offering will be sufficient to meet
the initial liquidity and capital needs. The Company has not entered into any
material commitments regarding capital expenditures.
SEASONALITY
The demand for the Company's products and services is not seasonal.
However, it is not unusual for brokerage activity to decrease during the
summer months.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"; No.
129, " Disclosure of Information about Capital Structure"; No. 130,
"Reporting Comprehensive Income"; and No. 131, "Disclosure about Segments of
an Enterprise and Related Information." These new accounting pronouncements
are not expected to have a significant impact on the Company. SFAS No. 128
requires the presentation of Basic Earnings Per Share that the Company
believes will, in its case, approximate the amounts reported as Primary
Earning Per Share. The disclosure requirements in SFAS No. 129 and 130 are
not expected to impact the Company's financial statements. The merger with
Sureal is expected to result in the Company having to provide segment
information.
21
<PAGE>
BUSINESS
The Company
United States Financial Group, Incorporated ("USFG" or the "Company") is a
diversified holding company, incorporated under the laws of the State of
Delaware. USFG's main business purpose is to acquire undervalued or
reasonably priced companies in industries well suited for roll up
consolidation transactions. These roll up or consolidation candidates operate
in industry or market niches that are well established, are served in a
fragmented way and do not compete directly with large competitors.
Furthermore, these target companies have to have experienced management teams
and do not require significant expenditures for research and development.
USFG has begun to implement this strategy through the acquisition and/or
establishment of four companies and has assembled a management team that is
experienced in all phases of mergers and acquisitions.
The Company has four subsidiaries, two of which are currently active.
Klein, Maus & Shire, Inc. ("KMS"), an investment banking firm and a
broker-dealer of securities duly registered with the SEC and is a member firm
of the NASD, Municipal Securities Rulemaking Board (known as the "MSRB"), the
Securities Insurance Protection Corporation ("SIPC"). Sureal International,
Inc. ("Sureal"), a sales and direct marketing company that sells health and
other consumer products in Russia and other republics of the former Soviet
Union through a network of independent distributors was acquired in December
1997 in a pooling of interest transaction.
The two inactive subsidiaries were formed for specific purposes. KMS Asset
Management Group, Incorporated will be an asset management and international
financial consultancy company and will take advantage of the contacts of
USFG's president. US Military Resale Group, Incorporated ("Military Resale
Group") was established to acquire military commissaries and other suppliers
of consumer products to the Army and Air Force Exchange System.
The Company acquired KMS through a share exchange effected on March 31,
1997 in which Mr. Khan exchanged 18,889,267 shares of KMS' common stock for
18,889,267 shares of the Company's common stock. On December 8, 1997, the
shares held by Mr. Khan became subject to a two for one reverse stock split,
thereby converting into 9,944,634 shares. On December 3, 1997, the Company
exchanged 750,000 shares of its common stock, subject to adjustment, for all
of the outstanding shares of common stock of Sureal. Both of these
transactions were accounted for as pooling of interest. KMS, as a
broker-dealer and investment bank, will be the vehicle to obtain and provide
the capital necessary to implement the overall strategy.
The Company's principal place of business is located at 110 Wall Street,
New York, New York 10005, and its telephone number is 212-785-4545.
Klein Maus & Shire, Inc.
KMS is a broker-dealer of securities duly registered with the SEC and a
member firm of the NASD, was incorporated under the laws of the State of
Indiana on August 15, 1994 under the name Comprehensive Financial Products,
Inc. It changed its name to "Khan, Edwards & Company" on December 9, 1994 and
adopted its current name on February 26, 1996.
KMS is an investment bank providing full service investment banking,
trading, research and advisory services to over 3,000 high net worth
individuals and institutions around the world. The key to KMS' current and
future success is its principal client base of high net worth international
investors and institutions. KMS' access to this client base through its
senior management puts it in a strong position to expand its investment
banking activities without reliance on cold calling, high pressure marketing
activities. KMS' growth plans are based on a corporate policy emphasizing
generating revenues at a non-retail level, and maintaining a small sales
force comprised of experienced financial consultants with impeccable records.
KMS is located at 110 Wall Street in New York where it occupies two floors
totaling 14,000 square feet.
Most of KMS' activities to date involve the retail trading and selling of
securities. KMS has also participated as a member of the selling group on
seven initial public offerings and one secondary public
22
<PAGE>
offering and has co-managed one initial public offering. Its clients are
located throughout the country and around the world and include institutional
investors.
KMS' goal is to keep providing full service investment banking services,
including research and advisory capabilities, to sophisticated high net worth
individuals and institutions. The key to building upon this goal is the
expansion of the KMS Asset Management Group, Incorporated that manages funds
for a fee (see below). KMS also intends to acquire seats on the New York and
American Stock Exchanges because its principal client base is and is likely
to continue being high net worth international investors and institutions.
KMS access to this client base through its senior management which puts it in
a strong position to expand its investment banking activities without
reliance on cold calling, high pressure sales activities.
KMS' principal strategy is to focus its resources on certain core
businesses where Management believes KMS can compete profitably and be among
the leading participants in each targeted market. In addition, KMS emphasizes
economic and investment research in the development of its business. Over the
next several years, KMS plans to expand significantly the scope of its
business activities and its customer base, both in the U.S. and
internationally. This strategy will allow KMS to establish strong positions
in selected high-margin activities, including equity and high-yield corporate
securities underwriting. Mr. Khan, KMS' President, currently manages
investments for several international institutional investors and has KMS
poised to expand this aspect of its business. KMS' ability to identify,
recruit and retain experienced and talented professionals is and will be the
key element of its success in implementing its expansion strategy. These
professionals will augment the capabilities of the existing officers and
directors who have experience in capital market transactions and mergers and
acquisitions. No assurances can be given that KMS will be successful in
implementing its plans.
KMS conducts its business through several operating divisions, each of
which will become more distinctive as KMS expands its operations. These
divisions are (i) the Banking Group; (ii) the Capital Markets Group, which
includes the Fixed-Income, Institutional Equities, and other retail
operations; and the (iii) Money Management Group, which engages in the
business of providing fee-based advisory services to corporate and
institutional customers. The Capital Markets Group comprises substantially
all of KMS' activities to date.
THE BANKING GROUP has participated in raising capital and providing
financial advice to companies throughout the U.S. and plans to expand its
activities abroad. It also manages and underwrites public offerings of
securities, arranges private placements and provides advisory and other
services in connection with mergers, acquisitions, restructurings and other
financial transactions. In addition, it assists developing countries to
obtain project financing and the privatization of government owned
enterprises. It was recently engaged as the investment banker for the
Republic of Granada which marks the start of its undertakings in this arena.
The intermediate and long-term plans are to invest KMS Asset Management Group
funds in projects and financing arranged by the Banking Group.
THE CAPITAL MARKETS GROUP provides a broad range of services, including
retail trading, research origination and distribution of equity and
fixed-income securities, private equity investments and venture capital. Its
Fixed-Income Division will provide institutional and individual clients with
research, trading and sales services for a broad range of fixed-income
products, including high-yield corporate, investment grade, U.S. government
and asset-backed securities. The Institutional Equities Division provides
institutional clients with research, trading and sales services in listed and
over-the-counter equity securities.
The Capital Markets Group will also engage in proprietary trading. KMS
will manage its risks by limiting to nominal amounts the amount of securities
that will be held overnight in the trading portfolios.
KMS' retail customer accounts are carried on a "fully disclosed" basis by
Cowen & Co., members of the New York and other principle stock exchanges,
pursuant to a clearing agreement. This agreement provides, among other
things, that customer securities positions and credit balances are insured up
to $50,000,000 by Securities Investors Protection Corp. ("SIPC") and
supplementary private insurance coverage. All customer credit balances are
subject to immediate withdrawal from Cowen & Co., at the discretion of the
individual customer.
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<PAGE>
The Company's trading and retail activities benefit from the utilization
of automated trading systems such as Selectnet, SOES and ACT. The company's
trading and retail activities will further benefit from the utilization of
other automated trading systems such as Instinet, BNET, and the automated
ticketless Brass trading program. The Brass system, which, in effect, makes
trading "paperless", enhances the ability of traders to focus on market
conditions by eliminating the prior administrative burden inherent in
trading. The Selectnet and Instinet networks link a company with trading
partners throughout the United States, including other brokerage firms, block
trading desks and specialists on the regional exchanges. These systems
provide KMS with access into every major securities exchange on a worldwide
basis. As it grows, KMS will also employ an electronic volume monitoring
system that will allow it to determine the percentage of its relative trading
volume in a specific security.
KMS is currently registered for retail distribution in the following
jurisdictions:
<TABLE>
<CAPTION>
<S> <C> <C>
Alabama Massachusetts South Dakota
Alaska Michigan Texas
Arizona Minnesota Utah
Arkansas Mississippi Vermont
California Montana Virginia
Colorado Nevada Washington, D.C.
Connecticut New Jersey Washington
Delaware New York West Virginia
Florida North Carolina Wisconsin
Georgia Ohio Wyoming
Illinois Oklahoma
Kansas Oregon Pending:
Kentucky Pennsylvania Indiana
Louisiana Rhode Island Maine
Maryland South Carolina Nebraska
</TABLE>
KMS' trading and retail operations are regulated by the NASD. The NASD
places various restrictions and limitations on the operations of member
firms, subject to revision based on the NASD's experience with each firm. KMS
may make markets in 15 NASDAQ securities and employ up to 55 financial
consultants. KMS is allowed to co-manage a best efforts or a firm commitment
public offering of securities. KMS does not and may not participate in
transactions involving penny stocks.
KMS ASSET MANAGEMENT GROUP, INCORPORATED was formed to serve as an advisor
to institutions, individuals and governments. Its strategy will be to expand
its money management business by increasing assets under management and by
increasing its international consultancy business by becoming advisors to
additional institutions and governments of developing countries. It currently
acts as an advisor to several international corporations and individuals and
to the governments of Grenada, South Korea and Pakistan. It is acting as an
advisor to the Grenadine government on its tourism and infrastructure
development project and to the government of Pakistan on establishing the
first "High Technology Industry Park" in Pakistan.
The minimum investment required for investors within KMS asset management
group is $250,000. Each account is insured up to $50 million by an "A" rated
insurance company, but is subject to normal market risks associated with
investing. KMS charges fees equal to one percent of the average assets under
management plus performance bonuses.
Government Regulation
The SEC is the Federal agency responsible for the administration of the
Federal securities laws. KMS is registered as a broker-dealer with the SEC.
Much of the regulation of broker-dealers has been delegated to self-regulated
organizations, principally the NASD and national securities exchanges such as
NASDAQ. These self-regulatory organizations adopt rules (subject to approval
by the SEC) that govern the industry and conduct periodic examinations of
KMS' operations. Securities firms are also subject to
24
<PAGE>
regulation by state securities administrators in those states in which they
conduct business. KMS is currently registered as a broker/dealer in states
and the District of Columbia.
Broker-dealers are subject to regulation covering all aspects of the
securities business, including sales method, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities,
capital structure of securities firms, record-keeping and the conduct of
directors, officers and employees. Additional legislation, changes in rules
promulgated by the SEC and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules may directly affect
the mode of operation and profitability of broker-dealers. The SEC,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer,
its officers or employees. The principal purpose of regulation and discipline
of broker-dealers is the protection of customers and the securities markets,
rather than protection of creditors and stockholders of broker-dealers.
Certain regulatory bodies perform audits or other procedures to ensure
compliance with their rules and regulations. The NASD completed an audit of
KMS in February 1998, at which time it issued a letter setting forth certain
alleged exceptions and areas of noncompliance noted during the performance of
its audit procedures. Management of KMS, based on its review of the letter,
discussions with counsel and with the NASD auditors, does not believe that
the ultimate resolution of the matters set forth in the letter from the NASD
will have a material adverse effect on KMS' results of operations or
financial condition, although no assurances thereof can be given.
The SEC's Net Capital Rule imposes minimum financial requirements for all
registered broker-dealers doing business with the public. KMS is subject to
the requirements of this rule. The Net Capital Rule places limits on certain
of the KMS' operations, such as underwriting activities and market making and
other principal trading activities. A decrease below minimum net capital in
the form of a significant operating loss or any unusually large charge
against KMS' net capital could adversely affect its ability to expand or even
maintain its present levels of business. See "Risk Factors."
Competition
All aspects of KMS' business are highly competitive. KMS competes or will
compete directly with numerous other securities brokers and dealers,
investment banking firms, life insurance sales agencies, investment advisors,
leveraged buyout firms, venture funds and, indirectly for investment funds,
with commercial banks. Many of KMS' competitors have substantially greater
capital and other resources than does KMS. Some commercial banks and thrift
institutions also offer securities brokerage services and many commercial
banks offer a variety of investment banking services. Competition among
financial services firms also exists for investment representatives and other
personnel.
The securities industry has become considerably more concentrated and more
competitive in recent years as numerous securities firms have either ceased
operation or have been acquired by or merged into other firms. In addition,
companies not engaged primarily in the securities business, but having
substantial financial resources, have acquired leading securities firms.
These developments have increased competition from firms with greater capital
resources than those of KMS. Furthermore, numerous commercial banks have
petitioned the Board of Governors of the Federal Reserve System for
permission to enter into various new business activities from which they are
currently barred, such as underwriting certain mortgage-backed and municipal
revenue securities and securities backed by consumer loans. Various
legislative proposals, if enacted, would also permit commercial banks to
engage in such activities. Ultimately, these developments or other
developments of a similar nature may lead to the creation of integrated
financial service firms that offer a broader range of financial services.
The securities industry has experienced substantial commission discounting
by broker/dealers competing for institutional and individual brokerage
business, including many offering low rates on the Internet. In addition, an
increasing number of specialized firms now offer "discount" services to
individual customers. These firms generally effect transactions for their
customers on an "execution only" basis
25
<PAGE>
without offering other services such as portfolio valuation, investment
recommendations and research. The continuation of such discounting and an
increase in the number of new and existing firms offering such discounts
could adversely affect KMS' retail business.
SUREAL
Sureal is a direct marketing company involved in the distribution and sale
of high quality nutritional and other products. Sureal was founded as Legacy
Export, Inc. ("Legacy") in 1995 by Richard Wogksch, R. Bret Jenkins, and Glen
Jensen for the purpose of creating, developing and expanding direct marketing
businesses internationally, with an emphasis on Russia and other republics of
the former Soviet Union. The founders had experience in the direct marketing
industry, including the international aspects thereof. Legacy commenced its
operations as the marketing, sales and administrative arm for Eastern Europe
for an existing direct marketing company specializing in personal care and
nutritional products. Legacy commenced its operations in August 1995 using a
network of 333 independent distributors in Russia. The number of distributors
in the network increased to 4,972 at December 31, 1995; 94,307 at December
31, 1996; and 172,221 at May 31, 1997, respectively. Monthly commissionable
sales to these distributors rose from $20,000 in July 1995 to $5,009,000 in
February 1997. Sureal, which changed its name in October 1997, is
headquartered in Orem, Utah.
Sureal discontinued its relationship with other product companies in
September 1997, at which time it made a decision to introduce its own branded
products to be distributed through its sales network. Through September 1997,
the revenue generated by the sales of those products was distributed in an
agreed upon manner among the supplier, shipper and Sureal pursuant to the
terms of a verbal agreement. Sureal's product philosophy is to introduce its
own branded products based on researching the best that science and nature
can offer and produce, using contract manufacturers, innovative products that
are specifically designed for a network marketing distribution channel.
Sureal presently offers nutritional products and a line of air purification
products. It plans on expanding both of these lines, as well as introducing a
personal care line and other specialty products.
Nature of Direct Marketing
Sureal distributes its products through a system of direct or network
marketing. Under most network marketing systems, independent distributors
purchase products for retail sale or personal consumption. Direct marketing
involves the sale of products through a network of independent distributors
who enter into contract agreements or licenses with the direct marketer.
Pursuant to Sureal's Global Compensation Plan, products are sold exclusively
to or through independent distributors who are not employees of Sureal.
Direct marketing sales have increased rapidly in recent years. Many
products sold by direct marketers are characterized as having high margins.
Typically, distributor incentives and commissions represent the highest cost
for a direct marketer.
Network marketing is an effective vehicle to distribute Sureal's products
because (i) a consumer can be educated about a product in person by a
distributor, which is more direct than the use of television and print
advertisements; (ii) direct sales allow for actual product testing by a
potential consumer; (iii) the impact of distributor and consumer testimonials
is enhanced; and (iv) as compared to other distribution methods, distributors
can give customers higher levels of service and attention, by, among other
things, delivering products to a consumer's home and following up on sales to
ensure proper product usage, customer satisfaction, and to encourage repeat
purchases. Under most network marketing systems, independent distributors
purchase products either for resale or for personal consumption.
International direct selling as a distribution channel has been enhanced
in the past decade because of advances in communications, including
telecommunications, and the proliferation of the use of videos, email and fax
machines. Direct selling companies can now produce or purchase high quality
videos for use in product education, demonstrations, and sponsoring sessions
that project a desired image for the company and product line. Sureal is
committed to fully utilizing current and future technological advances to
enhance the effectiveness of its direct selling program.
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<PAGE>
Sureal's management believes that the distributor incentive program is the
most integral factor in developing a strong distributor network. Sureal's
network marketing program is specifically designed for the needs of
international distributors and differs from the compensation plans of many
other network marketing programs in several respects. First, Sureal's Global
Compensation Plan allows distributors to develop a seamless global network of
down line distributors (see below). Second, the Global Compensation Plan is
among the most financially rewarding plans offered to distributors by network
marketing companies, and can result in commissions to distributors
aggregating up to a maximum of 63% of a product's wholesale price.
Global Compensation Plan -- Sureal believes that the two principal
strengths of its Global Compensation Plan is the potential level of
commissions and bonuses available to distributors and its seamless
integration across all markets in which Sureal products are sold. Sureal
believes that the Global Compensation Plan is among the most financially
rewarding plans offered to distributors by network marketing companies. There
are two fundamental ways in which distributors can earn money: (i) through
retail markups, for which Sureal recommends a range of approximately 30%: and
(ii) through a series of commissions on each product sale which can result in
commissions to distributors aggregating up to a maximum of 63% of such
product's wholesale price. However, Sureal believes the actual commissions
paid will be significantly less. Commissions have averaged from 40% to 42% of
revenue from commissionable sales since inception.
By entering into distributor agreements with Sureal, distributors are
authorized to sponsor new distributors in each country where Sureal has
operations. This policy allows distributors to receive commissions for sales
at the same rate for sales in foreign countries as for sales in their home
country. This is a significant benefit to distributors because they are not
required to establish new distributorships or requalify for higher levels of
commissions within each new country in which they begin to operate. The
seamless integration of the Global Compensation Plan means that distributor
knowledge and experience can be used to rapidly build distributor leadership
in new markets.
Sureal's compensation plans for distributors also include:
o Permitting past ordering performance (during the period when Sureal
represented other direct marketers) to count in the new incentive
program;
o Establishing an investment program at a broker/dealer in which a
portion of bonuses may be retained and invested for the benefit of
distributors;
o Permitting distributors to represent more than one direct marketing
company;
o Providing products that management believes are needed in the
marketplace at price points that are realistic and attractive; and
o Continuing its distributor administrative program that includes timely
reporting and people who speak the local language fluently.
These programs, taken as a whole, are believed to be unique in the direct
marketing industry.
Sponsoring
Sureal relies solely on its existing distributor force to sponsor new
distributors. While Sureal provides product samples, brochures, and other
sales materials, distributors are primarily responsible for educating new
distributors with respect to products, the Global Compensation Plan, and how
to build a successful distributorship.
The sponsoring of new distributors creates multiple levels in the network
marketing structure. Persons whom a distributor sponsors are referred to as
"down line" distributors. If down line distributors also sponsor new
distributors, they create additional levels in the structure, but their down
line distributors remain part of the same down line network as their original
sponsoring distributor.
Sponsoring activities are not required of distributors. However, because
of the financial incentives provided to those who succeed in building a
distributor network, Sureal believes that most of its
27
<PAGE>
distributors attempt, with varying degrees of effort and success, to sponsor
additional distributors. Generally, distributors invite friends, family
members and acquaintances to sales meeting where Sureal products are
presented and where the Global Compensation Plan is explained. People are
often attracted to become distributors after using Sureal products and
becoming regular retail customers. Once a person becomes a distributor, he or
she is able to purchase products directly from Sureal at wholesale prices for
resale to consumers or for personal consumption. The distributor is also
entitled to sponsor other distributors in order to build a network of
distributors and product users. Major distributors earn incentives or bonuses
based on the sales volume of their down lines.
A potential distributor must sign a distributor agreement with Sureal that
obligates the distributor to abide by Sureal's policies and procedures.
Russian Market
For the purpose of this section, the "Russian Market" incorporates the
markets of all of the republics of the former Soviet Union and several
countries in Eastern Europe. This market has a population in excess of 400
million people and is characterized by:
o Inadequate supplies of many basic consumer products at affordable
prices;
o Cumbersome and redundant government regulations and even corruption;
o Inadequate shipping services within a country; and
Many people seeking opportunities to benefit within the new capitalistic
framework.
To succeed in this environment a company, among other things, must:
o Establish an effective relationship with a reliable and influential
local business associate or "partner";
o Have a methodology for being paid in United States dollars on a timely
basis;
o Establish a system for warehousing, shipping and clearing customs in a
manner that minimizes delay and risk of loss through theft;
o Understand the needs of prospective dealers and customers; and
o Have a system in place to manage a business that is growing rapidly.
In addition, a direct marketing company, among other things, must:
o Have an effective system of accumulating information that gives rise to
distributor incentives;
o Have an effective program of distributor incentives tailored for
particular markets;
o Have key employees with knowledge of the language and culture of the
countries in which distributors operate;
o An efficient and fair means of resolving disputes and misunderstandings
on a timely basis; and
o An effective inventory control and distribution system.
Sureal believes that it has systems in place that accomplish each of the
foregoing requirements.
Sureal has developed relationships with reliable and influential local
collaberative partners in Russia to help Sureal:
o Get products certified for sale through the appropriate governmental
authorities and required approval processes;
o Clear incoming products through customs; and
o Repatriate currency.
28
<PAGE>
Substantially all of Sureal's commissionable sales have been made in the
Russian Market. All transactions involving Sureal are denominated in United
States dollars. Sureal does not assume any risk with respect to currency
fluctuations. Typically, products are shipped and billed to a limited number
of major distributors. These distributors have the responsibility of getting
shipments through customs and into a warehouse, redistributing the products
to smaller distributors, collecting sales proceeds, converting currencies and
remitting payment to Sureal (see "Risk Factors").
Products
Substantially all of Sureal's products are manufactured from readily
available ingredients and materials. Management believes that if any source
of ingredients becomes unavailable, alternative sources of supply are
available at comparable prices and delivery schedules. In the event that
Sureal were unable to find such alternate sources at competitive prices and
on a timely basis for its principal products, Sureal's operations would be
materially adversely affected. See "Risk Factors". Ingredients are stored by
the contract manufacturers. Finished products are shipped directly to foreign
warehouses by ship.
Substantially all of Sureal's products are manufactured from readily
available ingredients and materials. Management believes that if any source
of ingredients becomes unavailable, alternative sources of supply are
available at comparable prices and delivery schedules. In the event that
Sureal were unable to find such alternate sources at competitive prices and
on a timely basis for its principal products, Sureal's operations would be
materially adversely affected (see "Risk Factors"). Ingredients are stored by
the contract manufacturers. Finished products are shipped directly to foreign
warehouses by ship.
Sureal offers products in two distinct categories--nutritional supplement
products and air purification products. In addition to products, Sureal
offers a variety of sales aids to distributors, including starter kits,
introductory kits, brochures, and product catalogs. All sales aids are
targeted for the local markets and are written in the local language.
The following chart sets forth the Sureal branded products that are
available as of April 15, 1998.
<TABLE>
<CAPTION>
TOTAL
PRODUCTS
OFFERED
PRODUCT NAME BY SUREAL UNITED STATES RUSSIA
- ------------ ------------- --------------- ----------
<S> <C> <C> <C>
Classical Herbs .......... 6 6 6
Children's Nutrition .... 1 1 1
Specialty ................ 4 4 4
Herbal Teas .............. 4 4 4
Preferred Pet ............ 2 2 2
Air Purification ......... 2 2 2
Total .................... 19 19 19
</TABLE>
NUTRITIONAL SUPPLEMENTS PRODUCTS
The nutritional supplements product category is comprised of 17 products
in the following lines: classical herbs, children's nutrition, specialty,
herbal teas, and Preferred Pet. Sureal's nutritional supplements are designed
and marketed to promote a healthy, active lifestyle and general well being
through proper diet, exercise and nutrition.
Sureal believes that the nutritional supplement market is expanding in
Russia and the United States because of changing dietary patterns, a
health-conscious population and recent reports supporting the benefits of
using vitamin and mineral nutritional supplements. This product line is
particularly well suited to network marketing because the average consumer is
often uneducated regarding nutritional products. Sureal believes that network
marketing is a more efficient method than traditional retailing channels in
educating consumers regarding the benefits of nutritional products. Because
of the numerous over-the-counter vitamin and mineral supplements available in
Russia and the United States, Sureal believes that individual attention and
testimonials by distributors are effective methods of providing information
to a potential consumer.
29
<PAGE>
CLASSICAL HERBS
ALFALFA -- Alfalfa is a medicinal plant known to improve general health.
This herb contains most of the necessary vitamins and minerals required by
the human body. It aids the immune system, helps the body protect itself from
disease, and cleanses the blood. Alfalfa is often used by people with
gastrointestinal problems, as well as by people seeking relief from achy
muscles and joints, coughs and colds.
BEE POLLEN -- Bee pollen is traditionally known to provide the body with
additional energy and relief from fatigue and also helps increase the body's
ability to heal and build resistance to disease. Bee pollen is often used by
individuals and athletes seeking to increase energy or stamina. Bee pollen is
also be used to improve mental activity, facilitate sleep, and strengthen the
nerves.
ECHINACEA -- Echinacea, sometimes referred to as the "King of Blood
Purifiers", and a natural infection fighter, increases the body's ability to
combat infection. Echinacea is used to ward off any infection and is
especially effective in minimizing the symptoms of the common cold.
GOTU-KOLA -- Gotu-kola is traditionally known as the "food for the brain."
Gotu-kola is used to increase mental and physical capacity, combat stress,
improve reflexes, and energize the cells of the brain. Gotu-Kola is also used
to promote relaxation and strengthen memory. This product is recommended to
relax the central nervous system or for those who may be in danger of nervous
breakdown. It is also used by individuals who are confined to a bed and by
women recovering from childbirth.
PASSIONFLOWER -- Passionflower is a naturally occurring relaxant, used to
soothe and calm muscles, nerves and joints. It also is used to relieve
headaches and calm nerves and anxiety. Passionflower is used for insomnia and
other sleep disorders; for the anxiety women experience during menses,
childbirth or menopause; and for restless children.
RED CLOVER -- Red clover is famous for its ability to purify the blood of
toxins. It is also used to relieve coughing, sore throats and skin
irritations.
CHILDREN'S NUTRITION
LIL NIBBLES CHILDREN'S CHEWABLE VITAMIN AND MINERAL SUPPLEMENT -- Because
they are growing, children have unique nutritional needs for proper
nutrients, vitamins and minerals. Sureal's balanced formula features a
combination of multivitamins and minerals, including vitamin A, vitamin C,
the B vitamins, Folic and Pantothenic Acid, as well as providing anti-oxidant
protection.
SPECIALTY
MIGHTY APHRODITE FEMALE FACTORS -- Mighty Aphrodite Female Factors
contains specific vitamins, minerals, and herbs that are used to resolve
typical female issues, fight fatigue and increase endurance. The principal
ingredient, Pau d'Arco Bark has been used for centuries in South America for
relief from female issues such as PMS, cramps and infections. It also
includes Siberian Ginseng, an herb that is used to relieve stress, mental
fatigue and weakness
HERCULES MALE FACTORS -- Hercules Male Factors contains a specialized
blend of botanicals, vitamins and minerals designed for men. The principal
ingredients are Saw Palmetto powder for the prostate and Vitamin E and Garlic
for the heart. It also features one of the most advanced known anti-oxidants,
Lipoic Acid that acts as a substitute for other vitamins. Chromium is also
included to help develop lean muscle mass.
CUPIDS ARROWS APHRODISIAC -- Cupids Arrows Aphrodisiac combines
traditional folk ingredients with supplements and is used by men and women to
enhance sexual desire, function, and performance. The principal ingredient,
Siberian Ginseng, is a naturally occurring aphrodisiac. The other featured
ingredient, Yohimbe Bark, is an aphrodisiac that increases desire and
performance. The product also includes Arginine, an herb used by men, and
Green Oats extract, an herb used by women, to stimulate the sex drive.
30
<PAGE>
EARTH SUPERFOODS COMPLEX -- Earth Superfoods Complex contains land and sea
greens, anti-oxidants, vitamins, minerals, probiotic cultures, herbs,
digestive plant enzymes, cruciferous vegetables and fruits, and other
beneficial cofactors. It also contains phytonutrients, digestive enzymes such
as vitamins E, A, C and B and Probiotics (known as "friendly bacteria").
HERBAL TEAS
PURITEA CLEANSING TEA -- PURITea contains a blend of natural herbs helpful
for regulating the bowels and urinary tract. The formula helps to cleanse and
soothe rather than irritate. This mild, yet effective, formula aids in
flushing stored waste from the body. This tea features Senna Leaf, a
cathartic that serves as a laxative to cleanse the colon and Uva Ursi, an
herb used for centuries to cleanse the bladder and kidneys.
ZESTEA ENERGY TEA --ZESTea contains a blend of natural herbs that
stimulate the body to produce energy, overcome stress, fatigue and weakness.
The principal ingredients in this tea are Kola Nut and Yerba Mate. Kola Nut
is a natural stimulant to the body's circulatory and respiratory system.
Yerba mate has been used for centuries to eliminate fatigue and rejuvenate
the body.
LESS-O-ME WEIGHT LOSS TEA -- Less-O-Me Weight Loss Tea contains a blend of
herbs that increase metabolism and burn body fat. These ingredients help
block fat and aid in appetite suppression. The principal ingredients in this
tea, gymnema sylvestra and garcinia cambogia, reduce the body's ability to
absorb fats and sugars, and help block the formation of fat cells. This tea
is used as a part of a weight management or general nutrition program.
TRANQUILITEA RELAXING TEA -- TRANQUILITea contains an assortment of medicinal
herbs used to quiet and soothe the nervous system and promote restful sleep.
The principal ingredients in this product are St. John's wart and Chamomile.
St. John's Wart is a natural anti-depressant that is used to promote deeper,
more restful sleep. Chamomile is used to relax nerves and relieve tension.
PREFERRED PET
DIGESTIVE AID -- Pet Digestive Aid assists pets in food digestion. Pet
Digestive Aid contains digestive enzymes that help pets digest processed
food, as well as absorb the essential vitamins, minerals, and phytonutrients
they need. The principal ingredient, Lacto Bacillius Sporogenes ("LBS"), is a
friendly bacteria that exists in the intestines and helps keep the intestinal
tract clean and free from disease.
ESSENTIAL GREENS -- Pet Essential Greens contains an assortment of vital
greens from the land and the sea. These greens contain important
Phytonutrients that provide pets with anti-oxidant protection and help to
keep them safe from the diseases and illnesses.
AIR PURIFICATION PRODUCTS
The air purification product category is comprised of two products that
use negative ions, ozonation, and germicidal UV light to deliver cleaner,
fresher and safer air.
Sureal believes that the air purification market is expanding in Russia
and the United States because of various reports ranking indoor air pollution
at or near the top of environmental health risks in the United States, and
findings that indoor air is, on the average, more polluted than outdoor air.
This product line is particularly well suited to network marketing because
the average consumer is generally uneducated regarding methods of air
purification. Sureal believes that network marketing is a more efficient
method than traditional retailing channels in educating consumers regarding
the unique benefits of air purification.
SUREAL AIR 2700 -- The Sureal Air 2700 is an air purification system uses
ozone and negative ions and adds the germicidal effects of UV light to purify
the air. The Sureal Air 2700 is designed for use in areas of 2700 square feet
or less.
SUREAL AIR 70 -- The Sureal Air 70 is designed for use in areas of 70
square feet or less, including cars and tables at restaurants.
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<PAGE>
Sales Aids
Sureal provides an assortment of sales aids to distributors. Sales aids
include audiocassette tapes, promotional clothing, pens, and other
miscellaneous items to help create consumer awareness of Sureal and its
products. Sales aids are priced at Sureal's approximate cost and are not
commissionable items (i.e., distributors do not receive commissions on
purchases of sales aids).
Product Guarantees
Sureal believes that it is among the most consumer protective companies in
the direct selling industry. Sureal's product return policy allows a retail
purchaser to return any product to the distributor from whom the product was
purchased for a full refund for a period of 30 days from the date of
purchase. After 30 days from the date of purchase, the return privilege is at
the discretion of the distributor. Because distributors may return unused and
resalable products to Sureal for a refund of 90% of the purchase price for
one year, they are encouraged to provide consumer refunds beyond 30 days. The
product returns policy is a material aspect of the success of distributors in
developing a retail customer base.
Product Development Philosophy
Sureal is committed to building its brand name and distributor and
customer loyalty by selling premium quality, innovative personal care and
nutritional products that appeal to broad markets. Sureal's product
philosophy is to combine the best of science and nature and to include in
each of its products the highest quality ingredients. This philosophy has
also led to Sureal's commitment to avoid any ingredients in nutritional
supplements that are reported or believed to have any long-term addictive or
harmful effects, even if short-term effects may be desirable. Independent
distributors need to have confidence that they are distributing the best
products available in order to have a sense of pride in their association
with the Sureal and to have products that are distinguishable from "off the
shelf" products. Sureal is committed to developing and providing quality
products that can be sold at an attractive retail price and allow Sureal to
maintain reasonable profit margins.
Sureal is also committed to constantly improving its product formulations
to incorporate innovative and proven ingredients into its product line.
Whereas many consumer product companies develop a formula and stay with that
formula for years, and sometimes decades, Sureal believes that it must stay
current with product and ingredient evolution to maintain its reputation for
innovation to retain distributor and consumer attention and enthusiasm.
In addition, Sureal believes that timely and strategic product
introductions are critical to maintaining the growth of independent
distribution channels. Distributors become enthusiastic about new products
and are generally excited to share new products with their customer base. An
expanding product line helps to attract new distributors and generate
additional revenues.
Production
Virtually all Sureal's branded products are sourced through contract
manufacturers unaffiliated with Sureal. Sureal's profit margins and its
ability to deliver its existing products on a timely basis are dependent upon
the ability of Sureal's outside manufacturers to continue to supply products
in a timely and cost-efficient manner. Furthermore, Sureal's ability to enter
new markets and sustain satisfactory levels of sales in each market are
dependent in part upon the ability of suitable outside manufacturers to
reformulate existing products, if necessary to comply with local regulations
or market environments, for introduction into such markets. Finally, the
development of additional new products in the future will likewise be
dependent in part on the services of suitable outside manufacturers.
Sureal currently acquires products or ingredients from sole suppliers or
suppliers that are considered by Sureal to be the superior suppliers of such
ingredients. Sureal believes that, in the event it is unable to source any
products or ingredients from its current suppliers, Sureal could replace such
suppliers or products or substitute ingredients without great difficulty or
prohibitive increases in the cost of goods sold. However, there can be no
assurance that the loss of such a supplier would not have a material adverse
effect on Sureal's business and results of operations.
32
<PAGE>
Operating Strengths
Sureal believes that its success in its operational and consulting
activities was a function of its commitment to provide high quality service
and products and a unique business opportunity to its independent
distributors. Sureal believes that it will continue to be successful by
providing high quality servicing to its distributors and by providing high
quality, innovatively packaged products and an appealing global business
opportunity. Sureal is committed to building its brand name and distributor
and customer loyalty by selling premium quality, innovative nutritional
products that appeal to broad markets.
All products are manufactured in the United States and shipped to
warehouses in the Russian markets. Sureal has established procedures to
ensure that products pass through customs in a timely fashion and are shipped
to warehouses safely with a minimal amount of pilferage. Products are shipped
by truck from the warehouse to distribution points.
Growth Strategy
Sureal plans to develop a disciplined approach to opening new markets.
Each market opening will be preceded by a thorough analysis of economic and
political conditions, regulatory standards and other business, tax and legal
issues. Prior to a market opening, Sureal's management team will work to
obtain all necessary regulatory approvals and establish facilities capable of
meeting distributor needs. Sureal plans to consider a variety of options in
opening new markets. Sureal may decide to open the market, or contract with a
partner, or license the market.
Sureal plans to increase its growth by introducing new products, opening
new markets, attracting new distributors and through promotions.
Introduce New Products -- Sureal plans to introduce new products on a
continuing basis. The introduction of new products has a tendency to increase
the sales of existing distributors and helps attract new distributors.
Introduce New Markets -- Sureal will pursue attractive new market
opportunities. Japan, Mexico, Canada India and the Middle East are the next
markets Sureal plans to pursue.
Attract New Distributors -- Sureal plans to contract new distributors by
providing unique and exciting business building promotions. For example, it
offered a personal volume boost of 10% on each nutritional product purchased
through March of 1998. Sureal intends to continue to create and maintain a
business climate to promote the growth in the number of active distributors
and to increase distributor retention, motivation and productivity. Sureal
will do this by continuing to enhance distributor recognition programs.
Competition
The markets for personal care and nutritional products are large and
intensely competitive. Sureal competes directly with companies that
manufacture and market personal care and nutritional products in each of
Sureal's product lines. Sureal competes with other companies in the personal
care and nutritional products industry by emphasizing the value and premium
quality of the Company's products and the convenience of the company's
distribution system. Many of Sureal's competitors have much greater name
recognition and financial resources than does Sureal. In addition, personal
care and nutritional products can be purchased in a wide variety of channels
of distribution. While Sureal believes that consumers appreciate the
convenience of ordering products from home through a sales person or through
a catalog, the buying habits of many may consumers accustomed to purchasing
products through traditional retail channels are difficult to change.
Sureal's product offerings in each product category are also relatively small
compared to the wide variety of products offered by many other personal care
and nutritional product companies. There can be no assurance that Sureal's
business and results of operations will not be affected materially by market
conditions and competition in the future.
Sureal also competes with other direct selling organizations, some of
which have longer operating histories and higher visibility name recognition
and financial resources. The leading network marketing
33
<PAGE>
company in Sureal's markets is Amway Corporation and its affiliates. Sureal
competes for new distributors on the basis of its Global Compensation Plan
and its premium quality products. Management envisions the entry of many more
direct selling organizations into the marketplace as this channel of
distribution expands over the next several years. Sureal also believes that
other large, well-financed corporations may launch direct selling enterprises
which will compete with Sureal in certain of its product lines. There can be
no assurance that Sureal will be able to successfully meet the challenges
posed by this increased competition.
Sureal competes for the time, attention and commitment of its independent
distributor force. Given that the pool of individuals interested the business
opportunities presented by direct selling tends to be limited in each market,
the potential pool of distributors for Sureal's products is reduced to the
extent other network marketing companies successfully recruit these
individuals into their businesses. Although management believes that Sureal
offers an attractive business opportunity, there can be no assurance that
other network marketing companies will not be able to recruit Sureal's
existing distributors or deplete the pool of potential distributors in a
given market.
EMPLOYEES
At December 31, 1997, KMS had 22 employees, of which 8 were registered
representatives. Sureal had 11 employees at such date. None of these
employees is covered by a collective bargaining agreement.
FACILITIES
KMS leases 14,000 square feet of office space at 110 Wall Street, New
York, NY subject to a lease expiring on August 31, 2002 with minimum annual
rent increasing from $310,000 to $315,000.
Sureal rents a 4,080 square foot facility in Orem, Utah.
34
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 and as adjusted to reflect the sale of the 3,000,000 of
Common Stock offered by the Company hereby (1,000,000 Shares if only the
Minimum Offering is sold)and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with the Company's
Consolidated Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS ADJUSTED
----------------------------------
ACTUAL MINIMUM OFFERING MAXIMUM OFFERING
------------- ---------------- ----------------
<S> <C> <C> <C>
Indebtedness................ $ 210,000
-------------
Minority interest........... 773
-------------
Stockholders' Equity:
Preferred stock ............ 4
Common stock ............... 1,069 $ 1,165 $ 1,369
Additional paid-in capital 3,400,103 11,725,874 41,275,580
Retained earnings ......... (2,860,497) (2,860,497) (2,860,497)
------------- ---------------- ----------------
Total stockholders' equity 540,679 8,866,542 38,416,452
------------- ---------------- ----------------
Total Capitalization ....... $ 751,452 $ 8,866,542 $38,416,452
============= ================ ================
</TABLE>
- ------------
(1) Gives effect to the issuance of 750,000 shares of Common Stock
pursuant to the Share Exchange Agreement associated with the
acquisition of Sureal (see "Business" and "Certain Transactions") and
the two for one reverse stock split effective December 3, 1997 (see
"Description of Common Stock").
35
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- ----- ---------------------------
<S> <C> <C>
Mohammad Ali Khan 31 Chairman of the Board, President, Chief Executive Officer
Asim S. Kohli ..... 32 Executive Vice President, Chief Operating Officer, Director
Rushdie Saddiqui . 33 Vice President and Manager of Business Development for KMS,
Director
Edward A. Heil ... 47 Consultant and Director
R. Bret Jenkins .. 39 President of Sureal and Director
Maurice Gross ..... 62 Consultant and Director
Steven Jacobson .. 54 Consultant and Director
William Walling .. 65 Chief Investment Advisor
William Triebel .. 46 Chief Financial Officer
Joseph Antonini .. 56 Director
Jamil Asghar ...... 39 Director
Leonard Yablon ... 68 Director
Jaffer Naqvi ...... 52 Director
</TABLE>
All Directors hold office until the next annual meeting of shareholders of
the Company or until their successors have been elected. All officers are
appointed annually by the Board of Directors and, subject to existing
employment agreements, serve at the discretion of the Board.
Outside (nonexecutive) directors shall receive $15,000 and 10,000 shares
of Common Stock per year as compensation for serving on the Board of
Directors. All Directors are reimbursed by the Company for any expenses
incurred in attending Directors' meetings and receive $500 for attending
committee meetings. The Company also intends to obtain Officers and Directors
liability insurance, although no assurances can be given that such coverage
will be obtained.
Background of Executive Officers and Directors
MOHAMMAD ALI KHAN is the founder of the Company and serves as the Chairman
of the Board, President and CEO. He has also been the President of KMS since
1995. Mr. Khan started his career in the financial industry as a financial
consultant at Prudential Securities in 1990. Mr. Khan has served in a variety
of sales management and corporate finance positions with other investment
banks. In addition, he has been a member of the New Jersey State Governor's
counsel since 1997. Mr. Khan holds a Bachelors Degree in Physics and
Mathematics from Karachi University in Pakistan and a Bachelor of Arts Degree
in Finance from Rutgers University.
ASIM S. KOHLI was engaged as Director of Operations for Hardees
Corporation from July 1991 to May 1992; was Regional Sales Manager for Birov,
Incorporated from September 1992 to February 1993; was Senior Real Estate
Appraiser for Appraisal Network Associates from September 1993 to January
1994; was Senior Real Estate Appraiser for Lin Holz Associates from January
1994 to May 1995; was Director of Operations for The Rose Group from May 1995
to August 1995; and was Director of Operations for CFS Management,
Incorporated from August 1995 until December 1995. He joined KMS in January
1996. Mr. Kohli holds a Bachelor of Business Administration degree from
Northern Illinois University.
RUSHDI SIDDIQUI founded and was a principal in Siddiqui Rose & Associates,
a marketing consulting firm, from 1992 to 1993. From 1993 to 1996, he was
Chief Operating Officer of Welsh Technologies, Inc., which is engaged in the
alternate fuel vehicle conversion industry. He served as a Marketing Officer
for Mashreq Bank in 1996 and became Director of Business Development for KMS
in 1997. Mr. Siddiqui holds a Bachelor of Arts degree from New York
University, a Master of Business Administration degree from Baruch College
and a Juris Doctorate from Union University.
36
<PAGE>
EDWARD A. HEIL is a certified public accountant and a managing director,
since January 1992, in Independent Network Group, Inc., a financial
consulting firm. From 1984 through December 1991 he was a partner in the
accounting firm, Deloitte & Touche, LLP. From 1973 to 1984 he was employed in
various professional capacities by Deloitte & Touche, LLP. Mr. Heil, who is
also a director of Thermo-Mizer Environmental Corp. (a New Jersey-based
public company), holds Bachelor of Arts and Master of Business Administration
degrees from New York University.
R. BRET JENKINS has been Chairman of Sureal since its inception. He has
also been a shareholder in the law firm Biyack, Ashton & Jenkins, P.C. since
1994 and practiced law with several law firms prior thereto. Mr. Jenkins
holds a Bachelor of Arts and Juris Doctorate degrees from the University of
Utah.
MAURICE GROSS has been a principal in the consulting firm of Maurice Gross
& Co. Prior thereto he was a Senior Vice President at Gruntal & Co.
STEVEN R. JACOBSON is a founder and principal of Steven R. Jacobson & Co.,
a broker/dealer specializing in restricted security lending, venture capital
and investment banking. He is also a partner in SRJ Financial Group which is
engaged in a variety of corporate financing activities, and is a member of
the Board of Directors of Enhance Reinsurance Company. Mr. Jacobson holds a
Bachelor of Business Administration degree from Iona College.
WILLIAM WALLING became Vice President of Investments for KMS in July 1996.
Prior thereto, from 1992, he held supervisory roles with RAS Securities. Mr.
Walling, who has received numerous awards and citations for his research
reports and other writings, holds a Bachelor of Arts degree from Michigan
State University and a Master of Business Administration from New York
University.
WILLIAM TRIEBEL became KMS' Chief Financial Officer in July 1997. He also
serves as Chief Financial Officer of USFG. Prior thereto, he was a senior
accountant for Gettenber Consulting Group from June 1996 to June 1997. Mr.
Triebel was the manager for finacial operations of Prime Capital Services,
which was located in Poughkeepsie, NY, from March 1984 to May 1996. Mr.
Triebel is a graduate of Marist College.
JOSEPH E. ANTONINI has over 30 years of experience building and operating
several of the nation's largest retailing chains. He is the former Chairman,
President, and CEO of Kmart Corporation, one of the world's largest
retailers. Mr. Antonini also directed the expansion of Kmart's specialty
retail group, which included Borders Bookstores, Payless Drug Stores, Office
Max, Sports Authority and Builders Square. Since then, Mr. Antonini has
served as a director and advisor to various enterprises. He is currently the
President of JEA Enterprises, an investment firm which he founded, and serves
as a director of American Speedy Printing Centers, Inc., Ziebart, Inc., Shell
Oil Company, Andretti Wine Group, LTD., NAMS Net and numerous civic and
charitable organizations. He holds a Bachelor of Science degree from West
Virginia University.
SYED JAMIL ASGHAR was President of National Telecommunication, a long
distance telephone company, from 1991 until 1993. Since then, he has been
President of Laser Dimension Graphics & Printing, Inc. Mr. Asghar holds a
Bachelor of Science degree from Southern Illinois University.
LEONARD YABLON has been employed by Forbes Company since 1963 and
currently serves as Executive Vice President and Chief Financial Officer. In
addition, he is also the President of Sangre de Cristo Ranches, Forbes
Trinchera, Fiji Forbes and Forbes Europe. He is also the Vico President of
Forbes investors Advisory Institute and Secretary and Treasurer of the Forbes
Foundation. Mr. Yablon holds a Bachelor of Science degree from Long Island
University and a Master of Business Administration in Taxation from City
College in New York.
JEFF A. NAQVI is the Founder and President of Interactive Network for
Continuing Education, which conducts educational seminars for physicians
throughout the United States on behalf of major pharmaceutical companies as
part of their effort to launch new drugs. Prior thereto, Mr. Naqvi was a
director of The Medicine Group, Ltd. of Abbingtton, England. Mr. Naqvi has
been in the pharmaceutical industry for over 30 years holding high level
management positions at major companies. He holds a Master of Business
Administration degree from New York University.
37
<PAGE>
WILLIE MAYS is a retired professional baseball player and a member of the
National Baseball Hall of Fame.
Remuneration
The following officers received compensation in excess of $100,000 in 1997
or 1996. The Board of Directors intends to establish a compensation committee
comprised of outside directors to review compensation matters and any new
employment contracts. The Company will not enter into any new employment
contracts until after the Offering is completed.
The Company has or plans to adopt a health and disability plan and a
401(k) plan for its employees.
Committees
The Board of Directors will create Audit and Compensation Committees
comprised of independent members.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- ------------------------- ---------------------
OTHER
NAME AND SALARY ANNUAL RESTRICTED ALL TIP
PRINCIPAL POSITION YEAR COMPEN. BONUS COMPEN. STOCK AWARDS OPTIONS PAYOUTS OTHER
- ------------------ ------ ---------- ------- --------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KMS:
M. Ali Khan ....... 1997 $617,839
Asim S. Kohli ..... 1997 $103,700
Sureal:
R. Bret Jenkins .. 1997 $ 82,923 $8,000 $292,000
1996 $ 80,500 $8,000 $ 97,535
Richard Wogksch .. 1997 $ 82,923 $8,000 $292,000
1996 $ 80,500 $8,000 $ 97,500
Glen Jensen ....... 1997 $ 82,923 $8,000 $292,000
1996 $ 80,500 $8,000 $ 97,500
</TABLE>
- ------------
Note--The Other Payout amounts paid to Messrs. Jenkins, Wogksch and Jensen
were S corporation distribtions made to permit the recipients to pay their
personal income tax liabilities.
Employment Agreements
The Company has entered into employment agreements with Messrs. Khan and
Kohli under which it has agreed to pay them annual salaries of $350,000 and
$250,000 through 2003. The contracts, which contain two three-year renewal
clauses, provide for additional bonuses based at the discretion of the Board
of Directors.
Sureal has entered into employment agreements with Messrs. Jenkins,
Wogksch and Jensen providing that each receive annual compensation of
$120,000 through 2003. These contracts provide for additional compensation
linked to Sureal's performance.
Sureal has also entered into a consulting arrangement with a firm
associated with Mr. Heil under which it has agreed to pay annual fees of
$75,000, subject to upward adjustment based on work performed. The agreement
provides for success fees with respect to certain types of transactions.
Stock Option Plan
The United States Financial Group, Incorporated 1997 Stock Incentive Plan
(the "Plan"), which expires ten years from the date adopted, enables the
Company to grant incentive stock options,
38
<PAGE>
nonqualified options and stock appreciation rights ("SARs") for up to
1,000,000 shares of the Company's Common Stock. Incentive stock options
granted under the Plan must conform to applicable Federal income tax
regulations and have an exercise price not less than the fair market value of
shares at the date of grant (110% of fair market value for ten percent or
more stockholders). Other options and SARs may be granted on terms determined
by a committee of the Board of Directors. As of December 31, 1997, no options
were outstanding under the Plan.
Principal Stockholders
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at the date of
this Prospectus by (i) each person known by the Company to own, directly or
beneficially, more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, and (iii) all officers and directors of the Company as a
group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect
to such shares, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK
STOCK OWNED OWNED
BEFORE OFFERING AFTER OFFERING
------------------------------ ----------------------------------
PERCENT OF PERCENT OF PERCENT OF
NAME AND ADDRESS OF NUMBER OF SHARES OWNED SHARES OWNED-- SHARES OWNED--
BENEFICIAL OWNER (1) SHARES OWNED (!) MAXIMUM OFFERING MINIMUM OFFERING
- -------------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Mohammad Ali Khan ....... 9,944,634 90.5 71.1 85.3
Asim S. Kohli ...........
Rushdie Saddiqui ........
Edward A. Heil .......... 18,750 .1 -- --
R. Bret Jenkins ......... 133,333 1.2 .9 1.1
Maurice Gross ...........
Steven Jacobson .........
Joseph Antonini .........
Leonard Yablon ..........
Jamil Asghar ............
Jaffer Naqvi ............
Directors and Officers
as a Group (11 persons) 10,091,697 91.9 80.0 86.4
</TABLE>
- ------------
(1) The address for each officer and director is c/o Klein, Maus & Shire,
Inc., 110 Wall Street, New York, NY 10005.
39
<PAGE>
CERTAIN TRANSACTIONS
Merger with Sureal
On December 3, 1997, the Company exchanged 750,000 shares of its common
stock, subject to adjustment, for all of the outstanding shares of common
stock of Sureal. The number of shares issued will be adjusted at the closing
of the Offering made hereby such that the total shares issued will equal the
number determined by dividing $11,250,000 by the offering price per share.
This transaction was accounted for as a pooling of interests in accordance
with Opinion No. 16 of the Accounting Principles Board.
Bridge Financing
From January through March 1998, the Company sold 12 units of Bridge
Financing. Each Unit consists of (i) a 10 percent Promissory Note in the
principal amount of $50,000 due one year from the date of issuance and (ii)
1,667 shares of the Company's Common Stock. The holders of such shares have
certain registration rights. For financial reporting purposes, a portion of
the net proceeds of $575,000 will be allocated to the value of the Common
Stock. The resulting debt discount will be amortized to operations over the
term of the Promissory Notes.
Other
Ronald J. Brescia, a principal in the law firm of Doros & Brescia, P.C.
("D&B"), counsel to the Company, shall receive as partial compensation for
services rendered and to be rendered by D&B to the Company as Company
counsel, 10,000 shares of the Company's Common Stock per year for a minimum
of three years or as long as D&B serves as Company counsel, whichever is
longer, at a price per share of $.01.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), a copy of which is filed as an Exhibit to this
Registration Statement, between the Company and (referred to in this
section as the "Underwriter"), the Company is offering a minimum of 666,667
shares of its Common Stock (the "Minimum Offering") and a maximum of
3,000,000 shares of its Common Stock (the "Maximum Offering") at a price of
$15 per share. The Company has agreed to pay the Underwriter a commission
equal to 10% of the gross proceeds from the sale of the Shares offered
hereby. The Underwriter has made no commitment to sell any of the Shares
offered hereby, and no assurance can be given that any of the Shares will be
sold. The Underwriter has agreed to use its "best efforts" to sell the
Shares. The Underwriter has a material association or relationship to the
Issuer by virtue of being a subsidiary thereof.
The Underwriter has the option to utilize other broker-dealers that are
member of the NASD (the "Selected Participating Dealers") to assist in the
sale of the Shares. At the date hereof, the Underwriter has not reached any
agreement with any Selected Participating Dealers to conduct selling efforts
with respect to the Shares being offered hereby. In the event that any
agreement is reached between the Underwriter and any Selected Participating
Dealers, the Underwriter intends to reallow to such Selected Participating
Dealers up to percentage points of the full 10% underwriting commission.
The Underwriter has informed the Company that it does not intend to
confirm sales to any accounts over which it exercises discretionary
authority.
The proceeds from the sale of the Shares will be held in an escrow account
at The Chase Manhattan Bank, New York, New York (the "escrow Account"), until
a minimum of 666,667 shares of Common Stock have been sold and $15,000,000 is
deposited in the Escrow Account. If at least 666,667 shares of Common Stock
are not sold by days from this Prospectus, the proceeds received from
investors will be refunded promptly to the investors in full without interest
thereon and/or deduction of any kind therefrom. Until the proceeds from the
sale of at least 666,667 Shares have been deposited in the Escrow Account,
investors will not be stockholders nor able to demand the return of their
subscription proceeds.
All purchaser checks should be made payable to "United States Financial
Group, Incorporated--Escrow Account." Certificates evidencing the Shares will
be issued to the purchasers only if the proceeds from the sale of at least
666,667 shares of Common Stock are actually deposited in the Escrow Account
and released to the Company pursuant to the terms of the Escrow Agreement.
Until such time as the proceeds are actually received by the Company and the
certificates delivered to the purchasers thereof, such purchasers will be
deemed subscribers and not stockholders of the Company. During the selling
period, purchasers will have no right to demand the return of their
subscription proceeds. If the Minimum Offering is successfully sold, the
Offering will continue until the maximum period of the Offering has elapsed
or until the Offering is terminated by the Company and the Underwriter,
whichever occurs first.
The Underwriting Agreement also provides that the Company will pay a
non-accountable expense allowance equal to 2.5 percent of the gross proceeds
of the Offering to the Underwriter ($250,000 if the Minimum Offering is sold
and $1,125,000 if the Maximum Offering is sold). The Company has also agreed
to pay all expenses in qualifying the Shares offered hereby for sale under
the laws of such states as the Underwriter may designate, including fees and
expenses of counsel retained for such purposes.
The Company has agreed to sell warrants to the Underwriter (the
"Underwriter's Warrants") at a purchase price of $0.0001 per Underwriter's
Warrant to acquire an aggregate of shares of Common Stock, subject to
adjustment in the event that the Maximum Offering is not sold, for a period
of four years commencing one year from the date of this Prospectus, at an
exercise price equal to 160% of the price of the Common Stock to the public
in this Offering (or $18 per share). The Underwriter's Warrants grant the
holder thereof certain demand and "piggy-back" registration rights for a
period of five years from the date of this Prospectus with respect to the
Shares issuable upon the exercise of the Underwriter's Warrants.
The offering price of $15.00 per Share was arbitrarily determined by
management of the Company and the Underwriter and was selected because the
Company and Underwriter believe the Shares can best
41
<PAGE>
be sold at that price. The price has no relationship to the value of the
Issuer or its assets. In determining the price, the Company and Underwriter
considered such factors as the amount of equity and control desired to be
retained by existing stockholders, dilution to public investors and the
general marketability of the shares.
The Underwriting Agreement provides for reciprocal covenants of indemnity
against liabilities in certain instances under the Securities Act of 1933, as
amended. To the extent that the Underwriting Agreement may purport to provide
exculpation from possible liabilities arising from the Federal securities
laws, it is the opinion of the SEC that such indemnification is contrary to
public policy and unenforceable.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, a copies of which have been filed
as an Exhibit to this Registration Statement and are on file at the offices
of the Company and the Underwriter.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is presently authorized to issue 40,000,000 Shares of its
$.0001 par value common stock. Shares are presently issued and
outstanding or subscribed. A total of 3,000,000 Shares are offered for sale.
Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of preferred
stock. Shares of preferred stock have no voting rights and are not entitled
to receive dividends unless voted by the Board of Directors. Such shares are
convertible into shares of Common Stock and receive preferences in the event
of Company liquidation.
Common Stock
All Shares of Common Stock, when issued, will be fully-paid and
non-assessable. All Shares are equal to each other with respect to voting,
liquidation and dividend rights. Holders of Shares of Common Stock are
entitled to one vote for each Share they own at any stockholders' meeting.
Holders of Shares of Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefor, and upon liquidation are entitled to participate pro rata in a
distribution of assets available for such a distribution to stockholders.
There are no conversion, preemptive, redemption, or other rights or
privileges with respect to any Shares. Reference is made to the Company's
Articles of Incorporation and its by-laws as well as to the applicable status
of the State of Delaware for a more complete description of the rights and
liabilities of holders of Common Stock. The Company hereby undertakes to
provide any stockholder at any time with a copy (at a nominal charge) of its
articles of incorporation and by-laws. Also these documents are on public
record as exhibits to the Registration Statement on file with the Securities
and Exchange Commission. The Common Stock of the Company does not have
cumulative voting rights which means that the holders of more than 50% of the
Shares voting for the election of directors may elect all of the directors if
they choose to do so. In such event, the holders of the remaining Shares
aggregating less than 50% will not be able to elect any directors.
Market For Shares
Application will be made to list the Shares of Common Stock on NASDAQ's
National Market System, if it meets the applicable entry standards. There is
no assurance the Company will be accepted by NASDAQ's National Market System
or that the Company will have sufficient income, assets, shareholders
publicly held shares and market makers to meet the requisite standards for
initial inclusion. If the Company qualifies and is included on NASDAQ's
National Market System, it will use its best efforts to maintain the listing.
If the Company fails to achieve or maintain its eligibility for listing on
NASDAQ's National Market System, the liquidity of the shares purchased by
investors may be reduced.
43
<PAGE>
DIVIDENDS
The Company can give no assurance that it will generate earnings from
which cash dividends can be paid. However, Management may follow a policy of
retaining all such earnings to finance the development of its business. Such
a policy could be maintained so long as necessary to provide working capital
for the Company's operations. Any dividends that may be paid in the future
will be dependent upon the financial requirements of the Company and all
other relevant factors.
REPORTS TO SHAREHOLDERS
The Company will furnish annual reports to its shareholders that will
include audited financial statements and such other interim reports as
management deems appropriate.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock and
Warrants is American Stock Transfer and Trust Company, 40 Wall Street, New
York, New York 10005.
LEGAL PROCEEDINGS AND OTHER MATTERS
Legality of the Shares of Common Stock being offered hereunder and certain
other matters have been passed upon for the Issuer by Doros & Brescia, P.C.
1140 Avenue of the Americas, New York, NY, 10036.
KMS is a co-defendant in a legal action in which the plaintiff alleges
that KMS and certain of its representatives sold securities to the plaintiff
through fraudulent sales practices, misrepresentations and omissions and that
certain trades were unauthorized. The complaint demands compensatory damages
of $254,000, rescission damages of $100,000, unspecified punitive damages and
attorneys' fees and other legal costs. KMS denies the allegations and
believes that the ultimate resolution of this matter will not have a material
adverse impact on its financial condition. However, the ultimate
determination of this case cannot be determined at this time.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the three fiscal periods in the period then
ended, included herein, have been included in this Prospectus in reliance
upon the report of Eichler Bergsman & Co., LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
INDEMNIFICATION
The Company has provisions in its charter, by-laws, or other contracts
providing for indemnification of its officers and directors which allows, the
Company, among other things, to pay for the expenses of an officer of
director in connection with legal proceedings brought about because of the
person's position with the Company.
FURTHER INFORMATION
The Company has filed with the Washington D.C. Office of the Securities
and Exchange Commission, a registration statement on form S-1 under the
Securities Act of 1933, as amended, with respect to the Common Shares to
which this Prospectus relates. As permitted by the Rules and Regulations of
the SEC, this Prospectus does not contain all of the information set forth in
the Registration Statement. For further information with respect to the
Company and the Shares offered hereby, reference is made to the Registration
Statement, including exhibits thereto, which may be reviewed and copies
obtained from the Public Reference Branch, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNITED STATES FINANCIAL GROUP, INCORPORATED:
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 ............................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 ...................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 ...................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 ...................................................... F-6
Notes to Consolidated Financial Statements .............................................. F-7
SUREAL INTERNATIONAL, INC.:
Independent Auditors' Report ............................................................ F-15
Balance Sheets at December 31, 1996 and 1997 ............................................ F-16
Statements of Operations for the period August 10, 1995 (inception) to
December 31, 1995 and the Years ended December 31, 1996 and 1997 ...................... F-17
Statements of Stockholders' Equity for the period August 10, 1995 (inception) to December
31, 1995 and the Years ended December 31, 1996 and 1997 ............................... F-18
Statements of Cash Flows for the period August 10, 1995 (inception) to
December 31, 1995 and the Years ended December 31, 1996 and 1997 ...................... F-19
Notes to Financial Statements ........................................................... F-20
KLEIN, MAUS, SHIRE, INC.:
Independent Auditors' Report ............................................................ F-23
Balance Sheets at December 31, 1996 and 1997 ............................................ F-24
Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997 ........... F-25
Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997.. F-26
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 ........... F-27
Notes to Financial Statements ........................................................... F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
United States Financial Group, Incorporated
New York, NY
We have audited the consolidated balance sheets of United States Financial
Group, Incorporated and subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the three years ended December 31, 1995, 1996, and 1997. 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 did not audit the financial statements of Klein Maus &
Shire, Inc , a wholly-owned subsidiary, which statements reflect total assets
of $1,960 and $932,837 as of December 31, 1995 and 1996, respectively, and
total revenues of $1,031 and $248,989 for the years then ended. Those
statements were audited by other auditors whose reports have been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Klein Maus & Shire, Inc., is based solely on the reports of the other
auditors.
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 and the report
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of United States Financial Group,
Incorporated and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations, stockholders' equity, and their cash flows for
the three years ended December 31, 1995, 1996, and 1997 in conformity with
generally accepted accounting principles.
Eichler Bergsman & Co., LLP
New York, New York
March 9, 1998, except for
Note 4 as of April 10, 1998
F-2
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2).................................... $ 56,120 $ 394,493
Deposit at clearing broker (Note 5)................................... 255,651 103,285
Securities owned at market value (Notes 2f and h)..................... 361,506 99,729
Accounts receivable................................................... 149,662 4,231
Inventories (Note 2e)................................................. -- 118,554
Fixed assets at cost, net of accumulated depreciation and
amortization (Notes 2g and 6)........................................ 116,780 317,457
Other assets (Note 7)................................................. 202,121 150,127
------------- -------------
Total Assets........................................................ $ 1,141,840 $ 1,187,876
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to clearing broker (Note 5)...................................... $ -- $ 32,250
Accounts payable..................................................... 77,931 93,016
Accrued expenses, and other.......................................... 165,396 263,404
Securities sold, not yet purchased at market value (Notes 2f and 8) . 1,113 1,575
Notes payable to officers/stockholders (Note 9)...................... -- 210,000
Long-term capitalized lease obligations (Note 10).................... -- 46,179
------------- -------------
Total Liabilities................................................... 244,440 646,424
------------- -------------
Minority interest (Note 11)........................................... 504 773
------------- -------------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 1, 3, and 11):
Preferred stock, $.0001 par value; 10,000,000 shares authorized;
40,000 (1997) shares issued and outstanding......................... -- 4
Common stock, $.0001 par value; 30,000,000 shares authorized;
10,694,634 (1997) shares issued and outstanding..................... -- 1,069
Paid-in capital...................................................... 2,134,687 3,400,103
Deficit.............................................................. (1,237,791) (2,860,497)
------------- -------------
Total stockholders' equity.......................................... 896,896 540,679
------------- -------------
Total liabilities and stockholders' equity.......................... $ 1,141,840 $ 1,187,876
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Commissionable sales (Notes 2h and 3) ....... $ 995,670 $21,594,562 $31,720,456
Cost of commissionable sales................. 977,173 20,720,459 30,459,297
------------ ------------- -------------
Commissions.................................. 18,497 874,103 1,261,159
Commissions on brokerage trades.............. -- 243,097 863,673
Trading income (Notes 2f and h).............. -- -- 1,658,197
Other income................................. 37,500 71,153 413,189
------------ ------------- -------------
Total revenue............................... 55,997 1,188,353 4,196,218
------------ ------------- -------------
Expenses:
Officers' compensation....................... 65,250 234,173 975,155
Compensation and related expenses............ 18,635 595,814 1,536,246
Clearance and floor brokerage................ -- 272,035 158,184
Occupancy, office, and administrative
expense..................................... 53,104 526,912 955,854
Professional fees............................ -- 310,032 273,039
Communications............................... -- 68,343 317,447
Regulatory fees and expenses................. -- 44,608 93,919
Other expenses (Note 13)..................... -- -- 800,472
------------ ------------- -------------
Total expenses.............................. 136,989 2,051,917 5,110,316
Net loss...................................... $ (80,992) $ (863,564) $ (914,098)
============ ============= =============
Net loss per share............................ $ (.01) $ (.08) $ (.09)
============ ============= =============
Weighted average number of shares
outstanding.................................. 10,694,634 10,694,634 10,694,634
============ ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------ -------------------------
PAR VALUE NUMBER PAR VALUE
NUMBER OF $.0001 OF $.0001 PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
----------- ----------- ------------ ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
January 1, 1995...... -- $-- -- $ -- $ 2,094 $ (635) $ 1,459
Capital
contributions........ -- -- -- -- 164,714 -- 164,714
Net loss.............. -- -- -- -- -- (80,992) (80,992)
----------- ----------- ------------ ----------- ------------ -------------- -----------
Balance--
December 31, 1995 ... -- -- -- -- 166,808 (81,627) 85,181
Issuance of shares ... -- -- -- -- 1,965,101 -- 1,965,101
Capital
contributions........ -- -- -- -- 2,778 -- 2,778
Net loss.............. -- -- -- -- -- (863,564) (863,564)
Distributions......... -- -- -- -- -- (292,600) (292,600)
----------- ----------- ------------ ----------- ------------ -------------- -----------
Balance--
December 31, 1996 ... -- -- -- -- 2,134,687 (1,237,791) 896,896
Issuance of shares ... 40,000 4 10,694,634 1,069 1,432,908 -- 1,433,981
Net loss.............. -- -- -- -- -- (914,098) (914,098)
Distributions......... -- -- -- -- (167,492) (708,608) (876,100)
----------- ----------- ------------ ----------- ------------ -------------- -----------
Balance--
December 31, 1997 ... 40,000 $ 4 10,694,634 $1,069 $3,400,103 $(2,860,497) $ 540,679
=========== =========== ============ =========== ============ ============== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(80,992) $ (863,564) $ (914,098)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................... 1,780 15,911 49,894
Increase in deposit at clearing broker .......... -- -- (103,285)
(Increase) decrease in securities owned ......... -- (361,506) 261,777
(Increase) decrease in accounts receivable ...... -- (149,662) 145,431
Increase in inventories.......................... -- -- (118,554)
Increase (decrease) in other assets.............. (12,203) (189,917) 52,742
Increase (decrease) in due to clearing brokers,
net............................................. -- (255,651) 287,901
Increase (decrease) in accounts payable ......... 11,706 (3,212) 84,522
Increase in accrued expenses..................... 8,305 226,527 28,572
Increase in securities sold, not yet purchased .. -- 1,113 462
Increase in notes payable to
officers/stockholders........................... -- -- 210,000
----------- ------------- ------------
Total adjustments............................... 9,588 (716,397) 899,462
----------- ------------- ------------
Net cash used by operating activities ......... (71,404) (1,579,961) (14,636)
----------- ------------- ------------
Cash flows from investing activities: .............
Purchase of furniture, equipment, and leasehold
improvements..................................... (7,117) (127,354) (250,570)
----------- ------------- ------------
Cash flows from financing activities:
Increase in capitalized lease obligation, net .... -- -- 46,179
Proceeds from issuance of common and preferred
stock............................................ 166,808 1,968,383 1,433,500
Distributions to stockholders..................... (9,890) (292,600) (876,100)
----------- ------------- ------------
Net cash provided by financing activities ..... 156,918 1,675,783 603,579
----------- ------------- ------------
Net increase (decrease) in cash.................... 78,397 (31,532) 338,373
Cash--beginning of year............................ 9,255 87,652 56,120
----------- ------------- ------------
Cash--end of year.................................. $ 87,652 $ 56,120 $ 394,493
=========== ============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense................................. $ -- $ 5,417 $ 21,110
=========== ============= ============
Income taxes..................................... $ -- $ -- $ 2,800
=========== ============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
United States Financial Group, Incorporated ("USFG or the "Company") is a
holding company, incorporated under the laws of the State of Delaware in
December 1996. USFG's main business purpose is to acquire undervalued or
reasonably priced companies in diversified, well-established industries.
The Company has four subsidiaries, two of which are currently active.
Klein, Maus & Shire, Inc. ("KMS") is an investment banking firm, a member of
the National Association of Securities Dealers, Inc. (the "NASD") and
registered with the Securities and Exchange Commission (the "SEC"). Sureal
International, Inc. ("Sureal") is a direct marketing company that distributes
personal care and nutritional products in Russia and other republics of the
former Soviet Union through a network of independent distributors.
The two inactive subsidiaries were formed for specific purposes. KMS Asset
Management Group, Incorporated was formed to be an asset management and
international financial consultancy company. U.S. Military Resale Group,
Incorporated was established to acquire military commissaries and other
suppliers of consumer products to the Army and Air Force Exchange System.
The Company acquired KMS through a share exchange effected on March 31,
1997 in which KMS' sole common shareholder exchanged 18,889,267 shares of
KMS' common stock (representing 100% of the total outstanding common shares
of KMS) for 18,889,267 shares of the Company's Common Stock. This merger
involving two entities under common control was accounted for as a pooling of
interests.
On December 3, 1997 the Company entered into an exchange agreement with
Sureal and its stockholders to exchange all outstanding common shares of
Sureal for newly-issued Common Shares of USFG, which shares will have a
market value of $11,250,000 (see Note 3). KMS, as a broker-dealer and
investment bank, will be the entity responsible for obtaining and providing
the capital necessary to complete the transaction.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES
A summary of the Company's significant accounting and reporting policies
is as follows:
a. Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of
the Company and its subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation.
b. Use of Estimates
The preparation of these 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 and disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates include determining the
need for reserves and accruals for product returns, outcome of contingencies,
obsolete inventory and taxes. Actual results could differ from these
estimates.
c. Credit Risks
KMS maintains its cash accounts primarily with one bank. At December 31,
1997, KMS had an amount on deposit with such bank that exceeded the balance
insured by the Federal Deposit Insurance Corporation in the amount by
$257,070.
KMS executes, as agent, securities transactions on behalf of its
customers. If either a customer or a counterparty fails to perform, KMS may
sustain a loss if the market value of the security is different from the
contract value of the transaction. KMS as a nonclearing broker does not
handle any customer funds
F-7
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES (Continued)
or securities. The responsibility for processing customer activities resides
with KMS' clearing agent, Cowen & Company. KMS' customers are located
throughout the United States as well as in foreign countries.
d. Cash and Cash Equivalents
For the purposes of reporting cash flows, cash and cash equivalents
include cash due from banks and brokerage accounts, certificates of deposit
and highly liquid instruments with original maturities of 90 days or less.
e. Inventories
Inventories consist of merchandise purchased by Sureal for resale and are
stated at the lower of cost or market using the first-in, first-out cost flow
assumption.
f. Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheet for cash, cash
equivalents, receivables and payables approximate their respective fair
values because of the short maturities of these instruments. The fair values
of securities owned and securities sold, not yet purchased are recorded
primarily at quoted prices for those or similar instruments. Changes in the
market value of these securities are reflected currently in the results of
operations for the year.
g. Fixed Assets
Fixed Assets are recorded at cost less accumulated depreciation or
amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of such assets. At December 31, 1997 and 1996, all
such assets had an estimated useful life of five years. Leasehold
improvements are amortized over the lesser of their estimated useful lives or
the remaining terms of their respective leases. Expenditures for maintenance
and repairs are charged to expense as incurred.
h. Revenue Recognition
Commissions on product sales are recognized when products are shipped and
title passes to independent distributors.
Securities transaction and related revenue are recorded on a trade date
basis. Managers' fees, underwriters' fees, and other underwriting revenues
are recognized at the time the related underwriting is completed.
i. Income Taxes
The Company uses the liability method in compliance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
Prior to its merger with the Company, Sureal had elected to be taxed as an
S corporation whereby the Federal and state income tax effects of Sureal's
activities accrued directly to its stockholders. There are no pro forma
Federal, state and local income tax provisions for any of the three years in
the period ended December 31, 1997 because on a consolidated basis net losses
were incurred in each of those years.
USFG intends to file a consolidated Federal corporation income tax return
for the year ended December 31, 1997. Net operating loss carrryforwards
amount to approximately $2,740,000 expiring in 2011 and 2012. No deferred tax
assets have been established for the potential benefits associated with these
carryforwards because of the uncertainty in utilizing net operating loss
carryforwards.
F-8
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES (Continued)
j. Loss Per Share
The loss per share is based on 10,694,634 common outstanding shares, for
each year presented which gives retroactive effect to the (i) two-for-one
reverse split effected on December 3, 1997 and (ii) the 750,000 shares of
common stock to be issued in connection with the Sureal merger (see Note 3).
The calculation does not assume the conversion of Preferred Stock because the
impact of such conversions would be anti-dilutive.
k. Restatement and Reclassification for Reverse Stock Splits
On December 8, 1997, the Company ratified a one-for-two reverse stock
split of common stock. All share and per share amounts affecting net loss per
share, weighted average number of common and common equivalent shares
outstanding, common stock and preferred stock issued and outstanding,
additional paid-in-capital and all other stock transactions presented in
these financial statements have been restated to reflect the
one-for-two-reverse stock split.
l. Industry Segment and Geographic Area
KMS operates as a broker-dealer of securities. Its customers are located
throughout the United States as well as internationally.
Sureal operates in a single industry, which is the direct marketing of
personal care and nutritional products, and in a single geographic area,
which is Russia and the republics of the former Soviet Union. In 1998 and
subsequent years, Sureal expects to operate in additional countries,
including the United States.
NOTE 3 -- MERGER WITH SUREAL
Sureal International, Inc. ("Sureal"), a Delaware corporation established
on August 10, 1995 as Legacy Export, Inc., changed its name in October 1997,
and is headquartered in Orem, Utah.
Through December 31, 1997 Sureal's income was primarily earned from
commissions. At the end of 1997 the nature of Sureal's business changed.
Sureal beginning in November 1997 began to buy its products directly from
manufacturers and sell such products in January 1998 directly through a
network of independent distributors.
On December 3, 1997 Sureal agreed to exchange all of its outstanding
shares of common stock for an estimated 750,000 shares of USFG Common Stock,
that will have an aggregate market value of $11,250,000 at the closing date
of an Initial Public Offering (the "Offering") contemplated by USFG. The
actual number of USFG Common Shares to be issued to the Sureal Stockholders
shall be the quotient obtained by dividing $11,250,000 by the opening sales
price per share of the USFG Common Shares sold to the public in the Offering.
The final number of USFG Common Shares issued to the Sureal Stockholders
shall be adjusted and finalized on the closing date of the Offering. The
accompanying financial statements have been prepared on the basis that the
750,000 Common Shares of USFG have been issued to the Shareholders of Sureal
in exchange for all their common shares. In the event that the Offering is
not completed by August 31, 1998, the Sureal Shareholders will have the
option of terminating the Exchange Agreement in which case each of the
parties will return all shares exchanged.
USFG accounted for the foregoing transaction, which resulted in Sureal
becoming a wholly-owned subsidiary of USFG, as a pooling of interests in
conformity with Opinion Number 16 of the Accounting Principles Board.
Accordingly, the results of Sureal's operations are included for all periods
presented.
F-9
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- REGULATORY MATTERS
KMS
KMS is subject to the Securities and Exchange Commission's uniform net
capital rule (Rule 15c3-1) which requires the maintenance of minimum net
capital, as defined, and also requires that the ratio of aggregate
indebtedness to aggregate net capital shall not exceed 15 to 1. Dividends may
not be paid nor capital withdrawn if such action results in the ratio of
aggregate indebtedness to aggregate net capital exceeding 10 to 1. At
December 31, 1997, KMS' aggregate net capital as defined was $234,481
(compared to a requirement of $100,000) and its ratio of aggregate
indebtedness to aggregate net capital was 1.40 to 1 (compared to a
requirement of not more than 15 to 1).
KMS is subject to the rules and regulations promulgated by various
Federal, state and industry regulatory and governmental agencies, including
the SEC and the NASD. Failure to comply with rules and regulations of these
organizations could result in fine, suspension or other civil or criminal
remedies. Certain of these regulatory bodies perform audits or other
procedures to ensure compliance with their rules and regulations. The NASD
completed an audit of KMS in February 1998, at which time it issued a
preliminary letter of audit findings in which it set forth certain alleged
exceptions and areas of noncompliance noted during the performance of its
audit procedures. Based on a review of the letter and discussions with the
NASD auditors, management of KMS and its counsel do not believe that the
ultimate resolution of the matters described in such letter will have a
material adverse effect on KMS' financial position or results of operations.
However, the ultimate outcome of this matter cannot be determined at this
time. As of April 10, 1998, the NASD has not issued any further
correspondence to KMS or had further discussions with KMS' management
concerning its audit.
SUREAL
Sureal is subject to governmental regulations pertaining to product
formulation, labeling and packaging, product claims and advertising and to
Sureal's direct selling system. Although management believes that Sureal is
in compliance, in all material respects, with the statutes, laws, rules and
regulations of every jurisdiction in which it operates, no assurance can be
given that Sureal's compliance with applicable statutes, laws, rules and
regulations will not be challenged by domestic or foreign authorities or that
such challenges will not have a material adverse effect on Sureal's future
financial position or results of operations or cash flows.
NOTE 5 -- RECEIVABLE FROM AND PAYABLE TO BROKER-DEALER AND CLEARING
ORGANIZATIONS
KMS introduces all customer transactions in securities traded on U.S.
securities markets to its clearing broker on a fully disclosed basis. The
agreement between KMS and its clearing broker provides that KMS is obligated
to assume any exposure related to nonperformance by customers or
counterparties. KMS monitors clearance and settlement of all customer
transaction on a daily basis. In accordance with the clearing agreement, KMS
deposited $100,000 in a standby money reserve fund with Cowen & Company. Such
deposit earns interest at a rate defined in the agreement.
The exposure to credit risk associated with the nonperformance of customer
and counterparties in fulfilling their contractual obligations pursuant to
these securities transactions can be directly impacted by volatile trading
markets which may impair the customers's or counterparty's ability to satisfy
their obligations to KMS. In the event of nonperformance, KMS may be required
to purchase or sell financial instruments at unfavorable market prices
resulting in a loss. Management does not anticipate material instances of
nonperformance by customers and counterparties in the above situations.
F-10
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Furniture and fixtures......................... $ 63,372 $161,335
Equipment...................................... 71,099 191,403
Leasehold improvements......................... -- 32,302
---------- ----------
Less accumulated depreciation and
amortization.................................. 134,471 385,040
17,691 67,583
---------- ----------
$116,780 $317,457
========== ==========
</TABLE>
NOTE 7 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ---------
<S> <C> <C>
Employee and broker receivables................ $106,128 $ 46,082
Prepaid expenses and miscellaneous
receivables................................... 94,604 68,647
Deposits....................................... 1,389 35,398
---------- ---------
$202,121 $150,127
========== =========
</TABLE>
The employee and broker receivables relate principally to advances and
expenses in excess of commission earnings and inventory losses charged to
registered representatives.
NOTE 8 -- TRADING AND INVESTMENT SECURITIES
Trading securities and securities sold, not yet purchased, represent the
market value of securities held long and short by KMS.
NOTE 9 -- NOTES PAYABLE TO OFFICERS/STOCKHOLDERS
At December 31, 1997, Sureal is obligated under the term of 8% demand
notes payable in the aggregate principal amount of $210,000 due to three
officers/stockholders. The proceeds of such notes were principally used to
purchase inventory.
F-11
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CAPITALIZED LEASE OBLIGATIONS
Included in fixed assets are the following assets held under capital
leases at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Equipment..................... $52,003
Less accumulated
depreciation................. 5,200
---------
$46,803
=========
</TABLE>
Future minimum lease payments for assets under capital leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................ $16,304
1999........................................ 16,304
2000........................................ 16,304
2001........................................ 16,304
2002........................................ 3,682
---------
Total minimum lease payments................ 68,898
Less amount representing interest........... 22,719
---------
Present value of net minimum lease
payments................................... $46,179
=========
</TABLE>
There were no such assets at December 31, 1996.
NOTE 11 -- CAPITAL STRUCTURE
USFG is a Delaware corporation with its principal offices located at 110
Wall Street, New York, New York. It is authorized to issue up to 30,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. Each share
of Common Stock entitles the holder thereof to one vote. There are no
cumulative voting rights or privileges. The Preferred Shares are nonvoting
and do not have a stated dividend rate. Holders of the preferred shares do
receive preference over holders of common shares in the event of liquidation.
In 1997, USFG received $200,000 from the issuance of 40,000 Preferred Shares.
KMS issued 773,275 shares of Series A convertible preferred stock and
raised an aggregate of $2,744,500 in 1996 and 1997 pursuant to a private
placement offering memorandum dated April 15, 1996. Each such share was
convertible into one share of KMS' common stock at a price of $3 per share.
The conversion feature remains in effect for a period of three years from the
date of issuance. The preferred share agreement was amended to permit the
holders of preferred shares to convert such shares into Common Shares of USFG
at a price of $3 per share. The par value of the KMS preferred shares is
shown as minority interest in the accompanying consolidated balance sheets.
From January to March 1998, the Company sold 12 Units of Bridge Financing
for an aggregate of $600,000 resulting in net proceeds of approximately
$575,000. Each Unit consists of (i) a 10% Promissory Note in the principal
amount of $50,000 due one year from the date of issuance and (ii) 1,667
shares of the Company's Common Stock. The holders of such shares of Common
Stock have certain registration rights. For financial reporting purposes, a
portion of the net proceeds will be allocated to the value of the Common
Stock. The resulting debt discount will be amortized to operations over the
term of the Promissory Notes.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Litigation
KMS is a co-defendant in legal action in which the plaintiff alleges that
KMS and certain of its representatives sold the plaintiff securities through
fraudulent sales practices, misrepresentations and
F-12
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CAPITALIZED LEASE OBLIGATIONS (Continued)
omissions and that certain trades were unauthorized. The complaint demands
compensatory damages of $254,000, rescission damages of $100,000, unspecified
punitive damages, costs and attorneys' fees. KMS denies the allegations and
believes that the ultimate resolution of this matter will not have a material
adverse impact on its financial condition. However, the ultimate resolution
cannot be determined at this time.
Lease Agreements
The Company leases office space under noncancelable long-term operating
leases having minimum future operating lease obligations as follows at
December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- -------------- ----------
<S> <C>
1998........... $366,000
1999........... 370,000
2000........... 348,000
2001........... 315,000
2002........... 210,000
</TABLE>
Rental expense for operating leases totaled $8,000, $146,000, and $295,000
for the years ended December 31, 1995, 1996, and 1997, respectively.
Employment Agreements
USFG has entered into employment agreements with two officers under which
it has agreed to pay such officers annual aggregate salaries of $600,000
through 2003. Sureal has entered into employment agreements with three
officers under which it has agreed to pay such officers annual aggregate
salaries of $360,000 through 2003. Sureal has also entered into a consulting
agreement with a member of the Board of Directors calling for the annual
payment of $75,000, subject to adjustment based on actual work performed,
through 2001.
NOTE 13 -- OTHER EXPENSES
Other expenses for the year ended December 31, 1997 consist of:
<TABLE>
<CAPTION>
<S> <C>
Settlement of customer guarantee............. $282,483
Preoperating costs for office in Bahrain
(a)......................................... 517,989
----------
Total....................................... $800,472
==========
</TABLE>
- ------------
(a) The Company has incurred such costs to open an office of a
broker-dealer in Bahrain. Although the Company anticipates that all
necessary approvals for this branch will be obtained, no assurances
thereof can be given. Therefore, all such costs have been charged to
operations as incurred.
NOTE 14 -- SEGMENT REPORTING
The Company's operations are now reported in two segments. KMS is a
broker-dealer of securities and Sureal is a direct marketing company involved
in the distribution of personal care and nutritional products in Russia and
other republics of the former Soviet Union.
Identifiable assets are those assets used exclusively in the operations of
each business segment. Corporate assets are principally cash and investments.
F-13
<PAGE>
UNITED STATES FINANCIAL GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- CAPITALIZED LEASE OBLIGATIONS (Continued)
A summary of segment data follows:
<TABLE>
<CAPTION>
1997 SUREAL KMS CORPORATE ELIMINATIONS TOTAL
- ---- ------------ ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues........ $1,328,367 $ 2,914,197 $ -- $ 46,346 $4,196,218
Operating profits .
(losses)............ 613,447 (1,402,457) (914,098) 789,010 (914,098)
Identifiable
assets............. 232,501 878,712 541,452 (464,789) 1,187,876
1996
- ----
Net revenues........ $ 939,364 $ 248,989 $ -- $ -- $1,188,353
Operating profits .
(losses)............ 385,920 (1,249,484) -- -- (863,564)
Identifiable
assets............. 209,002 932,838 -- -- 1,141,840
1995
- ----
Net revenues........ $ 54,965 $ 1,032 $ -- $ -- $ 55,997
Operating profits .
(losses)............ (81,494) 502 -- -- (80,992)
Identifiable
assets............. 103,232 1,960 -- -- 105,192
</TABLE>
Capital expenditures and depreciation expense were not significant during
the periods presented.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Sureal International, Inc.
Orem, Utah
We have audited the accompanying balance sheets of Sureal International,
Inc. as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the period August 10,
1995 (date of inception) through December 31, 1995 and for the two years
ended December 31, 1996 and 1997. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sureal International,
Inc. as of December 31, 1996 and 1997, and the results of its operations,
stockholders' equity, and its cash flows for the period August 10, 1995 (date
of inception) through December 31, 1995 and for the two years ended December
31, 1996 and 1997 in conformity with generally accepted accounting
principles.
Eichler Bergsman & Co., LLP
New York, New York
March 9, 1998
F-15
<PAGE>
SUREAL INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2b).............................. $ 38,659 $ 29,750
Accounts receivable.............................................. 149,662 4,231
Inventories (Note 2d)............................................ -- 118,554
Due from employees............................................... 3,984 --
Prepaid expenses and other current assets........................ 1,650 24,141
---------- ----------
Total current assets............................................ 193,995 176,676
Furniture and equipment, net of accumulated
depreciation (Notes 2f and 4).................................... 13,658 50,536
Deposits.......................................................... 1,389 5,289
---------- ----------
$209,002 $232,501
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 8,494 $ 93,016
Accrued expenses................................................. 21,189 12,820
Notes payable to officers/stockholders (Note 5).................. -- 210,000
---------- ----------
Total current liabilities....................................... 29,683 315,836
---------- ----------
Commitments and contingencies (Notes 1, 3, and 6)
Stockholders' equity (Note 1):
Preferred stock, 5,000 shares authorized......................... -- --
Common stock, $1 par value; 10,000 shares authorized; 9,000
shares issued and outstanding................................... 9,000 9,000
Paid-in capital.................................................. 158,492 --
(Deficit) retained earnings...................................... 11,827 (92,335)
---------- ----------
Total stockholders' equity...................................... 179,319 (83,335)
---------- ----------
Total liabilities and stockholders' equity...................... $209,002 $232,501
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-16
<PAGE>
SUREAL INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 10, 1995
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ----------------------------
1995 1996 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Commissionable sales (Notes 1 and 2f)............. $995,670 $21,594,562 $31,720,456
Cost of commissionable sales...................... 977,173 20,720,459 30,459,297
--------------- ------------- -------------
18,497 874,103 1,261,159
Other income...................................... 36,468 65,261 67,208
--------------- ------------- -------------
Total revenue.................................... 54,965 939,364 1,328,367
--------------- ------------- -------------
Expenses:
Officers' compensation............................ 65,250 234,173 253,615
Compensation and related expenses................. 18,635 114,136 210,078
Occupancy, office, and administrative expense .... 52,574 205,135 251,227
--------------- ------------- -------------
Total expenses................................... 136,459 553,444 714,920
--------------- ------------- -------------
Net income (loss).................................. $(81,494) $ 385,920 $ 613,447
=============== ============= =============
Pro forma data (Note 2h):
Income (loss) before pro forma income tax
provision........................................ $(81,494) $ 385,920 $ 613,447
Pro forma income tax provision.................... -- 111,000 229,000
--------------- ------------- -------------
Pro forma net income (loss)....................... $(81,494) $ 274,920 $ 384,447
=============== ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-17
<PAGE>
SUREAL INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIODS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER RETAINED TOTAL
OF PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-------- -------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance--August 10, 1995 . -- $ -- $ -- $ -- $ --
Issuance of shares........ 9,000 9,000 155,714 -- 164,714
Net loss.................. -- -- -- (81,493) (81,493)
-------- -------- ----------- ----------- ---------------
Balance--December 31, 1995 9,000 9,000 155,714 (81,493) 83,221
Capital contribution ..... -- -- 2,778 -- 2,778
Net income................ -- -- -- 385,920 385,920
Distributions............. -- -- -- (292,600) (292,600)
-------- -------- ----------- ----------- ---------------
Balance--December 31, 1996 9,000 9,000 158,492 11,827 179,319
Net income................ -- -- -- 613,446 613,446
Distributions............. -- -- (158,492) (717,608) (876,100)
-------- -------- ----------- ----------- ---------------
Balance--December 31, 1997 9,000 $9,000 $ -- $ (92,335) $ (83,335)
======== ======== =========== =========== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE>
SUREAL INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 10, 1995
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ------------------------
1995 1996 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $(81,493) $ 385,920 $ 613,447
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation....................................... 1,780 5,000 8,700
(Increase) decrease in accounts receivable ........ -- (149,662) 145,431
(Increase) in inventories.......................... -- -- (118,554)
(Increase) decrease in other assets................ (12,203) 5,180 (22,408)
Increase (decrease) in accounts payable............ 11,706 (3,212) 84,522
Increase (decrease) in accrued expenses............ 8,305 12,884 (8,369)
Increase in notes payable to
officers/stockholders............................. -- -- 210,000
--------------- ----------- -----------
Total adjustments................................. 9,588 (129,810) 299,322
--------------- ----------- -----------
Net cash used by operating activities............ (71,905) 256,110 912,769
--------------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets............................ (7,117) (13,321) (45,578)
--------------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 164,714 2,778 --
Distributions to stockholders....................... -- (292,600) (876,100)
--------------- ----------- -----------
Net cash (used) provided by financing
activities...................................... 164,714 (289,822) (876,100)
--------------- ----------- -----------
Net increase (decrease) in cash...................... 85,692 (47,033) (8,909)
Cash--beginning of period............................ -- 85,692 38,659
--------------- ----------- -----------
Cash--end of period.................................. $ 85,692 $ 38,659 $ 29,750
=============== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense................................... $ -- $ 904 $ 727
=============== =========== ===========
Income taxes....................................... $ -- $ -- $ --
=============== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE>
SUREAL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Sureal International, Inc. ("Sureal" or the "Company"), a Delaware
corporation established on August 10, 1995 as Legacy Export, Inc., is a
direct marketing company involved in the distribution of personal care and
nutritional products in Russia and other republics of the former Soviet
Union. Sureal changed its name in October 1997 and is headquartered in Orem,
Utah.
Through December 31, 1997 Sureal's income was primarily earned from
commissions. At the end of 1997 the nature of Sureal's business changed.
Sureal beginning in November 1997 began to buy its products directly from
manufacturers and sell such products in January 1998 directly through a
network of independent distributors.
On December 3, 1997, Sureal agreed to exchange all of its outstanding
shares of Common Stock for an estimated 750,000 shares of common stock of
United States Financial Group, Incorporated ("USFG"), that will have an
aggregate market value of $11,250,000 at the closing date of an Initial
Public Offering (the "Offering") contemplated by USFG. The actual number of
USFG common shares to be issued to the Sureal Shareholders shall be the
quotient obtained by dividing $11,250,000 by the opening sales price per
share of the USFG common shares sold to the public in the Offering. The final
number of USFG Common Shares issued to the Sureal Shareholders shall be
adjusted and finalized on the closing date of the Offering. In the event that
the Offering is not completed by August 31, 1998, the Sureal Shareholders
will have the option of terminating the Exchange Agreement in which case each
of the parties will return all shares exchanged.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
A summary of the Company's significant financial accounting and reporting
policies is as follows.
a. Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Significant estimates include reserves for product
returns, outcome of contingencies, obsolete inventory and taxes. Actual
results could differ from these estimates.
b. Cash and Cash Equivalents
For the purpose of the Statement of Cash Flows, cash equivalents are
short-term, highly liquid instruments with original maturities of 90 days or
less.
c. Inventories
Inventories consist of merchandise purchased for resale and are stated at
the lower of cost or market using the first-in, first-out method.
d. Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheet for cash, cash
equivalents, receivables and payables approximate their respective values due
to the short maturities of these instruments.
e. Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation or
amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of such assets. At December 31, 1996 and 1997, all
such assets had an estimated useful life of five years. Expenditure for
maintenance and repairs are charged to expense as incurred.
F-20
<PAGE>
SUREAL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING (Continued)
f. Revenue Recognition
Commissions on product sales are recognized when products are shipped and
title passes to independent distributors.
g. Income Taxes
The Company complies with Statement of Financial Accounting Standards No.
109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Prior to its merger with USFG, Sureal elected to be taxed as an S
corporation whereby the Federal and state income tax effects of Sureal's
activities accrued directly to its stockholders. The pro forma income tax
amounts reflect the amount of income tax provisions that would have been
recorded if Sureal had been a C corporation utilizing a net operating loss
carryover during all periods presented.
NOTE 3 -- REGULATORY MATTERS
Sureal is subject to governmental regulations pertaining to product
formulation, labeling and packaging, product claims and advertising and to
Sureal's direct selling system. Although management believes that Sureal is
in compliance, in all material respects, with the statutes, laws, rules, and
regulations of every jurisdiction in which it operates, no assurance can be
given that Sureal's compliance with applicable statutes, laws, rules and
regulations will not be challenged by domestic or foreign authorities or that
such challenges will not have a material adverse effect on Sureal's future
financial position or results of operations or cash flows.
NOTE 4 -- FIXED ASSETS
Fixed assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
--------- --------
<S> <C> <C>
Furniture and fixtures........ $ 6,666 $ 7,090
Equipment..................... 13,772 58,926
--------- --------
20,438 66,016
Less accumulated
depreciation................. 6,780 15,480
--------- --------
$13,658 $50,536
========= ========
</TABLE>
NOTE 5 -- NOTES PAYABLE TO OFFICERS/STOCKHOLDERS
At December 31, 1997, Sureal is obligated under the terms of 8% demand
notes payable in the aggregate principal amount of $210,000 due to three
officers/stockholders. The proceeds of such notes were principally used to
purchase inventory.
F-21
<PAGE>
SUREAL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company leases office space, under noncancelable long-term operating
leases having minimum future operating lease obligations as follows at
December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
<S> <C>
1998..................... $55,000
1999..................... $55,000
2000..................... $32,000
</TABLE>
Rental expense for operating leases totaled $8,000 for the period August 10
(inception) through December 31, 1995 and $19,000 and $36,000 for the years
ended December 31, 1996 and 1997, respectively.
Employment Agreements
Sureal has entered into employment agreements with three officers under
which it has agreed to pay such officers annual aggregate salaries of
$360,000 through 2003. Sureal has also entered into a consulting agreement
with a member of the USFG Board of Directors calling for the annual payment
of $75,000, subject to adjustment based on actual work performed, through
2003.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Klein Maus & Shire, Inc.
New York, NY
We have audited the accompanying statement of financial condition of Klein
Maus & Shire, Inc. as of December 31, 1997 and the related statements of
operations, stockholders' equity, and cash flows for the year 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 audit. The financial statements of Klein Maus &
Shire, Inc. as of December 31, 1996 and 1997 were audited by other auditors
whose reports dated April 5, 1996 and February 5, 1997, respectively,
expressed unqualified opinions on those statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Klein Maus & Shire, Inc.
as of December 31, 1997, and the results of its operations, stockholders'
equity, and cash flows for the year then ended in conformity with generally
accepted accounting principles.
Eichler Bergsman & Co., LLP
New York, New York
March 9, 1998, except for
Note 3 as of April 10, 1998
F-23
<PAGE>
KLEIN MAUS & SHIRE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash (Note 2)................................................. $ 17,461 $ 359,130
Deposit at clearing broker (Note 5)........................... -- 103,285
Due from clearing broker...................................... 255,651 --
Securities owned at market value (Note 7)..................... 361,506 99,729
Fixed assets--at cost, less accumulated depreciation and
amortization [Notes 2(c) and 8].............................. 103,122 197,621
Other assets (Note 6)......................................... 195,098 118,947
------------- -------------
Total Assets................................................ $ 932,838 $ 878,712
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued expenses............................................. $ 213,644 $ 250,584
Due to clearing broker (Note 5).............................. -- 32,250
Securities sold, not yet purchased at market value (Note 7) . 1,113 1,575
Capitalized lease obligations (Note 9)....................... -- 46,179
------------- -------------
Total Liabilities........................................... 214,757 330,588
------------- -------------
Commitments and cotingencies (Note 10)
Stockholders' equity:
Preferred stock, $.001 par value; 3,333,400 shares
authorized; 504,009 (1996) and 773,275 (1997) shares issued
and outstanding............................................. 504 773
Common stock, $.001 par value; 22,222,667 shares authorized;
18,889,267 shares issued and outstanding.................... -- 18,889
Paid-in capital.............................................. 1,967,195 3,180,537
Deficit...................................................... (1,249,618) (2,652,075)
------------- -------------
Total stockholders' equity.................................. 718,081 548,124
------------- -------------
Total liabilities and stockholders' equity.................. $ 932,838 $ 878,712
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
KLEIN MAUS & SHIRE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996* 1997
------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Commissions on customer trades............... $ -- $ 243,097 $ 863,673
Trading income [Notes 2(a) and (b)] ......... -- 5,892 1,658,197
Other income................................. 1,031 -- 354,671
Interest income--net......................... -- -- 37,656
------- -------------- -------------
Total revenue............................... 1,031 248,989 2,914,197
------- -------------- -------------
Expenses:
Officers' compensation....................... -- -- 379,039
Compensation and related expenses............ -- 481,678 1,326,168
Clearance and floor brokerage................ -- 68,385 158,184
Occupancy, office, and administrative
expense..................................... 530 525,427 668,104
Professional fees............................ -- 310,032 273,039
Communications............................... -- 68,343 317,447
Regulatory fees and expenses................. -- 44,608 93,919
Other expenses (Notes 4 and 11).............. -- -- 1,100,754
------- -------------- -------------
Total expenses.............................. 530 1,498,473 4,316,654
------- -------------- -------------
Net income (loss)............................. $ 501 $(1,249,484) $(1,402,457)
======= ============== =============
</TABLE>
- ------------
* Reclassified for comparative purposes.
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
KLEIN MAUS & SHIRE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- -----------------------
NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
----------- -------- ------------ --------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--
January 1, 1995..... -- $ -- -- $ 9,890 $ -- $ (635) $ 9,255
Capital
contribution........ -- -- -- 2,094 -- 2,094
Distribution......... -- -- -- (9,890) -- -- (9,890)
Net income........... -- -- -- -- -- 501 501
----------- -------- ------------ --------- ------------ -------------- -------------
Balance--
December 31, 1995 .. -- -- -- -- 2,094 (134) 1,960
Issuance of shares .. 504,009 504 -- -- 1,965,101 -- 1,965,605
Net loss............. -- -- -- -- -- (1,249,484) (1,249,484)
----------- -------- ------------ --------- ------------ -------------- -------------
Balance--
December 31, 1996 .. 504,009 $504 -- $ -- $1,967,195 $(1,249,618) $ 718,081
Issuance of shares .. 269,266 269 18,889,267 18,889 1,213,342 -- 1,232,500
Net loss............. -- -- -- -- -- (1,402,457) (1,402,457)
----------- -------- ------------ --------- ------------ -------------- -------------
Balance--
December 31, 1997 .. 773,275 $773 18,889,267 $18,889 $3,180,537 $(2,652,075) $ 548,124
=========== ======== ============ ========= ============ ============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE>
KLEIN MAUS & SHIRE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
--------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 501 $(1,249,484) $(1,402,457)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................... -- 10,911 33,493
Increase in deposit at clearing broker .......... -- -- (103,285)
(Increase) decrease in securities owned ......... -- (361,506) 261,777
(Increase) decrease in other assets.............. -- (195,097) 76,150
(Increase) decrease in due from/to clearing
brokers, net.................................... -- (255,651) 287,901
Increase in securities sold, not yet purchased .. -- 1,113 462
Increase in accrued expenses..................... -- 213,643 36,941
--------- -------------- --------------
Total adjustments............................... -- (586,587) 593,439
--------- -------------- --------------
Net cash used by operating activities ......... 501 (1,836,071) (809,018)
--------- -------------- --------------
Cash flows from investing activities:
Purchase of furniture, equipment, and leasehold
improvements..................................... -- (114,033) (127,992)
--------- -------------- --------------
Cash flows from financing activities:
Increase in capitalized lease obligation, net .... -- -- 46,179
Proceeds from issuance of preferred and common
stock............................................ 2,094 1,965,605 1,232,500
Distribution to stockholder....................... (9,890) -- --
--------- -------------- --------------
Net cash (used) provided by financing
activities.................................... (7,796) 1,965,605 1,278,679
--------- -------------- --------------
Net increase (decrease) in cash.................... (7,295) 15,501 341,669
Cash--beginning of year............................ 9,255 1,960 17,461
--------- -------------- --------------
Cash--end of year.................................. $ 1,960 $ 17,461 $ 359,130
========= ============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense................................. $ -- $ 4,513 $ 20,383
========= ============== ==============
Income taxes..................................... $ -- $ -- $ 2,800
========= ============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
KLEIN MAUS & SHIRE, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Klein, Maus & Shire, Inc. ("KMS") is a registered broker-dealer of
securities under the Securities and Exchange Act of 1934, as amended. It
became a subsidiary of United States Financial Group, Incorporated ("USFG")
in March 1997 when its then sole stockholder exchanged all of KMS'
outstanding common stock for 18,889,267 shares of USFG's common stock. KMS
services institutional, corporate, government and individual clients and
conducts business in securities underwriting, sales and trading of securities
for its own account and that of clients. KMS has entered into a clearing
arrangement with another broker-dealer under which that broker-dealer clears
KMS' securities transactions on a fully disclosed basis.
KMS is an Indiana corporation with its principal offices located at 110
Wall Street, New York, New York. It is authorized to issue up to 22,222,667
shares of common stock and 3,333,400 shares of preferred stock. Each share of
Common Stock entitles the holder thereof to one vote. There are no cumulative
voting rights or privileges. The preferred shares are nonvoting and do not
have a stated dividend rate. Holders of the preferred shares do receive
preference over holders of common shares in the event of liquidation.
KMS issued 773,275 shares of Series A Convertible Preferred Stock in 1996
and 1997 pursuant to a Private Placement Offering memorandum dated April 15,
1996. Each such share is convertible into one share of Common Stock at a
price of $3 per share. The conversion feature remains in effect for a period
of three years from the date of issuance. The preferred share agreement will
be amended to permit the holders of Preferred Shares to convert such shares
into Common Shares of USFG at a price of $3 per share.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
A summary of KMS' significant financial accounting and reporting policies
follows.
a. Revenue Recognition
Securities transactions and related revenue are recorded on a trade date
basis. Managers' fees, underwriters' fees, and other underwriting revenues
are recognized at the time the underwriting is completed.
b. Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheet for cash, cash
equivalents, receivables and payables approximate their respective values due
to the short maturities of these instruments. The fair values of securities
owned and securities sold, not yet purchased are recorded primarily at quoted
market prices. Changes in the market value of these securities are recorded
currently in the results of operations for the year.
c. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation or
amortization. Depreciation of furniture, fixtures, and equipment is computed
generally by the straight-line method over their estimated useful lives of
five years. Leasehold improvements are amortized over the lesser of their
estimated useful life or the remaining lives of their respective leases.
d. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash due from banks and brokerage accounts, certificates of deposit and
highly liquid debt instruments purchased with a maturity of three months or
less.
F-28
<PAGE>
KLEIN MAUS & SHIRE, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING (Continued)
e. Income Taxes
KMS and USFG intend to file a consolidated Federal corporation income tax
return for the year ended December 31, 1997. No deferred tax asset has been
established by KMS because of the uncertainty in utilizing net operating loss
carryforwards. Net operating loss carryforwards amount to approximately
$1,800,000 expiring in 2011 and 2012.
f. Credit Risks
KMS maintains its cash accounts primarily with one bank. KMS had on
deposit with such bank at December 31, 1997 an amount that exceeded the
balance insured by the FDIC in the amount of $257,070.
KMS executes, as agent, securities transactions on behalf of its
customers. KMS as a nonclearing broker does not handle any customer funds or
securities. The responsibility for processing customer activities resides
with KMS' clearing agent, Cowen & Company. KMS' customers are located
throughout the United States as well as in foreign countries.
g. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 3 -- REGULATORY MATTERS
KMS is subject to the Securities and Exchange Commission's uniform net
capital rule (Rule 15c3-1) which requires the maintenance of minimum net
capital, as defined, and also requires that the ratio of aggregate
indebtedness to aggregate net capital shall not exceed 15 to 1. Dividends may
not be paid nor capital withdrawn if such action results in the ratio of
aggregate indebtedness to aggregate net capital exceeds 10 to 1. At December
31, 1997, KMS' aggregate net capital as defined was $234,481 (compared to a
requirement of $100,000) and its ratio of aggregate indebtedness to aggregate
net capital was 1.40 to 1 (compared to a requirement of 15 to 1).
KMS is subject to the rules and regulations promulgated by various
Federal, state and industry regulatory and governmental agencies, including
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. (the "NASD"). Failure to comply with rules and
regulations of these organizations could result in fine, suspension or other
civil or criminal remedies. Certain of these regulatory bodies perform audits
or other procedures to ensure compliance with their rules and regulations.
The NASD completed an audit of KMS in February 1998, at which time it issued
a preliminary letter of audit findings in which it set forth certain alleged
exceptions and areas of noncompliance noted during the performance of its
audit procedures. Based on the review of the letter and on discussions with
the NASD auditors, the management of KMS and its counsel do not believe that
the ultimate resolution of the matters described in such letter will have a
material adverse effect on KMS' financial position or operations. However,
the ultimate outcome of this matter cannot be determined at this time. As of
April 10, 1998, the NASD has not issued any further correspondence to KMS or
had further discussions with KMS' management concerning its audit.
NOTE 4 -- WRITE-OFF OF ADVANCES TO USFG
At December 31, 1997, USFG was obligated to KMS in the amount of $818,271
representing net advances made to USFG for various purposes. These advances
are unsecured, have no specified maturity dates and bear interest at 8%.
Interest income includes $46,346 of interest earned on advances to USFG.
F-29
<PAGE>
KLEIN MAUS & SHIRE, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- WRITE-OFF OF ADVANCES TO USFG (Continued)
USFG utilized the funds advanced from KMS and $200,000 it raised from
issuing its Preferred Stock principally to pay legal, travel, and related
expenses connected with filing an application for an investment banking
license in Bahrain, for compensation paid on behalf of its
officer/stockholder and to purchase fixed assets.
USFG intends to repay such advances from the proceeds of an initial public
offering of its common stock. Accordingly, it will file a Registration
Statement on Form S-1 with the Securities and Exchange Commission. However,
no assurances can be given that such public offering will be successful. An
allowance for the net advances of $818,271, including interest was recorded
by KMS at December 31, 1997 (see Note 11).
NOTE 5 -- RECEIVABLE FROM AND PAYABLE TO BROKER-DEALERS AND CLEARING
ORGANIZATIONS
KMS introduces all customer transactions in securities traded on U.S.
securities markets to its clearing broker on a fully-disclosed basis. The
agreement between KMS and its clearing broker provides that KMS is obligated
to assume any exposure related to nonperformance by customers or
counterparties. KMS monitors clearance and settlement of all customer
transactions on a daily basis. In accordance with the clearing agreement, KMS
deposited with Cowen & Company $100,000 in a standby money reserve fund which
earns interest at a rate defined in the agreement.
The exposure to credit risk associated with the nonperformance of
customers and counterparties in fulfilling their contractual obligations
pursuant to these securities transactions can be directly impacted by
volatile trading markets which may impair the customer's or counterparty's
ability to satisfy their obligations to KMS. In the event of nonperformance,
KMS may be required to purchase or sell financial instruments at unfavorable
market prices resulting in a loss. Management does not anticipate material
instances of nonperformance by customers and counterparties in the above
situations.
NOTE 6 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ---------
<S> <C> <C>
Employee and broker
receivables.................... $102,144 $ 44,341
Prepaid expenses................ 92,954 44,497
Deposits........................ -- 30,109
---------- ---------
$195,098 $118,947
========== =========
</TABLE>
The employee and broker receivables relate principally to advances and
expenses in excess of commission earnings and inventory losses charged to
registered representatives.
NOTE 7 -- TRADING AND INVESTMENT SECURITIES
Trading securities and securities sold, not yet purchased, represent the
market value of securities held long and short by KMS. The cost of such
securities was $1,200 (1996) and $1,659 (1997).
F-30
<PAGE>
KLEIN MAUS & SHIRE, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ---------
<S> <C> <C>
Furniture and fixtures............ $ 56,706 $ 77,245
Equipment......................... 57,327 132,478
Leasehold improvements............ -- 32,302
---------- ---------
114,033 242,025
Less accumulated depreciation and
amortization..................... 10,911 44,404
---------- ---------
$103,122 $197,621
========== =========
</TABLE>
NOTE 9 -- CAPITALIZED LEASE OBLIGATIONS
Included in fixed assets are the following assets held under capital
leases:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ ---------
<S> <C> <C>
Equipment................ $ -- $52,003
Accumulated
depreciation............ -- 5,200
------ ---------
$ -- $46,803
====== =========
</TABLE>
Future minimum lease payments for assets under capital leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................ $16,304
1999........................................ 16,304
2000........................................ 16,304
2001........................................ 16,304
2002........................................ 3,682
---------
Total minimum lease payments................ 68,898
Less amount representing interest........... 22,719
---------
Present value of net minimum lease
payments................................... $46,179
=========
</TABLE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
a. Litigation
KMS is a co-defendant in a legal action in which the plaintiff alleges
that KMS and certain of its representatives sold the plaintiff securities
through fraudulent sales practices, misrepresentations and omissions and that
certain trades were unauthorized. The complaint demands compensatory damages
of $254,000, rescission damages of $100,000, unspecified punitive damages,
costs and attorneys' fees. KMS denies the allegations and believes that the
ultimate resolution of this matter will not have a material adverse impact on
its financial condition. However, the ultimate resolution cannot be
determined at this time.
F-31
<PAGE>
KLEIN MAUS & SHIRE, INC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES (Continued)
b. Lease Agreements
KMS is obligated under certain noncancelable operating lease agreements
for office space. Future minimum cash payments, by year and in the aggregate,
required by such leases with initial or remaining terms of one year or more
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ----------
<S> <C>
1998..................... $310,000
1999..................... $315,000
2000..................... $315,000
2001..................... $315,000
2002..................... $210,000
</TABLE>
Rent expense charged to operations amounted to $ -0-, $127,000, and
$269,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
KMS recognizes rent expense on a straight-line basis over the lease terms
of its two operating leases for office space. During the initial six month
periods of each lease, monthly payments were substantially reduced pursuant
to each lease. Accordingly, KMS recorded an accrued liability during these
periods which is amortized in subsequent periods by the excess of the monthly
payments over the monthly expense during the remainder of the leases' terms.
NOTE 11 -- OTHER -- EXPENSES
Other expenses for the year ended December 31, 1997 consist of:
<TABLE>
<CAPTION>
<S> <C>
Settlement of third-party guarantee ....... $ 282,483
Provision for write-off of amount due from
USFG (Note 4)............................. 818,271
-----------
Total.................................... $1,100,754
===========
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Cover Page .....................................................
Notes to Distribution Table . ..................................
Prospectus Summary .............................................
Table of Contents ..............................................
Introductory Notes and Risk Factors ............................
The Company ...................................................
Risk Factors ..................................................
Dilution .......................................................
Use of Proceeds ................................................
Management .....................................................
Directors and Officers ........................................
Other Information .............................................
Advisory Board ................................................
Principal Stockholders ........................................
Remuneration ..................................................
Certain Transaction ...........................................
Potential Conflicts of Interest ...............................
Selected Financial Data ........................................
Management's Discussion and Analysis of Financial Conditions
and Results of Operation ......................................
Results of Operation ..........................................
Inflation .....................................................
Liquidity and Capital Resources ...............................
Business .......................................................
Introduction ..................................................
Marketing .....................................................
Employees .....................................................
Selling Security Holders .......................................
Capitalization .................................................
Underwriting ...................................................
Description of Common Stock ....................................
Common Stock ..................................................
Market For Stock ...............................................
Dividends ......................................................
Reports to Shareholders ........................................
Transfer Agent and Registrar ...................................
Legal Proceedings and Other Matters ............................
Indemnification ................................................
Further Information ............................................
Consolidated Financial Statements:
United States Financial Group, Incorporated and subsidiaries .
Klein, Maus & Shire, Inc. .....................................
Sureal International, Ltd......................................
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 22. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has a provision in its charter, by-laws, or other contracts
providing for indemnification of its officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors officers and
controlling persons of the Company 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 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any such
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 Act and will be governed by the final
adjudication of such issue.
ITEM 23. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable by the Registrant other than underwriting
commissions payable to the Underwriter in connection with the registration
and distribution of the Common Stock registered hereby are as follows:
<TABLE>
<CAPTION>
<S> <C>
Registration fee ............................. $
NASD filing fee .............................. $
"Blue sky" filing fees and expenses (est.) .. $
Printing Expenses (estimated) ................ $ 50,000
Transfer agent and registrar's fees (est.) .. $
Legal fees and expenses ...................... $125,000
Accounting and other professional fees ...... $125,000
Miscellaneous (estimated) .................... $
TOTAL ........................................
</TABLE>
ITEM 24. RECENT SALES OF UNREGISTERED SECURITIES.
ITEM 25. EXHIBITS.
The following exhibits can be found as exhibits to the filings listed.
<TABLE>
<CAPTION>
<S> <C>
1 Underwriting Agreement*
3.1 Articles of Incorporation
II-1
<PAGE>
3.2 By-Laws
4 Agreements Underlying Preferred Stock*
5 Opinion of Doros & Brescia, P.C.*
10.1 Employment Agreement--Mohammad Ali Khan
10.2 Employment Agreement--Asim S. Kohli
10.3 Employment Agreement--R. Bret Jenkins
10.4 Employment Agreement--Richard Wogksch
10.5 Employment Agreement--Glen Jensen
10.6 Consulting Agreement with EH Associates
10.7 Stock Option Plan*
10.8 Lease Agreement--110 Wall Street, New York
10.9 Lease Agreement--Orem, Utah*
10.10 Clearing Agreement with Cowen & Company
10.11 Share Exchange Agreement between United States Financial Group,
Incorporated and Sureal International, Inc.*
22.1 Consent of Eichler, Bergsman & Co., LLP
22.3 Consent of Doros & Brescia, P.C.*
</TABLE>
- ------------
* Exhibit will be filed with the First Pre-Effective Amendment.
ITEM 26. UNDERTAKINGS.
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission hereto before or hereafter duly adopted pursuant
to authority conferred in that section.
The undersigned registrant hereby undertakes to provide to the Underwriter
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.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this S-1 Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 13th day of May, 1998.
UNITED STATES FINANCIAL GROUP,
INCORPORATED
By /s/ Mohammad Ali Khan
--------------------------------
Mohammad Ali Khan, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Mohammad Ali Khan President and Director May 13, 1998
- ---------------------- (Principal Executive Officer)
Mohammad Ali Khan
/s/ William Triebel Principal Financial May 13, 1998
- ---------------------- Officer
William Triebel
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
1 Underwriting Agreement*
3.1 Articles of Incorporation
3.2 By-Laws
4 Agreements Underlying Preferred Stock*
5 Opinion of Doros & Brescia, P.C.*
10.1 Employment Agreement--Mohammad Ali Khan
10.2 Employment Agreement--Asim S. Kohli
10.3 Employment Agreement--R. Bret Jenkins
10.4 Employment Agreement--Richard Wogksch
10.5 Employment Agreement--Glen Jensen
10.6 Consulting Agreement with EH Associates
10.7 Stock Option Plan*
10.8 Lease Agreement--110 Wall Street, New York
10.9 Lease Agreement--Orem, Utah*
10.10 Clearing Agreement with Cowen & Company
10.11 Share Exchange Agreement between United States Financial Group,
Incorporated and Sureal International, Inc.*
22.1 Consent of Eichler, Bergsman & Co., LLP
22.3 Consent of Doros & Brescia, P.C.*
- ------------
* Exhibit will be filed with the First Pre-Effective Amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
UNITED STATES FINANCIAL GROUP, INCORPORATED
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of this corporation (hereinafter the "Corporation")
shall be:
UNITED STATES FINANCIAL GROUP, INCORPORATED
SECOND: Its registered office in the State of Delaware is to be
located at 1013 Centre Road, in the City of Wilmington, County of New Castle
and its registered agent at such address is THE PRENTICE-HALL CORPORATION
SYSTEM, INC.
THIRD: The purpose or purposes of the Corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware:
FOURTH: (a) The total number of shares of stock which this
Corporation is authorized to issue is forty million (40,000,000) shares
consisting of (i) thirty million (30,000,000) shares of common stock, with a
par value of $.0001 per share (the "Common Stock"), amounting to three thousand
dollars ($3,000) of stated capital and (ii) ten million (10,000,000) shares of
"blank check" preferred stock, with a par value of $.0001 per share
(the "Preferred Stock"), amounting to one thousand dollars ($1,000) of stated
capital.
(b) Each share of Common Stock issued and outstanding shall
be identical in all respects one with the other, and no dividends shall be paid
on any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of payment.
<PAGE>
(c) Except for and subject to those rights expressly
granted to the holders of the Preferred Stock, or except as may be provided by
the General Corporation Law of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders including, but
not by way of limitation, (i) the right to receive dividends, when, as and if
declared by the Board of Directors out of assets lawfully available therefor,
and (ii) in the event of any distribution of assets upon liquidation,
dissolution or winding up of the Corporation or otherwise, the right to receive
ratably and equally all of the assets and funds of the Corporation remaining
after payment to the holders of the Preferred Stock of the Corporation of the
specific amounts which they are entitled to receive upon such liquidation,
dissolution or winding up of the Corporation as herein provided.
(d) Each holder of shares of Common Stock shall be entitled
to one vote for each share of such Common Stock held by such holder, and voting
power with respect to all classes of securities of the Corporation shall be
vested solely in the Common Stock, other than as specifically provided in the
Corporation's Articles of Incorporation, as it may be amended, or any
resolutions adopted by the Board of Directors, pursuant thereto, with respect
to the Preferred Stock.
(e) Authority is hereby vested in the Board of Directors of
the Corporation to provide for the issuance of Preferred Stock and in
connection therewith to fix by resolution providing for the issue of such
series, the number of shares to be included and such of the preferences and
relative participating, optional or other special rights and limitations of
such series, including, without limitation, rights of redemption or conversion
into Common Stock, to the fullest extent now or hereafter permitted by the
General Corporation Law of the State of Delaware. Without limiting the
generality of the foregoing, the authority of the Board of Directors with
respect to each series of Preferred Stock shall include, without limitation,
the determination of any of the following matters:
(i) the number of shares constituting such series
and the designation thereof to distinguish the shares of such series from the
shares of all other series;
(ii) the rights of holders of shares of such series to
receive dividends thereon and the dividend rates, the conditions and time of
payment of dividends, the extent to which dividends are payable in preference
to, or in any other relation to, dividends payable on any other class or series
of
-2-
<PAGE>
stock, and whether such dividends shall be cumulative or noncumulative;
(iii) the terms and provisions governing the
redemption of shares of such series, if such shares are to be redeemable;
(iv) the terms and provisions governing the operation
or retirement of sinking funds, if any;
(v) the voting power of such series, whether full,
limited or none;
(vi) the rights of holders of shares of such series
upon the liquidation, dissolution or winding up of, or upon distribution of the
assets of, the Corporation;
(vii) the rights, if any, of holders of shares of such
series to convert such shares into, or to exchange such shares for, any other
class of stock, or of any series thereof, and the prices or rates for such
conversions or exchanges, and any adjustments thereto; and
(viii) any other preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions of such series.
The shares of each series of Preferred Stock may vary from the shares
of any other series of Preferred Stock as to any of such matters.
FIFTH: The name and address of the incorporator is as follows:
Cheryl Lewis
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 10905
SIXTH: The Board of Directors shall have the power to adopt,
amend or repeal the by-laws.
SEVENTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or
-3-
<PAGE>
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (ii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
EIGHTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify and any all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged this certificate of
incorporation this 17th day of December, 1996.
/s/Cheryl Lewis
----------------------------
Cheryl Lewis, Incorporator
-4-
<PAGE>
PAGE 1
State of Delaware
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY "UNITED STATES FINANCIAL GROUP, INCORPORATED" IS DULY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING
AND HAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW,
AS OF THE THIRD DAY OF SEPTEMBER, A.D. 1997.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED
TO DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID
TO DATE.
/s/Edward J. Freel
[SEAL] --------------------------
Edward J. Freel, Secretary of State
2695943 8300 Authentication: 8633903
971293941 Date: 09-03-97
<PAGE>
PAGE 1
State of Delaware
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "UNITED STATES FINANCIAL GROUP, INCORPORATED", FILED IN THIS
OFFICE ON THE SEVENTEENTH OF DECEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/Edward J. Freel
----------------------------------
Edward J. Freel, Secretary of State
[SEAL] Authentication: 8246182
2695943 8100 Date: 12-17-96
960372455
<PAGE>
U.S. DEPARTMENT OF STATE
DIVISION OF CORPORATIONS AND STATE RECORDS ALBANY, NY 12231-0001
FILING RECEIPT
- ---------------------------------------------------------------------------
ENTITY NAME : UNITED STATES FINANCIAL GROUP INCORPORATED
DOCUMENT TYPE : DESIGNATION (FOR. BUSINESS)
SERVICE COMPANY : **NO SERVICE COMPANY** SERVICE CODE: 00
- -------------------------------------------------------------------------------
FILED: 10/09/1997 DURATION: PERPETUAL CASH #: 971009000158
FILM#: 971009000148
ADDRESS FOR PROCESS
- -------------------
[SEAL]
REGISTERED AGENT
- ----------------
- --------------------------------------------------------------------------------
FILER FEES 35.00 PAYMENTS 35.00
- ----- ---- --------
DOROS & BRESCIA, P.C. FILING : 25.00 CASH : 0.00
1140 AVENUE OF THE AMERICAS TAX : 0.00 CHECK : 35.00
CERT : 0.00 BILLED: 0.00
NEW YORK, NY 10036 COPIES : 10.00
HANDLING: 0.00
REFUND: 0.00
S-1025 (11/89)
<PAGE>
BY-LAWS
OF
UNITED STATES FINANCIAL GROUP, INCORPORATED
ARTICLE I
OFFICES
-------
1.1 Registered Office: The registered office shall be established
and maintained at and shall be the registered agent of the Corporation in
charge hereof.
1.2 Other Offices: The corporation may have other offices. either
within or without the State of Delaware at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require, provided, however, that the corporation's books and records shall be
maintained at such place within the continental United States as the Board of
Directors shall from time to time designate.
ARTICLE II
STOCKHOLDERS
------------
2.1 Place of Stockholders' Meetings: All meetings of the
stockholders of the corporation shall be held at such place or places within or
outside the State of Delaware as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
2.2 Date and Hour of Annual Meetings of Stockholders: An annual
meeting of stockholders shall be held each year within five months after the
close of the fiscal year of the Corporation.
2.3 Purpose of Annual Meetings: At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any further proper business may be
transacted.
2.4 Special Meetings of Stockholders: Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called
by the President or by the Chairman of the Board of Directors, or at the
request in writing by stockholders of record owning at least fifty (50%)
percent of the issued and outstanding voting shares of common stock of the
corporation.
By-Laws-1
<PAGE>
2.5 Notice of Meetings of Stockholders: Except as otherwise
expressly required or permitted by law, not less than ten days nor more than
sixty days before the date of every stockholders' meeting the Secretary shall
give to each stockholder of record entitled to vote at such meeting, written
notice, send personally by mail or by telegram, stating the place, date and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Such notice if mailed shall be deemed
to be given when deposited in the United States mail. postage prepaid, directed
to the stockholder at his address for notices to such stockholder as it appears
on the records of the corporation.
2.6 Quorum of Stockholders: (a) Unless otherwise provided by the
Certificate of Incorporation or by law, at any meeting of the stockholders, the
presence in person or by proxy of stockholders entitled to cast a majority of
the votes thereat shall constitute a quorum. The withdrawal of any shareholder
after the commencement of a meeting shall have no effect on the existence of a
quorum, after a quorum has been established at such meeting.
(b) At any meeting of the stockholders at which a quorum shall
be present, a majority of voting stockholders, present in person or by proxy,
may adjourn the meeting from time to time without notice other than
announcement at the meeting. In the absence of a quorum, the officer presiding
thereat shall have power to adjourn the meeting from time to time until a
quorum shall be present. Notice of any adjourned meeting, other than
announcement at the meeting, shall not be required to be given except as
provided in paragraph (d) below and except where expressly required by law.
(c) At any adjourned session at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting originally called but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment or
adjournrnents thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an 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.
2.7 Chairman and Secretary of Meeting: The President, shall
preside at meetings of the stockholders. The Secretary shall act as secretary
of the meeting or if he is not present, then the presiding officer may appoint
a person to act as secretary of the meeting.
2.8 Voting by Stockholders: Except as may be otherwise provided by
the Certificate of Incorporation or these by-laws, at every meeting of the
stockholders each stockholder shall be entitled to one vote for each share of
voting stock standing in his name on the books of the corporation on the record
date for the meeting. Except as otherwise provided by these by-laws, all
elections and questions shall be decided by the vote of a majority in interest
of the stockholders present in person or represented by proxy and entitled to
vote at the meeting.
By-Laws-2
<PAGE>
2.9 Proxies: Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his duly authorized
attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged.
2.10 Inspectors: The election of directors and any other vote by
ballot at any meeting of the stockholders shall be supervised by at least two
inspectors. Such inspectors may be appointed by the presiding officer before or
at the meeting; or if one or both inspectors so appointed shall revise to serve
or shall not be present, such appointment shall be made by the officer
presiding at the meeting.
2.11 List of Stockholders: (a) At least ten days before every
meeting of stockholders, the Secretary shall prepare and make a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least
ten days prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within
the city 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.
(c) The list shall also be produced and kept at the time and
place of the meeting during the whole time of the meeting, and it may be
inspected by any stockholder who is present.
(d) 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 2.11 or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
2.12 Procedure at Stockholders' Meetings: Except as otherwise
provided by these by-laws or any resolutions adopted by the stockholders or
Board of Directors, the order of business and all other matters of procedure at
every meeting of stockholders shall be determined by the presiding officer.
2.13 Action By Consent Without Meeting: Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent 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 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.
By-Laws-3
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 Powers of Directors: The property, business and affairs of the
corporation shall be managed by its Board of Directors which may exercise all
the powers of the corporation except such as are by the law of the State of
Delaware or the Certificate of Incorporation or these by-laws required to be
exercised or done by the stockholders.
3.2 Number, Method of Election, Terms of Office of Directors: The
number of directors which shall constitute the Board of Directors shall be
one (1) unless and until otherwise determined by a vote of a majority of the
entire Board of Directors. Each Director shall hold office until the next
annual meeting of stockholders and until his successor is elected and
qualified, provided however, that a director may resign at any time. Directors
need not be stockholders.
3.3 Vacancies on Board of Directors; Removal: (a) Any director may
resign his office at any time by delivering his resignation in writing to the
Chairman of the Board or to the President. It will take effect at the time
specified therein or, if no time is specified, it will be effective at the time
of its receipt by the corporation. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the
resignation.
(b) Any vacancy in the authorized number of directors may be
filled by majority vote of the stockholders and any director so chosen shall
hold office until the next annual election of directors by the stockholders and
until his successor is duly elected and qualified or until his earlier
resignation or removal.
(c) Any director may be removed with or without cause at any
time by the majority vote of the stockholders given at a special meeting of the
stockholders called for that purpose.
3.4 Meetings of the Board of Directors: (a) The Board of Directors
may hold their meetings, both regular and special, either within or outside the
State of Delaware.
(b) Regular meetings of the Board of Directors may be held at
such time and place as shall from time to time be determined by resolution of
the Board of Directors. No notice of such regular meetings shall be required.
If the date designated for any regular meeting be a legal holiday, then the
meeting shall be held on the next day which is not a legal holiday.
(c) The first meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of the stockholders for
the election of officers and the transaction of such other business as may come
before it. If such meeting is held at the place of the stockholders' meeting,
no notice thereof shall be required.
By-Laws-4
<PAGE>
(d) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman of the Board or the President or
at the written request of any one director.
(e) The Secretary shall give notice to each director of any
special meeting of the Board of Directors by mailing the same at least three
days before the meeting or by telegraphing, telexing, or delivering the same
not later than the date before the meeting.
Unless required by law such notice need not include a statement
of the business to be transacted at, or the purpose of any such meeting. Any
and all business may be transacted at any meeting of the Board of Directors. No
notice of any adjourned meeting need be given. No notice to or waiver by any
director shall be required with respect to any meeting at which the director is
present.
3.5 Quorum and Action: Unless provided otherwise by law or by the
Certificate of Incorporation or these by-laws, a majority of the Directors
shall constitute a quorum for the transaction of business but if there shall be
less than a quorum at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time. The vote of a majority of the Directors
present at any meeting at which a quorum is present shall be necessary to
constitute the act of the Board of Directors.
3.6 Presiding Officer and Secretary of the Meeting: The President,
or, in his absence a member of the Board of Directors selected by the members
present, shall preside at meetings of the Board. The Secretary shall act as
secretary of the meeting, but in his absence the presiding officer may appoint
a secretary of the meeting.
3.7 Action by Consent Without Meeting: Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes or proceedings of the Board or committee.
3.8 Action by Telephonic Conference: Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting.
3.9 Committees: The Board of Directors shall, by resolution or
resolutions passed by a majority of Directors designate one or more committees,
each of such committees to consist of one or more Directors of the Corporation,
for such purposes as the Board shall determine. 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 such committee.
By-Laws-5
<PAGE>
3.10 Compensation of Directors: Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
--------
4.1 Officers. Title, Elections, Terms: (a) The elected officers
of the corporation shall be a President. a Treasurer and a Secretary, and such
other officers as the Board of Directors shall deem advisable. The officers
shall be elected by the Board of Directors at its annual meeting following the
annual meeting of the stockholders, to serve at the pleasure of the Board or
otherwise as shall be specified by the Board at the time of such election and
until their successors are elected and qualified.
(b) The Board of Directors may elect or appoint at any time,
and from time to time, additional officers or agents with such duties as it may
deem necessary or desirable. Such additional officers shall serve at the
pleasure of the Board or otherwise as shall be specified by the Board at the
time of such election or appointment. Two or more offices may be held by the
same person.
(c) Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
(d) Any officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein or, if no time has been specified, at the time of its receipt
by the corporation. The acceptance of a resignation shall not be necessary to
make it effective, unless expressly so provided in the resignation.
(e) The salaries of all officers of the corporation shall be
fixed by the Board of Directors.
4.2 Removal of Elected Officers: Any elected officer may be
removed at any time, either with or without cause, by resolution adopted at any
regular or special meeting of the Board of Directors by a majority of the
Directors then in office.
4.3 Duties: (a) President: The President shall be the principal
executive officer of the corporation and, subject to the control of the Board
of Directors, shall supervise and control all the business and affairs of the
corporation. He shall, when present, preside at all meetings of the
stockholders and of the Board of Directors. He shall see that all orders and
resolutions of the Board of Directors are carried into effect (unless any such
order or resolution shall provide otherwise), and in general shall perform all
duties incident to the office
By-Laws-6
<PAGE>
of president and such other duties as may be prescribed by the Board of
Directors from time to time.
(b) Treasurer: The Treasurer shall (1) have charge and custody
of and be responsible for all funds and securities of the Corporation; (2)
receive and give receipts for moneys due and payable to the corporation from
any source whatsoever; (3) deposit all such moneys in the name of the
corporation in such banks, trust companies, or other depositories as shall be
selected by resolution of the Board of Directors; and (4) in general perform
all duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors. He shall, if required by the Board of Directors, give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the Board of Directors shall determine.
(c) Secretary: The Secretary shall (1) keep the minutes of the
meetings of the stockholders, the Board of Directors, and all committees, if
any, of which a secretary shall not have been appointed, in one or more books
provided for that purpose; (2) see that all notices are duly given in
accordance with the provisions of these by-laws and as required by law; (3) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal, is duly authorized; (4) keep
a register of the post office address of each stockholder which shall be
furnished to the Secretary by such stockholder; (5) have general charge of
stock transfer books of the Corporation; and (6) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
ARTICLE V
CAPITAL STOCK
-------------
5.1 Stock Certificates: (a) 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 and by the Treasurer or the Secretary,
certifying the number of shares owned by him.
(b) If such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, the signatures of the officers of the corporation
may be facsimiles, and, if permitted by law, any other signature may be a
facsimile.
(c) In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer at the date of issue.
By-Laws-7
<PAGE>
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board of Directors, and shall be numbered and registered in the order in which
they were issued.
(e) All certificates surrendered to the corporation shall be
canceled with the date of cancellation, and shall be retained by the Secretary,
together with the powers of attorney to transfer and the assignments of the
shares represented by such certificates, for such period of time as shall be
prescribed from time to time by resolution of the Board of Directors.
5.2 Record Ownership: A record of the name and address of the
holder of such certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the corporation's books. The corporation
shall be entitled to treat the holder of any share of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
required by law.
5.3 Transfer of Record Ownership: Transfers of stock shall be made
on the books of the corporation only by direction of the person named in the
certificate or his attorney, lawfully constituted in writing, and only upon the
surrender of the certificate therefore and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the corporation for
transfer, both the transferor and the transferee request the corporation to do
so.
5.4 Lost, Stolen or Destroyed Certificates: Certificates
representing shares of the stock of the corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time
may authorize.
5.5 Transfer Agent; Registrar; Rules Respecting Certificates: The
corporation may maintain one or more transfer offices or agencies where stock
of the corporation shall be transferable. The corporation may also maintain one
or more registry offices where such stock shall be registered. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6 Fixing Record Date for Determination of Stockholders of
Record: The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect
of any change, conversion or exchange of stock, or to express consent to
corporate action in writing without a meeting, or in order to make a
determination of the stockholders for the purpose of any other lawful action.
Such record date in any case shall be not more than sixty days nor less than
ten days before the date of a meeting of the stockholders, nor more than sixty
days prior to any other action requiring such determination of the
stockholders. A determination of stockholders of record entitled to notice or
to vote at a meeting of stockholders shall apply to any adjournment
By-Laws-8
<PAGE>
of the meeting; provided however, that the Board of Directors may fix a new
record date for the adjourned meeting.
5.7 Dividends: Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefore at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
----------------------------------
6.1 Voting: Unless the Board of Directors shall otherwise order,
the President, the Secretary or the Treasurer shall have full power and
authority, on behalf of the corporation, to attend, act and vote at any meeting
of the stockholders of any corporation in which the corporation may hold stock.
and at such meeting to exercise any or all rights and powers incident to the
partnership of such stock, and to execute on behalf of the corporation a proxy
or proxies empowering another or others to act as aforesaid. The Board of
Directors from time to time may confer like powers upon any other person or
persons.
6.2 General Authorization to Transfer Securities Held by the
Corporation
(a) Any of the following officers, to wit: the President and the
Treasurer shall be, and they hereby are, authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidence of indebtedness, or other securities now or hereafter
standing in the name of or owned by the corporation, and to make, execute and
deliver, under the seal of the corporation, any and all written instruments
of assignment and transfer necessary or proper to effectuate the authority
hereby conferred.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed pursuant to and in accordance with the
foregoing paragraph (a), a certificate of the Secretary of the corporation in
office at the date of such certificate setting forth the provisions of this
Section 6.2 and stating that they are in full force and effect and setting
forth the names of persons who are then officers of the corporation, then all
persons to whom such instrument and annexed certificate shall thereafter come,
shall be entitled, without further inquiry or investigation and regardless of
the date of such certificate, to assume and to act in reliance upon the
assumption that the shares of stock or other securities named in such
instrument were theretofore duly and properly transferred, endorsed, sold,
assigned, set over and delivered by the corporation, and that with respect to
such securities the authority of these provisions of the by-laws and of such
officers is still in full force and effect.
By-Laws-9
<PAGE>
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Signatories: All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
7.2 Seal: The seal of the corporation shall be in such form and
shall have such content as the Board of Directors shall from time to time
determine.
7.3 Notice and Waiver of Notice: Whenever any notice of the time,
place or purpose of any meeting of the stockholders, directors or a committee
is required to be given under the law of the State of Delaware, the Certificate
of Incorporation or these by-laws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the holding
thereof, or actual attendance at the meeting in person or, in the case of any
stockholder, by his attorney-in-fact, shall be deemed equivalent to the giving
of such notice to such persons.
7.4 Indemnity: The corporation shall indemnify its directors,
officers and employees to the fullest extent allowed by law, provided, however,
that it shall be within the discretion of the Board of Directors whether to
advance any funds in advance of disposition of any action, suit or proceeding,
and provided further that nothing in this section 7.4 shall be deemed to
obviate the necessity of the Board of Directors to make any determination that
indemnification of the director, officer or employee is proper under the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b) of Section 145 of the Delaware General Corporation
Law.
7.5 Fiscal Year: Except as from time to time otherwise determined
by the Board of Directors, the fiscal year of the corporation shall end on .
By-Laws-10
<PAGE>
RESOLUTIONS ADOPTED BY INCORPORATION DIRECTOR
OF
UNITED STATES FINANCIAL GROUP, INCORPORATED
The undersigned, being the sole Director of the Corporation named
in the Articles of Incorporation. hereby adopts the following resolutions:
(1) RESOLVED, that a copy of the Articles of Incorporation of the
Corporation, together with the original receipt showing
payment of the statutory organization tax and filing fee, be
inserted in the Minute Book of the Corporation.
(2) RESOLVED, that the by-laws be, and the same hereby are,
adopted as and for the by-laws of the Corporation, and that a
copy thereof be placed in the Minute Book of the Corporation,
directly following the Articles of Incorporation.
(3) RESOLVED, that the following persons be, and they hereby are,
elected as Directors of the Corporation, to serve until the
first annual meeting of shareholders, and until their
successors are elected and qualify:
Mohammad Ali Khan
-----------------------------
-----------------------------
-----------------------------
Dated: December 17, 1996
-----------------
-----------------------------
Incorporation Director
-1-
<PAGE>
WAIVER OF NOTICE OF ORGANIZATIONAL MEETING
OF
BOARD OF DIRECTORS
OF
UNITED STATES FINANCIAL GROUP INCORPORATED
We, the undersigned, being all of the Directors of the Corporation
named in the Articles of Incorporation, hereby agree and consent that the first
meeting of the Board of Directors of the Corporation be held on the date and
time, and at the place designated hereunder, and do hereby waive all notice
whatsoever of such meeting and of any adjournment or adjournments thereof.
We do further agree and consent that any and all lawful business may be
transacted at such meeting, or at any adjournment or adjournments thereof, as
may be deemed advisable by the Directors present thereat. Any business
transacted at such meeting or at any adjournment or adjournments thereof, shall
be as valid and legal and of the same force and effect as if such meeting or
adjourned meeting were held after notice.
Place of Meeting : 110 Wall Street, New York, N.Y. 10005
Date of Meeting : December 17, 1996
Time of Meeting : 4:00 p.m.
Dated:
-----------------------
-----------------------------
Director
-----------------------------
Director
-----------------------------
Director
-2-
<PAGE>
MINUTES OF FIRST MEETING
OF
BOARD OF DIRECTORS
OF
UNITED STATES FINANCIAL GROUP, INCORPORATED
The first meeting of the Board of Directors of the above-captioned
Corporation was held on the date, time and at the place set forth in the
written Waiver of Notice signed by all the Directors, fixing such time and
place, and prefixed to the minutes of this meeting.
There were present the following:
Mohammad Ali Khan
being all the members of the Board of Directors.
The meeting was called to order by Mahammad Ali Khan
It was moved, seconded and unanimously carried, that
Mohammad Ali Khan act as Temporary Chairman, and that
Asim Kohli act as Temporary Secretary.
The meeting then proceeded to the election of officers. Upon
nominations duly made and seconded, the following were elected and qualified:
President : Mohammad Ali Khan
Executive Vice-President : Asim Kohli
Secretary : Asim Kohli
Treasurer : Asim Kohli
-3-
<PAGE>
The President of the Corporation thereupon assumed the Chair, and the
Secretary of the Corporation assumed his duties as Secretary of the meeting.
The Secretary presented to the meeting:
(1) Copy of the Articles of Incorporation.
(2) Copy of the By-Laws of the Corporation, as adopted by the
Incorporation Director; and
(3) Resolutions adopted by the Incorporation Director.
Upon motion duly made, seconded and unanimously carried, it was
RESOLVED that all the acts taken and resolutions adopted by the
Incorporation Director be, and they hereby are, approved, ratified and
adopted by this Board of Directors.
The Secretary submitted to the meeting a seal proposed for use as the
corporate seal of the Corporation. Upon motion duly made, seconded and
unanimously carried, it was
RESOLVED, that the form of seal submitted to this meeting be, and it
hereby is, approved and adopted as and for the corporate seal of this
Corporation, and that an impression thereof be made on the margin of
these minutes.
There was presented to the meeting a specimen of a proposed certificate
to represent the shares of the Corporation. Upon motion duly made, seconded and
unanimously carried, it was
-4-
<PAGE>
RESOLVED. that the specimen form of certificate which has been
presented to this meeting be, and the same hereby is, approved and
adopted as the certificate to represent the shares of this Corporation;
and it was further
RESOLVED, that the specimen certificate so presented to the meeting be
annexed to the minutes thereof.
The banking arrangements of the Corporation were then discussed. After
discussion, on motion duly made, seconded and carried, a proposed Secretarial
Certificate to be furnished by the Secretary of the Corporation to Citibank,
N.A. was unanimously approved, and the resolutions set forth in such
Secretarial Certificate were unanimously adopted. A conformed copy of such
Secretarial Certificate was ordered annexed to the minutes of the meeting.
-5-
<PAGE>
The Chairman presented to the meeting a certain written offer addressed
to the Corporation by Mohammad Ali Khan, dated December 17, 1996 pertaining to
the issuance of the shares of the Corporation. A discussion followed. Upon
motion duly made, seconded and unanimously carried, it was
RESOLVED, that the written offer dated , pertaining to
the issuance of shares by the Corporation be, and the same hereby is in
all respects, approved for and on behalf of the Corporation; and it was
further
RESOLVED, that a copy of such written offer be annexed to the minutes
of this meeting; and it was further
RESOLVED, that the Corporation issue and deliver to Mohammad Ali Khan
upon receipt of the consideration therefor pursuant to the terms of the
aforesaid proposal, a certificate representing 1,000,000 shares of the
Corporation, $. 0001 par value per share; and it was further
RESOLVED, that the shares so issued shall be fully paid and
non-assessable, and that the value of the aforesaid consideration and
the stated capital with respect to such shares shall be one hundred
dollars ($100)
and it was further
RESOLVED, that the officers of the Corporation be, and they hereby are,
authorized, empowered and directed to take any and all steps, and to
execute and deliver any and all instruments in connection with
consummating the transaction contemplated by the aforesaid proposal and
in connection with carrying the foregoing resolutions into effect.
-5-A-
<PAGE>
There being no further business to come before the meeting, upon motion
duly made. seconded and unanimously carried the same was adjourned.
-----------------------------
Secretary
Attest:
Board of Directors
- ------------------
- -------------------------
Mohammad Ali Khan
- -------------------------
- -------------------------
-6-
<PAGE>
C1 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE 1,000,000
UNITED STATES FINANCIAL GROUP, INCORPORATED
TOTAL AUTHORIZED ISSUE 40,000,000 SHARES
30,000,000 SHARES PAR VALUE 10,000,000 SHARES PAR VALUE $.0001 EACH
$.0001 EACH COMMON STOCK BLANK CHECK PREFERRED STOCK
See Legend Endorsed on Reverse Side
This is to certify that Mohammed Ali Khan is the owner of
----------------------------------
-------------One Million--------------
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
UNITED STATED FINANCIAL GROUP, INCORPORATED
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.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED: December 17, 1996
/s/ /s/
- ----------------------- ------------------------
SECRETARY PRESIDENT
<PAGE>
C2 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE 18,889,267
UNITED STATES FINANCIAL GROUP, INCORPORATED
TOTAL AUTHORIZED ISSUE 40,000,000 SHARES
30,000,000 SHARES PAR VALUE 10,000,000 SHARES PAR VALUES $.0001 EACH
$.0001 EACH COMMON STOCK BLANK CHECK PREFERRED STOCK
See Legend Endorsed on Reverse Side
This is to certify that Mohammed Ali Khan is the owner of
----------------------------------
- --Eighteen Million Eight Hundred Eighty-Nine Thousand Two Hundred Sixty-Seven--
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
UNITED STATED FINANCIAL GROUP, INCORPORATED
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.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED: March 31, 1997
/s/ /s/
- ----------------------- ------------------------
SECRETARY PRESIDENT
<PAGE>
C3 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE 18,889,267
UNITED STATES FINANCIAL GROUP, INCORPORATED
TOTAL AUTHORIZED ISSUE 40,000,000 SHARES
30,000,000 SHARES PAR VALUE 10,000,000 SHARES PAR VALUES $.0001 EACH
$.0001 EACH COMMON STOCK BLANK CHECK PREFERRED STOCK
See Legend Endorsed on Reverse Side
This is to certify that Mohammed Ali Khan is the owner of
----------------------------------
- --Eighteen Million Eight Hundred Eighty-Nine Thousand Two Hundred Sixty-Seven--
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
UNITED STATED FINANCIAL GROUP, INCORPORATED
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.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED: March 31, 1997
/s/ /s/
- ----------------------- ------------------------
SECRETARY PRESIDENT
<PAGE>
WAIVER OF NOTICE OF FIRST MEETING OF SHAREHOLDERS
OF
UNITED STATES FINANCIAL GROUP, INCORPORATED
We, the undersigned, being all of the shareholders of the Corporation,
hereby agree and consent that the first meeting of shareholders of the
Corporation be held on the date and time, and at the place designated
hereunder, and do hereby waive all notice whatsoever of such meeting and of any
adjournment or adjournrnents thereof.
We do further agree and consent that any and all lawful business may be
transacted at such meeting. or at any adjournment or adjoumments thereof, as
may be deemed advisable by any shareholder present thereat. Any business
transacted at such meeting. or at any adjournment or adjoumments thereof, shall
be as valid and legal and of the same force and effect as if such meeting or
adjourned meeting were held after notice.
Place of Meeting : 110 Wall Street, New York, N.Y. 10005
Date of Meeting : December 17, 1996
Time of Meeting : 4:30 pm.
Dated: December l7, l997
-----------------
------------------------
Shareholder
------------------------
Shareholder
------------------------
Shareholder
-7-
<PAGE>
MINUTES OF FIRST MEETING OF SHAREHOLDERS
OF
UNITED STATES FINANCIAL GROUP, INCORPORATED
The first meeting of shareholders of the above captioned Corporation
was held on the date, time and at the place set forth in the written Waiver of
Notice signed by the shareholders, fixing such time and place, and prefixed to
the minutes of this meeting.
The meeting was called to order by the President, heretofore elected by
the Board of Directors, and the following shareholders being all of the
shareholders of the Corporation were present:
Mohammad Ali Khan
There was presented to the meeting the following
1. Copy of Articles of Incorporation;
2. Copy of By-Laws of the Corporation, duly adopted by the Incorporation
Directors;
3. Resolutions adopted by the Incorporation Director;
4. Minutes of First Meeting of Directors;
5. Corporate certificate book;
6. Corporate certificate record book.
-8-
<PAGE>
Upon motion duly made, seconded and unanimously carried, it was
RESOLVED, that the items listed above have been examined by all
shareholders, and are all approved and adopted, and that all acts taken
and decisions reached. as set forth in such documents, be, and they
hereby are, ratified and approved by the shareholders of the
Corporation.
There being no further business to come before the meeting, upon motion
duly made, seconded and unanimously carried, the same was adjourned
------------------------
Secretary
Attest:
- -------------------
- -------------------
- -------------------
-9-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into this _______ day of
______________, 1998, by and between United States Financial Group,
Incorporated, having its principal place of business at 110 Wall Street, New
York, NY 10005, hereinafter referred to as the "Employer", and Mohammad Ali
Khan, hereinafter referred to as the "Employee."
1. Employment. The Employer hereby agrees to employ the Employee in the
capacity of an officer of the Employer as is determined from time to
time by the Board of Directors of United States Financial Group,
Incorporated, upon the terms and conditions set out herein.
2. Term. The term of this Agreement shall commence on the first day upon
completion of the Initial Public Offering of the Company, and shall
terminate five years from such date. This Agreement shall
automatically renew each year thereafter, unless either party gives
sixty (60) days written notice to the other party of his intent not
to renew for an additional period.
3. Compensation. The Employer shall pay the Employee, as compensation
for the services rendered by the Employee, a salary of $350,000 per
year, payable every two weeks. Salary payments shall be subject to
withholding and other applicable taxes. Employee shall be paid a
bonus, as determined by the Board of Directors or the Compensation
Committee thereof, for strategic acquisitions or mergers in which
Employee participates, and a stock bonus, as determined by the Board
of Directors or the Compensation Committee thereof, for profitable
operations of the Company. Employer shall provide Employee with the
present Company medical plan.
4. Expenses. The Company will provide Employee with a suitable
automobile or shall, in lieu of being furnished with a Company
automobile, receive a monthly automobile allowance of not less than
$550.00. The Company shall also reimburse Employee for all reasonable
and necessary expenses incurred in carrying out his duties under this
Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in any form required by the
Corporation. Such expenses shall be subject to review by the Audit
Committee of the Board of Directors.
5. Duties. The Employee shall perform, for the Employer, the duties set
out in the attached Exhibit "A" or such other similar duties as
defined by the Board of Directors.
6. Extent of Services. The Employee shall devote at least 90% of his
time, attention, and energies to the Employer's business and shall
not, during the term of this Agreement, be engaged in any other
business activity, whether or not such business activity is pursued
for gain, profit, or other pecuniary advantage. The Employee further
agrees that he will perform all of the duties assigned to him to the
best of his ability and in a manner satisfactory to the Employer,
that he will truthfully and accurately maintain all records,
<PAGE>
preserve all such records, and make all such reports as the Employer
may require; that he will fully account for all money and all of the
property of the Employer of which he may have custody and will pay
over and deliver the same whenever and however he may be directed to
do so.
7. Notices. Any notice required or desired to be given under this
Agreement shall be given in writing, sent by certified mail, return
receipt requested, to his residence in the case of the Employee, or
to its principal place of business, in the case of the Employer.
8. Waiver of Breach. The waiver by the employer of a breach of any
provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by the Employer.
9. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee
may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and shall
be binding upon the successors and assigns of the Employer.
10. Death during Employment. If the Employee dies during the term of
employment, the Employer shall pay to the estate of the Employee one
full month of compensation which would otherwise be payable to the
Employee if the Employee were alive. In addition, the Employer shall
allow the Estate of the Employee to maintain the ownership of any
interest the Employee had in any and all distributorships.
11. Vacations. The Employee shall be entitled each year to vacation and
personal leave suitable and appropriate to his position. During this
time his compensation shall be paid in full.
12. Termination by Employee. The Employee may not terminate this
Agreement without cause. This Agreement and the employment of the
Employee may be terminated by either party with stated cause upon 30
days' written notice given by either party to the other within 12
months from the date of commencement of employment hereunder, or upon
90 days' written notice with stated cause thereafter. Termination for
cause shall include, but not necessarily be limited to (i) Employee's
failure, refusal or inability to perform satisfactorily the services
required of him by the Board of Directors; (ii) Employee's commitment
of an offense of moral turpitude or offense under federal, state or
local laws; and (iii) commission by Employee of an act of disloyalty
against the Corporation or the violation by Employee of any provision
of this Agreement.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
2
<PAGE>
14. Governing Law. This agreement, and all transactions contemplated
hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of New York. The parties herein waive
trial by jury and agree to submit to the personal jurisdiction and
venue of a court of subject matter jurisdiction located in New York
County, State of New York. In the event that litigation results from
or arises out of this Agreement or the performance thereof, the
parties agree to reimburse the prevailing party's reasonable
attorney's fees, court costs, and all other expenses, whether or not
taxable by the court as costs, in addition to any other relief to
which the prevailing party may be entitled. In such event, no action
shall be entertained by said court or any court of competent
jurisdiction if filed more than one year subsequent to the date the
cause(s) of action actually accrued regardless of whether damages
were otherwise as of said time calculable.
15. Indemnity. The Employer shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to
obtain coverage for the Employee under any insurance policy now in
force or hereinafter obtained during the term of this Agreement
covering the other officers, and/or employees of the Employer against
lawsuits. Employer shall pay all expenses, including attorney's fees,
actually and necessarily incurred by the Employee in connection with
any appeal thereon, including the cost of court settlements.
16. Working Facilities. The Employee shall be provided such facilities
and services as are suitable to his position and appropriate for the
performance of his duties.
17. Contractual Procedures. Unless specifically disallowed by law, should
litigation arise hereunder, service of process therefor may be
obtained through certified mail, return receipt requested; the
parties hereto waiving any and all rights they may have to object to
the method by which service was perfected.
United States Financial Group, Incorporated.
------------------------
By: Mohammad Ali Khan
------------------------
Its:
-----------------------
3
<PAGE>
EXHIBIT "A"
-----------
Duties of Employee
------------------
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into this _______ day of
______________, 1998, by and between United States Financial Group,
Incorporated, having its principal place of business at 110 Wall Street, New
York, NY 10005, hereinafter referred to as the "Employer", and Asim S. Kohli,
hereinafter referred to as the "Employee."
1. Employment. The Employer hereby agrees to employ the Employee in the
capacity of an officer of the Employer as is determined from time to
time by the Board of Directors of United States Financial Group,
Incorporated, upon the terms and conditions set out herein.
2. Term. The term of this Agreement shall commence on the first day upon
completion of the Initial Public Offering of the Company, and shall
terminate five years from such date. This Agreement shall
automatically renew each year thereafter, unless either party gives
sixty (60) days written notice to the other party of his intent not
to renew for an additional period.
3. Compensation. The Employer shall pay the Employee, as compensation
for the services rendered by the Employee, a salary of $250,000 per
year, payable every two weeks. Salary payments shall be subject to
withholding and other applicable taxes. Employee shall be paid a
bonus, as determined by the Board of Directors or the Compensation
Committee thereof, for strategic acquisitions or mergers in which
Employee participates, and a stock bonus, as determined by the Board
of Directors or the Compensation Committee thereof, for profitable
operations of the Company. Employer shall provide Employee with the
present Company medical plan.
4. Expenses. The Company will provide Employee with a suitable
automobile or shall, in lieu of being furnished with a Company
automobile, receive a monthly automobile allowance of not less than
$550.00. The Company shall also reimburse Employee for all reasonable
and necessary expenses incurred in carrying out his duties under this
Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in any form required by the
Corporation. Such expenses shall be subject to review by the Audit
Committee of the Board of Directors.
5. Duties. The Employee shall perform, for the Employer, the duties set
out in the attached Exhibit "A" or such other similar duties as
defined by the Board of Directors.
6. Extent of Services. The Employee shall devote his entire time,
attention, and energies to the Employer's business and shall not,
during the term of this Agreement, be engaged in any other business
activity, whether or not such business activity is pursued for gain,
profit, or other pecuniary advantage. The Employee further agrees
that he will perform all of the duties assigned to him to the best of
his ability and in a manner satisfactory to the Employer, that he
will truthfully and accurately maintain all records, preserve all
<PAGE>
such records, and make all such reports as the Employer may require;
that he will fully account for all money and all of the property of
the Employer of which he may have custody and will pay over and
deliver the same whenever and however he may be directed to do so.
7. Notices. Any notice required or desired to be given under this
Agreement shall be given in writing, sent by certified mail, return
receipt requested, to his residence in the case of the Employee, or
to its principal place of business, in the case of the Employer.
8. Waiver of Breach. The waiver by the employer of a breach of any
provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by the Employer.
9. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee
may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and shall
be binding upon the successors and assigns of the Employer.
10. Death during Employment. If the Employee dies during the term of
employment, the Employer shall pay to the estate of the Employee one
full month of compensation which would otherwise be payable to the
Employee if the Employee were alive. In addition, the Employer shall
allow the Estate of the Employee to maintain the ownership of any
interest the Employee had in any and all distributorships.
11. Vacations. The Employee shall be entitled each year to vacation and
personal leave suitable and appropriate to his position. During this
time his compensation shall be paid in full.
12. Termination by Employee. The Employee may not terminate this
Agreement without cause. This Agreement and the employment of the
Employee may be terminated by either party with stated cause upon 30
days' written notice given by either party to the other within 12
months from the date of commencement of employment hereunder, or upon
90 days' written notice with stated cause thereafter. Termination for
cause shall include, but not necessarily be limited to (i) Employee's
failure, refusal or inability to perform satisfactorily the services
required of him by the Board of Directors; (ii) Employee's commitment
of an offense of moral turpitude or offense under federal, state or
local laws; and (iii) commission by Employee of an act of disloyalty
against the Corporation or the violation by Employee of any provision
of this Agreement.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
2
<PAGE>
14. Governing Law. This agreement, and all transactions contemplated
hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of New York. The parties herein waive
trial by jury and agree to submit to the personal jurisdiction and
venue of a court of subject matter jurisdiction located in New York
County, State of New York. In the event that litigation results from
or arises out of this Agreement or the performance thereof, the
parties agree to reimburse the prevailing party's reasonable
attorney's fees, court costs, and all other expenses, whether or not
taxable by the court as costs, in addition to any other relief to
which the prevailing party may be entitled. In such event, no action
shall be entertained by said court or any court of competent
jurisdiction if filed more than one year subsequent to the date the
cause(s) of action actually accrued regardless of whether damages
were otherwise as of said time calculable.
15. Indemnity. The Employer shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to
obtain coverage for the Employee under any insurance policy now in
force or hereinafter obtained during the term of this Agreement
covering the other officers, and/or employees of the Employer against
lawsuits. Employer shall pay all expenses, including attorney's fees,
actually and necessarily incurred by the Employee in connection with
any appeal thereon, including the cost of court settlements.
16. Working Facilities. The Employee shall be provided such facilities
and services as are suitable to his position and appropriate for the
performance of his duties.
17. Contractual Procedures. Unless specifically disallowed by law, should
litigation arise hereunder, service of process therefor may be
obtained through certified mail, return receipt requested; the
parties hereto waiving any and all rights they may have to object to
the method by which service was perfected.
United States Financial Group, Incorporated.
----------------------------
By: Asim S. Kohli
----------------------
Its:
---------------------
3
<PAGE>
EXHIBIT "A"
-----------
Duties of Employee
------------------
4
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into this _______ day of
______________, 1998, by and between Sureal International, Inc., having its
principal place of business at 829 South 220 East, Orem, Utah 84058,
hereinafter referred to as the "Employer", and R. Bret Jenkins, hereinafter
referred to as the "Employee."
1. Employment. The Employer hereby agrees to employ the Employee in the
capacity of an officer of the Employer as is determined from time to
time by the Board of Directors of United States Financial Group,
Incorporated, upon the terms and conditions set out herein.
2. Term. The term of this Agreement shall begin on January 1, 1998, and
shall terminate five years from such date. This Agreement shall
automatically renew each year thereafter, unless either party gives
sixty (60) days written notice to the other party of his intent not
to renew for an additional period.
3. Compensation. The Employer shall pay the Employee, as compensation
for the services rendered by the Employee, a salary of Ten thousand
Dollars ($10,000 ) per month, payable every two weeks. Salary
payments shall be subject to withholding and other applicable taxes.
As additional compensation, the Employer shall pay the Employee
commissions earned from distributorships in which Employee has an
interest. Employee shall have the right to establish other
distributorships with other principal officers as other countries are
opened. Employee shall be paid a bonus, as determined by the Board of
Directors or the Compensation Committee thereof, for strategic
acquisitions or mergers in which Employee participates, and a stock
bonus, as determined by the Board of Directors or the Compensation
Committee thereof, for profitable operations of the Company. Employer
shall provide Employee with the present company medical plan.
4. Expenses The Company will provide Employee with a suitable automoblie
or shall, in lieuof being furnished with a Company automobile,
receive a monthly automobile allowance of not less than $550.00. The
Company shall also reimburse Employee for all reasonable and
necessary expenses incurred in carrying out his duties under this
Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in any form required by the
Corporation. Such expenses shall be subject to review by the Audit
Committee of the Board of Directors.
5. Duties. The Employee shall perform, for the Employer, the duties set
out in the attached Exhibit "A" or such other similar duties as
defined by the Board of Directors.
6. Extent of Services. The Employee shall devote not less than 80
percent of his time, attention, and energies to the Employer's
business and shall not, during the term of this Agreement, be engaged
in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. The
Employee further agrees that he will
<PAGE>
perform all of the duties assigned to him to the best of his ability
and in a manner satisfactory to the Employer, that he will truthfully
and accurately maintain all records, preserve all such records, and
make all such reports as the Employer may require; that he will fully
account for all money and all of the property of the Employer of
which he may have custody and will pay over and deliver the same
whenever and however he may be directed to do so.
7. Notices. Any notice required or desired to be given under this
Agreement shall be given in writing,sent by certified mail, return
receipt requested, to his residence in the case of the Employee, or
to its principal place of business, in the case of the Employer.
8. Waiver of Breach. The waiver by the employer of a breach of any
provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by the Employer.
9. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee
may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and shall
be binding upon the successors and assigns of the Employer.
10. Death during Employment. If the Employee dies during the term of
employment, the Employer shall pay to the estate of the Employee one
full month of compensation which would otherwise be payable to the
Employee if the Employee were alive. In addition, the Employer shall
allow the Estate of the Employee to maintain the ownership of any
interest the Employee had in any and all distributorships.
11. Vacations. The Employee shall be entitled each year to vacation and
personal leave suitable and appropriate to his position. During this
time his compensation shall be paid in full.
12. Termination by Employee. The Employee may not terminate this
Agreement without cause. This Agreement and the employment of the
Employee may be terminated by either party with stated cause upon 30
days' written notice given by either party to the other within 12
months from the date of commencement of employment hereunder, or upon
90 days' written notice with stated cause thereafter. Termination for
cause shall include, but not necessarily be limited to (i) Employee's
failure, refusal or inability to perform satisfactorily the services
required of him by the Board of Directors; (ii) Employee's commitment
of an offense of moral turpitude or offense under federal, state or
local laws; and (iii) commission by Employee of an act of disloyalty
against the Corporation or the violation by Employee of any provision
of this Agreement.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
2
<PAGE>
14. Governing Law. This agreement, and all transactions contemplated
hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of Utah. The parties herein waive trial by
jury and agree to submit to the personal jurisdiction and venue of a
court of subject matter jurisdiction located in Utah County, State of
Utah. In the event that litigation results from or arises out of this
Agreement or the performance thereof, the parties agree to reimburse
the prevailing party's reasonable attorney's fees, court costs, and
all other expenses, whether or not taxable by the court as costs, in
addition to any other relief to which the prevailing party may be
entitled. In such event, no action shall be entertained by said court
or any court of competent jurisdiction if filed more than one year
subsequent to the date the cause(s) of action actually accrued
regardless of whether damages were otherwise as of said time
calculable.
15. Indemnity. The Employer shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to
obtain coverage for the Employee under any insurance policy now in
force or hereinafter obtained during the term of this Agreement
covering the other officers, and/or employees of the Employer against
lawsuits. Employer shall pay all expenses, including attorney's fees,
actually and necessarily incurred by the Employee in connection with
any appeal thereon, including the cost of court settlements.
16. Working Facilities. The Employee shall be provided such facilities
and services as are suitable to his position and appropriate for the
performance of his duties.
17. Contractual Procedures. Unless specifically disallowed by law, should
litigation arise hereunder, service of process therefor may be
obtained through certified mail, return receipt requested; the
parties hereto waiving any and all rights they may have to object to
the method by which service was perfected.
Sureal International, Inc.
-------------------------------
By: R. Bret Jenkins
-------------------------
Its:
------------------------
3
<PAGE>
EXHIBIT "A"
-----------
Duties of Employee
------------------
4
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into this _______ day of
______________, 1998, by and between Sureal International, Inc., having its
principal place of business at 829 South 220 East, Orem, Utah 84058,
hereinafter referred to as the "Employer", and Richard Wogksch, hereinafter
referred to as the "Employee."
1. Employment. The Employer hereby agrees to employ the Employee in the
capacity of an officer of the Employer as is determined from time to
time by the Board of Directors of United States Financial Group,
Incorporated, upon the terms and conditions set out herein.
2. Term. The term of this Agreement shall begin on January 1, 1998, and
shall terminate five years from such date. This Agreement shall
automatically renew each year thereafter, unless either party gives
sixty (60) days written notice to the other party of his intent not
to renew for an additional period.
3. Compensation. The Employer shall pay the Employee, as compensation
for the services rendered by the Employee, a salary of Ten thousand
Dollars ($10,000 ) per month, payable every two weeks. Salary
payments shall be subject to withholding and other applicable taxes.
As additional compensation, the Employer shall pay the Employee
commissions earned from distributorships in which Employee has an
interest. Employee shall have the right to establish other
distributorships with other principal officers as other countries are
opened. Employee shall be paid a bonus, as determined by the Board of
Directors or the Compensation Committee thereof, for strategic
acquisitions or mergers in which Employee participates, and a stock
bonus, as determined by the Board of Directors or the Compensation
Committee thereof, for profitable operations of the Company. Employer
shall provide Employee with the present company medical plan.
4. Expenses The Company will provide Employee with a suitable automoblie
or shall, in lieuof being furnished with a Company automobile,
receive a monthly automobile allowance of not less than $550.00. The
Company shall also reimburse Employee for all reasonable and
necessary expenses incurred in carrying out his duties under this
Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in any form required by the
Corporation. Such expenses shall be subject to review by the Audit
Committee of the Board of Directors.
5. Duties. The Employee shall perform, for the Employer, the duties set
out in the attached Exhibit "A" or such other similar duties as
defined by the Board of Directors.
6. Extent of Services. The Employee shall devote his entire time,
attention, and energies to the Employer's business and shall not,
during the term of this Agreement, be engaged in any other business
activity, whether or not such business activity is pursued for gain,
profit, or other pecuniary advantage. The Employee further agrees
that he will perform all of the
<PAGE>
duties assigned to him to the best of his ability and in a manner
satisfactory to the Employer, that he will truthfully and accurately
maintain all records, preserve all such records, and make all such
reports as the Employer may require; that he will fully account for
all money and all of the property of the Employer of which he may
have custody and will pay over and deliver the same whenever and
however he may be directed to do so.
7. Notices. Any notice required or desired to be given under this
Agreement shall be given in writing,sent by certified mail, return
receipt requested, to his residence in the case of the Employee, or
to its principal place of business, in the case of the Employer.
8. Waiver of Breach. The waiver by the employer of a breach of any
provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by the Employer.
9. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee
may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and shall
be binding upon the successors and assigns of the Employer.
10. Death during Employment. If the Employee dies during the term of
employment, the Employer shall pay to the estate of the Employee one
full month of compensation which would otherwise be payable to the
Employee if the Employee were alive. In addition, the Employer shall
allow the Estate of the Employee to maintain the ownership of any
interest the Employee had in any and all distributorships.
11. Vacations. The Employee shall be entitled each year to vacation and
personal leave suitable and appropriate to his position. During this
time his compensation shall be paid in full.
12. Termination by Employee. The Employee may not terminate this
Agreement without cause. This Agreement and the employment of the
Employee may be terminated by either party with stated cause upon 30
days' written notice given by either party to the other within 12
months from the date of commencement of employment hereunder, or upon
90 days' written notice with stated cause thereafter. Termination for
cause shall include, but not necessarily be limited to (i) Employee's
failure, refusal or inability to perform satisfactorily the services
required of him by the Board of Directors; (ii) Employee's commitment
of an offense of moral turpitude or offense under federal, state or
local laws; and (iii) commission by Employee of an act of disloyalty
against the Corporation or the violation by Employee of any provision
of this Agreement.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
2
<PAGE>
14. Governing Law. This agreement, and all transactions contemplated
hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of Utah. The parties herein waive trial by
jury and agree to submit to the personal jurisdiction and venue of a
court of subject matter jurisdiction located in Utah County, State of
Utah. In the event that litigation results from or arises out of this
Agreement or the performance thereof, the parties agree to reimburse
the prevailing party's reasonable attorney's fees, court costs, and
all other expenses, whether or not taxable by the court as costs, in
addition to any other relief to which the prevailing party may be
entitled. In such event, no action shall be entertained by said court
or any court of competent jurisdiction if filed more than one year
subsequent to the date the cause(s) of action actually accrued
regardless of whether damages were otherwise as of said time
calculable.
15. Indemnity. The Employer shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to
obtain coverage for the Employee under any insurance policy now in
force or hereinafter obtained during the term of this Agreement
covering the other officers, and/or employees of the Employer against
lawsuits. Employer shall pay all expenses, including attorney's fees,
actually and necessarily incurred by the Employee in connection with
any appeal thereon, including the cost of court settlements.
16. Working Facilities. The Employee shall be provided such facilities
and services as are suitable to his position and appropriate for the
performance of his duties.
17. Contractual Procedures. Unless specifically disallowed by law, should
litigation arise hereunder, service of process therefor may be
obtained through certified mail, return receipt requested; the
parties hereto waiving any and all rights they may have to object to
the method by which service was perfected.
Sureal International, Inc.
----------------------------
By: Richard Wogksch
------------------------
Its:
-----------------------
2
<PAGE>
EXHIBIT "A"
-----------
Duties of Employee
------------------
4
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into this _______ day of
______________, 1998, by and between Sureal International, Inc., having its
principal place of business at 829 South 220 East, Orem, Utah 84058,
hereinafter referred to as the "Employer", and Glen Jensen hereinafter
referred to as the "Employee."
1. Employment. The Employer hereby agrees to employ the Employee in the
capacity of an officer of the Employer as is determined from time to
time by the Board of Directors of United States Financial Group,
Incorporated, upon the terms and conditions set out herein.
2. Term. The term of this Agreement shall begin on January 1, 1998, and
shall terminate five years from such date. This Agreement shall
automatically renew each year thereafter, unless either party gives
sixty (60) days written notice to the other party of his intent not
to renew for an additional period.
3. Compensation. The Employer shall pay the Employee, as compensation
for the services rendered by the Employee, a salary of Ten thousand
Dollars ($10,000 ) per month, payable every two weeks. Salary
payments shall be subject to withholding and other applicable taxes.
As additional compensation, the Employer shall pay the Employee
commissions earned from distributorships in which Employee has an
interest. Employee shall have the right to establish other
distributorships with other principal officers as other countries are
opened. Employee shall be paid a bonus, as determined by the Board of
Directors or the Compensation Committee thereof, for strategic
acquisitions or mergers in which Employee participates, and a stock
bonus, as determined by the Board of Directors or the Compensation
Committee thereof, for profitable operations of the Company. Employer
shall provide Employee with the present company medical plan.
4. Expenses The Company will provide Employee with a suitable automoblie
or shall, in lieuof being furnished with a Company automobile,
receive a monthly automobile allowance of not less than $550.00. The
Company shall also reimburse Employee for all reasonable and
necessary expenses incurred in carrying out his duties under this
Agreement. Employee shall present to the Company from time to time an
itemized account of such expenses in any form required by the
Corporation. Such expenses shall be subject to review by the Audit
Committee of the Board of Directors.
5. Duties. The Employee shall perform, for the Employer, the duties set
out in the attached Exhibit "A" or such other similar duties as
defined by the Board of Directors.
6. Extent of Services. The Employee shall devote his entire time,
attention, and energies to the Employer's business and shall not,
during the term of this Agreement, be engaged in any other business
activity, whether or not such business activity is pursued for gain,
profit, or other pecuniary advantage. The Employee further agrees
that he will perform all of the
<PAGE>
duties assigned to him to the best of his ability and in a manner
satisfactory to the Employer, that he will truthfully and accurately
maintain all records, preserve all such records, and make all such
reports as the Employer may require; that he will fully account for
all money and all of the property of the Employer of which he may
have custody and will pay over and deliver the same whenever and
however he may be directed to do so.
7. Notices. Any notice required or desired to be given under this
Agreement shall be given in writing,sent by certified mail, return
receipt requested, to his residence in the case of the Employee, or
to its principal place of business, in the case of the Employer.
8. Waiver of Breach. The waiver by the employer of a breach of any
provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by the Employer.
9. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee
may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of the
Employer under this Agreement shall inure to the benefit of and shall
be binding upon the successors and assigns of the Employer.
10. Death during Employment. If the Employee dies during the term of
employment, the Employer shall pay to the estate of the Employee one
full month of compensation which would otherwise be payable to the
Employee if the Employee were alive. In addition, the Employer shall
allow the Estate of the Employee to maintain the ownership of any
interest the Employee had in any and all distributorships.
11. Vacations. The Employee shall be entitled each year to vacation and
personal leave suitable and appropriate to his position. During this
time his compensation shall be paid in full.
12. Termination by Employee. The Employee may not terminate this
Agreement without cause. This Agreement and the employment of the
Employee may be terminated by either party with stated cause upon 30
days' written notice given by either party to the other within 12
months from the date of commencement of employment hereunder, or upon
90 days' written notice with stated cause thereafter. Termination for
cause shall include, but not necessarily be limited to (i) Employee's
failure, refusal or inability to perform satisfactorily the services
required of him by the Board of Directors; (ii) Employee's commitment
of an offense of moral turpitude or offense under federal, state or
local laws; and (iii) commission by Employee of an act of disloyalty
against the Corporation or the violation by Employee of any provision
of this Agreement.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties. It may be changed only by an Agreement in writing,
signed by the parties hereto.
2
<PAGE>
14. Governing Law. This agreement, and all transactions contemplated
hereby, shall be governed by, construed and enforced in accordance
with the laws of the State of Utah. The parties herein waive trial by
jury and agree to submit to the personal jurisdiction and venue of a
court of subject matter jurisdiction located in Utah County, State of
Utah. In the event that litigation results from or arises out of this
Agreement or the performance thereof, the parties agree to reimburse
the prevailing party's reasonable attorney's fees, court costs, and
all other expenses, whether or not taxable by the court as costs, in
addition to any other relief to which the prevailing party may be
entitled. In such event, no action shall be entertained by said court
or any court of competent jurisdiction if filed more than one year
subsequent to the date the cause(s) of action actually accrued
regardless of whether damages were otherwise as of said time
calculable.
15. Indemnity. The Employer shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while
performing services for the Employer and will use its best efforts to
obtain coverage for the Employee under any insurance policy now in
force or hereinafter obtained during the term of this Agreement
covering the other officers, and/or employees of the Employer against
lawsuits. Employer shall pay all expenses, including attorney's fees,
actually and necessarily incurred by the Employee in connection with
any appeal thereon, including the cost of court settlements.
16. Working Facilities. The Employee shall be provided such facilities
and services as are suitable to his position and appropriate for the
performance of his duties.
17. Contractual Procedures. Unless specifically disallowed by law, should
litigation arise hereunder, service of process therefor may be
obtained through certified mail, return receipt requested; the
parties hereto waiving any and all rights they may have to object to
the method by which service was perfected.
Sureal International, Inc.
-------------------------
By: Glen Jensen
-------------------------
Its:
------------------------
3
<PAGE>
EXHIBIT "A"
-----------
Duties of Employee
------------------
4
<PAGE>
CONSULTING AGREEMENT
--------------------
AGREEMENT made this 8th day of May, 1998, by and between EH
Associates, a consulting firm domiciled in the State of New York hereinafter
referred to as the "Consultant", and Sureal International, Inc. whose
principal place of business is located at in Orem, Utah hereinafter referred
to as "Company."
WHEREAS, the Company desires to engage the services of the Consultant
to perform consulting services for the Company regarding as an independent
contractor and not as an employee; and
WHEREAS, Consultant desires to consult with the Board of Directors,
the officers of the Company, and the administrative staff, and to undertake
for the Company consultation as to the direction of certain functions in said
management of;
NOW, THEREFORE, it is agreed as follows:
1. Term. The respective duties and obligations of the contracting parties
shall be for a period of five years commencing on , 19 , and may be
terminated by either party after three years by giving ninety (90) days'
written notice to the other party at the addresses stated above or at an
address chosen subsequent to the execution of this agreement and duly
communicated to the party giving notice. This Agreement shall
automatically renew each year thereafter, unless either party gives sixty
(60) days written notice to the other party of his intent not to renew
for an additional period.
2. Consultations. Consultant shall be available to consult with the Board of
Directors, the officers of the Company, and the heads of the
administrative staff, at reasonable times, concerning matters pertaining
to the organization of the administrative staff, the fiscal policies of
the Company, the relationship of the Company with its employees or with
any organization representing its employees, and, in general, the
important problems of concern in the business affairs of the Company.
Consultant shall not represent the Company, its Board of Directors, its
officers or any other members of the Company in any transactions or
communications nor shall Consultant make claim to do so.
3. Liability. With regard to the services to be performed by the Consultant
pursuant to the terms of this agreement, the Consultant shall not be
liable to the Company, or to anyone who
1
<PAGE>
may claim any right due to any relationship with the Corporation, for any
acts or omissions in the performance of services on the part of the
Consultant or on the part of the agents or employees of the Consultant,
except when said acts or omissions of the Consultant are due to willful
misconduct or gross negligence. The Company shall hold the Consultant
free and harmless from any obligations, costs, claims, judgments,
attorneys' fees, and attachments arising from or growing out of the
services rendered to the Company pursuant to the terms of this agreement
or in any way connected with the rendering of services, except when the
same shall arise due to the willful misconduct or gross negligence of the
Consultant and the Consultant is adjudged to be guilty of willful
misconduct or gross negligence by a court of competent jurisdiction.
4. Compensation. The Consultant shall receive compensation from the Company
for the performance of the services to rendered to the Company pursuant
to the terms of the agreement of not less than $75,000 per year payable
in monthly instalments. In addition, the Company shall reimburse the
Consultant per diem for any reasonable out of pocket expenses incurred by
the Consultant pursuant to the terms of this agreement. Consultant shall
be paid a bonus or success fee, as determined by the Board of Directors
or the Compensation Committee thereof, for strategic acquisitions or
mergers in which Consultant participates. The compensation set forth in
this Agreement shall be adjusted if Consultant consistently devotes more
than eight business days a month to serving the Company.
5. Arbitration. Any controversy or claim arising out of or relating to this
contract, or the breach thereof, shall be settled by arbitration in
accordance of the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) shall be entered in
any court having jurisdiction thereof. For that purpose, the parties
hereto consent to the jurisdiction and venue of an appropriate court
located in Suffolk County, State of New York. In the event that
litigation results from or arises out of -- this Agreement or the
performance thereof, the parties agree to reimburse the prevailing
party's reasonable attorney's fees, court costs, and all other expenses,
whether or not taxable by the court as costs, in addition to any other
relief to which the prevailing party may be entitled. In such event, no
action shall be entertained by said court or any court of competent
jurisdiction if filed more than one year subsequent to the date the
cause(s) of action actually accrued regardless of whether damages were
otherwise as of said time calculable.
2
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement on
the_____________day of_______________, 19____.
"Company"
- ----------------------- -------------------------------
Witness Company Name
- ----------------------- By:
Witness ---------------------------
"Consultant"
- ----------------------- ------------------------------
Witness Firm's Name (if applicable)
- ----------------------- By:
Witness ---------------------------
3
<PAGE>
AGREEMENT OF LEASE
BETWEEN
THE 110 WALL COMPANY,
OWNER
AND
KHAN, EDWARDS & COMPANY, INC.,
TENANT
PREMISES
ENTIRE 24TH FLOOR
110 WALL STREET
NEW YORK, NEW YORK
DATED AS OF 2/29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 Demised Premises, Term, Rents
ARTICLE 2 Use and Occupancy
ARTICLE 3 Alterations
ARTICLE 4 Ownership of Improvements
ARTICLE 5 Repairs
ARTICLE 6 Compliance With Laws
ARTICLE 7 Subordination, Attornment, Etc.
ARTICLE 8 Property Loss, Etc.
ARTICLE 9 Destruction-Fire or Other Casualty
ARTICLE 10 Eminent Domain
ARTICLE 11 Assignment and Subletting
ARTICLE 12 Existing Conditions/Owner's Initial Work
ARTICLE 13 Access to Demised Premises
ARTICLE 14 Vault Space
ARTICLE 15 Certificate of Occupancy
ARTICLE 16 Default
ARTICLE 17 Remedies
ARTICLE 18 Damages
ARTICLE 19 Fees and Expenses; Indemnity
ARTICLE 20 Entire Agreement
ARTICLE 21 End of Term
ARTICLE 22 Quiet Enjoyment
ARTICLE 23 Escalation
ARTICLE 24 No Waiver
ARTICLE 25 Mutual Waiver of Trial by Jury
ARTICLE 26 Inability to Perform
ARTICLE 27 Notices
ARTICLE 28 Partnership Tenant
ARTICLE 29 Utilities and Services
ARTICLE 30 Table of Contents, Etc.
ARTICLE 31 Miscellaneous Definitions, Severability and Interpretation Provisions
ARTICLE 32 Adjacent Excavation
ARTICLE 33 Building Rules
ARTICLE 34 Broker
ARTICLE 35 Security
ARTICLE 36 Arbitration, Etc.
ARTICLE 37 Parties Bound
SCHEDULE A Building Rules
</TABLE>
i
<PAGE>
LEASE dated as of the 29th day of February, 1996, between THE 110 WALL
COMPANY, a New York partnership having its principal office at 345 Park
Avenue, Borough of Manhattan, City, County, and State of New York, as
landlord (referred to as "Owner"), and KHAN, EDWARDS & COMPANY, INC., a New
York corporation, having its principal office at 12 Marco Polo Court,
Franklin Park, New Jersey 08813, as tenant (referred to as "Tenant").
W I T N E S S E T H:
Owner and Tenant hereby covenant and agree as follows:
ARTICLE 1
DEMISED PREMISES, TERM, RENTS
SECTION 1.01. DEMISED PREMISES: Owner hereby leases to Tenant and Tenant
hereby hires from Owner the entire twenty-fourth (24th) floor in the building
known as 110 Wall Street, in the Borough of Manhattan, City of New York (said
building is referred to as the "Building", and the Building together with the
plot of land upon which it stands is referred to as the "Real Property"), at
the annual rental rate or rates set forth in Section 1.03, and upon and
subject to all of the terms, covenants and conditions contained in this
Lease. The premises leased to Tenant, together with all appurtenances,
fixtures, improvements, additions and other property attached thereto or
installed therein at the commencement of, or at any time during, the term of
this Lease, other than Tenant's Personal Property (as defined in Article 4),
are referred to, collectively, as the "Demised Premises".
SECTION 1.02. DEMISED TERM: A. The Demised Premises are leased for a term
(referred to as the "Demised Term") to commence on the execution and delivery
of this Lease and to end on August 31, 2001, unless the Demised Term shall
sooner terminate pursuant to any of the terms, covenants or conditions of
this Lease or pursuant to law.
B. The date upon which the Demised Term shall commence pursuant to
Subsection A of this Section is referred to as the "Commencement Date",
and the date fixed pursuant to said Subsection A as the date upon which
the Demised Term shall end is referred to as the "Expiration Date".
C. Tenant waives any right to rescind this Lease under Section 223-a of
the New York Real Property Law or any successor statute of similar import
then in force and further waives the right to recover any damages which
may result from Owner's failure to deliver possession of the Demised
Premises on the date set forth in Subsection A of this Section, or in any
notice given pursuant to Subsection B of this Section, for the
commencement of the Demised Term.
D. After the determination of the Commencement Date, Tenant agrees, upon
demand of Owner, to execute, acknowledge and deliver to Owner, an
instrument, in form satisfactory to Owner, setting forth said Commencement
Date and the Expiration Date.
SECTION 1.03. FIXED RENT: A. The Lease is made at the following annual
rental rates (referred to as "Fixed Rent"):
1. SEVENTEEN THOUSAND FIVE HUNDRED AND 00/100 ($17,500.00) DOLLARS
<PAGE>
with respect to the period referred to as the "First Rent Period" from
the Commencement Date to and including August 31, 1996; and
2. ONE HUNDRED FIFTY-SEVEN THOUSAND FIVE HUNDRED AND 00 100 ($157,500.00)
DOLLARS with respect of the remainder of the Demised Term (referred to
as the "Section Rent Period").
B. The Fixed Rent, any increases in the Fixed Rate and any additional
rent payable pursuant to the provisions of this Lease shall be payable by
Tenant to Owner at its office (or at such other place as Owner may
designate in a notice to Tenant) 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 or by Tenant's good check drawn on a bank
or trust company whose principal office is located in New York City and
which is a member of the New York Clearinghouse Association, without prior
demand therefor and without any offset or deduction whatsover except as
otherwise specifically provided in this Lease. The Fixed Rent shall be
payable in equal monthly installments in advance, on the first (1st) day
of each month during the Demised Term (except as otherwise provided in
Subsection C of this Section) as follows:
1. ONE THOUSAND FOUR HUNDRED FIFTY-EIGHT AND 33/100 ($1,458.33) DOLLARS
with respect to the First Rent Period; and
2. THIRTEEN THOUSAND ONE HUNDRED TWENTY-FIVE AND 00/100 ($13,125.00) with
respect to the Second Rent Period.
C. The sum of ONE THOUSAND FOUR HUNDRED FIFTY-EIGHT AND 33/100
($1,458.33) DOLLARS, representing the installment of Fixed Rent for the
month of March, 1996, is due and payable at the time of execution and
delivery of this Lease.
D. If Tenant shall use or occupy all or any part of the Demised Premises
for the conduct of business prior to the Commencement Date, such use or
occupancy shall be deemed to be under all of the terms, covenants and
conditions of this Lease, including, without limitation, the covenant to
pay Fixed Rent for the period from the commencement of said use or
occupancy to and including the date immediately preceding the Commencement
Date, without, however, affecting the Expiration Date. The provisions of
the foregoing sentence shall not be deemed to give to Tenant any right to
use or occupy all or any part of the Demised Premises prior to the
Commencement Date without the consent of Owner.
SECTION 1.04. TENANT'S GENERAL COVENANT: Tenant covenants (i) to pay the
Fixed Rent, any increases in the Fixed Rent, and any additional rent payable
pursuant to the provisions of this Lease, and (ii) to observe and perform,
and to permit no violation of, the terms, covenants and conditions of this
Lease on Tenant's part to be observed and performed.
SECTION 1.05. RENT HOLIDAY: If the Commencement Date shall occur prior to
March 1, 1996, then Tenant shall be entitled to a rent holiday and shall not
be required to pay any portion of the Fixed Rent and any increases therein
pursuant to the provisions of Articles 23 and 29 with respect to the period
from the Commencement Date to and including February 29, 1996, but during
such period Tenant shall otherwise be required to comply with all of the
other terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed.
ARTICLE 2
2
<PAGE>
USE AND OCCUPANCY
SECTION 2.01. GENERAL COVENANT OF USE: Tenant shall use and occupy the
Demised Premises for the following purpose: executive and general offices of
Tenant.
SECTION 2.02. NO ADVERSE USE: Tenant shall not use or occupy, or permit
the use or occupancy of, the Demised Premises or any part thereof, for any
purpose other than the purpose specifically set forth in Section 2.01, or in
any manner which, in Owner's judgment, (a) shall adversely affect or
interfere with (i) any services required to be furnished by Owner to Tenant
or to any other tenant or occupant of the Building, or (ii) the proper and
economical rendition of any such service, or (iii) the use or enjoyment of
any part of the Building by any other tenant or occupant, or (b) shall tend
to impair the character or dignity of the Building.
ARTICLE 3
ALTERNATIONS
SECTION 3.01. GENERAL ALTERNATION COVENANTS: Tenant shall not make or
perform, or permit the making or performance of, any alternations,
installations, decorations, improvements, additions or other physical changes
in or about the Demised Premises (referred to collectively, as "Alterations"
and individually as an "Alteration") without Owner's prior consent in each
instance. Owner agrees not unreasonably to withhold its consent to any
non-structural Alterations proposed to be made by Tenant to adapt the Demised
Premises for Tenant's business purposes. Owner agrees that Tenant may,
without Owner's prior consent, make non-structural Alterations in the Demised
Premises other than Tenant's Initial Installation (as defined in Section
3.08) the estimated cost of which in an independent architect's opinion
constituting a single project shall not exceed Fifty Thousand and 00/100
($50,000.00) Dollars and which shall not adversely affect the electrical,
plumbing and heating, ventilation and air conditioning systems in the
Building or any portion of the Building outside of the Demised Premises.
Notwithstanding the foregoing provisions of this Section or Owner's consent
to any Alterations, all Alternations and shall be made and performed in
conformity with and subject to the following provisions:
A. All Alterations shall be made and performed at Tenant's sole cost and
expense and at such time and in such manager as Owner may, from time to
time, designate:
B. No Alteration shall adversely affect the structural integrity of the
Building;
C. Alterations shall be made only by contractors or mechanics approved by
Owner, such approval not unreasonly to be withheld (notwithstanding the
foregoing, all Alterations requiring mechanics in trades with respect to
which Owner has adopted or may hereafter adopt a list or lists of approved
contractors shall be made only by contractors selected by Tenant from such
list or lists);
D. No Alteration shall affect any part of the Building other than the
Demised Premises or adversely affect any service required to be furnished
by Owner to Tenant or to any other tenant or occupant of the Building
(including, without limitation, the Building-wide standard systems
required to provide elevator, heat, ventilation, air-conditioning and
electrical and plumbing services in the Building);
E. No Alteration shall reduce the value or utility of the Building or any
portion thereof;
F. No Alternation shall affect the Certificate of Occupancy for the
Building or the Demised Premises;
G. No Alteration shall affect the outside appearance of the Building or
the color or style of any venetian blinds (except that Tenant may remove
any venetian blinds provided that they are promptly replaced by Tenant
with blinds of a similar type, material and color);
3
<PAGE>
H. All business machines and mechanical equipment shall be placed and
maintained by Tenant in settings sufficient. In Owner's judgment, to
absorb and prevent vibration, noise and annoyance to other tenants or
occupants of the Building:
I. Tenant shall submit to Owner detailed plans and specifications stamped
by Tenant's architect (including layout, architectural, mechanical and
structural drawings) for each proposed Alteration and shall not commence
any such Alteration without first obtaining Owner's approval of such plans
and specifications and following the completion of each Alteration. Tenant
shall submit to Owner a computerized "as built" drawing file for the
Demised Premises (or if the Demised Premises comprise more than one (1)
floor, for each floor of the Demised Premises being altered); such file
will be in DXF format and contain, on a separate layer, all ceiling-height
partitions and doors within the Demised Premises (or if the Demised
Premises comprise more than one (1) floor, within each floor of the
Demised Premises being altered);
J. Prior to the commencement of each proposed Alteration. Tenant shall
have procured and paid for and exhibited to Owner, so far as the same may
be required from time to time, all permits, approvals and authorizations
of all Governmental Authorities (as defined in Section 6.01.) having or
claiming jurisdiction;
K. Prior to the commencement of each proposed Alteration. Tenant shall
furnish to Owner duplicate original policies of workmen's compensation
insurance covering all persons to be employed in connection with such
Alteration, including those to be employed by all contractors and
subcontractors, and of comprehensive public liability insurance (including
property damage coverage) in which Owner, its agents, the holder of any
Mortgage (as defined in Section 7.01.) and any lessor under any Superior
Lease (as defined in Section 7.01.) shall be named as parties insured,
which policies shall be issued by companies, and shall be in form and
amounts, satisfactory to Owner and shall be maintained by Tenant until the
completion of such Alteration.
L. In the event Owner or its agents employ any independent architect or
engineer or examine any plans or specifications submitted by Tenant to
Owner in connection with any proposed Alteration, Tenant agrees to pay to
Owner a sum equal to any reasonable fees incurred by Owner in connection
therewith.
M. All fireproof wood test reports, electrical and air conditioning
certificates, and all other permits, approvals and certificates required
by all Governmental Authorities shall be timely obtained by Tenant and
submitted to Owner;
N. All Alterations, once commenced, shall be made promptly and in a good
and workmanlike manner;
O. Notwithstanding Owner's approval of plans and specifications for any
Alteration, all Alterations shall be made and performed in full compliance
with all Legal Requirements (as defined in Section 6.01) and with all
applicable rules, orders, regulations and requirements of the New York
Board of Fire Underwriters and the New York Fire Insurance Rating
Organization or any similar body;
P. All Alterations shall be made and performed in accordance with the
Building rules and Building Rules for Alterations;
Q. All materials and equipment to be installed, incorporated or located
in the Demised Premises as a result of all Alterations shall be new and
first quality;
R. No materials or equipment shall be subject to any lien, encumbrance,
chattel mortgage or title retention or security agreement of any kind;
4
<PAGE>
S. Tenant, before commencement of each Alteration, shall furnish to Owner
a performance bond or other security satisfactory to Owner, in a amount at
least equal to the estimated cost of such Alteration, guaranteeing the
performance and payment thereof.
T. Not Alteration shall be commenced unless any preceding Alteration
shall have been fully paid for and proof of such payment furnished to
Owner;
U. All Alterations in or to the electrical facilities in or serving the
Demised Premises shall be subject to the Provisions of Subsection C(1) of
Section 29.05 (relating to increases in the Fixed Rent); and
V. Following the completion of each Alteration. Tenant, at Tenant's
expense, shall obtain certificates of final approval of such Alteration
required by any Governmental Authority and shall furnish Owner with copies
thereof.
W. Tenant agrees that Tenant will not install, affix, add or paint in or
on, nor permit, any work of visual art (as defined in the Federal Visual
Artists' Rights Act of 1990 or any successor law of similar import) or
other Alteration to be installed in or on, or affixed, added to, or
painted on, the interior or exterior of the Demised Premises, or any part
thereof, including, but not limited to, the walls, floors, ceilings,
doors, windows, fixtures and on land included as part of the Demised
Premises, which work of visual art or other Alteration would, under the
provisions of the Federal Visual Artists' Rights Act of 1990, or any
successor law of similar import, require the consent of the author or
artist of such work or alteration before the same could be removed,
modified, destroyed or demolished.
SECTION 3.02. NO CONSENT TO CONTRACTOR/NO MECHANICS LIEN: Nothing in this
Lease shall be deemed or construed in any way as constituting the consent or
request of Owner, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer or materialmen, for the performance of any
labor or the furnishing of any material for any specific Alteration to, or
repair of, the Demised Premises, the Building, or any part of either. Any
mechanic's or other lien filed against the Demised Premises or the Building
or the Real Property for work claimed to have been done for, or materials
claimed to have been furnished to, Tenant or any person claiming through or
under Tenant or based upon ay act or omission or alleged act or omission of
Tenant or any such person shall be discharged by Tenant, at Tenant's sole
cost and expense, with ten (10) days after the filing of such lien.
SECTION 3.03. LABOR HARMONY: Tenant shall not, at any time prior to or
during the Demised Term, directly or indirectly employ, or permit the
employment of, any contractor, mechanic or laborer in the Demised Premises,
whether in connection with any Alteration or otherwise, if such employment
will interfere or cause any conflict with other contractors, mechanics, or
laborers engaged in the construction, maintenance or operation of the
Building by Owner, Tenant or others. In the event of any such interference or
conflict. Tenant, upon demand of Owner, shall cause all contractors,
mechanics or laborers causing such interference or conflict to leave the
Building immediately.
SECTION 3.04. COMPLIANCE WITH FIRE SAFETY: Without in any way limiting the
generality of the provisions of Section 3.01, all Alterations shall be made
and performed in full compliance with all standards and practices adopted by
Owner for fire safety in the Building. No Alteration shall affect all or any
part of any Class E Fire Alarm and Communication system installed in the
Demised Premises, except that in connection with any such Alteration Tenant
may relocate certain components of such system, provided (i) such relocation
shall be performed in a manner first approved by Owner, (ii) the new location
of any such component shall be first approved by Owner, (iii) prior to any
such relocation Tenant shall submit to Owner detailed plans and
specifications therefor which shall be first approved by Owner and (iv) Owner
shall have the election of relocation such components either by itself or by
its contractors, in which event all expenses incurred by Owner shall be
reimbursed by Tenant upon
5
<PAGE>
demand of Owner, as additional rent.
SECTION 3.05. SPRINKLERS: In the event that Tenant performs any
Alterations in the Demised Premises, Tenant, as part of such Alterations,
shall be required to install a sprinkler system in the Demised Premises and
in connection therewith the following provisions of this Section shall apply:
(i) such sprinkler system shall comply with all applicable laws, orders,
rules and regulations; (ii) the supplying and installing of any such
sprinkler system shall be made in accordance with the provisions of this
Lease, including but not limited to the provisions of this Article and
Article 6 and the type, brand, location and manner of installation of such
sprinkler system shall be subject to Owner's prior approval; and (iii) Tenant
shall make all repairs and replacements, as and when necessary, to such
sprinkler system and any replacements thereof. Notwithstanding the aforesaid
provisions of this Section, Owner shall have the election of supplying and
installing such sprinkler system either by itself or by its agents or
contractors, in which event all costs and expenses incurred by Owner in
connection with supplying and installing such sprinkler system and any
repairs or replacements of such sprinkler system and any replacements thereof
made by Owner, at Owner's election, shall be paid by Tenant to Owner within
ten (10) days next following the rendition of a statement thereof by Owner to
Tenant. In addition to paying all costs and expenses in connection with the
supplying and installing of such sprinkler system, Tenant shall pay to Owner,
for each floor of the Building on which any portion of the Demised Premises
is located, a fee equal to Tenant's pro rata share of all of the costs and
expenses incurred by Owner, if any, in supplying and installing a "sprinkler
loop" on such floor which pro rata share shall be a fraction in which the
numerator shall be the number of rentable square feet of that portion of the
Demised Premises located on such floor and the denominator shall be the
number of rentable square feet on such floor, provided however, that
notwithstanding anything contained in this Section to the contrary, Owner
shall have no obligation to install such "sprinkler loop" on any floor of the
Building which shall be entirely demised to Tenant. Such fee shall be payable
to Owner within ten (10) days next following the rendition of a statement
thereof by Owner to Tenant. Notwithstanding anything contained in this Lease
to the contrary, such sprinkler system, or any replacement thereof and any
installments in connection therewith, whether made by Tenant or Owner, shall
upon expiration or sooner termination of the Demised Term be deemed the
property of Owner.
SECTION 3.06. ASBESTOS OR OTHER HAZARDOUS MATERIAL: A. In the event that,
at any time during the Demised Term, in connection with any Alterations
proposed to be performed by Tenant in the Demised Premises Tenant is unable
to obtain a New York City Department of Environmental Protection Form ACP5
dated 10/88 (or any successor form), signed by a certified asbestos
investigator, or any other form or approval required by Federal, State,
County or Municipal authorities, indicating that said Alterations do not
constitute an asbestos project. Owner agrees, upon notice from Tenant to such
effect, to perform such work as shall be required to enable Tenant to obtain
any such form or approval.
B. If any laws, orders, rules or regulations of any Federal, State,
County or Municipal authority require that any asbestos or other hazardous
material contained in or about the Demised Premises be removed or dealt
with in any particular manner, then it shall be Owner's obligation, at
Owner's expense, to remove or so deal with such asbestos or other
hazardous material in accordance with such laws, orders, rules and
regulations.
C. Notwithstanding the provisions of subsections A and B of this Section,
in the event any work performed by Owner pursuant to the provisions of
either or both of such subsections is in any way disturbed or damaged by
Tenant or any person claiming through or under Tenant, or asbestos or
other hazardous material is installed in the Demised Premises by or on
behalf of Tenant, or any person claiming through or under Tenant, Owner
shall have no responsibility in connection therewith and no obligation to
perform any work with respect thereto, but it shall be Tenant's
obligation, at Tenant's expense, to (i) perform such work as shall be
required to enable Tenant to obtain any form or approval referred to in
subsection A, and (ii) remove or so deal with such asbestos or other
hazardous material in accordance with all such laws, orders, rules and
regulations referred to in subsection B. Any work required to be performed
by Tenant pursuant to the provisions of the foregoing sentence is referred
to as the "Compliance Work". In the event Tenant is required to perform
any Compliance Work then, notwithstanding anything to the contrary
contained in this subsection C, Owner, at Owner's election, shall have the
option to itself perform any Compliance Work and, in such event, Tenant
shall pay to Owner all of Owner's costs in connection therewith within ten
(10) days next following the rendition of a statement thereof by Owner to
Tenant.
SECTION 3.07. DISPUTE RESOLUTION: Any dispute with respect to the
reasonability of any failure or refusal of Owner to grant its consent or
approval to any request for such consent or approval pursuant to the
provisions of Section 3.01 with respect to which request Owner has agreed, in
such Section not unreasonably to withhold such consent or approval, shall be
determined by arbitration in accordance with the provisions of Article 36.
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SECTION 3.08. FIRE ALARM AND COMMUNICATION SYSTEM CONNECTION FEES: In the
event that Tenant, pursuant to the provisions of this Lease, including, but
not limited to, the provisions of this Article 3 and Article 6, connects any
of the following equipment to any Class E Fire Alarm and Communication system
installed in the Demised Premises, Tenant shall pay to Owner as a one (1)
time connection fee the following sums set forth opposite the equipment
listed below (which sums shall be subject to increases due to increases in
the cost to Owner of operating and maintaining such Class E Fire Alarm and
Communication system over such costs on the date of this Lease):
<TABLE>
<CAPTION>
<S> <C> <C>
A. Speakers in excess of 4 per floor of the Demised Premises (or
if the Demised Premises contain less than one (1) floor, in
excess of four in the Demised Premises) $500.00 per device
B. Strobe Lights (single unit) $100.00 per device
C. Combination Speaker/Strobe light $250.00 per device
D. Duct Detectors (supplementary air conditing system) $500.00 per point
E. Smoke Detectors (multi-purpose) $500.00 per point
F. Preaction Sprinkler System:
waterflow $500.00 per point
tamper $500.00 per point
G. Warden Phone (additional) $1,000.00 per unit
H. Fail Safe Door Release $250.00 per connection
</TABLE>
ARTICLE 4
OWNERSHIP OF IMPROVEMENTS
SECTION 4.01. GENERAL RIGHTS OF OWNER AND TENANT: All appurtenances,
fixtures, improvements, additions and other property attached to or installed
in the Demised Premises, whether by Owner or Tenant or others, and whether at
Owner's expense, or Tenant's expense, or the joint expense of Owner and
Tenant, shall be and remain the property of Owner, except that any such
fixtures, improvements, additions and other property installed at the sole
expense of Tenant with respect to which Tenant has not been granted any
credit or allowance by Owner, and which are removable without material damage
to the Demised Premises shall be and remain the property of Tenant and are
referred to as "Tenant's Personal Property". Any replacements of any property
of Owner, whether made at Tenant's expense or otherwise, shall be and remain
the property of Owner.
ARTICLE 5
REPAIRS
SECTION 5.01. TENANT'S REPAIR OBLIGATIONS: Tenant shall take good care of
the Demised Premises (including, but not limited to, any Class E Fire Alarm
and Communication system and any sprinkler system installed therein and any
installations made or equipment installed therein as a result of any
requirement of New York City Local Law #16 of 1984 or any successor law or
like import) and, at Tenant's sole cost and expense, shall make all repairs
and replacements, structural and otherwise, ordinary and extraordinary,
foreseen and unforeseen as and when needed to preserve the Demised Premises
(including, but not limited to, any Class E Fire Alarm and Communication
system and any sprinkler system installed therein and any installations made
or equipment installed therein as a result of any requirement of New York
City Local Law #16 of 1984 or any successor law of like import) in good and
safe working order and in first class repair and condition, except that
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Tenant shall not be required to make any repairs or replacements to the
Demised Premises unless necessitiated or occasioned by the improper acts,
improper omissions or negligence of Tenant or any person claiming through or
under Tenant or any of their servants, employees, contractors, agents,
visitors or licensees, or by the use or occupancy or manner of use or
occupancy of the Demised premises by Tenant or any such person (in
contradistinction to the mere use and occupancy of the Demised Premises for
the purpose set forth in Section 2.01). Without affecting Tenant's
obligations set forth in the preceding sentence, Tenant, at Tenant's sole
cost and expense, shall also (i) make all repairs and replacements, and
perform all maintenance as and when necessary, to the lamps, tubes, ballasts,
and starters in the lighting fixtures installed in the Demised Premises, (ii)
make all repairs and replacements, as and when necessary, to Tenant's
Personal Property and to any Alterations made or performed by or on behalf of
Tenant or any person claiming through or under Tenant, and (iii) if the
Demised Premises shall include any space on any ground, street, mezzanine or
basement floor in the Building, make all replacements, as and when necessary,
to all windows and plate and other glass in, on or about such space, and
obtain and maintain, throughout the Demised Term, plate glass insurance
policies issued by companies, and in form and amounts, satisfactory to Owner,
in which Owner, its agents and any lessor under any ground or underlying
lease shall be named as parties insured, and (iv) perform all maintenance and
make all repairs and replacements, as and when necessary, to any air
conditioning equipment, private elevators, escalators, conveyors or
mechanical systems (other than the Building's standard equipment and systems)
which have heretofore been installed in the Demised Premises by Owner, Tenant
or others or which may hereafter be installed by Tenant or by Owner at
Tenant's request. However, the provisions of the foregoing sentence shall not
be deemed to give to Tenant any right to install air conditioning equipment,
elevators, escalators, conveyors or mechanical systems. All repairs and
replacements made by or on behalf of Tenant or any person claiming through or
under Tenant shall be made and performed in conformity with, and subject to
the provisions of Article 3 and shall be at least equal in quality and class
to the original work or installation. The necessity for, and adequacy of,
repairs and replacements pursuant to this Article 5 shall be measured by the
standard which is appropriate for first class office buildings of similar
construction and class in the Borough of Manhattan, City of New York.
ARTICLE 6
COMPLIANCE WITH LAWS
SECTION 6.01. GENERAL COVENANTS: Tenant, at Tenant's sole cost and
expense, shall comply with all Legal Requirements (hereinafter defined) which
shall impose any duty upon Owner or Tenant with respect to the Demised
Premises or the use or occupation thereof, including, but not limited to, the
maintenance of a sprinkler system to serve the Demised Premises or any part
thereof, except that Tenant shall not be required to make any structural
Alterations in order so to comply unless such Alterations shall be
necessitated or occasioned, in whole or in part, by the improper acts,
improper omissions, or negligence of Tenant or any person claiming through or
under Tenant, or any of their servants, employees, contractors, agents,
visitors or licensees, or by the use or occupancy or manner of use or
occupancy of the Demised Premises by Tenant or by any such person. For all
purposes of this Lease the term "Legal Requirements" shall mean all present
and future laws, codes, ordinances, statutes, requirements, orders and
regulations, ordinary and extraordinary, foreseen and unforeseen (including,
but not limited to, the New York State Energy Conservation Construction Code,
New York City Local Laws #5 of 1973, #16 of 1984 and #58 of 1987 and the
Americans with Disabilities Act, and any successor laws of like import) of
any Governmental Authority (hereinafter defined) and all directions,
requirements, orders and notices of violations thereof. For all purposes of
this Lease, the term "Government Authority" shall mean the United States of
America, the State of New York, the County of New York, the Borough of
Manhattan, the City of New York, any political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality of any of
the foregoing, now existing or hereafter created, having jurisdiction over
Owner, Tenant, this Lease or the Real Property or any portion thereof. Any
work or installations made or performed by or on behalf of Tenant or any
person claiming through or under Tenant pursuant to the provisions of this
Article shall be made in conformity with, and subject to the provisions of
Article 3. For the purposes of this Article, the maintenance or repair of the
existing sprinkler system or any Alterations required to comply with Local
Law #5 of 1973, #16 of 1984, #58 of 1987 and the Americans With Disabilities
Act and any successor laws of like import shall be deemed to be a
non-structural Alteration.
SECTION 6.02. TENANT'S COMPLIANCE WITH OWNER'S FIRE INSURANCE: Tenant
shall not do anything, or permit anything to be done, in or about the Demised
Premises which shall (i) invalidate or be in conflict with the provisions of
any fire and/or other insurance policies covering the Building or any
property located therein, or (ii) result in a refusal by fire insurance
companies of good standing to insure the Building or any such property in
amounts reasonably satisfactory to Owner, or (iii) subject Owner to any
liability or responsibility for
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injury to any person or property by reason of any business operation being
conducted in the Demised Premises, or (iv) cause any increase in the fire
insurance rates applicable to the Building or property located therein at the
beginning of the Demised Term at any time thereafter. Tenant, at Tenant's
expense, shall comply with all present and future rules, orders, regulations
and/or requirements of the New York Board of Fire Underwriters and the New
York Fire Insurance Rating Organization or any similar body and the issuer of
any insurance obtained by Owner covering the Building and/or the Real
Property, whether ordinary or extraordinary, foreseen or unforeseen,
including, but not limited to, the installation and maintenance of a
sprinkler system to serve the Demised Premises or any part thereof, any
requirement that asbestos or other hazardous material be removed or dealt
with in any particular manner and any requirement of New York city Local Law
#5 of 1973, #16 of 1984, #58 of 1987 and the Americans With Disabilities Act
or any successor laws of like import.
SECTION 6.03. FIRE INSURANCE RATES: In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make up" of rates applicable to
the Building or property located therein issued by the New York Fire
Insurance Rating Organization, or other similar body fixing such fire
insurance rates, shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rates then applicable
to the Building or property located therein.
ARTICLE 7
SUBORDINATION, ATTORNMENT, ETC.
SECTION 7.01. LEASE SUBORDINATION: This Lease and all rights of Tenant
under this Lease are, and shall remain, unconditionally subject and
subordinate in all respects to all ground and underlying leases now or
hereafter in effect affecting the Real Property or any portion thereof, and
to all mortgages which may now or hereafter affect such leases or the Real
Property, and to all advances made or hereafter to be made under such
mortgages, and to all renewals, modifications, consolidations, correlations,
replacements and extensions of, and substitutions for, such leases and
mortgages (such leases as above described are referred to herein collectively
as the "Superior Lease" and such mortgages as above described are referred to
herein collectively as the "Mortgage"). The foregoing provisions of this
Section shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination, Tenant shall
execute and deliver promptly any certificate or other instrument which Owner,
or any lessor under any Superior Lease, or any holder of any Mortgage may
request, and Tenant hereby, irrevocably constitutes and appoints Owner and
all such lessors and holders, acting jointly or severally, as Tenant's agent
and attorney-in-fact to execute any such certificate or other instrument for
or on behalf of Tenant. If in connection with obtaining financing with
respect to the Building, the Real Property, or the interest of the leasee
under any Superior Lease, any recognized lending institution shall request
reasonable modifications
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of this Lease as a condition of such financing. Tenant covenants not
unreasonably to withhold or delay its agreement to such modifications,
provided that such modifications do not materially increase the obligations,
or materially and adversely affect the rights, of Tenant under this Lease. No
act or failure to act on the part of Owner which would entitle Tenant under
the terms of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease shall result in a release or termination
of such obligations or a termination of this Lease unless (i) Tenant shall
have first given written notice of Owner's act or failure to act to the
holder or holders of any Mortgage and or the lessor under any Superior Lease
of whom Tenant has been given written notice, specifying the act or failure
to act on the part of Owner which could or would give basis to Tenant's
rights; and (ii) the holder or holders of such Mortgage and/or the lessors
under any Superior Lease, after receipt of such notice, have failed or
refused to correct or cure the condition complained of within a reasonable
time thereafter, but nothing contained in this sentence shall be deemed to
impose any obligation on any such holder or lessor to correct or cure any
such condition. "Reasonable time" as used above means and includes a
reasonable time to obtain possession of the Building if any such holder or
lessor elects to do so (provided such holder or lessor institutes proceedings
to obtain possession within a reasonable time after notice from Tenant
pursuant to the foregoing provisions and conducts such proceedings with
reasonable diligence) and a reasonable time after so obtaining possession to
correct or cure the condition if such condition is determined to exist
(provided such holder or lessor commences said cure within ten (10) days
after obtaining possession and prosecutes the work required to cure with
reasonable diligence).
SECTION 7.02. TENANT ATTORNMENT: If, at any time prior to the expiration
of the Demised Term, any Superior Lease under which Owner then shall be the
lessee shall terminate or be terminated for any reason, or the holder of any
Mortgage comes into possession of the Real Property or the Building or the
estate created by any Superior Lease by a receiver or otherwise. Tenant
agrees, at the election and upon demand of any owner of the Real Property, or
of the holder of any Mortgage so in possession, or of any lessee under any
Superior Lease covering the premises which include the Demised Premises, to
attorn, from time to time, to any such owner, holder, or lessee, upon the
then executory terms and conditions of this Lease, for the remainder of the
term originally demised in this Lease, provided that such owner, holder or
lessee, as the case may be, shall then be entitled to possession of the
Demised Premises. The provisions of this Section shall enure to the benefit
of any such owner, holder, or lessee, shall apply notwithstanding that, as a
matter of law, this Lease may terminate upon the termination of any Superior
Lease, shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions. Tenant,
however, upon demand of any such owner, holder, or lessee, agrees to execute,
from time to time, instruments in confirmation of the foregoing provisions of
this Section, satisfactory to any such owner, holder, or lessee,
acknowledging such attornment and setting forth the terms and conditions of
its tenancy. Nothing contained in this Section shall be construed to impair
any right otherwise exercisable by any such owner, holder, or lessee.
Notwithstanding anything to the contrary set forth in this Article no such
owner, holder or lessee shall be bound by (i) any payment of any installment
of Fixed Rent or increases therein or any additional rent which may have been
made more than thirty (30) days before the due date of such installment
(except prepayments in the nature of security for the performance of Tenant's
obligations under this Lease), or (ii) any amendment or modification to this
Lease which is made without its consent.
SECTION 7.03. TENANT ESTOPPED CERTIFICATE: From time to time, within seven
(7) days next following Owner's request, Tenant shall deliver to Owner a
written statement executed and acknowledged by Tenant, in form satisfactory
to Owner, (i) stating that this Lease is then in full force and effect and
has not been modified (or if modified, setting forth the specific nature of
all modifications), and (ii) setting forth the date to which the Fixed Rent
has been paid, and (iii) stating whether or not, to the best knowledge of
Tenant, Owner is in default under this Lease, and, if Owner is in default,
setting forth the specific nature of all such defaults and (iv) stating that
Tenant has accepted and occupied the Demised Premises and all improvements
required to be made by Owner pursuant to the provisions of this Lease, have
been made, if such be the case. Tenant acknowledges that any statement
delivered pursuant to this Section may be relied upon by any purchaser or
owner of the Building, or of the Real Property, or any part thereof, or of
Owner's interest in the Building or the Real Property or any Superior Lease,
or by the holder of any Mortgage, or by any assignee of the holder of any
Mortgage, or by any lessor under any Superior Lease.
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SECTION 7.04 OWNER ASSIGNMENT OF LEASE AND RENTS: If Owner assigns its
interest in this Lease, or the rents payable hereunder, to the holder of any
Mortgage or the lessor under any Superior Lease whether the assignment shall
be conditional in nature or otherwise. Tenant agrees that (a) the execution
thereof by Owner and the acceptance by such holder or lessor shall not be
deemed an assumption by such holder or lessor or any of the obligations of
the Owner under this Lease unless such holder or lessor shall, by written
notice sent to assumed Owner's obligations hereunder only upon the
foreclosure of such holder's Mortgage or the termination of such lessor's
Superior Lease and the taking of possession of the Demised Premises by such
holder or lessor as the case may be.
ARTICLE 8
PROPERTY LOSS, ETC.
SECTION 8.01. Any Building employee to whom any property shall be
entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Owner nor Owner's agents
shall be liable for any loss of or damage to any such property by theft or
otherwise. Neither (i) the performance by Owner, Tenant or others of any
decorations, repairs, alterations, additions or improvements in or to the
Building or the Demised Premises, nor (ii) the failure of Owner or others to
make any such decorations, repairs, alterations, additions or improvements,
nor (iii) any damage to the Demised Premises or to the property of Tenant,
nor any injury to any persons, caused by other tenants or persons in the
Building, or by operations in the construction of any private, public or
quasi-public work, or by any other cause, nor (iv) any latent defect in the
Building or in the Demised Premises, nor (v) any temporary or permanent
closing, darkening or bricking up of any windows of the Demised Premises for
any reason whatsoever including, but not limited to, Owner's own acts, nor
(vi) any inconvenience or annoyance to Tenant or injury to or interruption of
Tenant's business by reason of any of the events or occurrences referred to
in the foregoing subdivisions (i) through (v), shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Owner, or its
agents, or any Lessor under any Superior Lease, other than such liability as
may be imposed upon Owner by law for Owner's negligence or the negligence of
Owner's agents, servants or employees in the operation or maintenance of the
Building or for the breach by Owner of any express covenant of this Lease on
Owner's part to be performed. Tenant's taking possession of the Demised
Premises shall be conclusive evidence, as against Tenant, that, at the time
such possession was so taken, the Demised Premises and the Building were in
good and satisfactory condition.
ARTICLE 9
DESTRUCTION-FIRE OR OTHER CASUALTY
SECTION 9.01. OWNER'S REPAIR OBLIGATIONS: If the Demised Premises shall be
damaged by fire or other casualty and if Tenant shall give prompt notice to
Owner of such damage, Owner, at Owner's expense shall repair such damage.
However, Owner shall have no obligation to repair any damage to, or to
replace, Tenant's Personal Property or any other property or effects of
Tenant. Except as otherwise provided in Section 9.03, if the entire Demised
Premises shall be rendered untenantable by reason of any such damage, the
Fixed Rent shall abate for the period from the date of such damage to the
date when such damage shall have been repaired, and if only a part of the
Demised Premises shall be so rendered untenantable, the Fixed Rent shall
abate for such period in the proportion which the area of the part of the
Demised Premises so rendered untenantable bears to the total area of the
Demised Premises. However, if, prior to the date when all of such damage
shall have been repaired, any part of the Demised Premises so damaged shall
be rendered tenantable and shall be used or occupied by Tenant or any person
or persons claiming through or under Tenant, then the amount by which the
Fixed Rent shall abate shall
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be equitably apportioned for the period from the date of any such use or
occupancy to the date when all such damage shall have been repaired. Tenant
hereby expressly waives the provisions of Section 227 of the New York real
Property Law, and of any successor law of like import then in force, and
Tenant agrees that the provisions of this Article shall govern and control in
lieu thereof. Notwithstanding the foregoing provisions of this Section, if,
prior to or during the Demised Term, (i) the Demised Premises shall be
totally damaged or rendered wholly untenantable by fire or other casualty,
and if Owner shall decide not to restore the Demised Premises, or (ii) the
Building shall be so damaged by fire or other casualty that, in Owner's
opinion, substantial alteration, demolition, or reconstruction of the
Building shall be required (whether or not the Demised Premises shall have
been damaged or rendered untenantable), then, in any of such events. Owner,
at Owner's option, may give to Tenant, within ninety (90) days after such
fire or other casualty, a five (5) days' notice of termination of this lease
and, in the event such notice is given, this Lease and the Demised Term shall
come to an end and expire (whether or not said term shall have commenced)
upon the expiration of said five (5) days with the same effect as if the date
of expiration of said five (5) days were the Expiration Date, the Fixed Rent
shall be apportioned as of such date and any prepaid portion of Fixed Rent
for any period after such date shall be refunded by Owner to Tenant.
SECTION 9.02. OWNER'S SUBROGATION WAIVER PROVISIONS: Owner shall attempt
to obtain and maintain, throughout the Demised Term, in Owner's fire
insurance policies covering the Building, provisions to the effect that such
policies shall not be invalidated should the insured waive, in writing, prior
to a loss, any or all right of recovery against any party for loss occurring
to the Building. In the event that at any time Owner's fire insurance
carriers shall exact an additional premium for the inclusion of such or
similar provisions. Owner shall give Tenant notice thereof. In such event, if
Tenant agrees, in writing, to reimburse Owner for such additional premium for
the remainder of the Demised Term. Owner shall require the inclusion of such
or similar provisions by Owner's fire insurance carriers. As long as such or
similar provisions are included in Owner's fire insurance policies then in
force, Owner hereby waives (i) any obligation on the part of Tenant to make
repairs to the Demised Premises necessitated or occasioned by fire or other
casualty that is an insured risk under such policies, and (ii) any right of
recovery against Tenant, any other permitted occupant of the Demised
Premises, and any of their servants, employees, agents or contractors, for
any loss occasioned by fire or other casualty which is an insured risk under
such policies. In the event that at any time Owner's fire insurance carriers
shall not include such or similar provisions in Owner's fire insurance
policies, the waivers set forth in the foregoing sentence shall, upon notice
given by Owner to Tenant, be deemed of no further force or effect.
SECTION 89.03. TENANT NEGLIGENCE: Except to the extent expressly provided
in Section 9.02, nothing contained in this Lease shall relieve tenant of any
liability to Owner or to its insurance carriers which Tenant may have under
law or the provisions of this Lease in connection with any damage to the
Demised Premises or the Building caused by fire or other casualty.
Notwithstanding the provisions of Section 9.01, if any such damage, occurring
after any date when the waivers set forth in Section 9.02 are no longer in
force and effect, is due to the fault or neglect to Tenant, any person
claiming through or under Tenant, or nay of their servants, employees,
agents, contractors, visitors or licensees, then there shall be no abatement
of Fixed Rent by reason of such damage.
SECTION 9.04. TENANT SUBROGATION WAIVER PROVISIONS: Tenant acknowledges
that it has been advised that Owner's insurance policies do not cover
tenant's Personal Property or any other property of Tenant in the Demised
Premises; accordingly, it shall be Tenant's obligation to obtain and maintain
insurance covering its property in the Demised Premises and loss of profits
including, but not limited to, water damage coverage and business
interruption insurance. Tenant shall attempt to obtain and maintain,
throughout the Demised Term, in Tenant's fire and other insurance policies
covering Tenant's Personal Property and other property of Tenant in the
Demised Premises, and Tenant's use and occupancy of the Demised Premises,
and/or Tenant's profits (and shall cause any other permitted occupants of the
Demised Premises to attempt to obtain and maintain, in similar policies),
provisions to the effect that such policies shall not be invalidated should
the insured waive, in writing, prior to a loss, any or all right of recovery
against any party for loss occasioned by fire or other casualty which is an
insured risk under such policies. In the event that at any time the fire
insurance carriers issuing such policies shall exact
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an additional premium for the inclusion of such or similar provisions. Tenant
shall give Owner notice thereof in such event, if Owner agrees, in writing,
to reimburse Tenant or any person claiming through or under Tenant as the
case may be, for such additional premium for the remainder of the Demised
Term. Tenant shall require the inclusion of such or similar provisions by
such insurance carriers. As long as such or similar provisions are included
in such insurance policies then in force. Tenant hereby waives (and agrees to
cause any other permitted occupants of the Demised Premises to execute and
deliver to Owner written instruments waiving) any right of recovery against
Owner, any lessors under any Superior Leases, the holders of any Mortgage,
and all other tenants or occupants of the Building, and any servants,
employees, agents or contractors of Owner, or of any such lessor, or holder
or any such other tenants or occupants, for any loss occasioned by fire or
other casualty which is an insured risk under such policies. In the event
that at any time such insurance carriers shall not include such or similar
provisions in any such insurance policy, the waiver set forth in the
foregoing sentence (or in any written instrument executed by any other
permitted occupant of the Demised Premises) shall, upon notice given by
Tenant to Owner, be deemed of no further force or effect with respect to any
insured risks under such policy from and after the giving of such notice.
During any period while any such waiver or right of recovery is in effect,
Tenant, or any other permitted occupant of the Demised Premises, as the case
may be, shall look solely to the proceeds of such policies to compensate
Tenant or such other permitted occupant for any loss occasioned by fire or
other casualty which is an insured risk under such policies.
ARTICLE 10
EMINENT DOMAIN
SECTION 10.01. TAKING OF THE DEMISED PREMISES: If the whole of the Demised
Premises shall be acquired for any public or quasi-public use or purpose,
whether by condemnation or by deed in lieu of condemnation, this Lease and
the Demised Term shall end as of the date of the vesting of title with the
same effect as if said date were the Expiration Date. If only a part of the
Demised Premises shall be so acquired or condemned then, except as otherwise
provided in this Section, this Lease and the Demised Term shall continue in
force and effect but, from and after the date of the vesting of title, the
Fixed Rent shall be reduced in the proportion which the area of the part of
the Demised Premises so acquired or condemned bears to the total area of the
Demised Premises immediately prior to such acquisition or condemnation. If
only a part of the Real Property shall be so acquired or condemned, then (i)
whether or not the Demised Premises shall be affected thereby, Owner, at
Owner's option may give to Tenant, within sixty (60) days next following the
date upon which Owner shall have received notice of vesting of title, a five
(5) days' notice of termination of this Lease, and (ii) if the part of the
Real Property so acquired or condemned shall contain more than ten (10%)
percent of the total area of the Demised Premises immediately prior to such
acquisition or condemnation, or if, by reason of such acquisition or
condemnation. Tenant no longer has reasonable means of access to the Demised
Premises. Tenant, at Tenant's option, may give to Owner, within sixty (60)
days next following the date upon which Tenant shall have received notice of
vesting of title, a five (5) days' notice of termination of this Lease. In
the event any such five (5) days' notice of termination is given, by Owner or
Tenant, this Lease and the Demised Term shall come to an end and expire upon
the expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date. If a part of the
Demised Premises shall be so acquired or condemned and this Lease and the
Demised Term shall not be terminated pursuant to the foregoing provisions of
this Section, Owner, at Owner's expense, shall restore that part of the
Demised Premises not so acquired or condemned to a self-contained rental
unit. In the event of any termination of this Lease and the Demised Term
pursuant to the provisions of this Section, the Fixed Rent shall be
apportioned as of the date of such termination and any prepaid portion of
Fixed Rent for any period after such date shall be refunded by Owner to
Tenant.
SECTION 10.02. CONDEMNATION AWARD OR CLAIMS: In the event of any such
acquisition or condemnation of all or any part of the Real Property, Owner
shall be entitled to receive the entire award for any such acquisition or
condemnation. Tenant shall have no claim against Owner or the condemning
authority for the
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value of any unexpired portion of the Demised Term and Tenant hereby
expressly assigns to Owner all of its right in and to any such award. Nothing
contained in this Section shall be deemed to prevent Tenant from making a
claim in any condemnation proceedings for the value of any items of Tenant's
Personal Property which are compensable, in law, as trade fixtures.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
SECTION 11.01. GENERAL COVENANT: Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors
and assigns, covenants that, without the prior consent of Owner in each
instance, it shall not (i) assign whether by merger, consolidation or
otherwise, mortgage or encumber its interest in this Lease, in whole or in
part, or (ii) sublet, or permit the subletting of, the Demised Premises or
any part thereof, or (iii) permit the Demised Premises or any part thereof to
be occupied, or used for desk space, mailing privileges or otherwise, by any
person other than Tenant. The sale, pledge, transfer or other alienation of
(a) any of the issued and outstanding capital stock of any corporate Tenant
(unless such stock is publicly traded on a recognized security exchange or
over-the counter market or (b) any interest in any partnership or joint
venture Tenant, however accomplished, and whether in a single transaction or
in a series of related and/or unrelated transactions, shall be deemed for the
purposes of this Section as an assignment of this Lease which shall require
the prior consent of Owner in each instance.
SECTION 11.02. OWNER'S RIGHTS UPON ASSIGNMENT: If Tenant's interest in
this Lease is assigned, whether or not in violation of the provisions of this
Article, Owner may collect rent from the assignee, if the Demised Premises or
any part thereof are sublet to, or occupied by, or used by, any person other
than Tenant, whether or not in violation of this Article, Owner, after
default by Tenant under this Lease, may collect rent from the subtenant, user
or occupant. In either case, Owner shall apply the net amount collected to
the rents reserved in this Lease, but neither any such assignment,
subletting, occupancy, or use, whether with or without Owner's prior consent,
nor any such collection or application, shall be deemed a waiver of any term,
covenant or condition of this Lease or the acceptance by Owner of such
assignee, subtenant, occupant or user as tenant. The consent by Owner to any
assignment, subletting, occupancy or use shall not relieve Tenant from its
obligation to obtain the express prior consent of Owner to any further
assignment, subletting, occupancy or use. If this Lease is assigned to any
person or entity pursuant to any proceeding of the type referred to in
Subsections 16.01(c) and 16.01(d), any and all monies or other consideration
payable or otherwise to be delivered in connection with such assignment shall
be paid or delivered to Owner, shall be and remain the exclusive property of
Owner and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of any proceeding of the type referred to in Subsections
16.01(c) and 16.01(d). Any and all monies or other considerations
constituting Owner's property under the preceding sentence not paid or
delivered to Owner shall be held in trust for the benefit of Owner and shall
be promptly paid to or turned over to Owner. Any person or entity to which
this Lease is assigned pursuant to any proceeding of the type referred to in
Subsections 16.01(c) and 16.01(d) shall be deemed without further act or deed
to have assumed all of the obligations arising under this Lease on and after
the date of such assignment. Any such assignee shall execute and deliver to
Owner upon demand an instrument confirming such assumptions. The listing of
any name other than that of Tenant on any door of the Demised Premises or on
any directory or in any elevator in the Building, or otherwise, shall not
operate to vest in the person so named any right or interest in this Lease or
in the Demised Premises, or the Building, or be deemed to constitute, or
serve as a substitute for, any prior consent of Owner required under this
Article, and it is understood that any such listing shall constitute a
privilege extended by Owner which shall be revocable at Owner's will by
notice to Tenant. Tenant agrees to pay to Owner reasonable counsel fees
incurred by Owner in connection with any proposed assignment of Tenant's
interest in this Lease or any proposed subletting of the Demised Premises or
any part thereof. Neither any assignment of Tenant's
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interest in this Lease nor any subletting, occupancy or use of the Demised
Premises or any part thereof in any person other than Tenant, nor any
collection of rent by Owner from any person other than Tenant as provided in
this Section, nor any application of any such rent as provided in this
Section shall, in any circumstances, relieve Tenant of its obligation fully
to observe and perform the terms, covenants and conditions of this Lease on
Tenant's part to be observed or performed.
SECTION 11.03. SUBLET RIGHTS: A. (1) As long as Tenant is not in default
under any of the terms, covenants or conditions of this Lease on tenant's
part to be observed or performed. Owner agrees not to unreasonably withhold
Owner's prior consent to sublettings by Tenant of all or parts of the Demised
Premises to not more than two (2) subtenants. Each such subletting shall be
for undivided occupancy by the subtenant of that part of the Demised Premises
affected thereby, for the use expressly permitted in this Lease, and at no
time shall there be more than two (2) occupants, including Tenant, in the
Demised Premises.
(2) Without Owner's prior consent. Tenant shall not (a) negotiate or
enter into a proposed subletting with any tenant, subtenant or occupant of
any space in the Building or (b) list or otherwise publicly advertise the
Demised Premises or any part thereof for subletting at a rental lower than
the higher of (i) the Fixed Rent then in effect under this Lease,
allocable to the space sought to be sublet or (ii) the rental at which the
Owner is then offering to rent comparable space in the Building.
(3) At least sixty (60) days prior to any proposed subletting Tenant
shall submit to Owner a statement (the "Proposed Sublet Statement")
containing the name and address of the proposed subtenant, the nature of
the proposed subtenant's business and its current financial status, if
such status is obtained or obtainable by Tenant, and all of the principal
terms and conditions of the proposed subletting including, but not limited
to, the proposed commencement and expiration dates of the term thereof.
Unless the prosed sublet area shall constitute only an entire floor (or
floors), the Proposed Sublet Statement shall be accompanied by a floor
plan delineating the proposed sublet area.
(4) Owner may arbitrarily withhold consent to a proposed subletting if,
(a) in Owner's reasonable judgment, the occupancy of the proposed
subtenant will tend to impair the character or dignity of the Building or
impose any additional burden upon Owner in the operation of the Building,
or (b) the proposed subtenant shall be a person or entity with whom Owner
is then negotiating or discussing to lease space in the Building.
(5) In the event of any dispute between Owner and Tenant as to the
reasonableness of Owner's failure or refusal to consent to any subletting,
such dispute shall be submitted to arbitration in accordance with the
provisions of Article 36.
(6) Any Sublease consented to by Owner must conform to the information
contained in this Proposed Sublet Statement and shall expressly provide
that (a) the subtenant shall obtain provisions in its insurance policies
to the effect that such policies shall not be invalidated should the
insured waive, in writing, prior to a loss, any or all right of recovery
against any party for loss occasioned by fire or other casualty which is
an insured risk under such policies, as set forth in Section 9.04, and (b)
in the event of the termination, re-entry or dispossess of Tenant by Owner
under this Lease. Owner may, at its option, take over all of the right,
title and interest of Tenant, as sublessor under the sublease, and such
subtenant shall, at Owner's option, attorn to Owner pursuant to the then
executory provisions of such sublease, except that Owner shall not (i) be
liable for any act or omission of Tenant under such sublease prior to such
attornment by subtenant, (ii) be subject to any offset which accrued to
such subtenant against Tenant, (iii) be bound by any previous modification
of such sublease or by any previous prepayment of more than one month's
rent unless such modification or prepayment was previously approved by
Owner, (iv) be bound by any covenant to undertake or complete any
construction of the premises, or any portion thereof, demised by such
sublease and (v) be bound by any obligation to make any payment to or on
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behalf of the subtenant, except for services, repairs, maintenance and
restoration provided for under the sublease to be performed after the date
of such termination, re-entry or dispossess by Owner under this Lease and
to which Owner is expressly required to perform under this Lease with
respect to the subleased space at Owner's expense it being expressly
understood, however, that Owner shall not be bound by any obligation to
make payment to or on behalf of a subtenant with respect to construction
performed by or on behalf of such subtenant in the subleased premises.
Tenant shall reimburse Owner on demand for any costs or expense that may
be incurred by Owner's review of any Proposed Sublet Statement or in
connection with any sublease consented to by Owner, including without
limitation, any reasonable processing fee, reasonable attorneys' fees and
disbursements and the reasonable costs of making investigations as to the
acceptability of the proposed subtenant.
B. Notwithstanding the foregoing provisions of this Section 11.03, Owner
shall have the following rights with respect to each proposed subletting
by Tenant:
(1) In the event Tenant proposes to sublet all or substantially all of
the Demised Premises, Owner, at Owner's option, may give to Tenant, within
sixty (60) days after the submission by Tenant to Owner of the Proposed
Sublet Statement, a notice terminating this Lease on the date (referred to
as the "Earlier Termination Date") immediately prior to the proposed
commencement date of the term of the proposed subletting, as set forth in
such statement, and, in the event such notice is given, this Lease and the
Demised Term shall come to an end and expire on the Earlier Termination
Date with the same effect as if it were the Expiration Date, the Fixed
Rent shall be apportioned as of said Earlier Termination Date and any
prepaid portion of Fixed Rent for any period after such date shall be
refunded by Owner to Tenant; or
(2) In the event Tenant proposes to sublet all or any portion of the
Demised Premises, Owner, at Owner's option, may give to Tenant, within
sixty (60) days after the submission by Tenant to Owner, of the Proposed
Sublet Statement, a notice electing to eliminate such portion of the
Demised Premises (said portion is referred to as the "Eliminated Space")
from the Demised Premises during the period (referred to as the
"Elimination Period") commencing on the date (referred to as "Elimination
Date") immediately prior to the proposed commencement date of the term of
the proposed subletting, as set forth in the Proposed Sublet Statement,
and ending on the proposed expiration date of the term of the proposed
subletting, as set forth in the Proposed Sublet Statement, and in the
event such notice is given the following shall apply:
(A) The Eliminated Space shall be eliminated from the Demised
Premises during the Elimination Period;
(B) Tenant shall surrender the Eliminated Space to Owner on or prior
to the Elimination Date in the same manner as if said Date were the
Expiration Date;
(C) If the eliminated Space shall constitute less than an entire
floor, (i) Owner, at Owner's expense, shall have the right to make any
alterations and installations in the Demised Premises required, in
Owner's judgment, reasonably exercised, to make the Eliminated Space a
self-contained rental unit with access through corridors to the
elevators and core toilets serving the Eliminated Space, and if the
Demised Premises shall contain any core toilets (for the purposes of
this Article core toilets shall be deemed to include any unisex
toilets) or any corridors (including any corridors proposed to be
constructed by Owner pursuant to this subdivision (c), providing
access from the Eliminated Space to the core area), (ii) Owner and any
tenant or other occupant of the Eliminated Space shall have the right
to use such toilets and corridors in common with Tenant and any other
permitted occupants of the Demised Premises, and the right to install
signs and directional indicators in or about such corridors indicating
the name and locations of such tenant or other occupant;
(D) During the Elimination Period, the Fixed Rent, the Demised
Premises Area (as
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defined in Article 23) and the Electrical Inclusion Factor (as defined
in Section 29.05 as the Electrical Inclusion Factor may have been
adjusted previously pursuant to the provisions of said Section, shall
each be reduced in the proportion which the area of the Eliminated
Space bears to the total area of the Demised Premises immediately
prior to the Elimination Date (including an equitable portion of the
area of any corridors referred to in subdivision (c) of this
Subsection 11.03B(2) as part of the area of the Eliminated Space for
the purpose of computing such reduction), and in the event that the
Eliminated Space shall be the entire Demised Premises, during the
Elimination Period. Tenant shall have no rights with respect to the
Demised Premises nor any obligations with respect to the Demised
Premises, including, but not limited to any obligations to pay Fixed
Rent or any increases therein or any additional rent, and any prepaid
portion of Fixed Rent for any period after the Elimination Date
allocable to the Elimination Space shall be refunded by Owner to
Tenant:
(E) There shall be an equitable apportionment of any increase in the
Fixed Rent pursuant to Article 23 for the Escalation Year and Tax
Escalation Year (as defined in Article 23) in which said Elimination
Date shall occur;
(F) If the Elimination Period shall end prior to the Expiration Date,
the Eliminated Space, in its then existing condition, shall be deemed
restored to and once again a part of the Demised Premises during the
period (referred to as the "Restoration Period") commencing on the
date next following the expiration of the Elimination Period and
ending on the Expiration Date;
(G) During the restoration Period, if any, the Fixed Rent, the
Demised Premises Area and the Electrical Inclusion Factor, as the
Electrical Inclusion Factor may have been adjusted previously pursuant
to the provisions of Section 29.05, shall each be increased in the
proportion which the area of the Eliminated Space bears to the total
area of the Demised Premises immediately prior to the commencement of
the Restoration Period (including an equitable portion of the area of
any corridors referred to in subdivision (c) of this Subsection
11.03.B.(2) as a part of the area of the Eliminated Space for the
purpose of computing such increase) and in the event that the
Eliminated Space shall be the entire Demised Premises, during the
Restoration Period, the Demised Premises, in its then existing
condition, shall be deemed restored to Tenant and Tenant shall have
all rights with respect to the Demised Premises which are set forth in
this Lease and all obligations with respect to the Demised Premises
which are set forth in this Lease, including, but not limited to, the
obligations for the payment of Fixed Rent and any increases therein
(as it would have been adjusted if Tenant occupied the Demised
Premises during the Elimination Period) and any additional rent; and
(H) There shall be an equitable apportionment of any increase in the
Fixed Rent pursuant to Article 23 for the Escalation Year and Tax
Escalation Year in which the Restoration Period, if any, shall
commence.
However, notwithstanding the foregoing, Owner and Tenant acknowledge
the possibility that all or any of the tenants or occupants of the
Eliminated Space may not have vacated and surrendered all or any
portion, of the Eliminated Space to Owner by the commencement of the
Restoration Period; accordingly, notwithstanding anything to the
contrary contained in the foregoing provisions of this Subsection B.
the following shall apply:
(X) the Restoration Period applicable to the Eliminated Space shall
commence on the commencement date of the Restoration Period with
respect to those portions, if any, of the Eliminated Space which are
vacant on the commencement of the Restoration Period and with respect
to those portions, if any, of the Eliminated Space which are not
vacant on the
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commencement of the restoration Period on the respective later date or
dates upon which such portions of the Eliminated Space become vacant
and Owner give notice to Tenant of such vacancy but the Expiration
Date shall not be affected thereby, the increases in the Fixed Rent,
the Demised Premises Area and the Electrical Inclusion Factor, as the
Electrical Inclusion Factor may have been adjusted pursuant to the
provisions of Section 29.05, shall be equitably adjusted to reflect
the fact that all or any portions of the Eliminated Space have not
been restored to Tenant on the commencement of the Restoration Period
but are restored to Tenant and included back in the Demised Premises
on a date or dates after the commencement of the Restoration Period;
(y) except as expressly set forth in this Subsection 11.03.B to the
contrary, neither the validity of this Lease nor the obligations of
tenant under this Lease shall be affected thereby; and
(z) Tenant waives any rights to rescind this Lease and to recover any
damages which may result from the failure of Owner to deliver
possession of all or any portions of the Eliminated Space on the
commencement of the restoration Period; Owner agrees to institute
within thirty (30) days after the commencement of the Restoration
Period, possession proceedings against any tenants and occupants who
have not so vacated and surrendered all or any portion of the
Eliminated Space, and agrees to prosecute such proceedings with
reasonable diligence.
At the request of Owner, Tenant shall execute and deliver an instrument or
instruments, in form satisfactory to Owner, setting forth any modifications
to this Lease contemplated in or resulting from the operation of the
foregoing provisions of this Subsection 11.03; however, neither Owner's
failure to request any such instrument nor Tenant's failure to execute or
deliver any such instrument shall vitiate the effect of the foregoing
provisions of this Section. The failure by Owner to exercise any option under
this Section 11.03 with respect to any subletting shall not be deemed a
waiver of such option with respect to any extension of such subletting or any
subsequent subletting of the premises affected thereby or any other portion
of the Demised Premises. Tenant agrees to indemnify Owner from all loss,
cost, liability, damage and expense, including, but not limited to,
reasonable counsel fees and disbursements, arising from any claims against
Owner by any broker or other person, for a brokerage commission or other
similar compensation in connection with any such proposed subletting, in the
event (a) Owner shall (i) fail or refuse to consent to any proposed
subletting, or (ii) exercise any of its options under this Section 11.03. or
(b) any proposed subletting shall fail to be consummated for any reason
whatsoever.
C. Tenant agrees that (1) any increase in the rental value of the Demised
Premises over and above the Fixed Rent payable pursuant to the provisions of
this Lease, as such Fixed Rent may be increased from time to time pursuant to
the provisions of this Lease, and (2) any consideration paid to Tenant or any
subtenant or other person claiming through or under Tenant in connection with
an assignment of Tenant's interest in this Lease or the interest of any
subtenant or other person claiming through or under Tenant under any sublease
whether or not such assignment shall be effected with court approval in a
proceeding of the types described in Subsection 16.01(c) or (d), or in any
similar proceeding, or otherwise, shall accrue to the benefit of Owner and
not to the benefit of Tenant, or of any subtenant or other person claiming
through or under Tenant, or of the creditors of Tenant or of any such
subtenant or other person claiming through or under Tenant. Accordingly,
Tenant agrees that if Owner shall fail to exercise its option to sooner
terminate this Lease in connection with any proposed subletting by Tenant of
all or substantially all of the Demised Premises, or its option to eliminate
the Demised Premises or to eliminate from the Demised Premises any portion
thereof, in connection with any proposed subletting by Tenant of the entire
Demised Premises or any portion thereof, or if any subtenant or other person
claiming through or under Tenant shall sublet all or any portion of the
Demised Premises, Tenant shall pay to Owner a sum equal to any Subletting
Profit, as such term is hereinafter defined. All rentals and other sums
(including, but not limited to, sums payable for the sale or rental of any
fixtures, leasehold improvements, equipment, furniture or other personal
property, less, in the case of the sale thereof, the then net unamortized [on
a straight-line basis over the term of this Lease or, in the event of a
further subletting, over the term of the initial
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sublease, as the case may be] cost thereof, which were provided and installed
in the sublet premises at the sole cost and expense of Tenant or such
subtenant or other person claiming through or under Tenant and for which no
allowance or other credit has been given by Owner payable by any subtenant to
Tenant or to any subtenant or other person claiming through or under Tenant
in connection with (i) any subletting of the entire Demised Premises in
excess of the Fixed Rent then payable by Tenant to Owner under this Lease, or
(ii) any subletting of a portion of the Demised Premises in excess of that
proportion of the Fixed Rent applicable to the floor on which the portion of
the Demised Premises so sublet is located payable by Tenant to Owner under
this Lease which the area of the portion of the Demised Premises so sublet
bears to the total area of the Demised Premises on said floor on which the
portion of the Demised Premises so sublet is located, are referred to, in the
aggregate, as "Subletting Profit", in computing any Subletting Profit it
shall be deemed that the rental reserved under any such subletting shall
commence to accrue as of the commencement of the term of such subletting even
if such rental actually commences to accrue as of a date subsequent to such
commencement, and there shall be deducted a reasonable single brokerage
commission, if any such commission shall be incurred by Tenant or any such
subtenant or other person claiming through or under Tenant in connection with
such subletting which deduction for such reasonable single brokerage
commission shall be amortized on a straight-line basis over the entire term
of such subletting. Tenant agrees that if Tenant, or any subtenant or other
person claiming through or under Tenant, shall assign or have assigned its
interest as Tenant under this Lease or its interest as subtenant under any
sublease, as the case may be, whether or not such assignment shall be
effected with court approval in a proceeding of the types described in
Subsections 16.01(c) or (d), or in any similar proceeding, or otherwise.
Tenant shall pay to Owner a sum equal to any consideration payable to Tenant
or any subtenant or other person claiming through or under Tenant for such
assignment. All sums payable hereunder to Tenant shall be paid to Owner as
additional rent immediately upon such sums becoming payable to Tenant or to
any subtenant or other person claiming through or under Tenant and, if
requested by Owner, Tenant shall promptly enter into a written agreement with
Owner setting forth the amount of such sums to be paid to Owner, however,
neither Owner's failure to request the execution of such agreement nor
Tenant's failure to execute such agreement shall vitiate the provisions of
this Section. For the purposes of this Article, a trustee, receiver or other
representative of the Tenant's or any subtenant's estate under any federal or
state bankruptcy act shall be deemed a person claiming through or under
Tenant.
D. Neither Owner's consent to any subletting nor anything contained in
this Section shall be deemed to grant to any subtenant or other person
claiming through or under Tenant the right to sublet all or any portion of
the Demised Premises or to permit the occupancy of all or any portion of the
Demised Premises by others. Neither any subtenant referred to in this Section
nor its heirs, distributees, executors, administrators, legal
representatives, successors nor assigns, without the prior consent of Owner
in each instance, shall (i) assign, whether by merger, consolidation or
otherwise, mortgage or encumber its interest in any sublease, in whole or in
part, or (ii) sublet, or permit the subletting of , that part of the Demised
Premises affected by such subletting or any portion thereof, or (iii) permit
such part of the Demised Premises affected by such subletting or any portion
thereof to be occupied or used for desk space, mailing privileges or
otherwise, by any person other than such subtenant and any sublease shall
provide that any violation of the foregoing provisions of this sentence shall
be an event of default thereunder. The sale, pledge, transfer or other
alienation of (a) any of the issued and outstanding capital stock of any
corporate subtenant (unless such stock is publicly traded on any recognized
security exchange or over-the-counter market) or (b) any interest in any
partnership or joint venture subtenant, however accomplished, and whether in
a single transaction or in a series of related or unrelated transactions,
shall be deemed for the purposes of this Section to be an assignment of such
sublease which shall require the prior consent of Owner in each instance and
any sublease shall so provide.
SECTION 11.04. OWNER'S RIGHTS UPON LEASE DISAFFIRMANCE: A. In the event
that, at any time after Tenant may have assigned Tenant's interest in this
Lease, this Lease shall be disaffirmed or rejected in any proceeding of the
types described in Subsections 16.01(c) and (d), or in any similar
proceeding, or in the event of termination of this Lease by reason of any
such proceeding or by reason of lapse of time following notice of termination
given pursuant to Section 16.01 based upon any of the Events of Default set
forth in said Subsections. Tenant, upon request of Owner given within thirty
(30) days next following any such disaffirmance, rejection or
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termination (and actual notice thereof to Owner in the event of a
disaffirmance or rejection or in the event of termination other than by act
of Owner), shall (i) pay to Owner all Fixed Rent, additional rent and other
charges due and owing by the assignee to Owner under this Lease to and
including the date of such disaffirmance, rejection or termination, and (ii)
as "tenant", enter into a new lease with Owner of the Demised Premises for a
term commencing on the effective date of such disaffirmance, rejection or
termination and ending on the Expiration Date unless sooner terminated as in
such lease provided, at the same Fixed Rent and then executory terms,
covenants and conditions as are contained in this Lease, except that (a)
Tenant's rights under the new lease shall be subject to the possessory rights
of the assignee under this Lease and the possessory rights of any person
claiming through or under such assignee or by virtue of any statute or of any
order of any court, and (b) such new lease shall require all defaults
existing under this Lease to be cured by Tenant with due diligence, and (c)
such new lease shall require Tenant to pay all increases in the Fixed Rent
reserved in this Lease which, had this Lease not been so disaffirmed,
rejected or terminated, would have accrued under the provisions of Article 23
of this Lease after the date of such disaffirmance, rejection or termination
with respect to any period prior thereto. In the event Tenant shall default
in its obligation to enter into said new lease for a period of ten (10) days
next following Owner's request therefor, then, in addition to all other
rights and remedies by reason of such default, either at law or in equity.
Owner shall have the same rights and remedies against Tenant as if Tenant had
entered into such new lease and such new lease had thereafter been terminated
as at the commencement date thereof by reason of Tenant's default thereunder.
Nothing contained in this Section shall be deemed to grant to Tenant any
right to assign Tenant's interest in this Lease.
B. If Tenant assumes this Lease in any proceeding of the types described
in Subsections 16.01(c) and (d), or in any similar proceeding and proposes to
assign the same pursuant to said proceeding to any person or entity who shall
have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to the Tenant, then notice of such proposed assignment shall be
given to Owner by Tenant no later than twenty (20) days after receipt by
Tenant of such offer, but in any event no later than ten (10) days prior to
the date that Tenant shall make application to a court of competent
jurisdiction for authority and approval to enter into such assignment and
assumption. Such notice shall set forth (a) the name and address of such
person, (b) all of the terms and conditions of such offer, and (c) adequate
assurance of future performance by such person under the Lease, including,
without limitation, the assurance referred to in Section 365(b)(3) of the
United States Bankruptcy Code or any provisions in substitution thereof.
Owner shall have the prior right and option, to be exercised by notice to
Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer
made by such person, less any brokerage commissions which would otherwise by
payable by Tenant out of the consideration to be paid by such person in
connection with the assignment of this Lease.
C. The term "adequate assurance of future performance" as used in this
Lease shall mean that any proposed assignee shall, among other things, (a)
deposit with Owner on the assumption of this Lease the sum of nine (9) months
of the then Fixed Rent and increases therein pursuant to Article 23 as
security for the faithful performance and observance by such assignee of the
terms and obligations of this Lease, (b) furnish Owner with financial
statements of such assignee for the prior three (3) fiscal years, as finally
determined after an audit and certified as correct by a certified public
accountant, which financial statements shall show a net worth of at least six
(6) times the Fixed Rent and increases therein pursuant to Article 23 then
payable for each of such three (3) years, (c) grant to Owner a security
interest in such property of the proposed assigned as Owner shall deem
necessary to provide adequate assurance of the performance by such assignee
of its obligations under the Lease.
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ARTICLE 12
EXISTING CONDITIONS OWNER'S INITIAL WORK
SECTION 12.01. "AS IS" BUT FOR OWNER'S INITIAL WORK: Tenant acknowledges
that Owner has made no representations to Tenant with respect to the
condition of the Demised Premises and Tenant agrees to accept possession of
the Demised Premises in the condition which shall exist on the Commencement
Date "as is" and further agrees that Owner shall have no obligation to
perform any work or make any installation in order to prepare the Demised
Premises for Tenant's occupancy except as otherwise provided in Section 12.02
to the contrary.
SECTION 12.02. OWNER'S INITIAL WORK:
A. On or about the Commencement Date. Owner shall cause the following
work to be done in the Demised Premises (referred to herein as "Owner's
Initial Work"):
(1) paint the painted surfaces in the entire Demised Premises with a
single coat of paint, in flat finish, in colors selected by Tenant
from Building standard colors (but not more than one (1) color in any
room or area);
(2) polish existing marble floors in the Demised Premises; and
(3) shampoo existing carpeting in the Demised Premises.
B. Owner's Initial Work required to be performed and made by Owner
pursuant to the provisions of this Section 12.02 shall be equal to
standards adopted by Owner for the Building and shall constitute a single,
non-recurring obligation on the pat of Owner and shall be completed on or
about the Commencement Date. In the event this Lease is renewed or
extended for a further term by agreement or operation of law, Owner's
obligation to perform such work shall not apply to such renewal or
extension.
C. Owner may enter the Demised Premises to perform the foregoing work and
installation, any entry by Owner, its agents, servants, employees or
contractors for such purpose shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent, or relieve Tenant form any of its
obligations under this Lease, or impose any liability upon Owner, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to,
or interruption of Tenant's business or otherwise. Owner agrees, however,
to perform said work with reasonable diligence without any obligation,
however, to employ contractors or labor at overtime or other premium pay
rates.
ARTICLE 13
ACCESS TO DEMISED PREMISES
SECTION 13.01. OWNER'S RIGHT TO ENTER: Owner and its agents shall have the
following rights in and about the Demised Premises: (i) to enter the Demised
Premises at all times to examine the Demised Premises or for any of the
purposes set forth in this Article or for the purpose of performing any
obligation of Owner under this Lease or exercising any right or remedy
reserved to Owner on this Lease, or complying with any Legal Requirement
which Owner is obligated to comply with hereunder, and if Tenant, its
officers, partners, agents or employees shall not be personally present or
shall not open and permit an entry into the Demised Premises at any time when
such entry shall be necessary or permissible, to use a master key or to
forcibly enter the Demised Premises; (ii) to erect, install, use and maintain
pipes, ducts and conduits in and through the Demised Premises;
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(iii) to exhibit the Demised Premises to others, due to make such
decorations, repairs, alterations, improvements or additions, or to perform
such maintenance, including, but not limited to the maintenance of all
heating, air conditioning, ventilating, elevator, plumbing, electrical,
telecommunication and other mechanical facilities, as Owner may deem
necessary or desirable; (v) to take all materials into and upon the Demised
Premises that may be required in connection with any such decorations,
repairs, alterations, improvements, additions or maintenance, and (vi) to
alter, renovate and decorate the Demised Premises at any time during the
Demised Term if Tenant shall have removed all or substantially all of
Tenant's property from the Demised Premises. The lessors under any Superior
Lease and the holders of any Mortgage shall have the right to enter the
Demised Premises from time to time through their respective employees,
agents, representative and architects to inspect the same or to cure any
default of Owner or Tenant relating thereto. Owner shall have the right, from
time to time, to change the name, number or designation by which the Building
is commonly known which right shall include, without limitation, the right to
name the Building after any tenant of the Building.
SECTION 13.02. OWNER'S RESERVATION OF RIGHTS TO PORTIONS OF THE BUILDING:
All parts (except surfaces facing the interior of the Demised Premises) of
all walls, windows and doors bounding the Demised Premises (including
exterior Building walls, core corridor walls, doors and entrances), all
balconies, terraces and roofs adjacent to the Demised Premises, all space in
or adjacent to the Demised Premises used for shafts, stacks, stairways,
chutes, pipes, conduits, ducts, fan rooms, heating, air conditions,
ventilating, plumbing, electrical, telecommunication and other mechanical
facilities, closets, service closets and other Building facilities, and the
use thereof, as well as access thereto through the Demised Premises for the
purposes of operation, maintenance, alteration and repair, are hereby
reserved to Owner. Owner also reserves the right at any time to change the
arrangement or location of entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets and other public parts of the Building,
provided any such change does not permanently and unreasonable obstruct
Tenant's access to the Demised Premises. Nothing contained in this Article
shall impose any obligation upon Owner with respect to the operation,
maintenance, alteration or repair of the Demised Premises or the Building.
SECTION 13.03. ACCESS TO THIRD PARTIES: Owner and its agents shall have
the right to permit access to the Demised Premises, whether or not Tenant
shall be present, to any receiver, trustee, assignee for the benefit of
creditors, sheriff, marshal or court officer entitled, to, or reasonably
purporting to be entitled to, such access for the purpose of taking
possession of, or removing, any property of Tenant or any other occupant of
the Demised Premises, or for any other lawful purpose, or by any
representative of the fire, police, building, sanitation or other department
of the City, State or Federal Government. Neither anything contained in this
Section, nor any action taken by Owner under this Section, shall be deemed to
constitute recognition by Owner that any person other than Tenant has any
right or interest in this Lease or the Demised Premises.
SECTION 13.04. NO ACTUAL OR CONSTRUCTIVE EVICTION: The exercise by Owner
or its agents or by the lessor under any Superior Lease or by the holder of
any Mortgage of any right reserved to Owner in this Article shall not
constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner,
or its agents, or upon any lessor under any Superior Lease or upon the holder
of any Mortgage, by reason of inconvenience or annoyance to Tenant, or injury
to or interruption of Tenant's business, or otherwise.
ARTICLE 14
VAULT SPACE
SECTION 14.02. The Demised Premises do not contain any vaults, vault space
or other space outside the boundaries of the Real Property, notwithstanding
anything contained in this Lease or indicated on any sketch, blueprint or
plan. Owner makes no representation as to the location of the boundaries of
the Real Property All vaults and vault space and all other space outside the
boundaries of the Real Property which Tenant may be
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permitted to use or occupy are to be used or occupied under a revocable
license, and if any such license shall be revoked, or if the amount of such
space shall be diminished or required by any Federal, State or Municipal
Authority or by any public utility company, such revocation, diminution or
requisition shall not constitute an actual or constructive eviction, in whole
or in part, or entitle Tenant to any abatement or diminution of rent, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Owner. Any fee, tax or charge imposed by any governmental
authority for any such vault, vault space or other space shall be paid by
Tenant.
ARTICLE 15
CERTIFICATE OF OCCUPANCY
SECTION 15.01. Tenant will not at any time use or occupy, or permit the
use or occupancy of, the Demised Premises in violation of any Certificate(s)
of Occupancy covering the Demised Premises. Owner agrees that a temporary or
permanent Certificate(s) of Occupancy covering the Demised Premises will be
in force on the Commencement Date permitting the Demised Premises to be used
as "offices". However, neither such agreement, nor any other provision of
this Lease, nor any act or omission of Owner, its agents or contractors,
shall be deemed to constitute a representation or warranty that the Demised
Premises, or any part thereof, may be lawfully used or occupied for any
particular purpose or in any particular manner, in contradistinction to mere
"office" use.
ARTICLE 16
DEFAULT
SECTION 16.01. EVENTS OF DEFAULT: Upon the occurrence, at any time prior
to or during the Demised Term, of any one or more of the following events
(referred to herein, singly, as an "Event of Default" and collectively as
"Events of Default"):
(a) if Tenant shall default in the payment when due of any installment of
Fixed Rent or any increase in the Fixed Rent or in the payment when due of
any additional rent; or
(b) if Tenant shall default in the observance or performance of any term,
covenant or condition of this Lease on Tenant's part to be observed or
performed (other than the covenants for the payment of Fixed Rent, any
increase in the Fixed Rent and additional rent) and Tenant shall fail to
remedy such default within ten (10) days after notice by Owner to Tenant
of such default, or if such default is of such a nature that it cannot be
completely remedied within said period of ten (10) days and Tenant shall
not commence, promptly after receipt of such notice, or shall not
thereafter diligently prosecute to completion, all steps necessary to
remedy such default; or
(c) if Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file
any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under the present or any future federal bankruptcy act or any other
present or future applicable federal, state or other statute or law, or
shall make an assignment for the benefit of creditors, or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of all or any part of Tenant's property; or
(d) if, within thirty (30) days after the commencement of any proceeding
against
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Tenant, whether by the filing of a petition or otherwise, seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal
bankruptcy act or any other present or future applicable federal, state or
other statute or law, such proceeding shall not have been dismissed, or if,
within thirty (30) days after the appointment of any trustee, receiver or
liquidator of Tenant, or of all or any part of Tenant's property, without the
consent or acquiescence of Tenant, such appointment shall not have been
vacated or otherwise discharged, or if any execution or attachment shall be
issued against Tenant or any of Tenant's property pursuant to which the
Demised Premises shall be taken or occupied or attempted to be taken or
occupied; or
(e) if Tenant shall default in the observance or performance of any term,
covenant or condition on Tenant's part to be observed or performed under
any other lease with Owner of space in the Building and such default shall
continue beyond any grace period set forth in such other lease for the
remedying of such default; or
(f) if the Demised Premises shall become vacant, deserted or abandoned;
or
(g) if (i) Tenant's interest in this Lease shall devolve upon or pass to
any person, whether by operation of law or otherwise, or (ii) there shall
be any sale, pledge, transfer or other alienation described in Section
11.01 of this Lease which is deemed an assignment of this Lease for
purposes of said Section 11.01, except as expressly permitted under
Article 11;
then, during such time as such Event(s) of Default is/are continuing, Owner
may at any time, at Owner's option, give to Tenant a five (5) days' notice of
termination of this Lease and, in the event such notice is given, this Lease
and the Demised Term shall come to an end and expire (whether or not said
term shall have commenced) upon the expiration of said five (5) days with the
same effect as if the date of expiration of said (5) days were the Expiration
Date, but Tenant shall remain liable for damages and all other sums payable
pursuant to the provisions of Article 18.
SECTION 16.02. "TENANT"/MONEYS RECEIVED: If, at any time (i) Tenant shall
be comprised of two (2) or more persons, or (ii) Tenant's obligations under
this Lease shall have been guaranteed by any person other than Tenant, or
(iii) Tenant's interest in this Lease shall have been assigned, the word
"Tenant", as used in Subsections (c) and (d) of Section 16.01, shall be
deemed to mean any one or more of the persons primarily or secondarily liable
for Tenant's obligations under this Lease. Any monies received by Owner from
or on behalf of Tenant during the pendency of any proceeding of the types
referred to in said Subsections (c) and (d) shall be deemed paid as
compensation for the use and occupation of the Demised Premises and the
acceptance of any such compensation by Owner shall not be deemed an
acceptance of rent or a waiver on the part of Owner of any rights under
Section 16.01.
ARTICLE 17
REMEDIES
SECTION 17.01. OWNER'S RIGHT OF RE-ENTRY AND RIGHT TO RELET: If Tenant
shall default in the payment when due of any installment of Fixed Rent or in
the payment when due of any increase in the Fixed Rent or any additional
rent, or if this Lease and the Demised Term shall expire and come to an end
as provided in Article 16:
(a) Owner and its agents and servants may immediately, or at any time
after such default or after the date upon which this Lease and the Demised
Term shall expire and come to
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an end, re-enter the Demised Premises or any part thereof, without notice,
either by summary proceedings or by any other applicable action or
proceeding, or by force or otherwise without being liable to indictment,
prosecution or damages therefor), and may repossess the Demised Premises
and dispossess Tenant and any other persons from the Demised Premises and
remove any and all of their property and effects from the Demised
Premises; and
(b) Owner, at Owner's option, may relet the whole or any part or parts of
the Demised Premises, from time to time, either in the name of Owner or
otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and
upon such other conditions, which may include concessions and free rent
periods, as Owner, in its sole discretion, may determine. Owner shall have
no obligation to relet the Demised Premises or any part thereof and shall
in no event be liable for refusal or failure to relet the Demised Premises
or any part thereof, or, in the event of any such reletting, for refusal
or failure to collect any rent due upon any such reletting, and no such
refusal or failure shall operate to relieve Tenant of any liability under
this Lease or otherwise to affect any such liability; Owner, at Owner's
option, may make such repairs, replacements, alterations, additions,
improvements, decorations and other physical changes in and to the Demised
Premises as Owner, in its sole discretion, considers advisable or
necessary in connection with any such reletting or proposed reletting,
without relieving Tenant of any liability under this Lease or otherwise
affecting any such liability.
SECTION 17.02. WAIVER OF RIGHT TO REDEEM, ETC.: Tenant hereby waives the
service of any notice of intention to re-enter or to institute legal
proceedings to that end which may otherwise be required to be given under any
present or future law. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does further
hereby waive any and all rights which Tenant and all such persons might
otherwise have under any present or future law to redeem the Demised
Premises, or to re-enter or repossess the Demised Premises, or to restore the
operation of this Lease, after (i) Tenant shall have been dispossessed by a
judgment or by warrant of any court or judge, or (ii) any re-entry by Owner,
or (iii) any expiration or termination of this Lease and the Demised Term,
whether such dispossess, re-entry, expiration or termination shall be by
operation of law or pursuant to the provisions of this Lease. The words
"re-enter", "re-entry" and "re-entered" as used in this Lease shall not be
deemed to be restricted to their technical legal meanings. In the event of a
breach or threatened breach by Tenant, or any persons claiming through or
under Tenant, of any term, covenant or condition of this Lease on Tenant's
part to be observed or performed, Owner shall have the right to enjoin such
breach and the right to invoke any other remedy allowed by law or in equity
as if re-entry, summary proceedings and other special remedies were not
provided in this Lease for such breach. The right to invoke the remedies
hereinbefore set forth in this Lease is cumulative and shall not preclude
Owner from invoking any other remedy allowed by law or in equity.
ARTICLE 18
DAMAGES
SECTION 18.01. AMOUNT OF OWNER'S DAMAGES: If this Lease and the Demised
Term shall expire and come to an end as provided in Article 16, or by or
under any summary proceeding or any other action or proceeding, or if Owner
shall re-enter the Demised Premises as provided in Article 17, or by or under
any summary proceeding or any other action or proceeding, then, in any of
said events:
(a) Tenant shall pay to Owner all Fixed Rent, additional rent and other
charges payable under this Lease by Tenant to Owner to the date upon which
this Lease and the Demised Term shall have expired and come to an end or
to the date of re-entry upon the Demised Premises
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by Owner, as the case may be; and
(b) Tenant shall also be liable for and shall pay to Owner, as damages,
any deficiency (referred to as a "Deficiency") between the Fixed Rent
reserved in this Lease for the period which otherwise would have
constituted the unexpired portion of the Demised Term and the net amount,
if any, of rents collected under any reletting effected pursuant to the
provisions of Section 17.01 for any part of such period (first deducting
from the rents collected under any such reletting all of Owner's expenses
in connection with the termination of this Lease or Owner's re-entry upon
the Demised Premises and with such reletting including, but not limited
to, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, alteration costs and other expenses of preparing the
Demised Premises for such reletting). Any such Deficiency shall be paid in
monthly installments by Tenant on the days specified in this Lease for
payment of installments of Fixed Rent. Owner shall be entitled to recover
from Tenant each monthly Deficiency as the same shall arise, and no suit
to collect the amount of the Deficiency for any month shall prejudice
Owner's right to collect the Deficiency for any subsequent month by a
similar proceeding. Solely for the purposes of this Subsection (b), the
term "Fixed Rent" shall mean the Fixed Rent in effect immediately prior to
the date upon which this Lease and the Demised Term shall have expired and
come to an end, or the date of re-entry upon the Demised Premises by
Owner, as the case may be, adjusted, from time to time, to reflect any
increases which would have been payable pursuant to any of the provisions
of this Lease including, but not limited to, the provisions of Article 23
of this Lease if the term hereof had not been terminated; and
(c) At any time after the Demised Term shall have expired and come to an
end or Owner shall have re-entered upon the Demised Premises, as the case
may be, whether or not Owner shall have collected any monthly Deficiencies
as aforesaid, Owner shall be entitled to recover from Tenant, and Tenant
shall pay to Owner, on demand, as and for liquidated and agreed final
damages, a sum equal to the amount by which the Fixed Rent reserved in
this Lease for the period which otherwise would have constituted the
unexpired portion of the Demised Term exceeds the then fair and reasonable
rental value of the Demised Premises for the same period, both discounted
to present worth at the rate of four (4%) percent per annum. If, before
presentation of proof of such liquidated damages to any court, commission
or tribunal, the Demised Premises, or any part thereof, shall have been
relet by Owner for the period which otherwise would have constituted the
unexpired portion of the Demised Term, or any part thereof, the amount of
rent reserved upon such reletting shall be deemed, prima facie, to be the
fair and reasonable rental value for the part or the whole of the Demised
Premises so relet during the term of the reletting. Solely for the
purposes of this Subsection (c), the term "Fixed Rent" shall mean the
Fixed Rent in effect immediately prior to the date upon which this Lease
and the Demised Term shall have expired and come to an end, or the date of
re-entry upon the Demised Premises by Owner, as the case may be, adjusted
to reflect any increases pursuant to the provisions of Article 23 for the
Escalation Year and Tax Escalation Year immediately preceding such event.
SECTION 18.02. RENTS UNDER RELETTING: If the Demised Premises, or any part
thereof, shall be relet together with other space in the Building, the rents
collected or reserved under any such reletting and the expenses of any such
reletting shall be equitably apportioned for the purposes of this Article 18.
Tenant shall in no event be entitled to any rents collected or payable under
any reletting, whether or not such rents shall exceed the Fixed Rent reserved
in this Lease. Nothing contained in Articles 16, 17 or this Article shall be
deemed to limit or preclude the recovery by Owner from Tenant of the maximum
amount allowed to be obtained as damages by any statute or rule of law, or of
any sums or damages to which Owner may be entitled in addition to the damages
set forth in Section 18.01.
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ARTICLE 19
FEES AND EXPENSES; INDEMNITY
SECTION 19.01. OWNER'S RIGHT TO CURE TENANT'S DEFAULT: If Tenant shall
default in the observance or performance of any term, covenant or condition
of this Lease on Tenant's part to be observed or performed, Owner, at any
time thereafter and without notice, may remedy such default for Tenant's
account and at Tenant's expense, without thereby waiving any other rights or
remedies of Owner with respect to such default.
SECTION 19.02. TENANT'S INDEMNITY AND LIABILITY INSURANCE
OBLIGATIONS: A. Tenant agrees to indemnify and save Owner and "Owner's
Indemnitees" (as hereinafter defined) harmless of and from all loss, cost,
liability, damage and expense including, but not limited to, reasonable
counsel fees, penalties and fines, incurred in connection with or arising
from (i) any default by Tenant in the observance or performance of any of the
terms, covenants or conditions of this Lease on Tenant's part to be observed
or performed, or (ii) the breach or failure of any representation or warranty
made by Tenant in this Lease, or (iii) the use or occupancy or manner of use
or occupancy of the Demised Premises by Tenant or any person claiming through
or under Tenant, or (iv) any acts, omissions or negligence of Tenant or any
such person, or the contractors, agents, servants, employees, visitors or
licensees of Tenant or any such person, in or about the Demised Premises or
the Building either prior to, during, or after the expiration of, the Demised
Term, including, but not limited to, any acts, omissions or negligence in the
making or performing of any Alterations. Tenant further agrees to indemnify
and save harmless Owner and Owner's Indemnitees of and from all loss, cost,
liability, damage and expense, including, but not limited to, reasonable
counsel fees and disbursements incurred in connection with or arising from
any claims by any persons by reason of injury to persons or damage to
property occasioned by any use, occupancy, act, omission or negligence
referred to in the preceding sentence. "Owner's Indemnitees" shall mean the
Owner, the shareholders or the partners comprising Owner and its and their
partners and shareholders, officers, directors, employees, agents (including
without limitation, any leasing and managing agents) and contractors together
with the lessor under any Superior Lease and the holder of any Mortgage. If
any action or proceeding shall be brought against Owner or Owner's
Indemnitees based upon any such claim and if Tenant, upon notice from Owner,
shall cause such action or proceeding to be defended at Tenant's expense by
counsel acting for Tenant's insurance carriers in connection with such
defense or by other counsel reasonably satisfactory to Owner, without any
disclaimer of liability by Tenant or such insurance carriers in connection
with such claim, Tenant shall not be required to indemnify Owner and Owner's
Indemnitees for counsel fees in connection with such action or proceeding.
B. Throughout the Demised Term Tenant shall maintain comprehensive public
liability and water legal liability insurance against any claims by reason of
personal injury, death and property damage occurring in or about the Demised
Premises covering, without limitation, the operation of any private air
conditioning equipment and any private elevators, escalators or conveyors in
or serving the Demised Premises or any part thereof, whether installed by
Owner, Tenant or others, and shall furnish to Owner duplicate original
policies of such insurance at least ten (10) days prior to the Commencement
Date and at least ten (10) days prior to the expiration of the term of any
such policy previously furnished by Tenant, in which policies Owner, and
Owner's Indemnitees shall be named as parties insured, which policies shall
be issued by companies, and shall be in form and amounts, satisfactory to
Owner.
SECTION 19.03. PAYMENTS: Tenant shall pay to Owner, within ten (10) days
next following rendition by Owner to Tenant of bills or statements therefor:
(i) sums equal to all expenditures made and monetary obligations incurred by
Owner including, but not limited to, expenditures made and obligations
incurred for reasonable counsel fees and disbursements, in connection with
the remedying by Owner, for Tenant's account pursuant to the provisions of
Section 19.01, of any default of Tenant, and (ii) sums equal to all losses,
costs, liabilities, damages and expenses referred to in Section 19.02, and
(iii) sums equal to all expenditures made and monetary obligations incurred
by Owner including, but not limited to, expenditures made and obligations
incurred for reasonable counsel fees and disbursements, in collecting or
attempting to collect the Fixed Rent, any additional
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rent or any other sum of money accruing under this Lease or in enforcing or
attempting to enforce any rights of Owner under this Lease or pursuant to
law, whether by the institution and prosecution of summary proceedings or
otherwise; and (iv) all other sums of money (other than Fixed Rent) accruing
from Tenant to Owner under the provisions of this Lease. Any sum of money
(other than Fixed Rent) accruing from Tenant to Owner pursuant to any
provision of this Lease whether prior to or after the Commencement Date, may,
at Owner's option, be deemed additional rent, and Owner shall have the same
remedies for Tenant's failure to pay any item of additional rent when due as
for Tenant's failure to pay any installment of Fixed Rent when due. Tenant's
obligations under this Article shall survive the expiration or sooner
termination of the Demised Term.
SECTION 19.04. TENANT'S LATE PAYMENTS--LATE CHARGES: If Tenant shall fail
to make payment of any installment of Fixed Rent or any increase in the Fixed
Rent or any additional rent within ten (10) days after the date when such
payment is due, Tenant shall pay to Owner, in addition to such installment of
Fixed Rent or such increase in the Fixed Rent or such additional rent, as the
case may be, as a late charge and as additional rent, a sum equal to three
(3%) percent per annum above the then current prime rate (as the term "prime
rate" is defined in Section 31.03) charged by Chemical Bank or its successor
of the amount unpaid computed from the date such payment was due to and
including the date of payment.
ARTICLE 20
ENTIRE AGREEMENT
SECTION 20.01. ENTIRE AGREEMENT: This Lease contains the entire agreement
between the parties and all prior negotiations and agreements are merged in
this Lease. Neither Owner nor Owner's agents have made any representations or
warranties with respect to the Demised Premises, the Building, the Real
Property or this Lease except as expressly set forth in this Lease and no
rights, easements or licenses are or shall be acuqired by Tenant by
implication or otherwise unless expressly set forth in this Lease. This Lease
may not be changed, modified or discharged, in whole or in part, orally and
no executory agreement shall be effective to change, modify or discharge, in
whole or in part, this Lease or any provisions of this Lease, unless such
agreement is set forth in a written instrument executed by the party against
whom enforcement of the change, modification or discharge is sought. All
references in this Lease to the consent or approval of Owner shall be deemed
to mean the written consent of Owner, or the written approval of Owner, as
the case may be, and no consent or approval of Owner shall be effective for
any purpose unless such consent or approval is set forth in a written
instrument executed by Owner.
ARTICLE 21
END OF TERM
SECTION 21.01. END OF TERM: On the date upon which the Demised Term shall
expire and come to an end, whether pursuant to any of the provisions of this
Lease or by operation of law, and whether on or prior to the Expiration Date,
Tenant, at Tenant's sole cost and expense, (i) shall quit and surrender the
Demised Premises to Owner, broom clean and in good order and condition,
ordinary wear excepted, and (ii) shall remove all of Tenant's Personal
Property and all other property and effects of Tenant and all persons
claiming through or under Tenant from the Demised Premises and the Building,
and (iii) shall repair all damage to the Demised Premises occasioned by such
removal and (iv) shall, at Owner's election, exercisable within six (6)
months following the expiration or earlier termination of the Demised Term,
remove any private interior staircases in the Demised Premises or connecting
the Demised Premises or any part thereof with any other space (referred to
herein as the "Other Space") in the Building occupied by Tenant, and restore
those portions of the Demised Premises, the Other Space and the Building
affected by any such staircases (including, but not limited to, the slabbing
over of any openings) to the condition of each which existed prior to the
installation of any such staircases, and repair any
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damage to the Demised Premises, Other Space and the Building occasioned by
such removal. Notwithstanding the provisions of subdivision (iv) of the
foregoing sentence, in the event Owner does not elect to have removed any
such staircase referred to therein, any such staircase shall be and remain
the property of Owner at no cost or expense to Owner. Owner shall have the
right to retain any property and effects which shall remain in the Demised
Premises after the expiration or sooner termination of the Demised Term, and
any net proceeds from the sale thereof, without waiving Owner's rights with
respect to any default by Tenant under the foregoing provisions of this
Section. Tenant expressly waives, for itself and for any person claiming
through or under Tenant, any rights which Tenant or any such person may have
under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any successor law of like import then in force, in connection
with any holdover summary proceedings which Owner may institute to enforce
the foregoing provisions of this Article. If said date upon which the Demised
Term shall expire and come to an end shall fall on a Sunday or holiday, then
Tenant's obligations under the first sentence of this Section shall be
performed on or prior to the Saturday or business day immediately preceding
such Sunday or holiday. Tenant's obligations under this Section shall survive
the expiration or sooner termination of the Demised Term.
ARTICLE 22
QUIET ENJOYMENT
SECTION 22.01. QUIET ENJOYMENT: Owner covenants and agrees with Tenant
that upon Tenant paying the Fixed Rent and additional rent reserved in this
Lease and observing and performing all of the terms, covenants and conditions
of this Lease on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the Demised Premises during the Demised Term,
subject, however, to the terms, covenants and conditions of this Lease
including, but not limited to, the provisions of Section 37.01, and subject
to the Superior Lease and the Mortgage referred to in Section 7.01.
ARTICLE 23
ESCALATION
SECTION 23.01. DEFINITIONS: In the determination of any increase in the
Fixed Rent under the provisions of this Article, Owner and Tenant agree that
the following terms shall have the following meanings:
A. The term "Tax Escalation Year" shall mean each fiscal year commencing
July 1st and ending on the following June 30th which shall include any part
of the Demised Term.
B. The term "Escalation Year" shall mean each calendar year which shall
include any part of the Demised Term.
C. The term "Taxes" shall be deemed to include all real estate taxes and
assessments, special or otherwise, upon or with respect to the Real Property
imposed by the City or County of New York or any other taxing authority,
including, but not limited to, any charges imposed upon or with respect to
the Real Property pursuant to a city business improvement district. If, due
to any change in the method of taxation, any franchise, income, profit,
sales, rental, use and occupancy or other tax shall be substituted for, or
levied against Owner or any owner of the Building or the Real Property, in
lieu of any real estate taxes or assessments upon or with respect to the Real
Property, such tax shall be included in the term Taxes for the purposes of
this Article.
D. The term "Owner's Basic Tax Liability" shall mean a sum equal to Taxes
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payable for the fiscal tax year beginning on July 1, 1995 and ending on June
30, 1996.
E. The term "Demised Premises Area" shall mean 7,000 square feet.
F. The term "Building Area" shall mean 245,000 square feet.
G. The term "Tenant's Proportionate Share" shall mean the fraction, the
denominator of which is the Building Area and the numerator of which is the
Demised Premises Area.
H. (1) The term "Operating Expenses" shall, subject to the provisions of
Paragraph (2) of this Subsection 23.01.H, mean the aggregate cost and expense
incurred by Owner in the operation, maintenance, management and security of
the Real Property and any plazas, sidewalks and curbs adjacent thereto
including, without limitation, the cost and expense of the following:
(a) salaries, wages, medical, surgical and general welfare and other
so-called "fringe" benefits (including group insurance and retirement
benefits) for employees (including, but not limited to, employees who
provide twenty four (24) hour services, seven (7) days per week throughout
the year) of Owner or any contractor of Owner engaged in the cleaning,
operation, maintenance or management of the Real Property, or engaged for
security purposes and/or for receiving or transmitting deliveries to and
from the Building, and payroll taxes and workmen's compensation insurance
premiums relating thereto,
(b) gas, steam, water and sewer rental,
(c) fifty (50%) percent of all electrical costs incurred in the operation
of the Building, provided, however, in the event that Owner discontinues
the redistribution or furnishing of electrical energy to the tenants and
occupants of the Building, then the cost and expense incurred by Owner for
electricity shall thereafter be deemed to be one hundred (100%) percent of
the total cost and expense to Owner of purchasing electricity for the
Building.
(d) utility taxes,
(e) rubbish removal,
(f) fire, casualty, liability, rent and other insurance carried by Owner,
(g) repairs, repainting, replacement, maintenance of grounds, and
Included Improvements (as provided in Paragraph (2) of this Subsection
23.01.H),
(h) Building supplies,
(i) uniforms and cleaning thereof,
(j) snow removal,
(k) window cleaning,
(l) service contracts with independent contractors for any of the
foregoing (including, but not limited to, elevator, heating, air
conditioning, ventilating, sprinkler
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system, fire alarm and telecommunication equipment maintenance),
(m) management fees (whether or not paid to any person, firm or
corporation having an interest in or under common ownership with Owner or
any of the persons, firms or corporations comprising Owner) in the amount
of one ($1.00) dollar per rentable square foot of the Building Area in the
Base Escalation Year (as hereinafter defined in Subsection I) which amount
for management fees shall increase in each Escalation Year subsequent to
the Base Escalation Year by the same percentage of increase as the
percentage of increase in the aggregate of all other Operating Expenses.
(n) legal fees and disbursements and other expenses (excluding, however,
legal fees and expenses incurred in connection with any application or
proceeding brought for reduction of the assessed valuation of the Real
Property or any part thereof),
(o) auditing fees,
(p) advertising and promotion expenses,
(q) all costs of compliance under the provisions of any present or future
Superior Lease other than the payment of rental and impositions thereunder
and increase in the basic rent under such leases as a result of
adjustments in such basic rent, and
(r) all other costs and expenses incurred in connection with the
operation, maintenance, management and security of the Real Property, and
any plazas, sidewalks and curbs adjacent thereto.
(2) The cost and expense of the following shall be excluded from the
calculation of operating expenses:
(a) leasing commissions;
(b) executives' salaries above the grade of building manager and
superintendent;
(c) capital improvements and replacements which under generally accepted
accounting principles and practice would be classified as capital
expenditures, except the cost and expense of any improvement, alteration,
replacement or installation which is either (i) required by any Legal
Requirement, or (ii) designed, in Owner's judgment, to result in savings
or reductions in Operating Expenses or (iii) designed, in Owner's
judgment, to benefit the tenants of the Building (such improvements,
alterations, replacements and installations are referred to as "Included
Improvements"); the cost and expense of Included Improvements whenever
made shall be included in Operating Expenses for any Escalation Year
subsequent to the Base Escalation Year to the extent of (x) the annual
amortization or depreciation of the cost and expense to Owner of such
Included Improvements, as amortized or depreciated on a straight line
basis over ten (10) years allocable to such Escalation Year plus (y) an
annual charge for interest upon the unamortized or undepreciated portions
of such cost and expense at the average prime rate (as defined in Section
31.03) during the Escalation Year in question;
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(d) any other item which under generally accepted accounting principles
and practice would not be regarded as an operating, maintenance or
management expense;
(e) any item for which Owner is compensated through proceeds of
insurance;
(f) any specific compensation which Owner receives from any tenant for
services rendered to such tenant by Owner above and beyond those services
generally rendered by Owner to tenants in the Building without specific
compensation therefor; and
(g) fifty (50%) percent of all electrical costs incurred in the operation
of the Building, provided however, in the event that Owner discontinues
the redistribution or furnishing of electrical energy to the tenants and
occupants of the Building, then the aforesaid exclusion of fifty (50%)
percent of such electrical costs shall not apply.
I. The term "Base Operating Expenses" shall mean a sum equal to Operating
Expenses for the calendar year 1996 (which calendar year is referred to as
the "Base Escalation Year").
J. The term "Owner's Tax Statement" shall mean an instrument containing a
computation of any increase in the Fixed Rent pursuant to the provisions of
Section 23.02 A. of this Article.
K. The term "Owner's Operating Expense Statement" shall mean an instrument
containing a computation of any increase in the Fixed Rent pursuant to the
provisions of Section 23.04 of this Article.
L. The term "Monthly Escalation Installment" shall mean a sum equal to
one-twelfth (1/12th) of the increase in the Fixed Rent payable pursuant to
the provisions of Subsection 23.04 A. for the Escalation Year with respect to
which Owner has most recently rendered an Owner's Operating Expense
Statement, appropriately adjusted to reflect (i) in the event such Escalation
Year is a partial calendar year, the increase in the Fixed Rent which would
have been payable for such Escalation Year if it had been a full calendar
year, and (ii) the amount by which current Operating Expenses as reasonably
estimated by Owner exceed Operating Expenses as reflected in such Owner's
Operating Expense Statement; and (iii) any net credit balance to which Tenant
may be entitled pursuant to the provisions of Subsection 23.05 C.
M. The term "Monthly Escalation Installment Notice" shall mean a notice
given by Owner to Tenant which sets forth the current Monthly Escalation
Installment; such Notice may be contained in a regular monthly rent bill, in
an Owner's Operating Expense Statement, or otherwise, and may be given from
time to time, at Owner's election.
N. Owner and Tenant acknowledge that Owner may apply for a certificate of
eligibility from the Department of Finance of the City of New York
determining that Owner is eligible to apply for exemption from tax payments
for the Real Property pursuant to the provisions of Section 11-256 through
11-267 (the "ICIP Program") of the Administrative Code of the City of New
York and the regulations promulgated pursuant to the ICIP Program. Any such
tax exemption for the Real Property is referred to as "Tax Exemption" and the
period of such Tax Exemption is referred to as the "Tax Exemption Period".
Owner agrees that Tenant shall not be required to (a) pay Taxes or charges
which become due because of the willful neglect or fraud by Owner in
connection with the ICIP Program or (b) otherwise relieve or indemnify Owner
from any personal liability arising under the ICIP Program, except where
imposition of such Taxes, charges or liability is occasioned by actions of
Tenant in violation of this Lease. Tenant agrees to report to Owner, as often
as is necessary under such regulations,
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the number of workers engaged in employment in the Demised Premises, the
nature of each worker's employment and the residency of each worker and to
provide access to the Demised Premises by employees and agents of the
Department of Finance of the City of New York at all reasonable times at the
request of Owner. Tenant represents to the Owner that, within the seven (7)
years immediately preceding the date of this Lease, Tenant has not been
adjudged by a court of competent jurisdiction to have been guilty of (x) an
act, with respect to a building, which is made a crime under the provisions
of Article 150 of the Penal Law of the State of New York or any similar law
of another state, or (y) any act made a crime or violation by the provisions
of Section 235 of the Real Property Law of the State of New York, nor is any
charge for a violation of such laws presently pending against Tenant. Upon
request of Owner, from time to time, Tenant agrees to update said
representation when required because of the ICIP Program and regulations
thereunder. Tenant further agrees to cooperate with Owner in compliance with
such ICIP Program and regulations to aid Owner in obtaining and maintaining
the Tax Exemption and, if requested by Owner, to post a notice in a
conspicuous place in the Demised Premises and to publish a notice in a
newspaper of general circulation in the City of New York, in such form as
shall be prescribed by the Department of Finance stating that persons having
information concerning any violation by Tenant of Section 235 of the Real
Property Law or any Section of Article 150 of the Penal Law or any similar
law of another jurisdiction may submit such information to the Department of
Finance to be considered in determining Owner's eligibility for benefits.
Tenant acknowledges that its obligations under the provisions of Subsection
23.02A may be greater if Owner fails to obtain a Tax Exemption, and agrees
that Owner shall have no liability to Tenant nor shall Tenant be entitled to
any abatement or diminution of rent if Owner fails to obtain a Tax Exemption.
SECTION 23.02. TAXES: A. If Taxes payable in any Tax Escalation Year shall
be in such amount as shall constitute an increase above Owner's Basic Tax
Liability, the Fixed Rent for such Tax Escalation Year shall be increased by
a sum equal to Tenant's Proportionate Share of any such increase in Taxes.
B. Unless the Commencement Date shall occur on a July 1st, any increase in
the Fixed Rent pursuant to the provisions of Subsection A of this Section
23.02 for the Tax Escalation Year in which the Commencement Date shall occur
shall be apportioned in that percentage which the number of days in the
period from the Commencement Date to June 30th of such Tax Escalation Year,
both inclusive, bears to the total number of days in such Tax Escalation
Year. Unless the Demised Term shall expire on a June 30th, any increase in
the Fixed Rent pursuant to the provisions of said Subsection A for the Tax
Escalation Year in which the date of the expiration of the Demised Term shall
occur shall be apportioned in that percentage which the number of days in the
period from July 1st of such Tax Escalation Year to such date of expiration,
both inclusive, bears to the total number of days in such Tax Escalation
Year.
SECTION 23.03. CALCULATION AND PAYMENT OF TAXES: A. Owner shall render to
Tenant, either in accordance with the provisions of Article 27 or by personal
delivery at the Demised Premises, an Owner's Tax Statement with respect to
each Tax Escalation Year, either prior to or during such Tax Escalation Year.
Owner's failure to render an Owner's Tax Statement with respect to any Tax
Escalation Year shall not prejudice Owner's right to recover any sums due to
Owner hereunder with respect to such Tax Escalation Year, nor shall it
deprive Tenant of any credit to which it otherwise might be entitled with
respect to such Tax Escalation Year pursuant to the provisions of Subsection
D of this Section 23.03. The obligations of Owner and Tenant under the
provisions of Section 23.02 and this Section 23.03 with respect to any
increase in the Fixed Rent or any credit to which Tenant may be entitled
shall survive the expiration or any sooner termination of the Demised Term.
Within ten (10) days next following rendition of the first Owner's Tax
Statement which shows an increase in the Fixed Rent for any Tax Escalation
Year, Tenant shall pay to Owner one half ( 1/2) of the amount of the increase
shown upon such Owner's Tax Statement for such Tax Escalation Year (in the
event that the Commencement Date shall occur during such Tax Escalation Year
on a date other than a July 1st, the sum payable by Tenant under the
foregoing provisions of this Subsection 23.03A shall be apportioned so that
Tenant shall pay that percentage thereof which the number of days in the
period from the Commencement Date to the date upon which the next instalment
of Taxes is required to be paid by Owner bears to one hundred eighty (180)
days thereby giving effect to the apportionment provisions of Subsection B of
Section 23.02). In order to provide for current payments on account of (i)
the next
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installment of Taxes payable by Owner for such Tax Escalation Year, if any,
and (ii) future potential increases in the Fixed Rent which may be payable by
Tenant pursuant to the provisions of Subsection A of Section 23.02 for future
Tax Escalation Years, Tenant shall (a) pay to Owner, on the first day of the
calendar month next following the rendition of such Owner's Tax Statement, a
sum equal to one twelfth (1/12th) of the increase in the Fixed Rent shown
upon such Owner's Tax Statement for such Tax Escalation Year (before any
apportionment pursuant to the provisions of Subsection B of Section 23.02)
multiplied by the number of months which may have elapsed between either (x)
July 1st of such Tax Escalation Year if such Owner's Tax Statement is
rendered between July 1st and December 31st of such Tax Escalation Year and
the month in which such payment is made or (y) January 1st of such Tax
Escalation Year if such Owner's Tax Statement is rendered between January 1st
and June 30th of such Tax Escalation Year and the month in which such payment
is made, and (b) thereafter pay to Owner on the first day of each month of
the Demised Term (until rendition by Owner of a new Owner's Tax Statement) a
sum equal to one twelfth (1/12th) of the increase in the Fixed Rent payable
pursuant to the provisions of Subsection A of Section 23.02 for the Tax
Escalation Year with respect to which Owner has most recently rendered an
Owner's Tax Statement (before any apportionment pursuant to the provisions of
Subsection B of Section 23.02); each such monthly installment shall be added
to and payable as part of each monthly installment of Fixed Rent.
B. Following rendition of each subsequent Owner's Tax Statement a
reconciliation shall be made as follows: Tenant shall be debited with any
increase in the Fixed Rent shown upon such Owner's Tax Statement and credited
with the aggregate amount, if any, paid by Tenant in accordance with the
provisions of Subsection A of this Section on account of potential future
increases in the Fixed Rent pursuant to Subsection 23.02.A which has not
previously been credited against increases in the Fixed Rent shown upon
Owner's Tax Statements. Tenant shall pay any net debit balance to Owner
within ten (10) days next following rendition by Owner, either in accordance
with the provisions of Article 27 or by personal delivery at the Demised
Premises, of an invoice for such net debit balance; any net credit balance
shall be applied as an adjustment against the next accruing monthly
installment as provided in subdivision (b) of Subsection A of this Section
23.03.
C. Tenant acknowledges that under the present law Taxes are payable by
Owner (i) with respect to a fiscal year commencing July 1st and ending on the
following June 30th and (ii) in two (2) installments, in advance, the first
of which is payable on July 1st and the second and final payment of which is
payable on the following January 1st. Tenant further acknowledges that it is
the purpose and intent of this Section 23.03 to provide Owner with Tenant's
Proportionate Share of the increase in the Fixed Rent pursuant to the
provisions of Subsection A of Section 23.02 at or about the time such
installment of Taxes is required to be paid by Owner without penalty or
interest. Accordingly, Tenant agrees that if the number of such installments,
and/or the time for payment thereof, and/or the fiscal year used for purposes
of Taxes, is changed, then, (a) prior to the time that any such revised
installment is payable by Owner, Tenant shall pay to Owner the amount which
shall provide Owner with Tenant's Proportionate Share of the increase in the
Fixed Rent pursuant to the provisions of Subsection 23.02.A applicable to the
revised installment of Taxes then required to be paid by Owner and (b) this
Article shall be appropriately adjusted to reflect such change and the time
of payment by Tenant to Owner of Tenant's Proportionate Share of any increase
in Taxes as provided in this Article shall be appropriately revised so that
Owner shall always be provided with Tenant's Proportionate Share of the
increase in the Fixed Rent prior to the installment of Taxes required to be
paid by Owner.
D. If, as a result of any application or proceeding brought by or on
behalf of Owner, Owner's Basic Tax Liability shall be decreased, Owner's Tax
Statement next following such decrease shall include any adjustment of the
Fixed Rent for all prior Tax Escalation Years reflecting a debit to Tenant
equal to the amount by which (a) the aggregate Fixed Rent payable with
respect to all such prior Tax Escalation Years (as increased pursuant to the
operation of the provisions of Subsection A of Section 23.02) based upon such
reduction of Owners' Basic Tax Liability shall exceed (b) the aggregate Fixed
Rent actually paid by Tenant with respect to all such prior Tax Escalation
Years. If, as a result of any application or proceeding brought by or on
behalf of Owner for reduction of the assessed valuation of the Real Property
for any fiscal tax year subsequent to the fiscal tax year commencing July
1st, 1995, and expiring June 30th, 1996, there shall be a decrease in Taxes
for
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any Tax Escalation Year with respect to which Owner shall have previously
rendered an Owner's Tax Statement. Owner's Tax Statement next following such
decrease shall include an adjustment of the Fixed Rent for such Tax
Escalation Year reflecting a credit to Tenant equal to the amount by which
(i) the Fixed Rent actually paid by Tenant with respect to such Tax
Escalation Year (as increased pursuant to the operation of the provisions of
Subsection A of Section 23.02), shall exceed (ii) the Fixed Rent payable with
respect to such Tax Escalation Year (as increased pursuant to the operation
of the provisions of Subsection A of Section 23.02) based upon the reduction
of the assessed valuation. Tenant shall not bring or cause to be brought any
application or proceeding for reduction of the assessed valuation of the Real
Property. Tenant shall pay to Owner within thirty (30) days after demand, as
additional rent under this Lease, a sum equal to Tenant's Proportionate Share
of all costs and expenses including, without limitation, counsel fees, paid
or incurred by Owner in connection with any application or proceeding brought
for reduction of the assessed valuation of the Real Property or any other
contest of Taxes upon the Real Property for any Tax Escalation Year, whether
or not such application, proceeding or other contest was commenced and/or
settled and/or determined prior to the Tax Escalation Year in question.
SECTION 23.04. OPERATING EXPENSES: A. If Operating Expenses in any
Escalation Year shall be in such an amount as shall constitute an increase
above Base Operating Expenses, the Fixed Rent for such Escalation Year shall
be increased by a sum equal to Tenant's Proportionate Share of any such
increase.
B. Unless the Commencement Date shall occur on a January 1st, any increase
in the Fixed Rent pursuant to the provisions of Subsection A of this Section
23.04 for the Escalation Year in which the Commencement Date shall occur
shall be apportioned in that percentage which the number of days in the
period from the Commencement Date to December 31st of such Escalation Year,
both dates inclusive, bears to the total number of days in such Escalation
Year. Unless the Demised Term shall expire on December 31st any increase in
the Fixed Rent pursuant to the provisions of Subsection A of this Section
23.04 for the Escalation Year in which the date of the expiration of the
Demised Term shall occur shall be apportioned in that percentage which the
number of days in the period from January 1st of such Escalation Year to such
date of expiration, both dates inclusive, bears to the total number of days
in such Escalation Year.
C. In the determination of any increase in the Fixed Rent pursuant to the
foregoing provisions of this Section 23.04, if the Building shall not have
been fully occupied during any Escalation Year, Operating Expenses for such
Escalation Year shall be equitably adjusted (by including such additional
expenses as Owner would have incurred) to the extent, if any, required to
reflect full occupancy.
SECTION 23.05. CALCULATION AND PAYMENT OF OPERATING EXPENSES: A. Owner
shall render to Tenant, either in accordance with the provisions of Article
27 or by personal delivery at the Demised Premises, an Owner's Operating
Expense Statement with respect to each Escalation Year on or before the next
succeeding October 1st. Owner's failure to render an Owner's Operating
Expense Statement with respect to any Escalation Year shall not prejudice
Owner's right to recover any sums due to Owner hereunder with respect to such
Escalation Year.
B. Within thirty (30) days next following rendition of the first Owner's
Operating Expense Statement which shows an increase in the Fixed Rent for any
Escalation Year, Tenant shall pay to Owner the entire amount of such
increase. In order to provide for current payments on account of future
potential increases in the Fixed Rent which may be payable by Tenant pursuant
to the provisions of Subsection 23.04.A, Tenant shall also pay to Owner at
such time, provided Owner has given to Tenant a Monthly Escalation
Installment Notice, a sum equal to the product of (i) the Monthly Escalation
Installment set forth in such Notice multiplied by (ii) the number of months
or partial months which shall have elapsed between January 1st of the
Escalation Year in which such payment is made and the date of such payment,
less any amounts theretofore paid by Tenant to Owner on account of increases
in the Fixed Rent for such Escalation Year pursuant to the provisions of the
penultimate sentence of this Subsection 23.05.B; thereafter Tenant shall make
payment of a Monthly Escalation Installment throughout each month of the
Demised Term. Monthly Escalation Installments shall be added
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to and payable as part of each monthly installment of Fixed Rent.
Notwithstanding anything to the contrary contained in the foregoing
provisions of this Article, prior to the rendition of the first Owner's
Operating Expense Statement which shows an increase in the Fixed Rent for any
Escalation Year, Owner may render to Tenant a pro forma Owner's Operating
Expense Statement containing a bona fide estimate of the increase in the
Fixed Rent to the Escalation Year in which the Commencement Date shall occur
and/or the subsequent Escalation Year. Following the rendition of such
pro-forma Owner's Operating Expense Statement, Tenant shall pay to Owner a
sum equal to one twelfth (1/12th) of the estimated increase in the Fixed Rent
shown thereon for such Escalation Year or Years multiplied by the number of
months which may have elapsed between the Commencement Date and the month in
which such payment is made and thereafter pay to Owner, on the first day of
each month of the Demised Term (until the rendition by Owner of the first
Owner's Operating Expense Statement) a sum equal to one twelfth (1/12th) of
the increase in the Fixed Rent shown on such pro-forma Owner's Operating
Expense Statement. Any sums paid pursuant to the provisions of the
immediately preceding sentence shall be credited against the sums required to
be paid by Tenant to Owner pursuant to the Owner's Operating Expense
Statement for the first Escalation Year to which there is an increase in the
Fixed Rent pursuant to the provisions of Subsection A.
C. Following rendition of the first Owner's Operating Expense Statement
and each subsequent Owner's Operating Expense Statement a reconciliation
shall be made as follows: Tenant shall be debited with any increase in the
Fixed Rent shown on such Owner's Operating Expense Statement and credited
with the aggregate amount, if any, paid by Tenant in accordance with the
provisions of Subsection B of this Section on account of future increases in
the Fixed Rent pursuant to Subsection 23.04.A, which has not previously been
credited against increases in the Fixed Rent shown on Owner's Operating
Expense Statements. Tenant shall pay any net debit balance to Owner within
thirty (30) days next following rendition by Owner, either in accordance with
the provisions of Article 27 or by personal delivery at the Demised Premises
of an invoice for such net debt balance; any net credit balance shall be
applied as an adjustment against the next accruing Monthly Escalation
Installment as provided in Subsection L of Section 23.01.
SECTION 23.06. DISPUTE RESOLUTION: A. In the event of any dispute between
Owner and Tenant arising out of the application of the Operating Expense
provisions of this Article, such dispute shall be determined by arbitration
in New York City in accordance with the provisions of Article 36.
Notwithstanding any such dispute and submission to arbitration, or any
dispute with respect to the Tax Escalation provisions of this Article (which
dispute shall not be subject to arbitration but which can only be prosecuted
by the institution of legal proceedings by Tenant), any increase in the Fixed
Rent shown upon any Owner's Operating Expense Statement or any Monthly
Escalation Installment Notice or any Owner's Tax Statement shall be payable
by Tenant within the time limitation set forth in this Article. If the
determination in such arbitration or legal proceedings shall be adverse to
Owner, any amount paid by Tenant to Owner in excess of the amount determined
to be properly payable shall be credited against the next accruing
installments of Fixed Rate due under this Lease. However, if there are no
such installments, such amounts shall be paid by Owner to Tenant within ten
(10) days following such determination.
B. In the event Tenant disagrees with any computation or other matter
contained in any Owner's Operating Expense Statement or any Monthly
Escalation Installment Notice, Tenant shall have the right to give notice to
Owner within sixty (60) days next following rendition of such Statement or
Notice setting forth the particulars of such disagreement. If the matter is
not resolved within thirty (30) days next following the giving of such notice
by Tenant, it shall be deemed a dispute which either party may submit to
arbitration pursuant to the provisions of Subsection A of this Section. If
(i) Tenant does not give a timely notice to Owner in accordance with the
foregoing provisions of this Subsection disagreeing with any computation or
other matter contained in any Owner's Operating Expense Statement or any
Monthly Escalation Installment Notice and setting forth the particulars of
such disagreement, or (ii) if any such timely notice shall have been given by
Tenant, the matter shall not have been resolved and neither party shall have
submitted the dispute to arbitration within thirty (30) days next following
the giving of such notice by Tenant, Tenant shall be deemed conclusively to
have accepted such Owner's Operating Expense Statement or Monthly Escalation
Installment Notice, as the case may be, and shall have no further right to
dispute the same.
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C. (1) Tenant or its usual auditors of its normal books and records
(provided same are certified public accountants) in each case at Tenant's
expense, shall have the right to examine those portions of Owner's records
which are reasonably required to verify the accuracy of any amounts shown on
any Owner's Operating Expense Statement provided Tenant shall notify Owner of
its desire to so examine such records within sixty (60) days next following
rendition of such Owner's Operating Expense Statement. Owner shall maintain
such records for a period of three (3) years following the expiration of the
Escalation Year to which they relate. Upon Tenant's timely request, Owner
shall make such records available and any such examination shall be conducted
at the office of Owner's accountants or at such other reasonable place
designated by Owner during normal office hours.
(2) Tenant acknowledges and agrees that not more than three (3) of its
employees or three (3) persons employed by such auditors shall be entitled to
entry to the offices of Owner at any one time for the purposes of such review
and inspection. Tenant hereby recognizes the confidential, privileged and
proprietary nature of such records and the information and data contained
therein, as well as any compromise, settlement or adjustment reached between
Owner and Tenant relating to the results of such examination, and Tenant
covenants and agrees for itself, and its employees, agents and
representatives (including, but not limited to, such auditors, and any
attorneys or consultants retained by Tenant as hereinafter provided), that
such books, records, information, data, compromise, settlement and adjustment
will be held in the strictest confidence and not be divulged, disclosed or
revealed to any other person except (x) to the extent required by law, court
order or directive of any Governmental Authority or (y) to such auditors or
any attorneys retained by Tenant or consultants retained by Tenant in
connection with any action or proceeding between Owner and Tenant as to
Operating Expenses or Owner's Operating Expense Statement and no examination
of any such records shall be permitted unless and until such auditors,
attorneys and consultants affirmatively agree and consent to be bound by the
provisions of this Section 23.06C.
(3) Tenant agrees that this Section 23.06C is of material importance to
Owner and that any violation thereof shall result in immediate harm to Owner
and Owner shall have all rights allowed by law or equity if Tenant, its
employes, agents, and representatives (including, but not limited to, such
auditors, attorneys or consultants) violate the terms of this Section 23.06C,
including, but not limited to, the right to terminate Tenant's right to audit
Owner's records in the future pursuant to this Section 23.06C, and Tenant
shall indemnify and hold Owner harmless of and from all loss, cost, damage,
liability and expense (including, but not limited to counsel fees and
disbursements) arising from a breach of the foregoing obligations of Tenant
or any of its employees, agents and representatives, (including, but not
limited to, such auditors, attorneys or consultants). This obligation of
Tenant and its employees, agents and representatives (including, but not
limited to, any such auditors, attorneys or consultants) shall survive the
expiration or sooner term of the Demised Term.
SECTION 23.07. COLLECTION OF INCREASES IN FIXED RENT: The obligations of
Owner and Tenant under the provisions of this Article with respect to any
increase in the Fixed Rent, or any credit to which Tenant may be entitled,
shall survive the expiration or any sooner termination of the Demised Term.
All sums payable by Tenant under this Article shall be collectible by Owner
in the same manner as Fixed Rent.
ARTICLE 24
NO WAIVER
SECTION 24.01. OWNER'S TERMINATION NOT PREVENTED: Neither any option
granted to Tenant in this Lease or in any collateral instrument to renew or
extend the Demised Term, nor the exercise of any such option by Tenant, shall
prevent Owner from exercising any option or right granted or reserved to
Owner in this Lease or in any collateral instrument or which Owner may have
by virtue of any law, to terminate this Lease and the Demised Term or any
renewal or extension of the Demised Term either during the original Demised
Term or
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during the renewed or extended term. Any termination of this Lease and the
Demised Term shall serve to terminate any such renewal or extension of the
Demised Term and any right of Tenant to any such renewal or extension,
whether or not Tenant shall have exercised any such option to renew or extend
the Demised Term. Any such option or right on the part of Owner to terminate
this Lease shall continue during any extension or renewal of the Demised
Term. No option granted to Tenant to renew or extend the Demised Term shall
be deemed to give Tenant any further option to renew or extend.
SECTION 24.02. NO TERMINATION BY TENANT/NO WAIVER: No act or thing done by
Owner or Owner's agents during the Demised Term shall constitute a valid
acceptance of a surrender of the Demised Premises or any remaining portion of
the Demised Term except a written instrument accepting such surrender,
executed by Owner. No employee of Owner or of Owner's agents shall have any
authority to accept the keys of the Demised Premises prior to the termination
of this Lease and the Demised Term, and the delivery of such keys to any such
employee shall not operate as a termination of this Lease or a surrender of
the Demised Premises; however, if Tenant desires to have Owner sublet the
Demised Premises for Tenant's account, Owner or Owner's agents are authorized
to receive said keys for such purposes without releasing Tenant from any of
its obligations under this Lease, and Tenant hereby relieves Owner of any
liability for loss of, or damage to, any of Tenant's property or other
effects in connection with such subletting. The failure by Owner to seek
redress for breach or violation of, or to insist upon the strict performance
of, any term, covenant or condition of this Lease on Tenant's part to be
observed or performed, shall not prevent a subsequent act or omission which
would have originally constituted a breach or violation of any such term,
covenant or condition from having all the force and effect of an original
breach or violation. The receipt by Owner of rent with knowledge of the
breach or violation by Tenant of any term, covenant or condition of this
Lease on Tenant's part to be observed or performed shall not be deemed a
waiver of such breach or violation. Owners' failure to enforce any Building
Rule against Tenant or against any other tenant or occupant of the Building
shall not be deemed a waiver of any such Building Rule. No provision of this
Lease shall be deemed to have been waived by Owner unless such waiver shall
be set forth in a written instrument executed by Owner. No payment by Tenant
or receipt by Owner of a lesser amount than the aggregate of all Fixed Rent
and additional rent then due under this Lease shall be deemed to be other
than on account of the first accruing of all such items of Fixed Rent and
additional rent then due, no endorsement or statement on any check and no
letter accompanying any check or other rent payment in any such lesser amount
and no acceptance of any such check or other such payment by Owner shall
constitute an accord and satisfaction, and Owner may accept any such check or
payment without prejudice to Owner's right to recover the balance of such
rent or to pursue any other legal remedy.
ARTICLE 25
MUTUAL WAIVER OF TRIAL BY JURY
SECTION 25.01. Owner and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by Owner or Tenant against the other on
any matter whatsoever arising out of or in any way connected with this Lease,
the relationship of landlord and tenant, the use or occupancy of the Demised
Premises by Tenant or any person claiming through or under Tenant, any claim
of injury or damage, and any emergency or other statutory remedy; however,
the foregoing waiver shall not apply to any action for personal injury or
property damage. The provisions of the foregoing sentence shall survive the
expiration or any sooner termination of the Demised Term. If Owner commences
any summary proceeding, or any other proceeding of like import, Tenant
agrees: (i) not to interpose any counterclaim of whatever nature or
description in any such summary proceeding, or any other proceeding of like
import, unless failure to interpose such counterclaim would preclude Tenant
from asserting such claim in a separate action or proceeding; and (ii) not to
seek to remove to another court or jurisdiction or consolidate any such
summary proceeding, or other proceeding of like import, with any action or
proceeding which may have been, or will be, brought by Tenant. In the event
that Tenant shall breach any of its obligations set forth in the immediately
preceding sentence, Tenant agrees (a) to pay all of Owner's attorneys' fees
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and disbursements in connection with Owner's enforcement of such obligations
of Tenant and (b) in all events to pay all accrued, present and future Fixed
Rent and increases therein and additional rent payable pursuant to the
provisions of this Lease.
ARTICLE 26
INABILITY TO PERFORM
SECTION 26.01. If, by reason of strikes or other labor disputes, fire or
other casualty (or reasonable delays in adjustment of insurance), accidents,
any Legal Requirements, any orders of any Governmental Authority or any other
cause beyond Owner's reasonable control, whether or not such other cause
shall be similar in nature to those hereinbefore enumerated, Owner is unable
to furnish or is delayed in furnishing any utility or service required to be
furnished by Owner under the provisions of Article 29 or any other Article of
this Lease or any collateral instrument, or is unable to perform or make or
is delayed in performing or making any installations, decorations, repairs,
alterations, additions or improvements, whether or not required to be
performed or made under this Lease or under any collateral instrument, or is
unable to fulfill or is delayed in fulfilling any of Owner's other
obligations under this Lease or any collateral instrument, no such inability
or delay shall constitute an actual or constructive eviction, in whole or in
part, or entitle Tenant to any abatement or diminution of rent, or relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Owner or its agents by reason of inconvenience or annoyance to Tenant,
or injury to or interruption of Tenant's business, or otherwise.
ARTICLE 27
NOTICES
SECTION 27.01. Except as otherwise expressly provided in this Lease, any
bills, statements, notices, demands, requests or other communications given
or required to be given under this Lease shall be effective only if rendered
or given in writing, sent by registered or certified mail (return receipt
requested optional), addressed as follows:
(a) TO TENANT (i) at Tenant's address set forth in this Lease if mailed
prior to Tenant's taking possession of the Demised Premises, or (ii) at
the Building if mailed subsequent to Tenant's taking possession of the
Demised Premises, or (iii) at any place where Tenant or any agent or
employee of Tenant may be found if mailed subsequent to Tenant's vacating,
deserting, abandoning or surrendering the Demised Premises, or
(b) TO OWNER at Owner's address set forth in this Lease, with a copy to
Goldfarb & Fleece, 345 Park Avenue, New York, New York 10154, Attention:
Partner-in-Charge, Rudin Management, or
(c) addressed to such other address as either Owner or Tenant may
designate as its new address for such purpose by notice given to the other
in accordance with the provisions of this Section. Any such bill,
statement, notice, demand, request or other communication shall be deemed
to have been rendered or given on the date when it shall have been mailed
as provided in this Section.
Nothing contained in this Section 27.01 shall preclude, limit or modify
Owner's service of any notice, statement, demand or other communication in
the manner required by law, including, but not limited to, any demand for
rent under Article 7 of the New York Real Property Actions and Proceedings
Law or any successor law of like import.
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ARTICLE 28
PARTNERSHIP TENANT
SECTION 28.01. If Tenant is a partnership or professional corporation or
limited liability company (or is comprised of two (2) or more persons,
individually and as co-partners of a partnership or shareholders of a
professional corporation or members of a limited liability company) or if
Tenant's interest in this Lease shall be assigned to a partnership or
professional corporation or limited liability company (or to two (2) or more
persons, individually and as co-partners of a partnership or shareholders of
a professional corporation or members of a limited liability company)
pursuant to Article 11 (any such partnership, professional corporation,
limited liability company and such persons are referred to in this Section as
"Partnership Tenant"), the following provisions of this Section shall apply
to such Partnership Tenant: (i) the liability of each of the persons
comprising Partnership Tenant shall be joint and several, individually and as
a partner or shareholder or member, with respect to all obligations of the
Tenant under this Lease whether or not such obligations arose prior to,
during, or after any period when any party comprising Partnership Tenant was
a member or shareholder of Partnership Tenant, and (ii) each of the persons
comprising Partnership Tenant, whether or not such person shall be one of the
persons comprising Tenant at the time in question, hereby consents in advance
to, and agrees to be bound by, any written instrument which may hereafter be
executed, changing, modifying or discharging this Lease, in whole or in part,
or surrendering all or any part of the Demised Premises to Owner, and by any
notices, demands, requests or other communications which may hereafter be
given by Partnership Tenant or by any of the persons comprising Partnership
Tenant, and (iii) any bills, statements, notices, demands, requests or other
communications given or rendered to Partnership Tenant or to any of the
persons comprising Partnership Tenant shall be deemed given or rendered to
Partnership Tenant and shall be binding upon Partnership Tenant and all such
persons, and (iv) if Partnership Tenant shall admit new partners or
shareholders or members, all of such new partners or shareholders or members,
as the case may be, shall, by their admission to Partnership Tenant, be
deemed to have assumed performance of all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed, and
shall be liable for such performance, together with all other parties,
jointly or severally, individually and as a partner or shareholder or member,
whether or not the obligation to comply with such terms, covenants or
conditions arose prior to, during or after any period when any party
comprising Partnership Tenant was a member or shareholder of Partnership
Tenant and (v) Partnership Tenant shall give prompt notice to Owner of the
admission of any such new partners, or shareholders, or members, as the case
may be, and, upon demand of Owner, shall cause each such new partner or
shareholder or member to execute and deliver to Owner an agreement, in form
satisfactory to Owner, wherein each such new partner or shareholder or member
shall so assume performance of all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed whether or not the
obligation to comply with such terms, covenants or conditions arose prior to,
during or after any period when any party comprising Partnership Tenant was a
member or shareholder of Partnership Tenant (but neither Owner's failure to
request any such such agreement nor the failure of any such new partner,
shareholder or member to execute or deliver any such agreement to Owner shall
vitiate the provisions of subdivision (iv) or any other provision of this
Section).
ARTICLE 29
UTILITIES AND SERVICES
SECTION 29.01. ELEVATORS. As long as Tenant is not in default under any of
the terms, covenants or conditions of this Lease on Tenant's part to be
observed or performed, Owner, at Owner's expense, shall furnish necessary
passenger elevator facilities on business days (as defined in Section 31.01)
from 8:00 A.M. to 6:00 P.M. and on Saturdays from 8:00 A.M. to 1:00 P.M. and
shall have a passenger elevator subject to call at all other times Tenant
shall be entitled to the non-exclusive use of the freight elevator in common
with other tenants and occupants of the Building from 8:00 A.M. to 6:00 P.M.
on business days, subject to such reasonable rules as Owner may
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adopt for the use of the freight elevator. At any time or times all or any of
the elevators in the Building may, at Owner's option, be automatic elevators,
and Owner shall not be required to furnish any operator service for automatic
elevators. If Owner shall, at any time, elect to furnish operator service for
any automatic elevators, Owner shall have the right to discontinue furnishing
such service with the same effect as if Owner had never elected to furnish
such service.
SECTION 29.02. HEAT: As long as Tenant is not in default under any of the
terms, covenants or conditions of this Lease on Tenant's part to be observed
or performed, Owner, at Owner's expense, shall furnish heat to the Demised
Premises, as and when required by law, on business days from 8:00 A. M. to
6:00 P.M. and on Saturdays from 8:00 A.M. to 1:00 P.M.
SECTION 29.03. AIR CONDITIONING AND VENTILATION: As long as Tenant is not
in default under any of the terms, covenants or conditions of this Lease on
Tenant's part to be observed or performed, Owner, at Owner's expense, shall
furnish and distribute to the Demised Premises (i) conditioned air at
reasonable temperatures, pressures and degrees of humidity and in reasonable
volumes and velocities, on business days from 8:00 A.M. to 6:00 P.M. and on
Saturdays from 8:00 A.M. to 1:00 P.M. during the months of May, June, July,
August, September and October when required for the comfortable occupancy of
the Demised Premises; and (ii) mechanical ventilation through the Building
air conditioning system on business days from 8:00 A.M. to 6:00 P.M. and on
Saturdays from 8:00 A.M. to 1:00 P.M. throughout the year, except when
conditioned air or heat is being furnished. Notwithstanding the foregoing
provisions of this Section, Owner shall not be responsible if the normal
operation of the Building air conditioning system shall fail to provide
conditioned air at reasonable temperatures, pressures or degrees of humidity
or in reasonable volumes or velocities in any portions of the Demised
Premises (a) which, by reason of any machinery or equipment installed by or
on behalf of Tenant or any person claiming through or under Tenant, shall
have an electrical load in excess of four (4) watts per square foot of usable
area for all purposes (including lighting and power), or which shall have a
human occupancy factor in excess of one person per 100 square feet of usable
area (the average electrical load and human occupancy factors for which the
Building air conditioning system is designed) or (b) because of any
rearrangement of partitioning or other Alterations made or performed by or on
behalf of Tenant or any person claiming through or under Tenant. Whenever
said air conditioning system is in operation, Tenant agrees to cause all the
windows in the Demised Premises to be kept closed and to cause the venetian
blinds in the Demised Premises to be kept closed if necessary because of the
position of the sun. Tenant agrees to cause all the windows in the Demised
Premises to be closed whenever the Demised Premises are not occupied. Tenant
shall cooperate fully with Owner at all times and abide by all regulations
and requirements which Owner may reasonably prescribe for the proper
functioning and protection of the air conditioning and ventilating system. In
addition to any and all other rights and remedies which Owner may invoke for
a violation or breach of any of the foregoing provisions of this Section,
Owner may discontinue heating, air conditioning and ventilating service
during the period of such violation or breach, and such discontinuance shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner,
or its agents, by reason of inconvenience or annoynace to Tenant, or inuury
ot or interruption of Tenant's business, or otherwise.
SECTION 29.04. CLEANING: A. As long as Tenant is not in default under any
of the terms, covenants or conditions of this Lease on Tenant's part to be
observed or performed, and provided Tenant shall keep the Demised Premises in
order, Owner, at Owner's expense, shall cause the office areas of the Demised
Premises to be cleaned and shall cause Tenant's ordinary office waste paper
refuse to be removed, all at regular intervals in accordance with standards
and practices adopted by Owner for the Building. Tenant shall cooperate with
any waste and garbage recycling program of the Building and shall comply with
all reasonable rules and regulations of Owner with respect thereto. Tenant
acknowledges that Owner's obligation to cause the office areas of the Demised
Premises to be cleaned excludes any portion of the Demised Premises not used
as office areas (e.g., storage, mail and computer areas, private lavatories
and areas used for the storage, preparation, service or consumption of food
or beverages). Tenant shall pay Owner at Building standard rates or, if there
are no such rates, at reasonable rates.
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for the removal of any of Tenant's refuse or rubbish other than ordinary
office waste paper refuse from the Building, and Tenant's expense, shall
cause all portions of the Demised Premises used for the storage preparation,
service or consumption of food or beverages to be cleaned daily in a manner
satisfactory to Owner, and to be exterminated against infestation by vermin,
roaches or rodents and, in addition, whenever there shall be evidence of any
infestation.
B. Tenant acknowledges and is aware that the cleaning services required
to be furnished by Owner pursuant to this Section may be furnished by a
contractor or contractors employed by Owner and agrees that Owner shall not
be deemed in default of any of its obligations under this Section 29.04
unless such default shall continue for an unreasonable period of time after
notice from Tenant to Owner setting forth the specific nature of such
default.
C. Notwithstanding the provisions of Subsection A of this Section. Tenant
shall have the option to contract independently for the removal of such other
refuse and rubbish and for office cleaning services in addition to those
furnished by Owner. In the even Tenant exercises such option, the removal of
such other refuse and rubbish and the furnishing by Owner. In the event
Tenant exercises such option, the removal of such other refuse and rubbish
and the furnishing of office cleaning services to Tenant by persons other
than Owner and its contractors shall be performed in accordance with such
regulations and requirements as, in Owner's judgement, are necessary for the
proper operation of the Building, and Tenant agrees that Tenant will not
permit any person to enter the Demised Premises or the Building for such
purposes, or for the purpose of providing extermination services required to
be performed by Tenant pursuant to Subsection A of this Section, other than
persons first approved by Owner, such approval not unreasonably to be
withheld.
Section 29.05. Electricity: A. As long as Tenant is not in default under
any of the terms, covenants or conditions of this Le3ase on Tenant's part to
be observed or performed, Owner, at Owner's expense, shall redistribute or
furnish electrical energy to or for the use of Tenant in the Demised Premises
for the operation if the lighting fixtures and the electrical receptacles
installed in the Demised Premises on the Commencement Date. There shall be no
specific charge by way of measuring such electrical energy on any meter or
otherwise, as the charge for the service of redistributing or furnishing such
electrical energy has been included in the Fixed Rent on a so-called "rent
inclusion" basis. The parties agree that although the charge for the service
of redistrituting of furnishing electrical energy is included in the Fixed
Rent on a so-called "rent inclusion" basis, the value to Tenant of such
service may not be fully reflected in the Fixed Rent. Accordingly, Tenant
agrees that Owner may cause and independent electrical engineer or electrical
consulting firm, selected by Owner, to make a determination, following the
commencement of Tenant's normal business activities in the Demised Premises,
of full value to Tenant of such services supplied by Owner, to wit: the
potential electrical energy supplied to Tenant annually based upon the
estimate capacity of the electrical feeders, risers and wiring and other
electrical facilities serving the Demised Premises. Such engineer or
consulting firms shall certify such determination in writing to Owner and
Tenant. If it shall be determined that the full value to Tenant of such
service is in excess of SEVENTEEN THOUSAND FIVE HUNDRED AND 00/100
($17,500.00) DOLLARS (such sum is referred to as the "Electrical Inclusion
Factor"), the parties shall enter into a written supplementary agreement, in
form satisfactory to Owner, modifying this Lease as of the Commencement Date
by increasing the Fixed Rent and the Electrical Inclusions Factor for the
entire Demised Term by an annual amount equal to such excess. However, if it
shall be so determined that the full value to Tenant of such service does not
exceed the Electrical Inclusion Factor, no such agreement shall be executed
and there shall be no increase or decrease in the Fixed Rent or the
Electrical Inclusion Factor by reason of such determination. If either the
quantity or character of electrical service is changed by the public utility
corporation supplying electrical service to the Building or is no longer
available or suitable for Tenant's requirements, no such change,
unavailability or unsuitability shall constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or
diminution of rent, or relieve Tenant form any of its obligations under this
Lease, or impose any liability upon Owner, or its agents, by reason of
inconvenience or annoyance to Tenant, or injury to or interuption of Tenant's
business, or otherwise.
B. Owner represents that the electrical feeder or riser capacity
serving the
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Demised Premises on the Commencement Date shall be adequate to serve the
lighting fixtures and electrical receptacles installed in the Demised
Premises on the Commencement date. Subject to the provisions of Subsection
C(1) of this Section 29.05, any additional feeders or risers to supply
Tenant's additional electrical requirements, and all other equipment proper
and necessary in connection with such feeders or risers, shall be installed
by Owner upon Tenant's request, at the sole cost and expense of Tenant,
provided that, in Owner's judgement, such additional feeders or risers are
necessary and are permissible under applicable laws (including, but not
limited to, the New York State Energy Conservation Construction Code) and
insurance regulations and the installation of such feeders or risers will not
cause permanent damage or injury to the Building or the Demised Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations or repairs or interfere with or disturb other
tenants or occupants of the Building. Tenant covenants that at no time shall
the use of electrical energy in the Demised Premises exceed the capacity of
the exiting feeders or wiring installations then serving the Demised
Premises. Tenant shall not make or perform, or permit the making or
performance of, any Alterations to wiring installations or other electrical
facilities in or serving the Demised Premises or any additions to the
business machines, office equipment or other appliances in the Demised
Premises which utilize electrical energy without the prior consent of Owner
in each instance. Any such Alterations, additions or consent by Owner shall
be subject to the provisions of Subsection C(1) of this Section 29.05, as
well as to the other provisions of this Lease including, but not limited to,
the provisions of Article 3.
C. (1) If, at any time or times prior to or during the Demised Terms,
electrical feeders, risers, wiring or other electrical facilities serving the
Demised Premises shall be installed by Owner, Tenant or others, on behalf of
Tenant or any person claiming through or under Tenant in addition to feeders,
risers, wiring or other electrical facilities necessary to serve the lighting
fixtures and electrical receptacles installed in the Demised the Commencement
date, the Fixed Rent and the Electrical Inclusion Factor shall be increase in
an annual amount which shall reflect the value to Tenant of the additional
service to be furnishable by Owner, to wit: the potential additional
electrical energy made available to Tenant annually based upon the estimated
capacity of such additional electrical feeders, risers, wiring or other
electrical facilities. The amount of any such increase in the Fixed Rent and
the Electrical Inclusions Factor shall be finally determined by an
independent electrical engineer or consulting firm selected by Owner who
shall certify such determination in writing to Owner and Tenant. Following
such determination, Owner and Tenant shall enter into a written supplementary
agreement, in form satisfactory to Owner, modifying this Lease by increasing
the Fixed Rent and the Electrical Inclusion Factor for the remainder of the
Demised Term in an annual amount equal to the value of such additional
service as so determine. Any such increase shall be effective as of the date
of the first availability to Tenant of such additional service and shall be
retroactive to such date if necessary.
(2) If, at any time or times after February 1, 1996, the rates at which
Owner purchases electrical energy from the public utility corporation
supplying electrical service to the Building or any charges incurred or taxes
payable by Owner in connection therewith shall be increased or decreased, as
the case may be, upon demand of either party, in an annual amount which shall
fairly and proportionately reflect the estimated increase or decrease, as the
case may be, in the annual cost to Owner of purchasing electrical energy for
the Building provided that notwithstanding anything to the contrary contained
in the provisions for the Section 29.05 in no event shall (a) the Electrical
Inclusion Factor ever be decreased below the original amount thereof set
forth in Subsection A of this Section and (b) the Fixed Rent ever be
decreased by more than such decrease in the Electrical Inclusion Factor as so
limited by the provisions of the aforesaid Subdivision (a) of this Subsection
C.(2). If, within ten (10) days after any such demand, Owner and Tenant shall
fail to agree upon the amount of such increase or decrease, as the case may
be, in the Fixed Rent and the Electrical Inclusion Factor then, in lieu of
such agreement, such estimated increase or decrease, as the case may be,
shall be finally determined by an independent electrical engineer or
consulting firm selected by Owner who shall certify such determination in
writing to Owner and Tenant. Following any such agreement or determination,
Owner and Tenant shall enter into a written supplementary agreement, in form
satisfactory to Owner, modifying this Lease by increasing, or decreasing, as
the case may be, the Fixed Rent and the Electrical Inclusion Factor for the
remainder of the Demised Term in an annual amount equal to such estimated
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increase or decrease as so agreed or determined. Any such increase or
decrease in the Fixed Rent and the Electrical Inclusion Factor shall be
effective as of the effective date of such increase or decrease, and shall be
retroactive to such date if necessary.
(3) Any increase in the Fixed Rent pursuant to the provisions of
Subsection A or this Subsection C with respect to the period from the
effective date of such increase to the last day of the month in which such
increase shall be fixed by agreement or determination shall be payable by
Tenant upon demand of Owner. Any decrease in the Fixed Rent pursuant to the
provisions of this Subsection C with respect tot he period from the effective
date of such decrease to the last day of the month in which such decrease
shall be fixed by agreement or determination shall be credited to Tenant
against the next monthly installment of the Fixed Rent. The monthly
installments of the Fixed Rent payable after the date upon which any such
increase or decrease is so fixed shall be proportionately adjusted to reflect
such increase or decrease in the Fixed Rent.
D. Owner may, at any time, elect to discontinue the redistribution or
furnishing of electrical energy. In the event of any such election by Owner,
(i) Owner agrees to give reasonable advance notice of any such discontinuance
to Tenant, (ii) Owner agrees to permit Tenant to receive electrical service
directly from the public utility corporation supplying electrical service to
the Building and to permit the existing feeders, risers, wiring and other
electrical facilities serving the Demised Premises to be used by Tenant from
such purpose to the extent they are suitable and safely capable, (iii) Owner
agreed to pay such charges and costs, if any, as such public utility
corporation may impose in connection with the installation of Tenant's
meters, (iv) the Fixed Rent shall be decreased, as of the date of such
discontinuance, by an amount equal to the Electrical Inclusion Factor to
reflect such discontinuance; and (v) this Lease shall remain in full force
and effect and such discontinuance shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any
abatement or diminution of rent except as expressly provided in subdivision
(iv) of this Subsection D, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Owner or its agents by reason
of inconvenience or annoyance to Tenant, or injury to or interruption of
Tenant's business, or otherwise.
E. The following method of computation shall be employed by any electrical
engineer or electrical consulting firm selected by Owner pursuant to the
provisions of Subsection c(2) of this Section 29.05 in finally determining
any estimated increase or decrease in the Fixed Rent and the Electrical
Inclusion Factor, under the provisions of this Section resulting from public
utility corporation (referred to as "The Corporation") electrical rate and
fuel charge changes and taxes (collectively "Electrical Changes") payable in
connection therewith.
(1) Owner's bills from The Corporation for the Building for the twelve
(12) month period immediately preceding the Electrical Change in question
shall be averaged for demand and consumption (Kw and Kwh) and the rate
structure in effect immediately prior to the Electrical Change in question
shall be applied to such average demand and consumption factors of Owner's
billings for the Building for said twelve (12) month period resulting in an
agreed determination of the cost to Owner of electricity for the Building
immediately prior to the Electrical Change in question; and
(2) The new rate structure pursuant to which Owner is billed by The
Corporation, i.e., the rate structure which includes the Electrical Change in
question, shall be applied to the average demand and consumption factors of
Owner's billings for the Building for said twelve (12) month period resulting
in an agreed estimate of the cost to Owner by reason of the Electrical Change
in question; and
(3) The difference in the costs determined pursuant to the foregoing
subdivisions (1) and (2) shall be deemed to be the amount of the estimated
annual change in cost and the amount of such estimated annual change in cost
shall be divided by the cost determined pursuant to the foregoing subdivision
(1); and
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4. The resulting quotient shall be applied to Tenant's then current
Electrical Inclusion Factor to produce the increase or decrease in the Fixed
Rent and Electrical Inclusion Factor.
(For example: Assume (1) an Electrical Change i.e. a rate increase; (2) an
application of the rate schedule in effect immediately prior to such
Electrical Change to the averaged electrical demand and consumption factors
shown on Owner's electrical bills for the twelve (12) month period
immediately preceding such Electrical Change resulting in an estimated annual
cost of $100,000.00; (3) an application of the new rate schedule to the cost
of $110,000.00; (4) deduction of the sum of $100,000.00 referred to in step
(2) from said sum of $110,000.00 referred to in step (3), resulting in a
difference of $10,000.00; and (5) that Tenant's Electrical Inclusion Factor
was $3,000.00. The $10,000.00 annual estimated increase for the Building,
when divided by $10,000.00, the estimated annual cost to Owner of electricity
for the Building prior to the Electrical Change in question, results in a
quotient of 10% which, when applied to Tenant's Electrical Inclusion Factor
increases the Fixed Rent and the Electrical Inclusion Factor by $300.00.)
F. Notwithstanding anything to the contrary set forth in this Lease, any
sums payable or granted in any way by the public utility corporation
supplying electricity to the Building resulting from the installation in the
Demised Premises of energy efficient lamping, special supplemental heating,
ventilation and air conditioning systems or any other Alterations, which sums
are paid or given by way or rebate, direct payment, credit or otherwise,
shall be and remain the property of Owner, and Tenant shall not be entitled
to any portion thereof, unless such lamping, supplemental heating,
ventilation and air conditioning systems or other Alterations were installed
by Tenant, solely at Tenant's expense, without any contribution, credit or
allowance by Owner, in accordance with all of the provisions of this Lease.
Nothing contained in the foregoing sentence, however, shall be deemed to
obligate Owner to supply or install in the Demised Premises any such lamping,
supplemental hearing, ventilation and air conditioning systems or other
Alterations.
SECTION 29.06. WATER: If Tenant requires, uses or consumes water for any
purpose in addition to ordinary lavatory and drinking purposes, Owner may
install a hot water meter and a cold water meter and thereby measure Tenant's
consumption of water for all purposes. Tenant shall pay to Owner the cost of
any such meters and their installation, and Tenant shall keep any such meters
and any such installation equipment in good working order and repair, at
Tenant's cost and expense. Tenant agrees to pay for water consumed as shown
on said meters, and sewer charges, taxes and any other governmental changes
thereon, as and when bills are rendered. In addition to any sums required to
be paid by Tenant for hot water consumed and sewer charges, taxes and any
other governmental charges thereon under the foregoing provisions of this
Section, Tenant agrees to pay Owner, for the heating of said hot water, an
amount equal to three (3X) times the total of said sums required to be paid
by Tenant for hot water and sewer charges thereon. For the purposes of
determining the amount of any sums required to be paid by Tenant under this
Section, all hot and cold water consumed during any period when said meters
are not in good working order shall be deemed to have been consumed at the
rate of consumption of such water during the most comparable period when such
meters were in good working order.
SECTION 29.07. OVERTIME PERIODS: The Fixed Rent does not reflect or
include any charge to Tenant for the furnishing or distributing of any
necessary elevator facilities, heat, conditioned air or mechanical
ventilation to the Demised Premises during periods (referred to as "Overtime
Periods") other than the hours and days set forth above in this Article for
the furnishing and distributing of such services. Accordingly, if Owner shall
furnish any such elevator facilities, heat, conditioned air or mechanical
ventilation to the Demised Premises at the request of Tenant during Overtime
Periods, Tenant shall pay Owner for such services at the standard rates then
fixed by Owner for the Building or, if no such rates are then fixed, at
reasonable rates. Owner shall not be required to furnish any such service
during Overtime Periods, unless Owner has received reasonable advance notice
from Tenant requesting such services. If Tenant fails to give Owner
reasonable advance notice requesting such service during any Overtime
Periods, then, whether or not the Demised Premises are habitable during such
overtime Periods, failure by Owner to furnish or distribute any such services
during such Overtime Periods shall not
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constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Owner
or its agents by reason of inconvenience or annoyance to Tenant, or injury to
or interruption of Tenant's business or otherwise.
SECTION 29.08. OWNER'S RIGHT TO STOP SERVICE: Owner reserves the right to
stop the service of the heating, air conditioning, ventilating, elevator,
plumbing, electrical or other mechanical systems or facilities in the
Building when necessary by reason of accident or emergency, or for repairs,
alterations, replacements or improvements, which, in the judgment of Owner
are desirable or necessary, until said repairs, alterations, replacements or
improvements shall have been completed. The exercise of such right by Owner
shall not constitute an actual or constructive eviction, in whole or in part,
or entitle Tenant to any abatement or diminution of rent, or relieve Tenant
from any of its obligations under this Lease, or impose any liability upon
Owner or its agents by reason of inconvenience or annoyance to Tenant, or
injury to or interruption of Tenant's business, or otherwise.
ARTICLE 30
TABLE OF CONTENTS, ETC.
SECTION 30.01. TABLE OF CONTENTS/CAPTIONS: The Table of Contents and the
captions following the Articles and Sections of this Lease have been inserted
solely as a matter of convenience and in way define or limit the scope or
intent of any provisions of this Lease.
ARTICLE 31
MISCELLANEOUS DEFINITIONS, SEVERABILITY AND INTERPRETATION PROVISIONS
SECTION 31.01. The term "business days" as used in this Lease shall
exclude Saturday's, Sundays and holidays, the term "Saturdays" as used in
this Lease shall exclude holidays and the term "holidays" as used in this
Lease shall mean all days observed as legal holidays by either the New York
State Government or the Federal Government.
SECTION 31.02. The terms "person" and "persons" as sued in this Lease
shall be deemed to include natural persons, firms, corporations, associations
and any other price or public entities, whether any of the foregoing are
acting on their own behalf or in a representative capacity.
SECTION 31.03. The term "prime rate" shall mean the rate of interest
announced publicly by Chemical Bank, or its successor, from time to time, as
Chemical Bank's or such successor's base rate, or if there is no such base
rate, then the rate of interest charged by Chemical Bank or its successor to
its most credit worthy customers on commercial loans having a ninety (90) day
duration.
SECTION 31.04. If any term, covenant or condition of this Lease or any
application thereof shall be invalid or unenforceable, the remainder of this
Lease and any other application of such term, covenant or condition shall not
be affected thereby.
SECTION 31.05. This Lease shall be construed without regard or any
presumption or other rule requiring construction against the party causing
this Lease to be drafted. In the even of any action, suit, dispute or
proceeding affecting the terms of this Lease, no weight shall be given to any
deletions or striking out of any of the terms of this Lease contained in any
draft of this Lease and no such deletion or strike out shall be entered into
evidence in any such action, suit or dispute or proceeding given any weight
therein.
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ARTICLE 21
ADJACENT EXCAVATION
SECTION 32.01. IF an excavation shall be made upon land adjacent to the
Real Property, 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 world as said person shall
deem necessary to prefoundations and no such entry shall constitute an actual
or constructive eviction, in whole or in part, or entitled Tenant to any
abatement or diminution of rent, or relive Tenant from any of its obligations
under this Lease, or impose any liability upon Owner or said person.
ARTICLE 33
BUILDING RULES
SECTION 33.01. Tenant shall observe faithfully, and comply strictly with,
and shall not permit the violation of the Building Rules set forth in
Schedule A annexed to and made a part of this Lease and such additional
reasonable Building Rules as Owner may, from time to time, adopt. All of the
terms, covenants and conditions of Schedule A are incorporated in this Lease
by reference and shall be deemed part of this Lease as through fully set
forth in the body of this Lease. The term "Building Rules" as used in this
Lease shall include those set forth in Schedule A and those hereafter made or
adopted as provided in this Section. In case Tenant disputes the
reasonableness of any additional Building Rule hereafter adopted by Owner,
the parties hereto agree to submit the question of the reasonableness of such
Building Rule hereafter adopted by Owner, the parties hereto agree to submit
the question of the reasonableness of such Building Rule for decision to the
Chairman of the Board of Directors of the Management Division of the Real
Estate Board of new York, Inc., or its successor (the "Chairman"), or to such
impartial person or persons as the Chairman may designate, whose
determination shall be final and conclusive upon Owner and Tenant. Tenant's
right to dispute the reasonableness of any additional Building Rule shall be
deemed waived unless asserted by service of a notice upon Owner within ten
(10) days after the date upon which Owner shall give notice to Tenant of the
adoption of any such additional Building Rule. Owner shall have no duty or
obligation to enforce any Building Rule, or any term, covenant or condition
of any other lease, against any other tenant or occupant of the Building, and
Owner's failure or refusal to enforce any Building Rule or any term, covenant
or condition of any other lease against any other tenant or occupant of the
Building shall not constitute an actual or constructive eviction, in whole or
in part, or entitle Tenant to any abatement or diminution or rent, or relieve
Tenant form any of its obligations under this Lease, or impose any liability
upon Owner or its agents by reason of inconvenience or annoyance to Tenant,
or injury to or interruption of Tenant's business, or otherwise.
ARTICLE 34
BROKER
SECTION 34.10. Tenant and warrants to Owner that no broker was responsible
for bringing about this Lease and that this Lease was negotiated directly
between Owner and Tenant. Tenant shall indemnify Owner from all loss, cost,
liability, damage and expenses, including, but no limited to, reasonable
counsel fees and disbursement, arising from any breach of the foregoing
representation and warranty.
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ARTICLE 35
SECURITY
SECTION 35.01. LETTER OF CREDIT: A. Tenant has deposited with Owner, a the
time of the execution and delivery of this Lease, an unconditional,
irrevocable letter of credit issued by United Jersey Bank (referred to as the
"Bank"), in favor of Owner, in the sum of TWENTY-SIX THOUSAND TWO HUNDRED
FIFTY AND 00/100 ($26,250.00) DOLLARS in funds available immediately or same
day funds in the City of New York, as security for the faithful observance
and performance by Tenant of the terms, covenants and conditions or this
Lease on Tenant's part to be observed and performed. Such letter of credit is
for a term of not less than one (1) year which term shall be automatically
renewed for successive on (1) year terms, unless the Bank gives not less than
on hundred twenty (120) days prior written notice that it will not so renew
the letter of credit for such successive term and the last term of the letter
of credit shall end not less than sixty (60 days after the Expiration Date.
If such letter of credit is not automatically renewed as aforesaid, Tenant
agrees to cause the Bank to renew such letter of credit, from time to time,
during the Demised Term, at least ninety (90) days prior to the expiration of
said letter of credit or any renewal or replacement, upon the same terms and
conditions. In the event of any transfer of said letter of credit pursuant to
Section 35.05, and notice of such transfer to Tenant, Tenant, within twenty
(20) days thereafter, shall cause a new letter of credit to be issued by said
Bank to the tranferee, upon the same terms and conditions, in replacement of
the letter of credit to transferred and Owner agrees that, simultaneously
with the delivery of such new letter of credit, it will return to said Bank
the letter of credit being replaced. The letter of credit deposited
hereunder, and all renewals and replacements, are referred to, collectively,
as the "Letter of Credit". The Letter of Credit shall be held in trust by
Owner for the purposes set forth in this Article and shall not be transferred
except for transfer (a) to an agent for collection, or (b) pursuant to the
provisions of Section 35.05. In the event Tenant defaults beyond any
applicable grace period hereunder in the performance of its obligations to
issue a replacement Letter of Credit, or in the observance or performance of
Tenant's agreement to cause the Bank to renew the Letter of Credit, in
addition to all rights and remedies which Owner may have under this Lease or
at law, shall have the right to require the Bank to make payment to Owner of
the entire sum of TWENTY-SIX THOUSAND TWO HUNDRED FIFTY AND 00/100
($26,250.00) DOLLARS or the undrawn portion thereof, as the case may be,
represented by the Letter of Credit, which sum shall be held by Owner as Cash
Security (as said term is hereinafter defined) in the same manner as if said
sum had been deposited with Owner pursuant to the provisions of Subsection B
of this Section. Of said payment of the entire sum of TWENTY-SIX THOUSAND TWO
HUNDRED FIFTY AND 00/100 ($26,250.00) DOLLARS is made to Owner by reason of
Tenant's failure to renew or replace the Letter of Credit in accordance with
the foregoing provisions of this Subsection, such default by Tenant shall be
deemed cured by such payment, with the effect that Owner shall not have the
right to terminate this Lease or the term hereof by reason of such default,
but the foregoing provision shall not apply to any other default under this
Lease. The Letter of Credit provides for partial drawings. In the event
Tenant defaults in the payment when due of an installment of Fixed Rent or in
the payment when due of any additional rent and such default shall continue
for a period of ten (10) days after notice by Owner to Tenant of such default
or if this Lease and the Demised Term shall expire and come to an end as
provided in Article 16 or by or under any summary proceeding or any other
action or proceeding, or if Owner shall re0enter the Demised Premises as
provided in Article 17, or by or under any summary proceeding or any other
action or proceeding, then Owner, in addition to all rights and remedies
which Owner may have under this Lease or at law, may from time to time, draw
on the Letter of Credit in one or more drawings for the amount of any Fixed
Rent or additional rent then due and for any amount then due and payable to
Owner under Article 18 or Article 19. In the event of a partial drawing, as
provided in the immediately preceding sentence, Tenant shall, within five (5)
days after demand, cause the Bank to issue an amendment to the Letter of
Credit restoring the amount available thereunder to TWENTY-SIX THOUSAND TWO
HUNDRED FIFTY AND 00/100 ($26,250.00) DOLLARS. Notwithstanding anything to
the contrary set forth in this Lease, including, but no limited to, the
foregoing provisions of this Article, in addition to all rights granted to
Owner pursuant to the provisions of the Lease, if this Lease and the Demised
Term shall expire and come to an end as provided in Article 16, or by or
under any summary proceeding, or any other action or proceeding, or if Owner
shall re-enter the Demised Premises as provided in Article 17, or by or under
any summary proceeding or any other action
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or proceeding. Owner, in addition to all rights and remedies which Owner may
have under this Lease or at law, shall have the right to require the Bank to
make payment to Owner of the entire sum of TWENTY-SIX THOUSAND TWO HUNDRED
FIFTY AND 00/100 ($26,250.00) DOLLARS or the undrawn portion thereof, as the
case may be, represented by the Letter of Credit, which sum shall be held by
Owner as Cash Security in the same manner as if said sum had been deposited
with Owner pursuant to the provisions of Subsection B of this Section.
B. At any time during the term of this Lease, Tenant may require that
Owner return the Letter of Credit by depositing with Owner, in lieu thereof,
as security for the faithful observance and performance by Tenant of the
terms, covenants and conditions of this Lease on Tenant's part to be observed
and performed, the sum of TWENTY-SIX THOUSAND TWO HUNDRED FIFTY AND 00/100
($26,250.00) DOLLARS, in cash or by a cashier's check, drawn by or on a bank,
which is a member of the New York Clearing House Association, and payable to
the order of Owner, which sum is referred to as the "Cash Security". Any Cash
Security shall be held subject to the provisions of Section 7-103 of the
General Obligations Law or any similar statute successor thereto.
SECTION 35.02. APPLICATION OF CASH SECURITY: In the event Tenant defaults
in the observance or performance of any term, covenant or condition of this
Lease on Tenant's part to be observed or performed, including, gut not
limited to, the covenant for the payment of Fixed Rent and additional rent,
beyond the applicable grace period provided under this Lease for curing such
default, Owner may use, apply or retain the whole or any part of any Cash
Security held by Owner under any of the provisions of Section 35.01, to the
extent required for the payment of any Fixed Rent, additional rent or nay
other sum with respect to which Tenant is in default, or for the payment of
any sum which Owner may expend or incur because of Tenant's default in the
observance or performance of any such term, covenant of condition, including,
but not limited to, the payment of any damages or deficiency in the reletting
of the Demised Premises, whether such damage or deficiency accrued before or
after summary proceedings or other re-entry by Owner, without thereby waiving
any other rights or remedies of Owner with respect to such default, and Owner
shall hold the remainder of such Cash Security as security for the faithful
performance and observance by Tenant of the terms, covenants and conditions
of this Lease on Tenant's part to be observed and performed with the same
rights as hereinabove set forth to use, apply or retain all or any part of
such remainder in the event of any further default by Tenant under this
Lease.
SECTION 35.03. RESTORATION OF CASH SECURITY: If Owner uses, applies or
retains the whole or any part of the Cash Security held by Owner under any of
the provisions of Section 35.01, Tenant, promptly after notice thereof, shall
deliver to Owner, in cash or by a cashier's check, or Tenant's certified
check, in either case drawn by or on a bank which is a member of the New York
Clearing House Association and payable to the order of Owner, the sum
necessary to restore the Cash Security to the sum of TWENTY-SIX THOUSAND TWO
HUNDRED FIFTY AND 00/100 ($26,250.00) DOLLARS.
SECTION 35.04. RETURN OF SECURITY: The Letter of Credit and/or nay
remaining portion of any Cash Security then held by Owner for the performance
of Tenant's obligations under this Lease as security shall be returned to
Tenant after (i) the Expiration Date and (ii) the full observance and
performance by Tenant of all of the terms, covenants and conditions of this
Lease on Tenant's part to be observed and performed, including, but not
limited to, the provisions of Article 21.
SECTION 35.05. TRANSFER OF LETTER OF CREDIT: In the event of a sale or
other transfer of the Land and /or Building, or Owner's interest in this
Lease, Owner shall transfer the Letter of Credit an/or any remaining portion
of any Cash Security then held by Owner as security for the performance of
Tenant's obligations under this Lease to the transferee, and Owner shall
thereupon be released from all liability for the return of such security;
Tenant agrees to look solely to the transferee for the return of any such
security and it is agrees that the provisions of this sentence shall apply to
every sale or transfer of the Land and/or Building or Owner's interest in
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this Lease by Owner named herein or its successors, and to every transfer or
assignment made of any such security. Any transferee shall be deemed to have
agreed that any Letter of Credit or Cash Security Transferred to such
transferee pursuant to this Section shall be held in trust for the purposes
of this Article. A lease of the entire Building pursuant to which the lessee
shall be entitled to collect the rents hereunder shall be deemed a transfer
within the meaning of this Section.
SECTION 35.06. DEPOSIT OF CASH SECURITY IN INTERST-BEARING ACCOUNT: Owner
agrees that, if not prohibited by law or the general policies of lending
institutions in New York City, Owner shall deposit any Cash Security held by
Owner in an interest-bearing savings account at a bank or banks selected by
Owner, and all interest accruing thereon shall be added to and become part of
such Cash Security and shall be retained by Owner under the same conditions
as the principal sum held as Cash Security. Notwithstanding anything to the
contrary set forth in this Article with respect to any Cash Security. Owner
shall be entitled to retain the one (1%) percent administrative fee permitted
by law to be retained by landlords with respect to cash security deposits.
SECTION 35.07. NO ASSIGNMENT of Security by Tenant: Tenant agrees that it
will not assign, mortgage or encumber, or attempt to assign, mortgage or
encumber, the Letter of Credit or any Cash Security held by Owner under this
Lease, and that neither Owner nor its successors or assigns shall be bound by
any such assignment, mortgage, encumbrance, attempted assignment, attempted
mortgage or attempted encumbrance. Owner shall not be required to exhaust its
remedies against Tenant before having recourse to the Letter of Credit, the
Cash Security or any other security held by Owner shall not affect any
remedies of Owner which are provided in this Lease or which are available in
law or equity.
ARTICLE 36
ARBITRATION, ETC.
SECTION 36.01. Any dispute (i) with respect to the reasonability of any
failure or refusal or Owner to grant its consent of approval or any request
for such consent or approval pursuant to the provisions of Section 3.01 or
11.03 with respect to which request Owner has agrees, in such Section, not
unreasonably to withhold such consent or approval, or (ii) arising our of the
application of the Operating Expenses provisions of Article 23, which is
submitted to arbitration shall be finally determined by arbitration in the
City of New York in accordance with the rules and regulations then obtaining
of the American Arbitration Association or its successor. Any such
determination shall be final and binding upon the parties, whether or not a
judgment shall be entered in any court. In making their determination, the
arbitrators shall not subtract from, add to, or otherwise modify any of the
provisions of this Lease. Owner and Tenant may, at their own expense, be
represented by counsel and employ expert witnesses in any such arbitration.
Any dispute with respect to the reasonability of any failure or refusal of
Owner to grant its consent or approval or any request for such consent or
approval pursuant to any of the provisions of this Lease (other than Section
3.01 and 11.03) with respect to which Owner has covenanted not unreasonable
to withhold such consent or approval, and any dispute arising with respect to
the increases in Fixed Rent due to the provisions of Section 23.02 shall
determined by applicable legal proceedings. If the determination of any such
legal proceedings, or of any arbitration held pursuant to the provisions of
this Section with respect to disputes arising under Section 3.01 and 11.03 or
the Operating Expense provision of Article 23, shall be adverse to Owner,
Owner shall be deemed to have granted the requested consent or approval, or
be bound by any determination as to Taxes and Operating Expenses and the
increases in Fixed Rent relating thereto, but that shall be Tenant's sole
remedy in such event and Owner shall not be liable to Tenant for a breach of
Owner's covenant not unreasonably to withhold such consent or approval, or
otherwise. Each party shall pay its own counsel and expert witness fees and
expenses, if any, in connection with any arbitration held pursuant to the
provisions of this Section and parties will share all other expenses and fees
of any such arbitration.
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ARTICLE 37
PARTIES BOUND
SECTION 37.01. The terms, covenants and conditions contained in this Lease
shall bind and inure to the benefit of Owner and Tenant and, except as
otherwise provided in this Lease, their respective heirs, distributees,
executors, administrators, successors and assigns. However, the obligations
of Owner under this Lease shall no longer be binding upon Owner named herein
after the sale, assignment or transfer by Owner named herein (or upon any
subsequent Owner after the sale, assignment or transfer by such subsequent
Owner) of its interest in the Building as owner or lease, and in the event of
any such sale, assignment or transfer, such obligations shall thereafter be
binding upon the grantee, assignee or other transferee of such interest, and
any such grantee, assignee or transferee, by accepting such interest, shall
be deemed to have assumed such obligations. A lease of the entire Building
shall be deemed a transfer within the meaning of the foregoing sentence.
Neither the partners (direct or indirect) comprising Owner, nor the
shareholders (nor any of the partners comprising same), partners, directors
or officers of any of the foregoing (collectively, the "Owner's Parties")
shall be liable for the performance of Owner's obligations under the Lease.
Tenant shall look solely to Owner to enforce Owner's obligations hereunder
and shall not seek any damages against any of the Owner's Parties.
Notwithstanding anything contained in this Lease to the contrary, Tenant
shall look solely to the estate and interest of Owner, its successors and
assigns, in the Real Property and Building for the collection or satisfaction
of any judgment recovered against Owner based upon the breach by Owner of any
of the terms, conditions or covenants of this Lease on the part of Owner to
be performed, and no other property or assets of Owner or any of Owner's
Parties shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to either
this Lease, the relationship of landlord and tenant hereunder, or Tenant's
use and occupancy of the Demised Premises.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this Lease Fas of the day and year first above written.
THE 110 WALL COMPANY
Witness:
- ----------------------------------- By:
--------------------------------------
Owner
Name:
Title: Partner
KHAN, EDWARDS & COMPANY, INC.
Assets: By:
Acting Secretary Tenant
Name: Mohammad Ali Khan
Title: President
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STATE OF NEW JERSEY )
) ss.:
COUNTY OF MIDDLESEX )
On this 29 day of February, 1996, before me personally came Mohammad Ali
Khan & Asim Kholi, to me known, who being by me duly sworn, did depose and
say that he resides in 12 Marco Polo, City of Franklin Park, State of NY,
that he is the President & Acting Secretary of KHAN, EDWARDS & COMPANY, INC.
the corporation described in and which executed the foregoing Lease, as
Tenant; and that he signed his name thereto by authority of the Board of
Directors of said corporation.
/s/ Myra Loonin
-----------------------------------
Notary Public
MYRA LOONIN
A Notary Public of New Jersey
My Commission Expires Jan. 4,
1999
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SCHEDULE A
BUILDING RULES
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls of the Building shall not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from
the premises demised to any tenant or occupant. Any tenant whose premises are
situate on the ground floor of the Building shall, at said tenant's own
expense, keep the sidewalks and curb directly in front of said premises clean
and free from ice and snow.
2. No awnings or other projections shall be attached to the outside walls
or windows of the Building without the prior consent of Owner. No curtains,
blinds, shades, or screens shall be attached to or hung in, or used in
connection with, any window or door of the premises demised to any tenant or
occupant, without the prior consent of Owner. Such awnings, projections,
curtains, blinds, shades, screens or other fixtures must be of a quality,
type, design and color, and attached in a manner, approved by Owner.
3. No sign, advertisement, object notice, or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or inside
of the premises demised to any tenant or occupant or of the Building without
the prior consent of Owner. Interior signs on doors and directory tablets, if
any, shall be of a size, color and style approved by Owner.
4. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed, nor shall any bottles, parcels,
or other articles be placed on any window sills.
5. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors,
vestibules or other public parts of the Building.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and
no sweepings, rubbish, rags, or other substances shall be thrown therein. No
tenant shall bring or keep, or permit to be brought or kept, any inflammable,
combustible or explosive fluid, material, chemical or substance in or about
the premises demised to such tenant.
7. No tenant or occupant shall mark, paint, drill into, or in any way
deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shall be permitted, except
with the prior consent of Owner, and as Owner may direct. No tenant or
occupant shall install any resilient tile or similar floor covering in the
premises demised to such tenant or occupant except in a manner approved by
Owner.
8. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the premises demised to any tenant. No cooking shall be done
or permitted in the Building by any tenant without the approval of Owner. No
tenant shall cause or permit any unusual or objectionable odors to emanate
from the premises demised to such tenant.
9. No space in the Building shall be used for manufacturing, for the
storage of merchandise, or for the sale of merchandise, goods or property of
any kind at auction.
10. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or
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interfere with other tenants or occupants of the Building or neighboring
buildings or premises whether by the use of any musical instrument, radio,
television set or other audio device, unmusical noise, whistling, singing, or
in any other way. Nothing shall be thrown out of any doors or windows.
11. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows, nor shall any changes be made in locks or the mechanism
thereof. Each tenant must, upon the termination of its tenancy, restore to
Owner all keys of stores, offices and toilet rooms, either furnished to, or
otherwise procured by, such tenant.
12. All removals from the Building, or the carrying in or out of the
Building or the premises demised to any tenant, of any safes, freight,
furniture or bulky matter of any description must take place at such time and
in such manner as Owner or its agents may determine, from time to time. Owner
reserves the right to inspect all freight to be brought into the Building and
to exclude from the Building all freight which violates any of the Building
Rules or the provisions of such tenant's lease.
13. No tenant shall use or occupy, or permit any portion of the premises
demised to such tenant to be used or occupied, as an office for a public
stenographer or typist, or as a barber or manicure shop, or as an employment
bureau. No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for such tenant or occupant in the
Building, nor advertise for laborers, giving an address at the Building.
14. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning, towels, or other like service, from
any company or persons not approved by Owner, such approval not unreasonably
to be withheld.
15. Owner shall have the right to prohibit any advertising by any tenant
or occupant which, in Owner's opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon notice from
Owner, such tenant or occupant shall refrain from or discontinue such
advertising.
16. Owner reserves the right to exclude from the Building, between the
hours of 6 P.M. and 8 A.M. on business days and at all hours on Saturdays,
Sundays and holidays, all persons who do not present a pass to the Building
signed by Owner. Owner will furnish passes to persons for whom any tenant
requests such passes. Each tenant shall be responsible for all persons for
whom it requests such passes and shall be liable to Owner for all acts of
such persons.
17. Each tenant, before closing and leaving the premises demised to such
tenant at any time, shall see that all entrance doors are locked and all
windows closed.
18. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Owner's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
19. No premises shall be used, or permitted to be used, for lodging or
sleeping or for any immoral or illegal purpose.
20. The requirements of tenants will be attended to only upon application
at the office of Owner. Building employees shall not be required to perform,
and shall not be requested by any tenant or occupant to perform, any work
outside of their regular duties, unless under specific instructions from the
office of Owner.
21. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant and occupant
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shall cooperate in seeking their prevention.
22. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance except those equipped with rubber tires, rubber side guards and
such other safeguards as Owner may require.
23. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Owner, and shall
employ such exterminators therefor as shall be approved by Owner.
24. No premises shall be used, or permitted to be used, at any time, as a
store for the sale or display of goods, wares or merchandise of any kind, or
as a restaurant, shop, booth bootblack or other stand, or for the conduct of
any business or occupation which predominantly involves direct patronage of
the general public in the premises demised to such tenant, or for
manufacturing or for other similar purposes.
25. No tenant shall clean, or permit to be cleaned, any window of the
Building from the outside in violation of Section 202 of the New York Labor
Law or any successor law or statute, or of the rules of the Board of
Standards and Appeals or of any board or body having or asserting
jurisdiction.
26. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific approval of Owner. If any such matter requires special
handling, only a person holding a Master Rigger's license shall be employed
to perform such special handling. No tenant shall place, or permit to be
placed, on any part of the floor or floors of the premises demised to such
tenant, a load exceeding the floor load per square foot which such floor was
designed to carry and which is allowed by law. Owner reserves the right to
prescribe the weight and position of safes and other heavy matter, which must
be placed so as to distribute the weight.
A-3
<PAGE>
ADDITIONAL SPACE AND LEASE MODIFICATION AND EXTENSION AGREEMENT
AGREEMENT made as of the 23rd day of January, 1997 between THE 110 WALL
COMPANY, a New York partnership having its principal office at 345 Park
Avenue, Borough of Manhattan, City, County and State of New York, as landlord
(referred to herein as "Owner"), and KLEIN MAUS AND SHIRE INCORPORATED, a New
York corporation having an office at 110 Wall Street, Borough of Manhattan,
City, County and State of New York, as tenant (referred to herein as
"Tenant").
WITNESSETH:
WHEREAS:
1. Under date of February 29, 1996, Owner and Khan, Edwards & Company,
Inc., as predecessor-in-interest to Tenant, entered into a lease affecting
the entire twenty-fourth (24th) floor in the building (referred to herein as
the "Building"), known as 110 Wall Street, Borough of Manhattan, City, County
and State of New York; and
2. Said lease, as modified by various written agreements, if any, is for a
term (referred to herein as the "Demised Term") which shall end on August 31,
2001, unless sooner terminated pursuant to any of the terms, covenants or
conditions of the Lease or pursuant to law and is referred to herein as the
"Lease"; and the premises so leased to Tenant pursuant to the provisions of
the Lease, together with all appurtenances, fixtures, improvements, additions
and other property attached thereto or installed therein at any time during
the Demised Term other than Tenant's Personal Property (as defined in the
Lease), are referred to herein, collectively, as the "Demised Premises"; and
3. Tenant now desires to lease and add to the Demised Premises the entire
nineteenth (19th) floor of the Building and Owner is willing to lease said
entire nineteeth (19th) floor to Tenant, subject to the provisions of this
Agreement (said entire nineteenth (19th) floor of the
A-4
<PAGE>
Building, together with all appurtenances, fixtures, improvements, additions
and other property attached thereto or installed therein at any time during
the Demised Term, other than Tenant's Personal Property as defined in the
Lease, is referred to herein as the "Additional Space"); and
4. The parties desire to record herein their understanding with respect to
the foregoing.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
FIRST: The Lease is hereby modified as follows:
A. Owner hereby leases to Tenant and Tenant hereby hires from Owner the
Additional Space for a term to commence, on February 15, 1997 and to end on
the Expiration Date of the Lease, i.e. August 31, 2002, as herein extended
pursuant to the provisions of Article SECOND hereof, unless the Demised Term
shall sooner terminate pursuant to any of the terms, covenants or conditions
of the Lease or pursuant to law (the date on which the term applicable to the
Additional Space shall commence is sometimes referred to herein as the
"Additional Space Commencment Date").
B. (1) Tenant acknowledges that Owner had made no representations to
Tenant as to the condition of the Additional Space and Tenant agrees to
accept possession of the Additional Space in the condition which shall exist
on the Additional Space Commencement Date "as is" and further agrees that
Owner shall have no obligation to perform any work or make any installations
in order to prepare the Additional Space for Tenant's occupancy, except that
on or about the Additional Space Commencement Date and without otherwise
affecting the Additional Space Commencement Date, Owner shall cause the
following work to be done in the Additional Space at Owner's sole cost and
expense (referred to herein as "Owner's Initial Work"):
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<PAGE>
1. Remove temporary wall near telephone closet;
2. Remove wall covering in Additional Space and in common corridor;
3. Paint the painted surfaces in the Additional Space and the common
corridor with a single coat of paint in flat finish, in colors selected by
Tenant from Building standard colors (but not more than one (1) color in any
room or area);
4. Supply and install Building standard carpeting;
5. Patch ceiling, where required; and
6. Touch up woodwork.
(2) Owner's Initial Work required to be performed and made by Owner
pursuant to the provisions of paragraph B(1) of this Article FIRST shall be
equal to standards adopted by Owner of the Building and shall constitute a
single, non-recurring obligation on the part of Owner and shall be completed
on or about the Additional Commencement Date. In the event this Lease is
renewed or extended for a further term by agreement or operation of law,
Owner's obligation to perform such work shall not apply to such renewal or
extension.
(3) Owner may enter the Additional Space to perform the foregoing work and
installations, and entry by Owner, its agents, servants, employees or
contractors for such purpose shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement, or
diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Owner, or its agents, by reason of
inconvenience or annoyance to Tenant, or injury to, or interruption of
Tenant's business or otherwise.
(4) If Tenant fails to designate its selection of such Building standard
paint color(s) and/or carpeting on or prior to execution of this Agreement by
Tenant, Tenant shall be deemed to have waived its right to have such paint
color(s) and/or carpeting not so selected form a part of Owner's Initial
Work.
C. From and after the Additional Space Commencment Date, the Lease shall
be deemed modified, as follows:
(i) The Demised Premises shall include the Additional Space for all
purposes of the Lease;
(ii) The Fixed Rent reserved in the Lease shall be increased, subject to
the provisions of subparagraph (iv) of the Paragraph C, by the sum of
SEVENTEEN THOUSAND FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS per annum
("First Rent Period") from the Additional Space Commencement Date to August
14, 1997, ONE HUNDRED FIFTY THOUSAND FIVE HUNDRED and 00/100 ($150,000.00)
DOLLARS per annum ("Second Rent Period") from August 15, 1997 to and
including August 14, 1998 and the sum of ONE HUNDRED FIFTY-SEVEN THOUSAND
FIVE HUNDRED and 00/100 ($157,500.00) DOLLARS ("Third Rent Period") from
August 15, 1998 to the Expiration Date, as herein extended, and the monthly
installments of Fixed Rent shall be increased accordingly by the sum of ONE
THOUSAND FOUR HUNDRED FIFTY-EIGHT and 33/100 ($1,458.33) DOLLARS for the
First Rent Period. TWELVE THOUSAND FIVE HUNDRED FOFTY-ONE and 67/100
($12,541.67) DOLLARS for the Second Rent
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<PAGE>
Period and THIRTEEN THOUSAND ONE HUNDRED TWENTY-FIVE and 00/100 ($13,125.00)
DOLLARS for the Third Rent Period to conform with such increases in the Fixed
Rent.
(iii) The sum of "SEVENTEEN THOUSAND FIVE HUNDRED and 00/100 ($17,500.00)
DOLLARS" appearing in subsection A of Section 29.05 of the Lease (as said sum
may have been increased or decreased pursuant to the provisions of said
Section and the Lease), shall be increased by the sum of SEVENTEEN THOUSAND
FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS, subject to the provisions of
subparagraph (iv) of this Paragraph C;
(iv) (1) If, at any time or times between January 10, 1997 and the
effective Additional Space Commencement Date, the rates at which Owner
purchases electrical energy from the the public utility corporation supplying
electrical service to the Building or any charges incurred on taxes payable
by Owner in connection therewith shall have been increased or decreased, the
amount of the increase in the Fixed Rent set forth in subparagraph (ii) of
this Paragraph C shall be increased or decreased, as the case may be, in an
annual amount which shall fairly reflect the estimated increase or decrease,
as the case may be, in the annual cost to Owner of redistributing or
furnishing electrical service to Tenant in the Additional Space provided that
notwithstanding anything to the contrary contained in the provisions of this
subdivision (1), in no event shall (a) the increase determined in accordance
with subparagraph (iii) of this Paragraph C ever be decreased below SEVENTEEN
THOUSAND FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS and (b) the Fixed Rent
ever be decreased by more than such decrease in the increase as so limited by
the provisions of subclause (a) of this subdivision (1). If, within ten (10)
days after Owner shall have notified Tenant of any such increase or decrease,
Owner and Tenant shall fail to agree upon the amount of such increase or
decrease, as the case may be, in lieu of such agreement, the estimated
increase or decrease, as the case may be, in the annual cost to Owner of
redistributing or furnishing electrical service to Tenant in the Additional
Space shall be finally determined by an independent electrical engineer or
electrical consulting firm selected by Owner who shall certify such
determination in writing to Owner and Tenant. Following any such agreement or
determination, Owner and Tenant shall enter into a written supplementary
instrument, in form reasonably satisfactory to Owner modifying the Lease by
(x) increasing or decreasing, as the case may be, the Fixed Rent for the
entire term applicable to the Additional Space in the amount equal to such
estimated increase or decrease in the annual cost to Owner of redistributing
or furnishing electrical service to Tenant in the Additional Space as so
agreed or determined and (y) increasing or decreasing, as the case may be,
the sum of SEVENTEEN THOUSAND FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS
appearing in subparagraph (iii) of this Paragraph C in a like amount. Failure
to enter into such written supplementary instrument shall not vitiate any
such agreement or determination;
(2) The parties agree that although the charge for the service of
redistributing and furnishing electrical energy in the Additional Space has
been included in the increase in the Fixed Rent set forth in subparagraph
(ii) of this Paragraph C on a so-called "rent inclusion basis", Owner and
Tenant agree that the value to Tenant of such
A-7
<PAGE>
service may not be fully reflected in said increase in the Fixed Rent.
Accordingly, Tenant agrees that Owner shall have the right to cause an
independent electrical engineer or electrical consulting firm selected by
Owner to make a determination at any time following full commencement of
Tenant's normal business activities in the entire Additional Space of the
full value to Tenant on an annual basis of such services supplied by Owner,
to wit: the potential electrical energy made available to Tenant annually
based upon the estimated capacity of the electrical feeders, risers, wiring
and other electrical facilities servicing the Additional Space. If it shall
be determined that the full value to Tenant of such service is in excess of
the sum of SEVENTEEN THOUSAND FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS
per annum [as said sum may previously have been adjusted pursuant to the
provisions of subdivision of (1) this subparagraph (iv)], the parties shall
enter into a written supplementary instrument in form reasonably satisfactory
to Owner, modifying the Lease as of the Additional Space Commencement Date by
further increasing the Fixed Rent for the remainder of the Demised Term by an
annual amount equal to such excess, in which event the sums of SEVENTEEN
THOUSAND FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS" set forth in
subsection A of Section 29.05 of the Lease (as said sum may previously have
been adjusted pursuant to the provisions of the Lease and this Agreement)
shall be increased in a like amount. However, if it shall be so determined
that the full value to Tenant of such services does not exceed SEVENTEEN
THOUSAND FIVE HUNDRED and 00/100 ($17,500.00) DOLLARS [as said sum may
previously have been adjusted pursuant to the provisions of subdivision (1)
of this subparagraph (iv)], no such instrument shall be executed and there
shall be no increase or decrease in the Fixed Rent by reason of such
determination. Failure to enter into such written supplementary instrument
shall not vitiate any such determination;.
(3) The Demised Premises Area set forth in Section 23.01 of the Lease
shall be increased by 7,000 square feet to a total of 14,000 square feet; and
(4) The provisions of Section 11.03 of the Lease shall be modified to the
extent that the number "two (2)" appearing in the first sentence thereof,
shall be increased by two (2) to a total of "four (4)".
SECOND: From and after the Additional Space Commencement Date, the
Expiration Date of the Lease shall be deemed extended to and including August
31, 2002 and all of the terms, covenants and conditions of the Lease shall
apply with respect to the Lease as so extended.
THIRD: Tenant represents and warrants to Owner that no broker was
responsible for bringing about this Agreement and that this Agreement was
negotiated directly between Owner and Tenant.
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<PAGE>
FOURTH: Except to the extent expressly modified by the foregoing
provisions of this Agreement, the Lease is hereby ratified and confirmed in
all respects.
IN WITNESS THEREOF, the parties hereto have here unto set their hands and
seals as of the day and year first above written.
THE 110 WALL STREET COMPANY, OWNER
By:
------------------------------------------
Partner
KLEIN MAUS AND SHIRE INCORPORATED, TENANT
By:
------------------------------------------
Oper. Mgr.
A-9
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the 22nd day of January, 1997, before me personally came Asim S. Kohn
to me known, who, being by me duly sworn, did depose and say that he resides
at 110 Wall Street, New York, New York that he is the officer of KLEIN MAUS
AND SHIRE INCORPORATED, the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by authority of the
Board of Directors of said corporation.
Martin M. Berk
Notary Public
A-10
<PAGE>
[COWEN LETTERHEAD]
February 13, 1997
Mr. Mohammad Ali Khan, President
Klein Maus and Shire
110 Wall Street New
York, NY 10005
Dear Mr. Khan:
Whereas, Cowen & Company ("Cowen") hereby enters into a Clearing Agreement
with Klein Maus and Shire (hereinafter "Introducing Broker", "you" or "your")
and Introducing Broker and Cowen have agreed to the arrangements concerning
the clearing services to be performed as shown herein.
Therefore, from the date of this Agreement, we will execute and clear
transactions on a fully disclosed basis for public customer and proprietary
accounts introduced by you and accepted by Cowen, ("Introduced Accounts"),
upon the terms and conditions hereinafter set forth. It is agreed and
understood that all dealings between us are at all times subject to the rules
and regulations of the New York Stock Exchange, Inc. ("NYSE"), the American
Stock Exchange ("ASE"), the National Association of Securities Dealers
("NASD") and any other exchange or association of which either of us is or
may become a member, and of any governmental agencies to whose jurisdiction
either of us may be subject.
FIRST: (A) Commissions received from Introduced Accounts will be collected
by Cowen & Co. Cowen will deduct its clearing charge (see Appendix I attached
hereto and made a part hereof) from your gross commissions on a monthly
basis. Clearing charges shall be calculated monthly for that month's
business. The balance of such commissions, less any other charges or
deductions provided for herein, shall be paid to Introducing Broker on the
last Friday of the month.
Cowen shall bill Introducing Broker for all exchange and OCC transaction
fees relating to the handling of transactions in listed Options, Equities,
Bonds, Etc., for the accounts of Introducing Broker on the New York Stock
Exchange, the American Stock Exchange or any other exchange.
(B) Cowen reserves the right to refuse to clear trades for any reason
whatsoever between Introducing Broker and any broker as to which Cowen shall
notify the Introducing Broker. On all net transactions for which stamped
comparisons have not been received from the other broker by the third
business day following the transactions, Cowen will notify Introducing Broker
and if said transactions are not compared by settlement date they will be
handled pursuant to instructions from and for the account and risk of
Introducing Broker. In addition, Introducing Broker agrees that
<PAGE>
all of its trading accounts will be paid in full by settlement date.
Introducing Broker agrees to assume sole responsibility for any loss incurred
by Cowen in transactions with firms with which it deals on a principal basis
giving up Cowen for clearance.
SECOND: Introducing Broker hereby represents that it is a member in good
standing of the exchanges and associations shown in this paragraph SECOND and
that its registration as a broker dealer is currently in effect. Conversely,
Cowen agrees to indemnify and hold Introducing Broker harmless from and
against losses, costs or expenses arising out of any failure of Cowen to
maintain proper registration with the Association shown below, including all
other exchanges and/or clearing organizations which Cowen is a member. You
have fulfilled all registration and other requirements of all states and the
District of Columbia to the extent that such registration and other
requirements are applicable to you. Introducing Broker agrees to indemnify
and hold Cowen harmless from and against any losses, costs or expenses
arising out of any failure of Introducing Broker to be properly registered.
You have advised us of any arrangement you have made or expect to make with
any other firm for the provision by such firm of clearing service for any of
your Customer or Firm accounts. It is understood that this agreement will be
submitted to the NYSE and will be subject to its approval under Rule 382.
Memberships: National Association of Securities Dealers, Inc.
THIRD: (A) Interest profit earned on debit balances in Introduced Accounts
will be proprietary to and fully retained by Cowen. Neither Introducing
Broker nor its customers will receive interest credit for any credit balances
which any Introduced Accounts may from time to time leave on deposit at
Cowen. Introducing Broker will be charged interest at the Cowen Base Debit
Interest Rate as defined below on any securities delivered to and paid for by
Cowen which must be redelivered by draft, require transfer, have improper
instructions or which for any reason other than Cowen's negligence, require
Cowen to carry such securities, until delivery can be completed. In addition,
you will pay the interest charges on regular loans or day loans in connection
with any underwriting in which you participate as manager or syndicate
member. The "Cowen Base Debit Interest Rate" as used in this Agreement shall
mean the greater of (i) the average broker's call money rate published in the
Wall Street Journal each day or (ii) the daily average rate of interest paid
to banks by Cowen & Co. for broker's call loans.
(B) It is agreed that all expenses of the respective firms including
telephone and communications shall be borne by the party incurring the same
except as set forth in any and all supplements attached hereto. Cowen shall
provide to Introducing Broker at Cowen's expense such forms and documents as
are currently utilized by Cowen in the handling of Introduced Accounts which
Cowen, in its
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<PAGE>
reasonable judgment, believes will be necessary. Upon the request of the
Introducing Broker, prospectuses or disclosure documents including financial
statements shall be provided by Cowen but the cost shall be borne by
Introducing Broker.
FOURTH: Cowen will confirm all purchases and sales to Introduced Accounts
in writing with copies to you. Such confirmations shall bear our name with
the legend "By Arrangement with: Introducing Broker" or shall bear
Introducing Broker's name with the legend "Account Carried by Cowen &
Company". You will receive daily summaries of security transactions effected
by us for your account. Introduced Accounts will be provided with statements
of account by us at such times and with such frequency as we provide such
statements to our customers.
FIFTH: (A) It is agreed that it will be the responsibility of Introducing
Broker to obtain all necessary new account documentation required by Cowen
and to verify the information obtained from the customer upon the opening of
each Introduced Account. Cowen & Company's Account form will be used for this
purpose. It will be the responsibility of Introducing Broker to "know its
customers" and to be fully aware of their investment objectives and Cowen
shall have no responsibility in that respect. In accordance with Rule 405 of
the NYSE and the NASD Conduct Rules, an officer of the Introducing Broker
will approve the opening of each account, and forward any required
documentation to Cowen & Company on a timely basis.
Accordingly, you hereby undertake to learn the essential facts and will
make the necessary credit reference checks with respect to each Introduced
Account and a general partner or officer or other authorized employee or
appropriate securities principle of Introducing Broker will give an approval
for the opening of each account. We are authorized to make such further
inquiry or investigation as we deem necessary before accepting a new account
or continuing an account relationship. At the opening of each Introduced
Account, you shall furnish us with all personal information concerning the
account in a format necessary to input into Cowen's computer system, and
within a reasonable time after the opening of margin accounts and option
accounts you shall also furnish us with executed Margin Agreements and/or
Option Agreements on our forms. However, where any account may have been
opened without Cowen having previously received a properly executed Margin
and/or Option Agreement, then or thereafter, our lack of success in
attempting to obtain the same shall not be deemed a waiver of our
requirements. In addition, upon our request, you shall furnish Cowen with any
other executed documents and/or agreements executed by your customers, on our
regularly used forms and which may be required by us in connection with our
opening, operating or maintaining the accounts of your customers. Introducing
Broker warrants that Introduced Accounts shall not be minors or come under
any prohibition referred to in Rule 407 of the NYSE.
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<PAGE>
(B) For accounts subject to Rule 407 of the NYSE or other relevant NASD
Rules the Introducing Broker shall also be responsible for the supervision of
any Introduced Accounts which are for the employees or officers of member
organizations, selfregulatory organizations or other financial institutions.
The Introducing Broker will also be responsible for identifying these
accounts to Cowen & Company so that duplicate confirmations can be sent by
Cowen & Company to the employer.
(C) It is agreed that the Introducing Broker shall be solely responsible
for the handling and supervision of the Introduced Accounts except as may be
otherwise set forth hereunder and for furnishing of investment advice, if
any, to all Introduced Accounts.
(D) Cowen shall maintain stock records and will be responsible for all
regulatory filings other than those specifically required of introducing
firms or which specifically are required of Introducing Broker based on its
style of business or otherwise. In addition, all documentation and agreements
will be maintained on file by Cowen with Introducing Broker having access to
that documentation when requested which request shall not be unreasonably
denied. It is agreed that the Introducing Broker will maintain on file copies
of all documentation forwarded to Cowen.
SIXTH: (A) You are solely responsible for the supervisory review of any
Introduced Accounts over which your partners or employees have discretionary
authority as required by the various regulatory bodies and, regarding
discretionary orders, by Rule 408 of the NYSE or other relevant rules of the
NASD. You will furnish us with properly executed power of attorney forms for
discretionary accounts handled by you or any other third parties of
Introduced Accounts. Introducing Broker hereby agrees to indemnify and hold
Cowen harmless against all losses, costs, or expenses, including reasonable
attorneys' fees suffered or incurred by us directly or indirectly as a result
of any liabilities or claims arising from the exercise by Introducing Broker,
its partner or employees, or other third parties, of discretionary authority
over Introduced Accounts.
(B) Introducing Broker hereby warrants that any orders or instructions
given by Introducing Broker, its partners or employees, shall have been fully
and properly authorized and that the execution of such orders shall not be in
violation of the Securities Act of 1933 or the Securities Exchange Act of
1934 or any rules or regulations of any securities exchange or other
regulatory agency applicable to such transactions; and Introducing Broker
hereby agrees to indemnify and hold Cowen harmless against all losses, costs
or expenses, including reasonable attorneys' fees, suffered or incurred by us
directly or indirectly, as a result of any breach of Introducing Broker's
said warranty.
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<PAGE>
(C) It shall be the responsibility of the Introducing Broker to review
orders of Introduced Accounts and to properly accept or reject them. The
Introducing Broker will also be responsible for the proper transmission of
all orders to Cowen through the established wire service or telephone to
Cowen, as the case may be. Cowen will be responsible for the review of these
orders for completeness only, prior to their execution, which it shall
handle. Cowen will be responsible for any errors in the execution of orders
which have been properly transmitted by the Introducing Broker. Cowen will
also be responsible for the settlement of these orders, except if failure to
settle is due to an omission on the part of the customer, in which case it
will be the responsibility of the Introducing Broker to seek performance from
the customer. Introducing Broker must notify Cowen in writing before the
close of business on the first business day after trade date of errors in
execution of any order. Cowen's liability for any such errors in execution
shall expire thereafter.
SEVENTH: (A) Customer funds and securities received by the Introducing
Broker shall be promptly forwarded to Cowen for settlement and clearance
consistent with the rules of the NYSE and the NASD. Cowen shall be
responsible for the handling of tender offers, rights and warrants,
redemptions, proxy notices and the payment of dividends and interest. The
Introducing Broker shall be responsible for obtaining the necessary
documentation for the actual clearing and transfer of restricted securities
and for any cost, liability, loss or expense incurred by Cowen as a result of
the failure of such securities to clear and transfer unless such failure is
due to the act or omission of Cowen. Upon proper delivery of securities to
Cowen by the Introducing Broker, Cowen will be responsible for the transfer
of securities and will also handle the transfer of accounts upon receipt of
customer's properly executed instructions.
(B) The party having physical control over particular funds and securities
shall be responsible for their safekeeping.
EIGHTH: Introducing Broker agrees to indemnify and hold Cowen harmless
against any losses brought about by the default in payment of funds or
delivery of securities to you from any Introduced Accounts and to pay all
costs or expenses, including reasonable attorneys' fees, suffered or incurred
by us directly or indirectly in connection with any such funds or securities
due us provided the costs or expenses, including reasonable attorneys' fees
did not arise as a result of the negligence or act of admission by Cowen. You
shall be responsible for our guarantee of signatures of Introduced Accounts
except in those instances where Cowen or its employees have been grossly
negligent in the guarantee of signatures. Introducing Broker shall promptly
give Cowen written notice of commencement of litigation against Introducing
Broker involving any Introduced Account(s). Introducing Broker also agrees
to forward a copy of all written customer complaints to
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Cowen. All customer inquiries and complaints shall be initially handled by
Introducing Broker which will document the same and promptly deliver copies
thereof to Cowen. Separate customer complaint files shall be maintained by
both parties.
NINTH: In Introduced Accounts other than margin accounts you shall be
responsible for purchases for customers until actual and complete payment
therefore has been received by us, and in the case of checks representing
such payment received by us, you shall be responsible until they have been
paid and the proceeds actually received and credited to us by our bank. We
agree to use due diligence in depositing such checks promptly and shall be
responsible for the associated costs should we fail to use due diligence in
depositing such checks. You shall be responsible for sales until acceptable
deliveries to us of the securities involved; and you also agree that all
securities sold by you or your customers will be delivered to Cowen by
settlement date. In the case of failure by Introducing Broker or Introduced
Account(s) to deliver securities sold or pay for securities purchased on
settlement date, Cowen, in executing buy-ins or sell-outs, agrees to follow
the procedures of the NASD's Uniform Practice Code and to be bound by the
financial responsibility rules of the SEC. You shall arrange for timely
settlement of "delivery versus payment" transactions in accordance with NYSE
Rule 387 or such other rules and procedures as may be directed by the NYSE,
ASE, or NASD. You shall obtain your customer's agreement to accept "partial"
deliveries and to abide by other clearance agreements as may be directed by
NYSE, ASE, or the NASD.
We may, at our option, charge interest at 1% above the Cowen Base Debit
Interest Rate for late payments or deliveries. We reserve the right to give
prior oral and/or written notice to you and to any Introduced Account of a
failure to make timely settlement and our intention to take remedial action.
In the case of the purchase or sale of securities "when issued" or where
distribution or delivery is otherwise delayed in an Introduced Account other
than a margin account, you shall be responsible for the transactions until
necessary and satisfactory margin has been received by us for checks
representing such margin until they shall have been paid and the proceeds
actually received and credited to us by the bank.
TENTH: We shall not be required to endorse any "put" or "call" for any
Introduced Account unless the then condition of the account is satisfactory
to us. Introducing Broker will pay to Cowen all commissions paid to it by
option brokers on conventional options. Cowen reserves the right to refuse to
carry option positions which in its sole opinion show either undue
concentration or extraordinary risk.
ELEVENTH: In all Introduced Accounts which are margin
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<PAGE>
accounts you shall be responsible for initial margin in the initial
transaction until such initial margin have been received by us in acceptable
form and to meet maintenance calls. We shall be responsible for the
maintenance of adequate and proper margin in any Introduced Account which is
a margin account and for compliance with Regulation T. It is understood that
customers of Introducing Broker shall be required to maintain the minimum
margin maintenance as established by Cowen. We shall review and call the
margin in Introduced Accounts with the same regularity and in the same manner
as we review and call those of our own customers. We shall endeavor to notify
you in advance of all margin calls and shall provide you with copies of all
such calls. In the event that adequate margin is not deposited in any
Introduced Account in order to bring the account up to the minimum applicable
regulatory requirements or house requirements, you will, upon our demand,
notify your customer to immediately provide us with adequate protection
either in cash or securities. In the event that satisfactory margin is not
provided within the time specified by us, we shall be at liberty to take such
action as we may in our judgement deem best. If such action is delayed by
your firm, any loss resulting from such delay shall be at your risk and
expense. We reserve the right to refuse any transaction in any Introduced
Account which is a margin account after the initial transaction when in our
opinion the past history of such Account will not justify the risk of
executing such new transaction before actual receipt of the necessary margin
therefore.
Notwithstanding the foregoing, if through the action of the SEC, a court
of competent jurisdiction or any regulatory body, trading is halted in
securities held by accounts introduced by you, the loss suffered as a result
shall be borne by the Introducing Broker.
TWELFTH: We shall have no liability to you arising out of this Agreement
or otherwise except for:
(A) Breach of the express terms of this Agreement; or
(B) Negligent, reckless, willful or intentional acts or violations of
applicable law by us.
THIRTEENTH: (A) It is mutually agreed that this agreement shall be
effective as of the date appearing on page One hereof and shall continue for
a period of one year and for additional one-year periods thereafter;
provided, however, that this agreement may be terminated at any time by
either party upon sixty (60) days written notice. This Agreement shall
terminate immediately in the event (i) you are no longer registered with the
Securities and Exchange Commission, or (ii) you cease to be a member of the
NASD, or (iii) you are suspended from membership in any national securities
exchange of which you are or hereafter become a member. In the event that
Introducing Broker terminates this Agreement and such
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termination requires a system deconversion of accounts and balances, Cowen
reserves the right to charge the Introducing Broker an applicable fee which
Introducing Broker agrees to pay. Termination of this Agreement shall not
release either of us from liability to the other as provided herein relating
to business transacted prior to such termination.
(B) You agree to deposit with us $100,000 as a Good Faith Deposit
("Deposit") . In the event the Deposit shall at any time and for any reason
consist of cash and/or securities having a value of less than the amount
specified in the immediately preceding sentence (such difference being
hereinafter referred to as the "Deposit Deficit"), you hereby grant to us,
and agree that Cowen shall have, a security interest in an amount equal to
such Deposit Deficit in any and all property belonging to you or in which you
have an interest which is held by us at any time including, but not limited
to, your trading and other proprietary accounts and any commissions or other
payments due to you from us. Cowen may deduct the following from such
Deposit: (i) claims against Introducing Broker or any of its customers which
are not resolved within three (3) days of presentment to Introducing Broker,
or (ii) any loss or expense suffered by Cowen for which it is entitled to be
indemnified under this Agreement as to which Introducing Broker has failed to
indemnify Cowen within three (3) days of being requested to do so and (iii)
any applicable fee to a system deconversion as contemplated in paragraph
THIRTEENTH (A). Cowen may also make such charges against any payments due to
Introducing Broker pursuant to Paragraph FIRST hereof. In the event any
charge is made against the Deposit, Introducing Broker shall promptly deposit
additional funds with Cowen to restore the Deposit to the original amount.
Cowen reserves the right to require an increase in the amount of the Deposit
at any time upon ten (10) days' prior written notice, provided, however, for
good cause in Cowen's sole discretion, Cowen may request an increase in the
amount of the Deposit on one (1) days' prior written notice.
Cowen agrees to pay interest on the Deposit at the Cowen Base Credit
Interest Rate prorated monthly. As used in this Agreement, Cowen Base Credit
Interest Rate" shall mean Cowen's daily average cost of funds derived from
(i) banks, (ii) other broker-dealers and (iii) other sources that Cowen may
from time to time and in its sole discretion include in calculating its cost
of funds.
(C) Introducing Broker shall obtain a Stockbroker's Blanket Bond or a
Financial Institution Bond (the "Bond") in an amount not less than $250,000.
The Bond shall be effective no later than the date on which Introducing
Broker effects the first trade hereunder. Within thirty (30) days of the date
hereof Introducing Broker shall provide Cowen with written evidence
acceptable to Cowen demonstrating the coverage provided thereby. Thereafter,
such evidence shall be provided on an annual basis not later than November 30
of each year.
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FOURTEENTH: Cowen and Introducing Broker hereby warrant that as of the
date of this Agreement and until any termination hereof, their net capital
shall at all times exceed the requirement of Rule 15c3-l under the Securities
Exchange Act of 1934 and the applicable requirements of the New York Stock
Exchange or the NASD. You hereby agree to provide us with a statement of
financial condition of a date within 30 days prior to the date of this
Agreement and copies of such additional financial statements as are to be
filed with regulatory bodies including but not limited to all FOCUS Reports,
at the time of filing therewith. In any event, you agree to provide us with
financial statements at least once each calendar quarter and you agree to
make available to us any additional financial information we may request.
FIFTEENTH: Errors, misunderstandings or controversies, except those
specifically otherwise covered in this Agreement, between customers and
Introducing Broker and Introducing Broker or its employees or agents, and/or
Cowen or its employees or agents, which shall not arise in whole or in part
out of the acts or omissions of Cowen or its employees or agents, shall be
the responsibility and liability of Introducing Broker and are to be adjusted
accordingly. If any such error, misunderstanding or controversy shall result
in the bringing of an action or a proceeding against Cowen, we will notify
Introducing Broker, and if Cowen so requires, Introducing Broker agrees at
its own cost and expense to defend any action or proceeding brought against
Cowen by reason thereof, or Cowen may defend such action or proceeding, but
in either event Introducing Broker shall indemnify and hold Cowen harmless
from any loss, liability, damage and expense, including attorneys' fees
(including but not limited to those incurred by Cowen in utilizing its
inhouse counsel), which Cowen may incur or sustain in connection therewith or
under any settlement thereof and Introducing Broker shall satisfy of record
any arbitration awards or final judgements rendered in such action or
proceeding. It is the intention of the parties that Cowen shall be fully
indemnified by Introducing Broker hereunder provided that Cowen shall not
have acted negligently, recklessly, or fraudulently in connection with the
matter(s) which are the subject of such action or proceeding.
SIXTEENTH: Notwithstanding anything in this Agreement to the contrary,
Cowen may refuse on prompt notice to Introducing Broker, to accept or to
effect any transaction, which, at its sole discretion, Cowen believes will be
contrary to its obligations under law or regulations thereunder, or the
regulations of the New York Stock Exchange, or any other exchange of which it
is a member, or of the NASD or which, at its sole discretion, Cowen believes
will or may subject it to undue risk or create undue concentration in any
security. Cowen may also elect in its sole discretion to refuse to carry any
particular account(s) or position(s) introduced by Introducing Broker,
whether or not Cowen has previously accepted or agreed to accept such
account(s).
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SEVENTEENTH: It is agreed and understood that any controversy arising
between us in connection with this agreement which cannot be adjusted to our
satisfaction shall be submitted to arbitration and determination only before
the New York Stock Exchange or the National Association of Securities
Dealers, Inc. as Cowen may elect. All arbitration hearings are to be
conducted in New York City.
EIGHTEENTH: Introducing Broker will send a notice to all of the
Introducing Broker's customers whose accounts are initially delivered to
Cowen, advising those customers of the existence of this agreement and our
respective reSpOnsibiliti[]5 hereunder. Thereafter, Cowen shall send a notice
to all new accounts advising them of the existence of this agreement and the
respective responsibilities hereunder.
NINETEENTH: Cowen has obtained approval of the form of this Agreement from
the NYSE under Rule 382. The parties agree to amend this Agreement in the
event the NYSE requires amendment or the duties of the parties hereto change
materially.
TWENTIETH: It is agreed that no change will be made in this Agreement
without the consent of both parties. However, rates for services to be
provided by Cowen shall be reviewed on a regular basis, with adjustments made
to reflect changes in the cost of providing such service. Any price change
shall take place only after 30 days' written notice.
TWENTY-FIRST: Introducing Broker shall be responsible for providing the
disclosure documents provided to it by Cowen to each Introduced Account when
and as required to do so by applicable law, rules or regulations. Where
additional mailings are required due to revisions of the original documents
Cowen will at its option, either (i) provide the Account Information to
Introducing Broker or (ii) handle the mailing at the expense of Introducing
Broker. Such disclosure documents shall include, without limiting the
generality of the foregoing sentence, risk disclosure documents required when
opening an option account, and credit disclosure when opening a margin
account. Introducing Broker hereby agrees to indemnify and hold Cowen
harmless from and against any and all loss, liability, damage and expense,
including attorneys' fees, which Cowen may incur or sustain as a result of
the failure of Introducing Broker to provide such documents to Introduced
Accounts.
Introducing Broker agrees that a principal of the firm is/will
become registered as a Registered Option Principal at least five days prior
to placing any option orders or otherwise engaging in any options activity.
Introducing Broker agrees that it takes full responsibility for suitability
of its customers to trade on margin or in options and for approval of its
customers to trade options in particular
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strategies, and agrees to indemnify Cowen for any failure by the Introducing
Broker to properly approve such customers or to obtain and supply accurate
and complete information with respect to such clients.
Introducing Broker agrees that prior to allowing any customer to trade in
options, the customer will previously have been supplied with the Risk
Disclosure Document "Characteristics and Risks of Standardized Options" and
that a new option account form will have been satisfactorily filled out and
approved by a Registered Option Principal of the Introducing Broker.
Introducing Broker's branches shall maintain a log of all customer option
related complaints as well as a central file at its principal office.
The Introducing Broker agrees to take full responsibility for
communications on options between itself and clients. All advertisements,
letters, research material and options strategies shall adhere to guidelines
published by the appropriate Self Regulatory Organizations.
TWENTY-SECOND: You agree that without our prior written consent, you will
not hire or engage in negotiations with a view to hiring any person who is or
within the 12 months immediately preceding your hiring or commencement of
negotiations has been employed by us. We agree that without your prior
written consent, we will not hire or enter into negotiations with a view to
hiring any person who is or within the 12 months immediately preceding our
hiring or commencement of negotiations has been employed by you.
TWENTY-THIRD: Cowen and Introducing Broker shall each make available to
the other such information and documentation concerning its operation
procedures as shall be necessary or appropriate for the performance of the
other party's obligations under the Clearing Agreement.
APPROVED: ACCEPTED AND AGREED TO:
COWEN & COMPANY KLEIN MAUS AND SHIRE
By: COWEN INCORPORATED
GENERAL PARTNER
By: By:
----------------------- --------------------
Antonio Pinto Mohammad Ali Khan
Managing Director President
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ADDENDUM
WHEREAS, Cowen & Company and Klein Maus and Shire are parties to a
clearing agreement ("the Clearing Agreement") which they wish to clarify and
amend in certain respects;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration each to the other, the receipt of
which is hereby acknowledged, the parties intending to be bound, hereby agree
as follows:
Introduced Accounts
1. It shall be the responsibility of Introducing Broker to obtain all
account agreements and documentation necessary, required or appropriate for
the proper maintenance of the Introduced Accounts, including, without
limitation, Account, Margin and Option Agreements, discretionary
authorizations, corporate resolutions, trust documents, wills and similar
agreements and documents. Introducing Broker shall forward the originally
signed copies of the Account, Margin and Option Agreements to Cowen's New
Accounts Department. All other documentation necessary or appropriate for the
maintenance of the Introduced Accounts shall be retained by the Introducing
Broker and shall not be forwarded to Cowen unless and until a specific
request is made therefor. Introducing Broker agrees that it shall make any or
all such additional documentation available to Cowen upon Cowen's reasonable
request therefor, and such agreement shall survive any termination of the
Clearing Agreement. Anything herein to the contrary notwithstanding, Cowen
reserves the right to communicate with any Introduced Account directly in
order to obtain any necessary or appropriate documentation, but exercise of
such right by Cowen shall not affect Introducing Broker's obligations
hereunder. Introducing Broker hereby agrees to indemnify and hold Cowen
harmless from and against any and all claims, costs, liabilities, losses or
expenses (including reasonable attorneys' fees and expenses) arising out of
or relating to the failure of Introducing Broker to obtain or maintain such
necessary, required or appropriate agreements and documentation.
2. Introducing Broker shall provide Cowen with such new account
information as shall be required by Cowen to fulfill its service obligations
under the Clearing Agreement. Except for accounts opened by tape-to-tape
conversion, such information shall be provided through Cowen's computer
system if direct input is available to Introducing Broker. If direct input is
not so available, such information shall be provided by telephone. In either
case (but not with respect to accounts opened by tape-totape conversion),
Introducing Broker shall provide Cowen with a
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hardcopy new account form on forms provided by Cowen. Introducing Broker
shall be fully responsible for providing proper addresses for the Introduced
Accounts and agrees that Cowen may rely for all purposes on such addresses as
are provided to it by Introducing Broker.
3. It shall be the sole responsibility of Introducing Broker to determine
that all orders or instructions given with respect to any Introduced Account
have been properly authorized and are within the legal capacity of its
customer. Introducing Broker hereby agrees to indemnify and hold Cowen
harmless from and against any and all claims, costs, liabilities, losses and
expenses (including attorneys' fees and expenses) arising out of or relating
to the execution of any transactions for any Introduced Account which were
unauthorized or beyond the legal capacity of its customers.
4. It is the sole responsibility of the Introducing Broker to "know its
customers" and to properly supervise its own employees and the Introduced
Accounts. Although Cowen may prepare or possess certain surveillance records
for its own benefit or purposes which may include data relating to the
Introduced Accounts, or may prepare or possess compliance or surveillance
records for use by Introducing Broker, Introducing Broker acknowledges and
agrees that the preparation or possession of such materials or of any new
account documentation shall not place any obligation on Cowen to review any
such document nor to know its contents.
Checkwritinq Privileges
5. For the sole purpose of disbursing customer funds as directed by its
customers, Introducing Broker is hereby authorized to sign checks on bank
accounts maintained by Cowen for such purpose, provided, however, that
Introducing Broker has received specific approval from the Margin Department
for each check to be issued prior to its execution. Introducing Broker's
authority to sign such checks is limited to the amount of $250,000.00 per
check.
6. Introducing Broker agrees to indemnify and hold Cowen harmless from any
claims, costs, liabilities or expenses (including reasonable attorneys' fees
and expenses) arising out of or relating to the use of such account(s) and/or
the execution of checks drawn thereon by or on behalf of the Introducing
Broker, its officers, directors, partners, employees or agents.
Net Capital Requirements
7. Introducing Broker intends to qualify under the net capital
requirements applicable to introducing firms under Paragraph (a) (2) (iv) of
the SEC's Rule 15c3-l as amended in SEC Release No. 34-31511 (the "Release").
Cowen and Introducing Broker hereby agree and acknowledge that, as required
by the Release, and
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solely for the purposes of the Securities Investor Protection Act and the
SEC's financial responsibility rules, the Introduced Accounts are customers
of Cowen and not Introducing Broker's customers. Except as expressly provided
herein, in all respects the obligations of each of Introducing Broker and
Cowen under the Clearing Agreement with respect to the Introduced Accounts
shall be unaffected by the terms of this Paragraph. Without limiting in any
way the generality of the foregoing, the terms of this Paragraph 7 shall not
affect Introducing Broker's obligation to "know its customers" and to
supervise fully its own employees and the Introduced Accounts and the
suitability of transactions therein.
ACT Rules
8. Introducing Broker warrants and represents that it shall, at all times,
comply with all applicable requirements of the Rules of Practice and
Procedure for the Automated Confirmation Transaction Service ("ACT Rules").
9. Introducing Broker acknowledges and agrees that Cowen shall have the
right, in its sole discretion, to establish a "Gross Dollar Threshold" (as
that term is defined in the ACT Rules) ("Threshold") applicable to
Introducing Broker, and to raise or lower such Threshold at any time and
from time to time.
10. Introducing Broker agrees to indemnify and hold Cowen harmless from
and against any and all losses, errors, claims, expenses, actions and
liabilities which arise from or relate to use of the ACT Service, including
but not limited to those arising from or related to the failure of
Introducing Broker to effect transactions in accordance with any Threshold
established by Cowen and those arising from the establishment, increase or
decrease of any such Threshold, unless due to Cowen's gross negligence or
willful misconduct.
11. Introducing Broker acknowledges and agrees that Cowen has the right
to immediately and unilaterally terminate the Clearing Agreement in the event
that Introducing Broker exceeds the Threshold established from time to time
by Cowen under the ACT Rules.
12. Introducing Broker agrees that it will, at all times, assign to each
office where it effects or facilitates transactions through the ACT Service,
an adequate number of employees who have been trained by the NASD to enter
transactions through the ACT Service, and that adequate staffing levels will
be maintained in each such office during business hours. Introducing Broker
shall indemnify Cowen from and against any losses, expenses or damages
resulting from its failure to maintain such personnel.
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13. Introducing Broker further agrees to release and discharge Cowen from
responsibility or liability for any loss or damage, including but not limited
to any direct, incidental, special or consequential damages such as lost
profits or other economic losses ("Damages") sustained by Introducing Broker
or in any customer or house account resulting from any act or omission of
Cowen in connection with use of the ACT Service, including but not limited to
establishment or modification of a Threshold, other than Damages directly
caused by Cowen's willful misconduct or fraud.
Good Faith Deposit
14. The provisions of Paragraph Thirteenth of the Clearing Agreement
notwithstanding, Cowen may, at any time and in its sole discretion, increase
Introducing Broker's good faith deposit requirement. Such increase shall be
effective upon receipt of demand from Cowen, which demand may be oral or in
writing, and Introducing Broker agrees to make such additional good faith
deposit within twenty four (24) hours of receiving such demand. Failure by
Introducing Broker to make such additional deposit within such period shall
be grounds for immediate termination of the Clearing Agreement, which
termination shall be within Cowen's sole discretion.
Prime Brokerage Services
15. In the event that Introducing Broker desires to act as a prime broker
and/or executing broker, as such terms are defined in a certain letter from
the Division of Market Regulation of the Securities and Exchange Commission,
dated January 25, 1994 (the "No-Action Letter"), which established certain
requirements for the maintenance of a prime brokerage arrangement, the
provisions of paragraphs 15-19 shall establish the respective obligations and
responsibilities of Cowen and Introducing Broker.
16. All terms used in paragraphs 15-19 of this Addendum which are defined
in the No-Action Letter shall have the meaning set forth therein.
17. Introducing Broker agrees as follows:
(a) Introducing Broker shall notify Cowen in writing of each account as to
which it intends to act as a prime broker or an executing broker in a prime
brokerage arrangement (individually, an "Account", and together, the
"Accounts") . The beneficial owner of an Account shall be referred to herein
as the "Customer". Introducing Broker agrees that no transactions may be
executed for an Account unless Cowen has entered into the required agreements
with the Customer and the prime or executing broker for the Customer as
appropriate.
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(b) Introducing Broker has sole responsibility to "know its customers" and
to properly supervise its own employees and the Accounts. Introducing Broker
shall obtain necessary documents with respect to the Accounts and shall
conduct its own credit checks.
(c) If Introducing Broker acts as an executing broker, prior to effecting
a short sale for any Account, Introducing Broker shall confirm with Cowen
that securities are available for borrowing, or shall advise Cowen of any
arrangements made for such borrowing by or on behalf of the customer, and
shall otherwise comply with all applicable requirements for effecting short
sales.
(d) If Introducing Broker acts as an executing broker, in the event of any
execution error or discrepancy between a trade as executed and as recorded in
the Customer's account with the prime broker, Introducing Broker shall be
responsible for correcting or resolving such error or discrepancy by such
time on the next business day after trade date as Cowen shall reasonably
require. Introducing Broker shall indemnify and hold Cowen harmless from and
against any and all loss, liability, damage, claim or expense (including
legal fees and expenses) arising out of or relating to any such error or
discrepancy unless such error was caused by the negligent, reckless, or
fraudulent actions of Cowen.
(e) Except as may be inconsistent with the prime brokerage arrangements,
each Account shall be treated in all respects as an Introduced Account under
the Clearing Agreement.
(f) If Introducing Broker acts as a prime broker, Introducing Broker shall
indemnify and hold Cowen harmless from and against any and all loss,
liability, damage, claim or expense (including legal fees and expenses)
arising out of or relating to the performance by Cowen of Introducing
Broker's responsibilities as prime broker unless such loss, liability,
damage, claim or expense was caused by the negligent, reckless or fraudulent
actions of Cowen.
(g) In all other respects Introducing Broker agrees to act in accordance
with the requirements of the No-Action Letter.
18. Cowen agrees as follows:
(a) If Introducing Broker acts as an executing broker, Cowen will report
all necessary trade information to the prime broker for an Account pursuant
to your instructions by the morning of the next business day after trade date
or by such later time and day as shall be permitted by any agreement between
Cowen and the prime broker for an Account.
(b) If Introducing Broker acts as an executing broker, Cowen will issue
confirmations of all transactions directly to the
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Customer or the investment adviser for the Customer, as appropriate, unless
it receives written instructions from the Customer or adviser requesting that
confirmations be sent to the Customer in care of the prime broker. In the
event a transaction is disaffirmed or "DK'd" by the prime broker, Cowen will
promptly send a confirmation of the transaction directly to the Customer or
adviser, as appropriate.
(c) If Introducing Broker acts as prime broker, Cowen will perform such
obligations and responsibilities of the prime broker as are necessary or
appropriate in its capacity as clearing firm for Introducing Broker.
(d) In all other respects, Cowen agrees to act in accordance with the
requirements of the No-Action Letter.
19. Introducing Broker agrees to obtain the execution by its Customers, or
the advisers therefor, of all agreements regarding the prime brokerage
arrangements as are required by the No-Action Letter. Introducing Broker
acknowledges and agrees that Cowen and Introducing Broker are not permitted
to participate in any prime brokerage arrangement, either as prime broker or
executing broker, unless and until all required agreements have been
executed.
General
20. Except as amended hereby, the Clearing Agreement shall remain in full
force and effect. To the extent that any provision hereof is inconsistent
with any provision of the Clearing Agreement, the provisions hereof shall
control. Except where the context clearly requires otherwise, all terms used
herein shall have the same meaning as set forth in the Clearing Agreement.
21. Paragraph headings used herein are for convenience only and shall not
affect the meaning or interpretation of any provision hereof.
New York, New York
February 13, 1997
AGREED AND ACCEPTED: COWEN & COMPANY
KLEIN MAUS AND SHIRE By: COWEN INCORPORATED
GENERAL PARTNER
By: By:
--------------------- --------------------
Mohammad Ali Khan Antonio Pinto
President Managing Director
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EXHIBIT 22.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation in this Registration Statement on Form S-1
of our report dated March 9, 1998, on our audits of the consolidated
financial statements of United States Financial Group, Incorporated and
subsidiaries as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997. We also consent to the reference to
our firm under the caption "Experts."
EICHLER BERGSMAN & CO., LLP
New York, New York
May 12, 1998
