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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission File Number: 000-26023
ALLOY ONLINE, INC.
Exact name of registrant as specified in charter
DELAWARE 04-3310676
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
151 WEST 26TH STREET, 11TH FLOOR
NEW YORK, NY 10001
(Address of principal executive office)
(212) 244-4307
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant (without admitting that any person whose shares are
not included in such calculation is an affiliate) on April 1, 2000, was
$177,554,640 based on the last sale price as reported by The Nasdaq Stock
Market's National Market.
As of April 1, 2000, the Registrant had 14,700,460 shares of Common Stock
outstanding.
Documents Incorporated By Reference
The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Annual Report on Form 10-K is incorporated from the Registrant's
Proxy Statement for the 2000 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS.
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OUR BUSINESS
Alloy Online is a leading Web site and direct marketer providing community,
content and commerce to Generation Y, the 56 million boys and girls between the
ages of 10 and 24. Our convergent media model, which combines our Web site,
www.alloy.com, our Alloy Online e-zine and our Alloy catalog, has a total reach
of more than 10 million individuals per month. Together, these components offer
a unique blend of services, through which Generation Y boys and girls can
interact, share information, explore compelling and relevant content and shop
for a variety of merchandise, including boys and girls apparel, accessories,
music, cosmetics and room furnishings. Due to these services, our Web site
generated approximately 1.1 million unique visitors according to Media Metrix,
Inc. in March 2000, up from approximately 263,000 in April 1999, and
approximately 1.7 million users have registered to receive our weekly electronic
magazine, Alloy E-Zine. We believe our Web site represents one of the largest
and most vibrant Generation Y communities on the Internet. This growing
community drives merchandise sales, our principal source of revenues, and
positions us to be a leading channel for marketers that are increasingly looking
to the Internet to reach this growing and influential consumer group.
INDUSTRY BACKGROUND
The Internet
Growth of the Internet and Online Commerce. The Internet has rapidly
become a significant global medium for communications, entertainment, news,
information and commerce. International Data Corporation, a market research
firm, estimates the number of users accessing the Internet will increase from
approximately 100 million in 1998 to approximately 320 million by the end of
2002. As Internet use has grown, shopping online has become increasingly
popular, and the number of people who buy products and services on the Internet
is growing rapidly. According to International Data Corporation, online commerce
transactions to the home are expected to increase from approximately $11 billion
in 1998 to approximately $94 billion in 2002.
Emergence of Community Web Sites. An important development on the Internet
has been the emergence of community Web sites. Community sites provide a single
online destination where like-minded users can interact and quickly find
pertinent information, products and services related to their particular
interests or needs. Community sites generally offer free services including
access to e-mail accounts, chat rooms, message boards, news and entertainment.
Through these features, online communities seek to establish a close
relationship with their audience and evolve over time according to the interests
of their members. As a result, we believe that users tend to be loyal to and
spend more time online at community sites.
Growth of Online Advertising. The Internet has become an attractive medium
for advertisers, offering a level of targetability, flexibility, interactivity
and measurability not available in traditional media. The Internet enables
advertisers to demographically target their messages to specific groups of
consumers as well as to change their advertisements frequently in response to
market factors, current events and consumer feedback. Moreover, advertisers can
track more accurately the effectiveness of their advertising messages by
receiving reports of the number of advertising "impressions" delivered to
consumers and the resulting "click-through" rate to their Web sites. Jupiter
Communications, Inc. estimates that the amount of Internet advertising in the
U.S. will grow from approximately $1.9 billion in 1998 to $7.7 billion by 2002,
a compound annual growth rate of 42%.
Online Direct Marketing. The Internet permits the capture of valuable
customer demographic and preference information. This allows direct marketers to
target electronic offers of products and services directly
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to consumers with desirable characteristics and interests. Direct marketers have
traditionally relied on print media, mail and telemarketing to reach their
customers. By virtue of the Internet, direct marketers are able to increase
response rates and reduce the cost per transaction.
Generation Y
The Growing Economic Importance of Generation Y. In the United States,
Generation Y is made up of the 56 million boys and girls between the ages of 10
and 24. The United States Census Bureau projects that Generation Y will continue
to grow through 2015 when it will reach 63.5 million people, an increase of
12.8% from its 1998 level. Over the next 12 years, the Census Bureau estimates
that the growth of Generation Y will outpace the growth of the general
population by 19.5%. Generation Y also accounts for more than $250 billion in
annual disposable income. We believe approximately 70% of Generation Y's
disposable income is discretionary.
Popularity of the Internet with Generation Y. Generation Y is the first
generation to grow up with the Internet as a part of daily life. The Internet's
graphical user interface, robust communication capabilities, dynamic content,
and ability to rapidly disseminate and access information make it a popular
medium for Generation Y. Based on eMarketer estimates, we believe that the
number of teens and college students who regularly access the Internet at least
twice a week for an hour or more will rise from an estimated 12.0 million in
1998 to 22.3 million by the year 2000. Industry analysts believe that increasing
numbers of teens on the Internet will translate into increasing dollars for
online retailers. According to eMarketer, in 1998, teens spent $143 million
online, or one-quarter of 1% of their total annual expenditures on products and
services. eMarketer further estimates that teen online spending will increase to
$268 million in 1999, climbing to $1.3 billion by 2002.
THE ALLOY SOLUTION
Alloy is a leading online destination focused exclusively on Generation Y.
We have built a feature-rich Web site that addresses Generation Y's needs for
community, content and commerce. Our Web site is a destination where Generation
Y boys and girls can interact, share information, explore compelling and
relevant content and shop. These online services are reinforced by our widely
recognized Alloy brand which serves as a popular reference for the Generation Y
lifestyle. With approximately 1.1 million unique visitors in March 2000, we
believe that we have aggregated one of the largest and most vibrant Generation Y
communities on the Internet. This focused Generation Y community offers a
valuable channel for advertisers and direct marketers to efficiently and
effectively reach their desired audience.
We satisfy the needs of Generation Y through a site with the following
attributes:
. Community. Based on the feedback of our visitors, our community is a
"cool" environment for Generation Y boys and girls to interact, share
their ideas, express their opinions and develop their interests. We
facilitate communication among our Web site users through a variety of
free interactive services such as e-mail, instant messaging and real-time
chat. Additionally, we provide member-generated interactive content areas
such as personal homepage hosting services, topical message boards and
opinion polls and surveys. Our Generation Y-focused editorial staff also
provides advice in areas of interest to users, such as relationships and
fashion, in a forum where our users can express their opinions. We
believe that the sense of community we promote fosters loyalty among our
users and increases the amount of time they spend on our site.
. Content. Our Web site provides regularly updated content on topics of
interest to Generation Y boys and girls, including music, relationships,
celebrities, horoscopes, gossip, fashion trends, current events, sports
and a variety of other key topics. Our professional editorial staff
aggregates content from a variety of sources and develops an edited
presentation of the most compelling and
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relevant Generation Y content. Additionally, our editors create selected
original content in specific areas of interest to our users. We believe
that by continually refreshing our content we have positioned Alloy as a
daily online information and entertainment source for Generation Y.
. Commerce. Our community and content services attract a significant number
of Generation Y users to our Web site and enable us to provide a
trusted, appealing environment in which to shop. Alloy offers Generation
Y a wide range of products that are specifically geared to their
interests and tastes. We currently offer boys and girls apparel,
outerwear, accessories, footwear, cosmetics and room furnishings. To
encourage first-time and repeat Web purchases, we also offer frequent
product promotions and specials. Our product offerings are selected from
a wide range of the most popular brands and are continually updated to
keep pace with trends and seasons. We offer many of the same products
through our Alloy catalog frequently distributed throughout the year. We
believe the catalog not only adds significantly to our sales but also is
a key driver of additional users to our Web site.
. Targeted cost-effective medium for advertisers and direct marketers. As a
leading online destination for Generation Y, Alloy provides marketers
with a powerful channel to target this important consumer group. Our Web
site is organized around specific content areas that allow marketers to
deliver highly targeted messages to users with specific interests.
Additionally, as a result of our large online user base, we are able to
compile valuable demographic and customer preference information. With
approximately 1.7 million registered users, of which approximately 65%
are girls/35% are boys, we offer direct marketers the ability to
effectively reach their targeted consumer group. We currently offer
marketers run-of-site and premium placement advertisements, sponsorship
of an electronic newsletter, space in our widely circulated Alloy
lifestyle catalog and sponsorship of special contests.
OUR STRATEGY
Alloy's objective is to become the leading Generation Y online destination.
We intend to achieve our objective through the following strategies:
Maintain Single Brand Focus. We will continue to build Alloy as a single
brand known for high quality, Generation Y-focused community, content and
commerce for both boys and girls. Rather than dividing our marketing resources
across multiple brands and Web sites, we seek to maximize the impact of our
marketing efforts by promoting a single brand. We believe this allows us to
attract visitors to our Web site and build customer loyalty rapidly and
efficiently. We run a national campaign in traditional and online media and
continue to use our popular Alloy catalog to reinforce the Alloy brand.
Pursue Additional Revenue Opportunities. We intend to increase online
revenues by taking advantage of our targeted community, our database of over 3.2
million Generation Y names, our proven direct marketing capabilities and our
substantial experience in marketing to Generation Y. We intend to expand our
product and service offerings to create multiple and recurring revenue streams.
These revenue streams may include:
. sales of additional product categories;
. sales of advertising and sponsorships on our Web site and in our catalog
and e-zine; and
. sales of third-party services.
Strengthen Co-ed Community. We will continue to foster a community that
appeals to both boys and girls. We believe that a successful Generation Y
community site is largely dependent on dynamic boy-girl
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interaction. We will continue to create an engaging environment for youths of
both sexes to meet and "hang out" by presenting information, products and
services that have co-ed appeal.
Continue to Improve User Experience. We intend to enhance the appeal of
our Web site by aggressively developing our content, services and community-
oriented features. We aggregate, edit and continually refresh high quality and
popular information, products and services to satisfy the evolving interests and
tastes of Generation Y. Recent content additions to our Web site include
downloadable music and videos, auctions and teen celebrity information. Recent
technology-driven enhancements to our Web site include Alloy e-postcards, Alloy
e-Invites, and streaming audio and video. We also intend to continue to provide
more personalized features and to make the user interface as easy-to-use,
engaging and fast as possible.
Attract Additional Visitors to Our Web Site. We intend to attract an
increasing number of visitors to our Web site through promotional campaigns in
traditional and online media. Through traditional media, we will continue to
market aggressively our Web site via our Alloy catalog, which leverages our
integrated direct mail and online offerings. We also intend to initiate new
campaigns via broadcast and print media. Online, we intend to increase our
advertising and expand our content syndication and other relationships with
heavily-trafficked Web sites. We also intend to explore cross-promotional
opportunities and product tie-ins that attract additional visitors to our Web
site.
Enhance Web Site and Technology Infrastructure. We will continue to invest
in infrastructure technologies and transaction-processing systems to support our
expected growth. We will continue to incorporate third-party technologies that
will efficiently and effectively support our fulfillment, commerce, transaction
processing and communications capabilities. We also intend to increase the
automation and efficiency of our supply chain and fulfillment activities to
enhance our customers' shopping experience.
Expand Internationally. We believe that significant opportunities exist to
address the global adoption of the Internet and the international demand for
Generation Y-focused community, content and commerce. The size of Generation Y
internationally and the emergence of a global youth culture that is heavily
influenced by the U.S. present substantial overseas opportunities. We believe
that an early presence in these markets will enhance our long-term competitive
position. Towards that end, we opened a Japanese language store on our Web
site in November 1999, which to date has not had any material impact on our
revenues or costs. We intend to further explore these opportunities to extend
the reach of the Alloy brand and to create strategic relationships in important
international markets.
OUR WEB SITE
Our homepage, www.alloy.com, contains areas that satisfy Generation Y's
needs for community, content and commerce. The majority of the features and
services of our Web site are accessible by all users; however, registration is
required for access to a number of our free community services. Our homepage
contains the following features and services:
1. Today in Alloy. This channel of our Web site contains daily features,
including the latest news, celebrity gossip, horoscopes, special promotional
offers, user surveys and more.
2. Shop. This is the main purchasing area of our Web site where online
shopping is designed to be fun, safe and simple. We carry over 500 different
products from over 70 vendors that include boys and girls apparel, outwear,
footwear, accessories, cosmetics and room furnishings.
3. Get Free E-mail. We provide free e-mail service for our users.
4. Connect. This channel contains a number of the community-oriented
features for our Web site.
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5. Celebrity Central. This channel provides celebrity news and gossip as
well as more than 20 official celebrity Web Sites.
6. Entertainment. This channel presents updated music-related news about
bands, artists, CDs, events and concert schedules; news and features about
television and movies; Alloy radio, music, videos, movie previews and an
MP3 search engine.
7. Alloy Invites. This channel allows users to send invitations via email for
a variety of occasions in one easy step. After the invitations are sent,
Alloy Invites tallies the RSVP's for the user and displays group feedback
and decisions on a private personalized group event web page.
8. Advice & Articles. This channel highlights our advice columns and special
articles.
9. Fashion & Beauty. This channel highlights the latest in Generation Y
fashion and beauty trends.
10. Alloy Sports and Games. This channel provides updated news about
Generation Y sports including skateboarding, snowboarding and other sports,
and online computer classic, alternative and animated games.
11. Alloy E-Zine. This channel allows users to easily subscribe to the Alloy
e-mail E-Zine.
12. Auctions. This channel provides an online marketplace where Alloy users
can buy and sell a variety of merchandise, with a focus on merchandise that
appeals to teenagers.
13. E-postcards. This channel allows users to send free personalized postcards
by email. E-postcards are offered in a variety of different categories,
including friendship, birthdays and holidays.
MARKETING AND PROMOTION
We market and promote our unified Alloy brand through channels that we have
developed as well as through traditional marketing channels. We believe we are
able to powerfully communicate our marketing messages through our Alloy catalog
and our Alloy E-Zine, a weekly broadcast e-mail to our registered users. Our
catalog and E-Zine continually remind customers about events, promotions and
other items of interest occurring online. We have complete control over how we
promote our Web site through our catalog and our E-Zine, thus allowing more
opportunities for our advertisers to reach Generation Y.
The marketing channels that we have developed are as follows:
. The Alloy Catalog. Our catalog serves as our primary offline marketing
tool to attract users to our Web site and to reinforce the Alloy brand.
With a projected 35 million catalogs to be circulated in 2000, we believe
that our catalog's circulation will be larger than most major teen
magazines including Seventeen, Teen and YM. Using an integrated marketing
approach, we heavily promote our Web site and prominently display special
events and online sales promotions throughout our catalog. We believe
that our large circulation, as well as the integrated relationship
between our catalog and our Web site, gives us an advantage over many of
our competitors.
. Direct Marketing. Our databases of over 3.2 million Generation Y boys and
girls and approximately 1.7 million registered users of our Web site
enable us to sell products and services using a variety of direct
marketing techniques. We believe these individuals represent a desirable
socioeconomic subset of the Generation Y demographic group who are
receptive to our direct marketing messages. We are able to leverage our
user database to deliver a weekly broadcast e-mail, Alloy E-Zine, that
contains information about fashion, music, contests, special Alloy
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merchandise sales and links to our Web site. We intend to expand our use
of broadcast e-mail to include more targeted messages and promotions to
specific segments of our registered users. Additionally, we intend to use
our database to target specific groups of individuals via direct mail
with special online offers.
We also promote, advertise and increase the visibility of our brand and
attract new users and customers through the following methods:
. Traditional and Internet Advertising. Our advertising efforts to date
have blended offline and online. We believe that our strategy of using
traditional offline media to generate online sales enables us to reach
our target audience, build our brand name, control our promotional
budgets more effectively and tie advertising to revenue. To maximize our
visibility with our target audience, we advertise in Generation Y
fashion, music and sports magazines such as Seventeen Magazine, YM, Teen,
Rolling Stone and Snowboarder. We have selectively placed online
advertising where we believed it to be most cost-effective.
. Strategic Alliances. We have entered into strategic relationships with
several Internet companies to increase the number of visitors to our Web
site. We have existing relationships providing us with prominent exposure
on such sites as Yahoo! Shopping, Yahoo!, MSN Hotmail, FashionMall.com,
CatalogCity.com and CatalogLink.com. We intend to enter into additional
strategic alliances with heavily trafficked Web sites.
. Special Co-Promotions. We have structured high profile, co-promotion
arrangements with a number of leading marketers including, among others,
Eastman Kodak Company, The Procter and Gamble Company, Warner-Lambert
Company and Johnson & Johnson. Because of our large community, strong
brand and extensive distribution, these marketers have provided free
products and services that we use as special promotions for the Alloy
community. Promotions have included product give-aways, private movie
screenings, exclusive music give-aways and celebrity online chats. These
promotions help attract visitors to our Web site.
SPONSORSHIP AND ADVERTISING SALES
We provide marketers with a large, demographically desirable Generation Y
audience. We believe that our Web site visitors represent an attractive
socioeconomic subset of active Generation Y consumers for companies focused on
the youth market.
For the year ended January 31, 2000, we derived less than 10% of our
revenues from sponsorships and advertising. However, based upon our plans, we
believe we will be able to generate increased revenues from sponsorship and
advertising sales. During the last year we built an in-house ad sales force of
eight sales professionals. Our sales team consults regularly with advertisers
and agencies on design and placement of advertisements, sponsorships and
promotions. Our advertising and sponsorship programs include the following:
. Sponsorships. Sponsorships will allow advertisers to gain maximum
exposure by sponsoring areas of our Web site. We offer sponsorship
opportunities throughout our entire site. We also offer sponsorship
advertising in Alloy E-Zine, our weekly electronic magazine distributed
by e-mail to approximately 1.7 million subscribers.
. Run-of-Site. Run-of-site rotations are banner advertisements that rotate
on a random basis throughout our Web site, appealing to advertisers
seeking to establish general brand recognition with our users. To date,
participating advertisers have included Procter and Gamble, McDonald's,
Eastman Kodak Company, Princeton Review, Sony Playstation and Partnership
for a Drug Free America.
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. Targeted Advertising. Targeted advertising allows companies to deliver
their advertisements to specific segments of our user base. This
segmentation can be done by specific area of our Web site, by the time of
day, user location or age.
. Combination Print/Web Site Advertising. Unlike many of our competitors,
we have the ability to offer selected combinations of print and Web site
advertisements. With an estimated circulation of 35 million catalogs in
2000, we believe we offer advertisers the option to gain significant
additional exposure to the Generation Y demographic group.
MERCHANDISING
Our merchandising strategy is designed to minimize fashion risk and
facilitate speed to market and product assortment flexibility. Our objective is
to reflect, not to lead, Generation Y styles and tastes. We select merchandise
from what we believe are the best existing designers and producers allowing us
to stay current with the tastes of the market rather than to predict future
fashion trends. Our buyers and merchandisers work closely with our many vendors
to tailor products to our specifications, rather than design and produce our own
line. By doing this, we are able to minimize design risk and make final product
selections only two to three months before the products are brought to market,
not the typical six to nine months for many apparel companies. We believe this
strategy significantly reduces our trend risk and is consistent with our role as
an "editor" of Generation Y lifestyle.
Our organization and operational processes support our merchandising
strategy. Our buyers have significant experience with retail and media companies
that market to Generation Y. We believe our staff has a proven ability to
identify desirable products and ensure that our vendors meet specific guidelines
regarding product quality and production time. At present, we use primarily
domestic vendors who must have the ability to produce and ship products within
two to eight weeks. This speed to market gives us the flexibility to incorporate
the latest trends into our product mix and to better serve the evolving tastes
of Generation Y.
Our merchandising strategy also enables us to closely control our inventory
levels. We typically purchase only approximately 50% of our initial sales
estimates and rely on quick re-order ability. Because we do not make aggressive
initial orders, we believe we are able to minimize our risk of excess inventory.
Additionally, we use our Web site to offer special product prices as part of our
"Bargain Basement" section and in the past have mailed various sales circulars
to our customers to sell slower moving inventory.
Alloy has created a strong brand presence among our vendor group. We
believe that presence on our Web site and in our circulating catalog is a
valuable marketing tool for our vendors and, as a result, our vendors typically
grant us online and catalog exclusivity for each product we select. We believe
this exclusivity makes the merchandise in the Alloy catalog more attractive to
our target audience and protects us from direct price comparisons. At any one
time, our merchandise selection includes more than 75 vendors. No vendor
accounts for more than 5% percent of our sales. Brands currently offered through
Alloy include nationally recognized names such as Vans, O'Neill and
Roxy/Quiksilver, as well as smaller, niche producers, including Dawls, Free
People and Mudd.
A typical Alloy catalog is 72 to 96 pages, with approximately 400 unique
items. Apparel for girls ranges from basics, such as shorts, jeans and T-shirts,
to seasonal and fashion-oriented merchandise such as outerwear and swimwear,
dresses and accessories. Boys' apparel includes shorts, T-shirts, jeans,
outerwear and sports-related attire. Accessories include bags, watches,
cosmetics and costume jewelry. Our footwear selections include sandals,
platforms, sneakers, boots and flats. Room furnishings offered include sheets
and bedding, picture frames, lamps and inflatable furniture.
ORDERING, FULFILLMENT AND CUSTOMER SERVICE
In order to take, fulfill and ship orders, we use a full-service,
integrated call center and fulfillment center with trained personnel. Our call
center and fulfillment center for both the Alloy catalog and our Web site is
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provided by a specialized third party fulfillment services provider. Contracting
with a third party has allowed us to grow rapidly without incurring major
capital expenditures or dedicating management resources to build and staff an
in-house call and fulfillment center. This has also allowed us to maintain a
high level of customer service during our period of rapid growth. In May 2000,
we will switch fulfillment services providers to take advantage of reduced rates
and the more scalable and flexible fulfillment platform of our new provider. Our
new provider will have over 400,000 square feet of warehouse space and a 400
seat call center in Martinsville, Virginia available to support Alloy's
anticipated business growth.
We also believe that high levels of customer service and support are
critical to the value of our services and to retaining and expanding our
customer base. Our trained customer service representatives are available 24
hours a day, 7 days per week through multiple toll-free telephone numbers. The
representatives are able to guide customers through the order process, monitor
order progress and provide general information about our products such as sizing
advice and product features.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The technology infrastructure of our operations provides continuous
availability of our online service. All of the critical components of the system
are redundant, which allows continuous service in case of unexpected component
failure, maintenance and upgrades.
Currently, we license commercially available technology whenever possible
in lieu of dedicating our financial and human resources to developing solutions.
Our system hardware is hosted at OneSoft Corporation, a third-party facility in
Annandale, Virginia. A group of systems administrators and network managers at
OneSoft operate our Web site, network operations and transactions-processing
systems and monitor our systems 24 hours a day, 7 days a week. Our
infrastructure is scalable, allowing us to quickly adjust to our rapidly
expanding user base.
Our operations are dependent on our ability to maintain our computer and
telecommunications systems in effective working order and to protect our systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. Our servers are powered by an uninterruptible power
supply to provide back-up power supply at the operations facility within seconds
of a power outage.
Our systems are copied to backup tapes each night and regularly stored at
an off-site storage facility. We have implemented these various redundancies and
backup systems in order to minimize the risk associated with damage from fire,
power loss, telecommunications failure, break-ins, computer viruses and other
events beyond our control.
OPPORTUNITIES IN INTERNATIONAL MARKETS
We believe that significant opportunities exist to address the global
adoption of the Internet and the international demand for Generation Y-focused
community, content and commerce. The size of the Generation Y population
internationally and the emergence of a global youth culture that is heavily
influenced by the U.S. present substantial overseas opportunities. For example,
the European Union currently has 72 million people between the ages of 10 and
24, 16 million more than in the United States. Japan's Generation Y population
numbers approximately 25 million. We believe that an early presence in these
markets will enhance our long-term competitive position. Towards that end, we
opened a Japanese language online store in November 1999. We intend to further
explore the opportunities to extend the reach of the Alloy brand and to create
strategic relationships in important international markets.
PURSUE STRATEGIC ACQUISITIONS
We plan to continue to drive our traffic, market share and revenues through
strategic acquisitions that offer opportunities to increase market share in our
content categories, offer high traffic or bolster our convergent media model. In
fiscal 1999, we made two strategic acquisitions to further these goals. These
were:
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. We acquired all of the capital stock of 17th Street Productions, Inc., a
leading developer and producer of media properties for teens. 17th Street
Productions has produced approximately 150 books, including the Sweet
Valley series, Roswell High, Fearless and Real Teens: Diary of a Junior
Year. In addition to editorial, design and production, and licensing its
properties to television and film, software, and foreign territories,
17th Street Productions markets and promotes its properties in
conjunction with other teen brands such as Atlantic Records and Union
Bay.
. We acquired substantially all of the assets of Celebrity Sightings, LLC,
which operates a leading teen entertainment-based web site destination
that combines the elements of an online entertainment magazine with an
online community of popular teen stars. We integrated the operations of
Celebrity Sightings into our subsidiary Alloy Entertainment, Inc. and
used the transferred assets to, among other things, establish our
"Celebrity Central" Channel.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. Current and new competitors can launch new Web sites at relatively
low cost. Our catalog competes with other catalog retailers and direct
marketers, some of which may specifically target our customers. We currently or
potentially compete with a variety of other companies serving segments of the
Generation Y market including various mail-order retailers, various Web-based
retailers, various Generation Y traditional retailers, either in their physical
or online stores, and various online service providers that offer products of
interest to our Generation Y consumers, including America Online and Microsoft
Network.
Many of our current and potential store-based, catalog and online
competitors have longer operating histories, larger customer or user bases and
significantly greater financial, marketing and other resources than we do. In
addition, competitors could enter into exclusive distribution arrangements with
our vendors and deny us access to their products. If we face increased commerce
competition, our business, operating results and financial condition may be
materially and adversely affected.
We compete for users and advertisers with many providers of community
services, including companies that attempt, as we do, to target Generation Y
consumers. These include Web sites primarily focused on the Generation Y
demographic group, online service providers with teen-specific channels, such as
America Online, and community Web sites, such as GeoCities, that may create
Generation Y-specific communities.
In addition, we could face competition in the future from traditional media
companies, a number of which, including Disney, CBS and NBC, have acquired or
invested in Internet companies. The Generation Y-focused magazines, such as
Seventeen, YM or Teen, might devote additional efforts to their existing Web
sites which would compete with us for users and advertising dollars.
We believe that the strong Alloy brand combined with our ability to deliver
targeted audiences to advertisers and the overall cost-effectiveness of the
advertising medium we offer are principal competitive advantages. However, many
of our competitors, current and potential, may have greater financial or
technical resources and we could face additional competitive pressures that
would have a material and adverse effect on our business, results of operations
and financial condition.
INTELLECTUAL PROPERTY
We have registered the Alloy name, among other trademarks, with the U.S.
Patent and Trademark Office. Applications for the registration of our other
trademarks and service marks are currently pending. We also use trademarks,
tradenames, logos and endorsements of our suppliers and partners with their
permission. We are not aware of any pending material conflicts concerning our
marks or our use of others' intellectual property.
10
<PAGE>
GOVERNMENT REGULATION
We are subject, both directly and indirectly, to various laws and
governmental regulations relating to our business. The Internet is rapidly
evolving and there are few laws or regulations directly applicable to online
commerce and community Web sites. Due to the increasing popularity and use of
the Internet, governmental authorities in the United States and abroad may adopt
laws and regulations to govern Internet activities. Laws with respect to online
commerce may cover issues such as pricing, distribution and characteristics and
quality of products and services. Laws with respect to community Web sites may
cover content, copyrights, libel, obscenity and personal privacy. Any new
legislation or regulation or the application of existing laws and regulations to
the Internet could have a material and adverse effect on our business, results
of operations and financial condition.
Although our online transmissions generally originate in New York and
Virginia, the governments of other states or foreign countries might attempt to
regulate our transmissions or levy sales or other taxes relating to our
activities. As our products and services are available over the Internet
anywhere in the world, multiple jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each of those jurisdictions.
Our failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties for the failure to
qualify. It is possible that state and foreign governments might also attempt to
regulate our transmissions of content on our Web site or prosecute us for
violations of their laws. We cannot assure you that state or foreign governments
will not charge us with violations of local laws or that we might not
unintentionally violate these laws in the future.
The U.S. Congress recently enacted the Children's Online Privacy Protection
Act of 1998 or "COPPA". The Federal Trade Commission promulgated regulations
implementing COPPA on October 21, 1999 which became effective on April 21, 2000.
The principal COPPA requirements apply to Web sites, or those portions of Web
sites, directed to children under age 13. COPPA mandates that individually
identifiable information about minors under the age of 13 not be collected, used
or displayed without first obtaining informed parental consent that is
verifiable in light of present technology. As a part of our efforts to comply
with the new requirements, we have decided not to provide many of our services
to children under the age of 13. This will likely dissuade some percentage of
our customers from using our Web site, which may adversely affect our business.
While we believe that our Web site is compliant with COPPA, our efforts may not
have been successful. If this is the case, we may face litigation with the
Federal Trade Commission or individuals, which would adversely affect our
business.
A number of government authorities are increasingly focusing on online
privacy issues and the use of personal information. The Federal Trade Commission
and several states have investigated the use by some Internet companies of
personal information. Our business could be adversely affected if new
regulations regarding the use of personal information are introduced or if
government authorities choose to investigate our privacy practices. In addition,
the European Union recently adopted a directive addressing data privacy that may
limit the collection and use of some information regarding Internet users. This
directive may limit our ability to target advertising or collect and use
information in some European countries.
EMPLOYEES
As of January 31, 2000, we had approximately 120 full-time employees. None
of our employees is represented by a labor union or is the subject of a
collective bargaining agreement. We consider relations with our employees to be
good.
RECENT DEVELOPMENTS
On April 14, 2000, Alloy consummated a financial and strategic arrangement
with Liberty Digital, Inc., a subsidiary of Liberty Media Group, Inc., pursuant
to which the Company issued 2,922,694 shares of its
11
<PAGE>
common stock to a subsidiary of Liberty Digital in exchange for $10 million in
cash and 837,740 shares of Liberty Digital common stock. In addition, in
connection with the transaction, we appointed Lee Masters, Liberty Digital's
President and CEO, to fill a newly created vacancy on our board of directors.
Mr. Masters' term expires in the year 2001.
ITEM 2. PROPERTIES.
-----------
Our principal office is located at 151 West 26th Street, 11th Floor, New
York, New York 10001, where we lease approximately 15,000 square feet of space.
17th Street Productions, our New York subsidiary, leases separate offices in New
York City at 33 West 17th Street, 11th Floor, New York, New York, which consist
of 4,000 square feet of space. Alloy Entertainment, our California subsidiary,
leases its offices, which are located at 4134 Marina Del Rey Avenue, Marina Del
Rey, California and consists of 3,000 square feet of space. We also lease
approximately 7,000 square feet of space at 115 West 30th Street, 2nd Floor,
New York, New York, which houses a photo studio and certain customer service
employees.
ITEM 3. LEGAL PROCEEDINGS.
------------------
As of the date of the filing of this Form 10-K, we were not a party to any
lawsuit or proceeding which is likely, in the opinion of management, to have a
material adverse effect on our financial position, results of operations and
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
--------------------------------------------------
No matters were submitted for a vote of stockholders of the Company during
the fourth quarter of fiscal 1999.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
----------------------------------------------------------------------
MARKET INFORMATION
Our Common Stock began trading on The Nasdaq Stock Market's National Market
on May 14, 1999 under the symbol "ALOY." The following table sets forth, for the
period indicated, the high and low sales prices for our Common Stock, as
reported by The Nasdaq National Market since it commenced public trading.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
FISCAL YEAR ENDED JANUARY 31, 2000 HIGH LOW
- ---------------------------------- ------------ ---------------
<S> <C> <C>
Second Quarter ended July 31, 1999 (from May 14, 1999)....................... $23.19 $ 9.75
Third Quarter ended October 31, 1999......................................... $16.50 $ 8.75
Fourth Quarter ended January 31, 2000........................................ $22.12 $10.44
</TABLE>
STOCKHOLDERS
As of April 1, 2000, there were approximately 125 stockholders of record,
and according to our estimates, approximately 3,000 beneficial owners of our
common stock.
DIVIDENDS
We have not paid cash dividends to our stockholders since our inception and
we do not plan to pay cash dividends in the foreseeable future. We currently
intend to retain all future earnings, if any, to finance our future growth.
UNREGISTERED SALES OF SECURITIES
In November 1998 and February 1999, we raised gross proceeds of
approximately $5.05 million from the issue and sale of a total of 1,487,843
shares of convertible preferred stock in a private placement to two investors at
a price of $3.391 per share. Brand Equity Ventures I, L.P., purchased a total of
1,474,573 shares of convertible preferred stock at a price of $3.391 per share.
Upon the closing of our initial public offering in May 1999, each outstanding
share of convertible preferred stock was converted into 1.128 shares of common
stock.
On December 6, 1999, as partial consideration for our acquisition of
substantially all of the assets of Celebrity Sightings, LLC, a California
limited liability company, we issued 200,616 shares of unregistered common stock
to Celebrity Sightings. 20,061 of these shares have been placed in escrow as
security for the indemnification obligations of Celebrity Sightings to Alloy
under the definitive Asset Purchase Agreement. The shares of unregistered common
stock are subject to the restrictions set forth in an Investment Representation
and Lockup Agreements between Alloy and Celebrity Sightings.
On January 24, 2000, as partial consideration for our acquisition of all of
the issued and outstanding capital stock of 17th Street Acquisition Corp., a New
York corporation, and Daniel Weiss Associates, a subsidiary of 17th Street
Acquisition, we issued 215,178 shares of unregistered common stock to the former
stockholders of 17th Street Acquisition. 64,552 of these shares have been placed
in escrow as security for the indemnification obligations of the former
stockholders of 17th Street Acquisition to Alloy under the definitive Merger
Agreement. The shares of unregistered common stock are subject to the
restrictions set forth in separate Investment Representation and Lockup
Agreements between Alloy and each of the former stockholders of 17th Street
Acquisition.
13
<PAGE>
USE OF PROCEEDS
On May 13, 1999, in connection with our initial public offering, a
Registration Statement on Form S-1 (No. 333-74159) was declared effective by the
Securities and Exchange Commission, pursuant to which 3,700,000 shares of Common
Stock were offered and sold for our account at a price of $15.00 per share,
generating gross offering proceeds of $55.5 million. After deducting
approximately $3.9 million in underwriting discounts and commissions and an
estimated $1.4 million in other related expenses, the net proceeds to Alloy were
approximately $50.2 million. The following table sets forth Alloy's cumulative
use of net offering proceeds as of January 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
Construction of plant, building and facilities: $ -
Purchase and installation of machinery and equipment: 1,800,000
Purchase of real estate: -
Acquisition of other business(es): 3,900,000
Repayment of indebtedness: 4,200,000
Working capital: 6,600,000
Temporary investments:
investment grade fixed income securities: 20,900,000
General corporate purposes: 12,800,000
</TABLE>
The foregoing use of net proceeds does not represent a material change in
the use of net proceeds described in the registration statement.
14
<PAGE>
ITEM 6.
SELECTED FINANCIAL DATA.
- ------------------------
The following selected financial data is derived from our consolidated
financial statements and notes thereto. Selected financial data should be read
in conjunction with Alloy's Financial Statements and the corresponding Notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------------
1997 1998 1999 2000
------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
Net merchandise revenues....................................... $ 25 $ 1,800 $ 10,085 $ 28,254
Sponsorship and other revenues................................. - - 125 2,912
------------------------------------------------------------
Total revenues................................................. 25 1,800 10,210 31,166
Cost of goods sold............................................. 17 1,050 5,486 13,765
------------------------------------------------------------
Gross profit................................................... 8 750 4,724 17,401
Operating expenses:
Selling and marketing........................................ 98 1,967 9,166 27,822
General and administrative................................... 28 682 1,683 5,423
Amortization of goodwill..................................... - - - 332
------------------------------------------------------------
Total operating expenses................................. 126 2,649 10,849 33,577
------------------------------------------------------------
Loss from operations........................................... (118) (1,899) (6,125) (16,176)
Interest income (expense), net................................. - 34 (239) 1,542
Charge for early retirement of debt............................ - - - (235)
============================================================
Net loss....................................................... $ (118) $ (1,865) $ (6,364) $ (14,869)
============================================================
Basic net loss per common share before extraordinary item(1)... $(0.03) $(0.33) $(0.75) $(1.15)
Extraordinary charge for early retirement of debt(1)........... $ 0.00 $ 0.00 $ 0.00 $(0.02)
Basic net loss per common share(1)............................. $(0.03) $(0.33) $(0.75) $(1.17)
============================================================
Diluted net loss per common share before extraordinary item(1). $(0.03) $(0.31) $(0.71) $(1.15)
Extraordinary charge for early retirement of debt(1)........... $ 0.00 $ 0.00 $ 0.00 $(0.02)
Diluted net loss per common share(1)........................... $(0.03) $(0.31) $(0.71) $(1.17)
============================================================
Weighted average common shares outstanding:
Basic(1)....................................................... 4,060,800 5,617,577 8,479,727 12,722,676
============================================================
Diluted(1)..................................................... 4,534,953 6,091,730 8,953,880 12,722,676
============================================================
<CAPTION>
January 31,
------------------------------------------------------------
1997 1998 1999 2000
------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 19 $ 2,321 $ 2,983 $ 12,702
Working capital................................................ 38 2,451 5,266 30,179
Total assets................................................... 47 3,166 7,407 57,668
Promissory notes, net.......................................... - - 3,945 -
Capital lease obligation, less current portion................. - - 40 -
Convertible redeemable preferred stock, net.................... - - 4,836 -
Total stockholders' equity (deficit)........................... 42 2,479 (3,046) 45,208
</TABLE>
(1) See Note 10 to the Financial Statements for an explanation of the
determination of the number of common shares used in computing the amount of
basic and diluted net loss per common share and net loss applicable to
common stockholders.
15
<PAGE>
(2) See Note 3 to the Financial Statements for a description of the effect of
our acquisitions of the assets of Celebrity Sightings, LLC and the stock of
17th Street Productions, Inc. on the comparability of our selected financial
information for the fiscal year ended January 31, 2000 against our prior
fiscal years.
(3) There was no activity during the period from January 22, 1996 through
January 31, 1996. Accordingly, no Statement of Operations or Balance Sheet
Data have been presented.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
The following discussion of the financial condition and results of
operation of Alloy should be read in conjunction with the Financial Statements
and the related Notes included elsewhere in this report. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of various factors, including, but not limited
to, those under "Risk Factors That May Affect Future Results" and elsewhere in
this report.
OVERVIEW
Alloy Online is a leading Web site serving the unique interests and tastes
of Generation Y. Through our Web site, www.alloy.com, Generation Y boys and
girls can interact, share information, explore compelling and relevant content
and shop. Through our Web site and our Alloy direct mail catalog, we offer
Generation Y boys and girls a variety of merchandise, including boys and girls
apparel, accessories, footwear, cosmetics and room furnishings.
Our revenues consist of merchandise revenues and sponsorship and other
revenues. We generate merchandise revenues through both our catalog and our Web
site. We generate sponsorship and other revenues primarily through the sale of
sponsorships, banner advertisements, co-marketing programs and other revenue
sharing arrangements on our Web site and in our catalog. Revenues from sales of
merchandise are recognized at the time products are shipped to customers.
Revenues from sponsorships, advertising and other arrangements are recognized
during the period in which the sponsorship or advertisement is displayed,
provided that no significant performance obligations remain and the collection
of the related receivable is probable. Revenues from sales of Internet
advertisements are recognized net of commissions paid to advertising sales firms
and to technology and content providers.
We were incorporated in January 1996, launched our Web site in August 1996
and began recognizing meaningful revenues in August 1997 following the
distribution of our first Alloy catalog. To date, the majority of our revenues
have been generated through merchandise sales; however, we expect sponsorship
and other revenues to increase in future periods as a result of our plan to
increase visitors to our Web site and further develop our marketing and sales
team to capitalize on our sponsorship, advertising and other revenue
opportunities. In May 1999, we issued 3,700,000 shares of common stock in our
initial public offering and received approximately $50.1 million in net
proceeds, after deduction of underwriter's commissions and discounts and
expenses related to our initial public offering.
We incurred net losses of approximately $1.9 million for the year ended
January 31, 1998, $6.4 million for the year ended January 31, 1999 and $14.9
million for the year ended January 31, 2000. At January 31, 2000 we had an
accumulated deficit of $23.2 million. The net losses and accumulated deficit
resulted primarily from the costs associated with developing our Web site and
database of Generation Y boys and girls, attracting users to our Web site, and
establishing the Alloy brand. Because of our plans to continue to invest heavily
in marketing and promotion, to hire additional employees and to develop our Web
site and operating infrastructure, we expect to incur significant net losses for
the foreseeable future. Although we have experienced revenue growth in recent
periods, this growth may not be sustainable and, therefore, these recent periods
should not be considered indicative of future performance. We may never achieve
significant revenues or profitability, or if we achieve significant revenues
they may not be sustained in future periods.
For purposes of the discussion below, the fiscal year ended January 31,
1998 is referred to as fiscal 1997; the fiscal year ended January 31, 1999 is
referred to as fiscal 1998; and the fiscal year ended January 31, 2000 is
referred to as fiscal 1999.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------------------
1998 1999 2000
---------------- ---------------- ---------------
<S> <C> <C> <C>
Net merchandise revenues......................................... 100.0% 98.8% 90.7%
Sponsorship and other revenues................................... - 1.2 9.3
---------------- ---------------- ---------------
Total revenues................................................... 100.0 100.0 100.0
Cost of goods sold............................................... 58.3 53.7 44.2
---------------- ---------------- ---------------
Gross profit..................................................... 41.7 46.3 55.8
Operating expenses:
Selling and marketing......................................... 109.3 89.8 89.3
General and administrative.................................... 37.9 16.5 17.4
Amortization of goodwill...................................... - - 1.0
---------------- ---------------- ---------------
Total operating expenses......................................... 147.2 106.3 107.7
Loss from operations............................................. (105.5) (60.0) (51.9)
Interest income (expense), net................................... 1.9 (2.3) 4.9
Charge for early retirement of debt - - (0.7)
---------------- ---------------- ---------------
Net loss......................................................... (103.6)% (62.3)% (47.7)%
================ ================ ===============
</TABLE>
FISCAL YEARS ENDED JANUARY 31, 1998, JANUARY 31, 1999 AND JANUARY 31, 2000
Revenues
Merchandise Revenues. Net merchandise revenues increased from $1.8 million
in fiscal 1997; to $10.1 million in fiscal 1998, a 460.3% increase; to $28.2
million in fiscal 1999, a 180.2% increase. The increase in merchandise revenues
in fiscal 1999 was due primarily to the increased size of our name database to
which we marketed our merchandise offerings, an expanded marketing program to
names outside of our database, and our broadened merchandise assortment.
Sponsorship and Other Revenues. In fiscal 1999, our in-house advertising
sales group commenced development of commercial relationships to take advantage
of the increased number of visitors to our Web site and our new online services.
As a result, sponsorship and other revenues amounted to $2.9 million in fiscal
1999 as compared to $0.1 million in fiscal 1998. In fiscal 1998, we initiated
an advertising and sponsorship program on our Web site, resulting in revenues of
$125,000 for the year.
Cost of Goods Sold
Cost of goods sold consists of the cost of the merchandise sold by Alloy
plus the freight cost to deliver the merchandise to the warehouse. Our cost of
goods sold increased from $1.1 million in fiscal 1997; to $5.5 million in fiscal
1998, a 422.4% increase; to $13.8 million in fiscal 1999, a 150.9% increase. The
increase in cost of goods sold in fiscal 1999 as compared to fiscal 1998 and
fiscal 1998 as compared to fiscal 1997 was due primarily to the increase in
product sales volume.
18
<PAGE>
Alloy's gross profit as a percentage of total revenues increased from 46.3%
in fiscal 1998 to 55.8% in fiscal 1999 due to the relative growth in our
sponsorship and other revenues, our improved merchandise mix, and our increased
purchasing power with our merchandise vendors. The increase from fiscal 1997 to
fiscal 1998 was primarily due to improved pricing terms with our merchandise
vendors, expanded price markups, increased prices on sales of excess
merchandise, and the contribution from sponsorship and other revenues.
Operating Expenses
Selling and Marketing. Selling and marketing expenses consist primarily of
Alloy catalog production and mailing costs, our call center and fulfillment
operations expenses, salaries of our sales and marketing personnel, marketing
costs, telecommunications costs, and expenses related to the development,
maintenance and marketing of our Web site. These expenses increased 200% from
$9.2 million in fiscal 1998 to $27.8 million in fiscal 1999, due to the
increased costs incurred in marketing, selling and shipping to our expanded
database; more extensive Web site promotion and development; the hiring of
additional sales and marketing personnel; and increased spending on advertising
in a variety of media to increase brand awareness, attract additional visitors
to our Web site and grow online merchandise sales. These expenses increased 360%
from $2.0 million in fiscal 1997 to $9.2 million in fiscal 1998, due to the
growth in merchandise marketing and sales to our expanded name database, Web
site development costs, and the initiation of advertising programs designed to
direct traffic to our Web site. As a percentage of total revenues, our selling
and marketing expenses decreased from 89.8% in fiscal 1998 to 89.3% in fiscal
1999 after declining from 109.3% in fiscal 1997 to 89.8% in fiscal 1998. The
decrease from fiscal 1998 to fiscal 1999 resulted primarily from our more
targeted marketing to our enlarged name database and improved fulfillment
efficiencies resultant from increased shipping activity. The decrease from
fiscal 1997 to fiscal 1998 resulted primarily from reduced fulfillment expenses
associated with our renegotiated fulfillment contract effective in August 1998.
Fulfillment expenses have risen from $778,000 in fiscal 1997 to $2.7 million in
fiscal 1998 to $6.7 million in fiscal 1999, but as a percentage of total
revenues have fallen from 43.2% in fiscal 1997 to 26.9% in fiscal 1998 to 21.4%
in fiscal 1999.
We expect selling and marketing expenses to continue to increase
significantly in future periods. As with prior periods, these increases will be
principally related to hiring additional sales and marketing personnel and
increased spending on advertising in a variety of media to increase brand
awareness, attract additional visitors to our Web site, and grow online
merchandise sales. There can be no assurance that these increased expenditures
will result in increased visitors to our Web site or additional sales.
General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for our executive, administrative,
finance and management personnel, as well as support services and professional
service fees. These expenses increased 150% from $682,000 in fiscal 1997 to $1.7
million in fiscal 1998 and 222.2% to $5.4 million in fiscal 1999. As a
percentage of total revenues, our general and administrative expenses decreased
from 37.9% in fiscal 1997 to 16.5% in fiscal 1998 and increased to 17.4% in
fiscal 1999. The increase in general and administrative expenses from fiscal
1998 to fiscal 1999 was driven by an increase in compensation expense for
additional personnel to handle our growing business, together with expenses
incurred as a result of becoming a public company, such as professional fees,
insurance premiums and public relations costs. The increase in general and
administrative expenses from fiscal 1997 to fiscal 1998 was primarily due to the
increased personnel required to support and grow our business. Our general and
administrative expenses in fiscal 1997 were affected by the non-cash expense of
$312,000 associated with stock option awards to a consultant. Excluding this
expense, our general and administrative expenses in fiscal 1997 were 20.6% of
total revenues for the period. We expect general and administrative expenses to
grow as we hire additional personnel and incur additional expenses related to
the growth of our business and our operations as a public company.
19
<PAGE>
Amortization of Goodwill
Amortization of goodwill was approximately $332,000 in fiscal 1999 as
compared to zero in fiscal 1998 and fiscal 1997. These costs were recorded in
connection with our acquisition of substantially all of the assets of Celebrity
Sightings, LLC in December 1999 and the merger of our acquisition subsidiary
with and into 17th Street Acquisition Corp., the sole stockholder of 17th Street
Productions, Inc. in January 2000. These acquisitions were accounted for under
the purchase method of accounting. We anticipate that the future amortization of
goodwill in connection with these acquisitions will continue to be amortized on
a straight-line basis over three years in the case of Celebrity Sightings, LLC
and five years in the case of 17th Street Productions, Inc., and will amount to
approximately $785,000 per quarter until the end of fiscal 2002 and
approximately $368,000 per quarter thereafter until the related goodwill is
fully amortized. Any additional acquisitions or impairment of goodwill could
result in additional merger and acquisition related costs.
Loss from Operations
As described above, we continue to invest heavily to build the Alloy brand,
grow our customer database, enhance and attract visitors to our Web site,
increase the number of our employees to support a growing operation, make
strategic acquisitions and to become a public company. For the foregoing
reasons, our loss from operations increased from $1.9 million in fiscal 1997; to
$6.1 million in fiscal 1998, an increase of 222.5%; to $16.2 million in fiscal
1999, an increase of 164.1%.
Interest (Expense) Income, Net
Interest income net of expense includes income from our cash and cash
equivalents and from investments and expenses related to our financing
obligations. We generated net interest income of $34,000 in fiscal 1997 due to
our cash balances resulting from our common stock offerings in this period. In
fiscal 1998, we incurred net interest expense of $239,000 due to the interest
expense resulting from our issuance of promissory notes in May 1998, which
exceeded our interest earned on cash balances held. In fiscal 1999, we generated
net interest income of $1.5 million due to the investment of proceeds raised in
our initial public offering.
SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statements of operations
data for each of the eight quarters ended January 31, 2000. In the opinion of
management, the unaudited financial results include all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of our
results of operations for those periods. The quarterly data should be read in
conjunction with the Financial Statements and the related Notes appearing
elsewhere in this report. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.
20
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter Ended (Unaudited)
-----------------------------------------------------------------------------------------------------
Apr. 30, Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31, Jan. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net merchandise revenues.... $ 1,353 $ 2,082 $ 3,215 $3,436 $ 2,391 3,596 $ 8,610 $13,656
Sponsorship and other
revenues.................... - 5 46 73 163 219 524 2,005
-----------------------------------------------------------------------------------------------------
Total revenues.............. 1,353 2,087 3,261 3,509 2,554 3,815 9,134 15,661
Cost of goods sold.......... 906 1,200 1,665 1,715 1,249 1,899 4,125 6,492
-----------------------------------------------------------------------------------------------------
Gross profit................ 447 887 1,596 1,794 1,305 1,916 5,009 9,169
Operating expenses:
Selling and marketing...... 1,517 2,483 2,879 2,287 2,610 4,320 9,105 11,787
General and
administrative............. 265 509 517 392 919 1,146 1,399 1,958
Amortization of goodwill - - - - - - - 332
-----------------------------------------------------------------------------------------------------
Total operating
expenses............... 1,782 2,992 3,396 2,679 3,529 5,466 10,504 14,077
-----------------------------------------------------------------------------------------------------
Loss from operations........ (1,335) (2,105) (1,800) (885) (2,224) (3,550) (5,495) (4,908)
Interest income (expense),
net......................... 22 (60) (101) (100) (78) 472 600 549
-----------------------------------------------------------------------------------------------------
Loss before extraordinary
item........................ (1,313) (2,165) (1,901) (985) (2,302) (3,078) (4,895) (4,359)
Extraordinary item charge
for early retirement of debt - - - - - (235) - -
Net loss.................... $(1,313) $(2,165) $(1,901) $ (985) $(2,302) $(3,313) $(4,895) $(4,359)
Basic net loss per common
share before extraordinary
item........................ $ (0.15) $ (0.26) $ (0.22) $ (0.12) $ (0.27) $ (0.23) $ (0.34) $ (0.30)
Extraordinary charge for
early retirement of debt..... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.02) $ 0.00 $ 0.00
Basic net loss per common
share....................... $ (0.15) $ (0.26) $ (0.22) $ (0.12) $ (0.27) $ (0.25) $ (0.34) $ (0.30)
Diluted net loss per common
share before extraordinary
item........................ $ (0.15) $ (0.24) $ (0.21) $ (0.11) $ (0.26) $ (0.23) $ (0.34) $ (0.30)
Extraordinary charge for
early retirement of debt..... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.02) $ 0.00 $ 0.00
Diluted net loss per common
share....................... $ (0.15) $ (0.24) $ (0.21) $ (0.11) $ (0.26) $ (0.25) $ (0.34) $ (0.30)
Weighted average common
shares outstanding:
Basic 8,479,727 8,479,727 8,479,727 8,479,727 8,711,878 13,411,623 14,231,774 14,404,591
Diluted 8,953,880 8,953,880 8,953,880 8,953,880 8,953,880 13,411,623 14,231,774 14,404,591
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Percentage of Total Revenues
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net merchandise revenues...... 99.9% 99.8% 98.6% 97.9% 93.6% 94.2% 94.2% 87.2%
Sponsorship and other
revenues...................... 0.1 0.2 1.4 2.1 6.4 5.8 5.8 12.8
--------------------------------------------------------------------------------------
Total revenues................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold............ 66.9 57.5 51.0 48.9 48.9 49.8 45.2 41.5
--------------------------------------------------------------------------------------
Gross profit.................. 33.1 42.5 49.0 51.1 51.1 50.2 54.8 58.5
Operating expenses:
Selling and marketing........ 112.1 118.9 88.3 65.2 102.1 113.2 99.7 75.3
General and
administrative............... 19.6 24.4 15.8 11.2 36.0 30.0 15.3 12.5
Amortization of goodwill - - - - - - - 2.1
--------------------------------------------------------------------------------------
Total operating
expenses................. 131.7 143.3 104.1 76.4 138.1 143.2 115.0 89.9
--------------------------------------------------------------------------------------
Loss from operations.......... (98.6) (100.8) (55.1) (25.3) (87.0) (93.0) (60.2) (31.4)
Interest income (expense),
net........................... 1.6 (2.9) (3.1) (2.8) (3.1) 12.4 6.6 3.5
--------------------------------------------------------------------------------------
Loss before extraordinary
item.......................... (97.0) (103.7) (58.2) (28.1) (90.1) (80.6) (53.6) (27.9)
Extraordinary item charge
for early retirement of debt.. - - - - - (6.2) - -
Net loss...................... (97.0)% (103.7)% (58.2)% (28.1)% (90.1)% (86.8)% (53.6)% (27.9)%
======================================================================================
</TABLE>
Our revenues have been increasing as a result of the growth of our name
database to which we market our merchandise offerings, our expanding marketing
program to names outside of our database, our broadening
21
<PAGE>
merchandise assortment, and the increasing sales of sponsorships and advertising
on our Web site to companies seeking to market to our Generation Y audience. The
improvement in our gross margins reflects more efficient merchandise sourcing,
increasing merchandise markups, a higher margin merchandise mix, increasing
prices on sales of excess merchandise, and the growing proportion of high margin
sponsorship and other revenues in our overall revenue mix. Operating expenses
have generally been increasing in dollar terms during the quarters presented.
Selling and marketing expenses have been increasing as sales, advertising and
marketing to our enlarged name database have been increasing. Selling and
marketing expenses peaked in the fiscal quarter ended January 31, 2000 due to
our efforts to expand merchandise marketing during the holiday season. General
and administrative expenses have been rising as a result of increasing
personnel, increasing operating costs of our growing business, and costs related
to our being a public company. General and administrative costs increased in the
fiscal quarters ended July 31, 1998 and October 31, 1998 due to stock option
awards to a consultant.
We expect our quarterly revenues, margins and results of operations to
fluctuate significantly in the future. In addition, the results of any quarter
do not indicate results that should be expected for a full fiscal year. If our
revenues, margins or operating results fall below the expectations of securities
analysts and investors in some future periods, then the price of our common
stock could decline.
SEASONALITY
Our historical revenues and operating results have varied significantly
from quarter to quarter due to seasonal fluctuations in consumer purchasing
patterns. Sales of apparel, accessories and footwear through our Web site and
Alloy catalog have been higher in our third and fourth fiscal quarters,
containing the key back-to-school and holiday selling seasons, than in our first
and second quarters. We believe that advertising and sponsorship sales will
follow a similar pattern with higher revenues in the third and fourth quarter as
marketers more aggressively attempt to reach our Generation Y audience during
the major spending seasons.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through the sale of equity and
debt securities as we have generated negative cash flow from operations since
our inception. In May 1999, we raised approximately $50.1 million in net
proceeds upon the closing of our initial public offering. At January 31, 2000,
we had approximately $12.7 million of cash and cash equivalents and a further
$21.0 million of marketable securities. Our principal commitments at January
31, 2000 consisted of accounts payable and obligations under our capital and
operating leases.
Net cash used in operating activities was $12.1 million in fiscal 1999,
$5.3 million in fiscal 1998 and $1.7 million in fiscal 1997. The principal use
of cash for all periods was to fund our losses from operations.
Cash used in investing activities has consisted of the purchase of
marketable securities with a portion of the proceeds from our initial public
offering; capital expenditures for computers, office furniture and equipment;
partial financing of two business acquisitions; and the acquisition of certain
intangible assets. We have invested approximately $20.9 million of the proceeds
from our initial public offering in marketable securities in fiscal 1999.
Reflecting the increased pace of business growth and Web site traffic, our
capital expenditures have risen from $22,000 in fiscal 1997 and $10,000 in
fiscal 1998 to $1.9 million in fiscal 1999. In connection with the acquisition
of certain assets and liabilities of Celebrity Sightings, LLC and the purchase
of the capital stock of 17th Street Acquisition Corp. in fiscal 1999, we paid
$3.9 million net of cash acquired. In fiscal 1999, we also acquired a Web site
domain name and a customer mailing list in separate transactions for a total of
$250,000.
Net cash provided by financing activities was $48.8 million in fiscal 1999,
$5.9 million in fiscal 1998 and $4.1 million in fiscal 1997. In fiscal 1997 and
1998, cash provided by financing activities consisted of sales of our common
stock, convertible preferred stock and promissory notes. In fiscal 1999, we
received $50.1 million in net proceeds from our initial public offering, as well
as the second $2.5 million cash installment from
22
<PAGE>
the sale of our Series A Convertible Preferred Stock to Brand Equity Ventures.
After the closing of our initial public offering on May 19, 1999, we repaid $4.2
million of principal and accrued interest on our promissory notes. In addition,
upon the consummation of our initial public offering, all outstanding shares of
Series A Convertible Redeemable Preferred Stock were converted into 1,678,286
shares of common stock. The net cash for fiscal 1998 and 1999 was partially
offset by payments of our capitalized lease obligations.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we build our
brand and customer database and that our operating expenses will be a material
use of our cash resources. We believe that in light of our initial public
offering which raised net proceeds of $50.1 million in May 1999, together with
the $10.0 million in cash and 837,740 shares of Liberty Digital, Inc. common
stock we received in April 2000 as part of Liberty Digital, Inc.'s investment,
our existing working capital and cash flows from operations will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures
for at least the next 24 months, although we will consider attractive
opportunities to raise additional capital should these opportunities arise. If
cash generated from operations is insufficient to satisfy our cash needs, we may
be required to raise additional funds. If we raise additional funds through the
issuance of equity securities, our existing shareholders may experience
significant dilution. Furthermore, additional financing may not be available
when needed or, if available, financing may not be on terms favorable to us or
our stockholders. If financing is not available when required or is not
available on acceptable terms, we may be unable to develop or enhance our
products or services. In addition, we may be unable to take advantage of
business opportunities or respond to competitive pressures. Any of these events
could have a material and adverse effect on our business, results of operations
and financial condition.
YEAR 2000 COMPLIANCE
The "Year 2000 Problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
may recognize a year ending in "00" as the Year 1900 rather than the Year
2000, which could result in a significant disruption of operations and an
inability to process certain transactions. We have conducted an internal
assessment of all material information technology and non-information technology
systems at our headquarters and at OneSoft, our Website host, including our
accounting software, our servers and related software, our personal computers
and related software, and our telephone system. The assessment revealed that
all mission critical software and hardware systems in our corporate headquarters
and OneSoft was 100% Year 2000 Compliant. We developed a strategic plan to
estimate the potential risks related to the four vendors upon whom we materially
rely: Harrison Fulfillment Services, our fulfillment services and call center
provider; OneSoft Corporation, which maintains our Web site and provides our
connection to the Internet; Quad/Graphics, Inc., our commercial printer; and the
United States Postal Service, our mail carrier. We have concluded that Year
2000 issues would not materially affect the continuation of our normal daily
operations. To date, our operations have suffered no significant disruption from
Year 2000 problems. We do not expect to experience any material adverse effects
on our business, financial condition or results of operations from any other
vendor, distributor or supplier who may experience Year 2000 problems. We
incurred no material historical costs relating to Year 2000 compliance, and we
have not incurred any material costs in resolving the Year 2000 problems of
third parties with whom we interact. We intend, however, to continue monitoring
our internal computer systems and those of third parties for Year 2000 problems.
Year 2000 problems that are as yet undiscovered may arise in the future and
could have a significant impact on our operations.
RECENT ACCOUNTING PRONOUNCEMENTS
23
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. We do not
use derivatives and therefore this new pronouncement is not applicable.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation". This pronouncement was
issued to clarify the application of APB Opinion No. 25 to certain stock
compensation issues. Among other things, the FASB interpretation provides that
stock compensation granted to nonemployee members of the board of directors for
services provided as a director can be accounted for under the provisions of APB
Opinion No. 25, rather than requiring the fair value provisions of SFAS No. 123.
In addition, the FASB has provided further interpretations concerning the
accounting consequences of various modifications to the terms of previously
fixed stock options or awards, the accounting for an exchange of stock
compensation awards in a business combination, and the criteria for determining
whether a plan qualifies as a noncompensatory plan. The interpretation is
effective July 1, 2000, with certain provisions applicable to events that occur
after either December 15, 1998, or January 12, 2000. Alloy's accounting for
stock compensation has been consistent with this interpretation and there are no
future adjustments to be made for existing stock compensation arrangements as a
result of this interpretation.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101
("SAB No. 101"), "Revenue Recognition" to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
explains the SEC staff's general framework for revenue recognition, and states
the specific criteria that need to be met in order to recognize revenue. The SAB
also deals with the question of gross versus net revenue presentation and
financial statement and Management Discussion and Analysis disclosures related
to revenue recognition. Alloy has complied with all disclosure requirements and
has recognized revenue in accordance with the guidance in this pronouncement.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The following risk factors and other information included in this report
should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we deem immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial condition
or results of operations could be materially and adversely affected.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR POTENTIAL
FOR FUTURE SUCCESS. We were incorporated in January 1996 and did not begin to
generate meaningful revenues until August 1997. Accordingly, we have only a
limited operating history upon which you can evaluate our business and
prospects. You must consider the risks and uncertainties frequently encountered
by early stage companies in new and rapidly evolving markets, such as electronic
commerce. If we are unsuccessful in addressing these risks and uncertainties,
our business, results of operations and financial condition will be materially
and adversely affected.
WE HAVE A HISTORY OF LOSSES, AND WE EXPECT LOSSES FOR THE FORESEEABLE
FUTURE. Since our inception in January 1996, we have incurred significant net
losses, resulting primarily from costs related to developing our Web site and
database of Generation Y names, attracting users to our Web site, establishing
the Alloy brand, hiring employees, making strategic acquisitions and becoming a
public company. At January 31, 2000, we had an accumulated deficit of $23.2
million. Because of our plans to continue invest heavily in marketing and
promotion, to hire additional employees, to enhance our Web site and operating
infrastructure, and making additional strategic acquisitions, we expect to incur
significant net losses for the foreseeable future. If our revenue growth is
slower than we anticipate or our operating expenses exceed our expectations, our
losses will be significantly greater. We may never achieve profitability.
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN
OUR QUARTERLY OPERATING RESULTS. Our revenues for the foreseeable future will
remain primarily dependent on sales of merchandise appearing in our catalogs and
on our Web site, and secondarily on sponsorship and advertising revenues. We
cannot forecast with any degree of certainty the number of visitors to our Web
site, the extent of our merchandise sales or the amount of sponsorship and
advertising revenues.
We expect our operating results to fluctuate significantly from quarter to
quarter. We have already experienced the effects of seasonality on our
merchandise sales, which are generally lower in the first half of each year. We
believe that sponsorship and advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If similar seasonal and cyclical patterns emerge in
Internet sponsorship and advertising spending, these revenues may vary
significantly based on these patterns. See "Management's Discussion and Analysis
of Financial Condition and Operations."
24
<PAGE>
Other factors which may cause our operating results to fluctuate
significantly from quarter to quarter include:
. our ability to attract new and repeat visitors to our Web site and
convert them into customers;
. price competition;
. the level of merchandise returns we experience;
. unanticipated cost increases or delays in shipping, transaction
processing and catalog production;
. unanticipated delays or cost increases with respect to product
introductions; and
. the costs, timing and impact of our sales and marketing initiatives.
Because of these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of securities
analysts and investors in some future periods, then our stock price may decline.
OUR BUSINESS WILL SUFFER IF WE FAIL TO KEEP CURRENT WITH GENERATION Y
FASHION AND LIFESTYLE TRENDS. Our continued success will depend on our ability
to keep current with the changing fashion tastes and interests of our Generation
Y customers. If we fail to anticipate, identify or respond to changes in styles,
trends or brand preferences of our customers, we are likely to experience
reduced revenues from merchandise sales. Moreover, the Alloy brand could be
eroded by misjudgments in merchandise selection or a failure to keep our
community and content current with the evolving preferences of our audience.
These events would likely reduce the number of visitors to our Web site and
limit opportunities for sponsorship and advertising sales. As a consequence of
these developments, our business would suffer.
OUR PLANNED ONLINE AND TRADITIONAL MARKETING CAMPAIGNS MAY NOT ATTRACT
SUFFICIENT ADDITIONAL VISITORS TO OUR WEB SITE OR MAY DETRACT FROM OUR IMAGE. We
plan to continue to pursue aggressive marketing campaigns online and in
traditional media to promote the Alloy brand and attract an increasing number of
visitors to our Web site. We believe that maintaining and strengthening the
Alloy brand will be critical to the success of our business. This investment in
increased marketing carries with it significant risks, including the following:
. Our advertisements may not properly convey the Alloy brand image, or may
even detract from our image. Unlike advertising on our Web site which
gives us immediate feedback and allows us promptly to adjust our
messages, advertising in print and broadcast media is less flexible.
These advertisements typically take longer and cost more to produce and
consequently have longer run times. If we fail to convey the optimal
message in these advertising campaigns, the impact may be more lasting
and more costly to correct.
. Even if we succeed in creating the right messages for our promotional
campaigns, these advertisements may fail to attract new visitors to our
Web site at levels commensurate with their costs. We may fail to choose
the optimal mix of television, radio, print and other media to cost-
effectively deliver our message. Moreover, if these efforts are
unsuccessful, we will face difficult and costly choices in deciding
whether and how to redirect our marketing dollars.
WE RELY HEAVILY ON THIRD PARTIES FOR ESSENTIAL BUSINESS OPERATIONS AND
DISRUPTIONS OR FAILURES IN SERVICE MAY ADVERSELY AFFECT OUR ABILITY TO DELIVER
GOODS AND SERVICES TO OUR CUSTOMERS
General. We depend on third parties for important aspects of our business,
including:
25
<PAGE>
. Internet access;
. development of software for new Web site features;
. content; and
. telecommunications.
We have limited control over these third parties, and we are not their only
client. We may not be able to maintain satisfactory relationships with any of
them on acceptable commercial terms. Further, we cannot be certain that the
quality of products and services that they provide may remain at the levels
needed to enable us to conduct our business effectively. Many of our agreements
with technology and content providers are on very favorable terms that do not
include license fees, but instead provide for revenue sharing. We may not be
able to renew these agreements on similar terms.
Reliance on OneSoft Corporation. We rely heavily on OneSoft Corporation to
maintain and operate our Web site in its facilities in Annandale, Virginia. This
system's continuing and uninterrupted performance is critical to our success.
Growth in the number of users accessing our Web site may strain its capacity,
and we rely on OneSoft to upgrade our system's capacity in the face of this
growth. OneSoft also provides our connection to the Internet. Sustained or
repeated system failures or interruptions of our Web site connection services
would reduce the attractiveness of our Web site to customers and advertisers and
could therefore have a material and adverse effect on our business. Service
provision from our new fulfillment services provider is untested and there is no
assurance that such service yet to be provided will be satisfactory. If our new
fulfillment services provider does not perform as expected, our business,
results of operations and financial condition will be materially adversely
affected.
Reliance on Fulfillment Services Provider. We will switch our fulfillment
services provider during May 2000. We rely heavily on our fulfillment services
provider for the performance of order processing, order fulfillment, customer
service and shipping. Disruptions or delays in these services could discourage
customers from ordering from us in the future and could therefore have a
material and adverse effect on our business. Service provision from our new
fulfillment services provider is untested and there is no assurance that such
service will be satisfactory. If our new fulfillment services provider does not
perform as expected, our business, results of operations and financial condition
will be materially adversely affected.
OUR MANAGEMENT IS NEW AND MAY HAVE DIFFICULTY MANAGING OUR EXPECTED GROWTH.
In order to execute our business plan, we must continue to grow significantly.
This growth will strain our personnel, management systems and resources. To
manage our growth, we must implement operational and financial systems and
controls and recruit, train and manage new employees. Some key members of our
management have only recently been hired. These individuals have had little
experience working with our management team. We cannot be certain that we will
be able to integrate new executives and other employees into our organization
effectively. If we do not manage growth effectively, our business, results of
operations and financial condition will be materially and adversely affected.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE
ABLE TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS
GROWS. Our performance is substantially dependent on the continued services and
on the performance of our executive officers and other key employees,
particularly Matthew C. Diamond, our Chief Executive Officer, James K. Johnson,
Jr., our Chief Operating Officer and Samuel A. Gradess, our Chief Financial
Officer. The loss of the services of any of our executive officers could
materially and adversely affect our business. Additionally, we believe we will
need to attract, retain and motivate talented management and other highly
skilled employees to be successful. Competition for employees that possess
knowledge of both the Internet industry and the Generation Y market is intense.
We may be unable to retain our key employees or attract, assimilate and retain
other highly qualified employees in the future.
INTENSE COMPETITION FROM INTERNET- AND CATALOG-BASED BUSINESSES MAY
DECREASE OUR MARKET SHARE, REVENUES AND GROSS MARGINS AND CAUSE OUR STOCK PRICE
TO DECLINE. We face intense competition in electronic commerce, catalog sales
and online services. Our Web site and Alloy catalog compete for Generation Y
26
<PAGE>
customers with traditional department store retailers, catalog retailers, direct
marketers, specialty apparel and accessory retailers and discount retailers.
This competition is likely to increase because it is not difficult to enter the
online commerce market, and current and new competitors can launch Web sites at
relatively low cost. Competition could result in price reductions for our
products and services, reduced margins or loss of market share. Consolidation
within the online commerce industry may also increase competition.
The market for Internet users and community services is highly competitive
and rapidly evolving. Competition for users and advertisers is intense and is
expected to increase significantly. There are no substantial barriers to entry
in these markets. Competition could result in fewer visitors to our Web site and
reduced sponsorship and advertising revenues.
Many of our existing competitors, as well as potential new competitors,
have longer operating histories, greater brand recognition, larger customer user
bases and significantly greater financial, technical and marketing resources
than we do. If we fail to compete effectively, our business will be materially
and adversely affected and our stock price will decline. See "Business --
Competition."
WE MAY FAIL TO SUCCESSFULLY MANAGE AND USE OUR DATABASES OF WEB SITE USERS
AND CUSTOMERS. An important component of our business model involves the use of
our lists of catalog requesters and Web site registrants to more effectively
target direct marketing messages. We depend upon personal information we collect
from our Web site users for data we need to create direct mailing and e-mailing
lists, tailor our Web site offerings to the tastes of our Generation Y users and
attract marketers to our Web site. We must continuously expand and update our
lists to identify new, prospective Generation Y customers. Names derived from
purchased or rented lists may generate lower response rates and, therefore, a
lower return on our investment in these lists. We must also continually develop
and refine our techniques for segmenting these lists to maximize their
usefulness to us and our marketing partners. If we fail to capitalize on these
important business assets, our business model will be less successful. In
addition, laws or regulations that could impair our ability to collect user
names and other information on our Web site may adversely affect our business.
For example, a recently enacted federal law limits our ability to collect
personal information from Web site visitors who may be under age 13. See
"Business -- Government Regulation."
WE MUST EFFECTIVELY MANAGE OUR VENDORS TO MINIMIZE INVENTORY RISK AND
MAINTAIN OUR MARGINS. In order to fulfill our orders, we depend upon our vendors
to produce sufficient quantities of products according to schedule. We may
maintain high inventory levels in some categories of merchandise in an effort to
maintain satisfactory fulfillment rates for our customers. This may expose us to
risk of excess inventories and outdated merchandise, which could have a material
and adverse effect on our business. If we underestimate quantities and vendors
cannot restock, then we may disappoint customers who may turn to our
competitors. We also negotiate with our vendors to get the best quality
available at the best prices and increase our profit margins. Our failure to be
able to manage our vendors effectively would adversely affect our operating
results.
WE MAY FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER
WEB SITES TO INCREASE NUMBERS OF WEB SITE USERS AND INCREASE OUR REVENUES. We
intend to continue to establish strategic alliances with popular Web sites to
increase the number of visitors to our Web site. There is intense competition
for placements on these sites, and we may not be able to enter into these
relationships on commercially reasonable terms or at all. Even if we enter into
such strategic alliances, they themselves may not attract significant numbers of
users. Therefore, our site may not receive additional users from these
relationships. Moreover, we may have to pay significant fees to establish these
relationships. Our inability to enter into new distribution relationships or
strategic alliances and expand our existing ones could have a material and
adverse effect on our business.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE. To be successful, we must adapt to rapidly changing Internet
technologies and continually enhance the features
27
<PAGE>
and services provided on our Web site. We could incur substantial, unanticipated
costs if we need to modify our Web site, software and infrastructure to
incorporate new technologies demanded by our audience. We may use new
technologies ineffectively or we may fail to adapt our Web site, transaction-
processing systems and network infrastructure to user requirements or emerging
industry standards. If we fail to keep pace with the technological demands of
our Internet-savvy audience for new services, products and enhancements, our
users may not use our Web site and instead use those of our competitors.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, INTERNET
ADDRESSES AND INTELLECTUAL PROPERTY RIGHTS. Our Alloy brand and our Internet
address, www.alloy.com, are critical to our success. We have registered the
"Alloy" name, along with other trademarks with the U.S. Patent and Trademark
Office. Applications for the registration of our other trademarks and service
marks are currently pending. We cannot guarantee that any of these trademark or
service mark applications will be granted. In addition, we may not be able to
prevent third parties from acquiring Internet addresses that are confusingly
similar to our addresses, which could harm our business. See "Business --
Intellectual Property."
WE MAY EXPERIENCE FLUCTUATIONS IN POSTAGE AND PAPER EXPENSES. Catalog
production and distribution expenses represented approximately 47% of our total
revenues in the fiscal years ended January 31, 1998 and 1999, and approximately
37% of our total revenues in the fiscal year ended January 31, 2000. A
substantial portion of these expenses have been attributable to paper and
postage costs. Material increases in paper or catalog delivery costs could have
a material and adverse effect on our business.
WE MAY BE UNABLE TO IDENTIFY AND SUCCESSFULLY INTEGRATE POTENTIAL
ACQUISITIONS AND INVESTMENTS. We have acquired two businesses and we may
acquire or make investments in other complementary businesses, products,
services or technologies on an opportunistic basis when we believe they will
assist us in carrying out our business strategy. We could have difficulty in
assimilating personnel and operations of the two businesses we have acquired and
may have similar problems in future acquisitions. In addition, the key personnel
of the acquired company may decide not to work for us. If we acquire products,
services or technologies, we could have difficulty in assimilating them into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may have to
incur debt or issue equity securities to pay for any future acquisitions, the
issuance of which could be dilutive to our existing shareholders.
WE ARE VULNERABLE TO NEW TAX OBLIGATIONS THAT COULD BE IMPOSED ON ONLINE
COMMERCE TRANSACTIONS. We do not expect to collect sales or other similar taxes
in respect of shipments of goods into most states. However, various states or
foreign countries may seek to impose sales tax obligations on us and other
online commerce and direct marketing companies. A number of proposals have been
made at the state and local levels that would impose additional taxes on the
sale of goods and services through the Internet. These proposals, if adopted,
could substantially impair the growth of online commerce and cause purchasing
through our Web site to be less attractive to customers as compared to
traditional retail purchasing. The United States Congress has passed legislation
limiting for three years the ability of the states to impose taxes on Internet-
based transactions. Failure to renew this legislation could result in the
imposition by various states of taxes on online commerce. Further, states have
attempted to impose sales taxes on catalog sales from businesses such as ours. A
successful assertion by one or more states that we should have collected or be
collecting sales taxes on the sale of products could have a material and adverse
effect on our business.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET
INFRASTRUCTURE. Our industry is new and rapidly evolving. Our business would be
adversely affected if Internet usage and online commerce does not continue to
grow. Internet usage may be inhibited for a number of reasons, including:
. inadequate Internet infrastructure;
28
<PAGE>
. inconsistent quality of service; or
. unavailability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. In addition, Web sites, including ours, have
experienced a variety of interruptions in their service as a result of outages
and other delays occurring throughout the Internet network infrastructure. If
these outages or delays frequently occur in the future, Internet usage,
including usage of our Web site, could grow slowly or decline.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ONLINE COMMERCE
MARKET, AND ON THE INCREASED ONLINE PURCHASING OF GENERATION Y, BOTH OF WHICH
ARE UNCERTAIN. Our future revenues and profits substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of commerce
by consumers. Demand for recently introduced services and products over the Web
and online services is subject to a high level of uncertainty. The development
of the Web and online services as a viable commercial marketplace is subject to
a number of factors, including the following:
. online commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
. insufficient availability of telecommunications services or changes in
telecommunications services could result in slower response times; and
. the inability of our target demographic group to have regular access to a
credit card could cause a slower growth in online commerce for us than
for companies targeting consumers in general.
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN. The growth
of Internet sponsorships and advertising requires validation of the Internet as
an effective advertising medium. This validation has yet to fully occur. In
order for us to generate sponsorship and advertising revenues, marketers must
direct a significant portion of their budgets to the Internet and, specifically,
to our Web site. To date, sales of Internet sponsorships and advertising
represent only a small percentage of total advertising sales. Also,
technological developments could slow the growth of sponsorships and advertising
on the Internet. For example, widespread use of filter software programs that
limit access to advertising on our Web site from the Internet user's browser
could reduce advertising on the Internet. Our business, financial condition and
operating results would be adversely affected if the market for Internet
advertising fails to develop or develops slower than expected.
BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF ONLINE COMMERCE
AND WEB ADVERTISING AND SUBJECT US TO LIABILITY. The need to securely transmit
confidential information (such as credit card and other personal information)
over the Internet has been a significant barrier to online commerce and
communications over the Internet. Any well-publicized compromise of security
could deter more people from using the Internet or from using it to conduct
transactions that involve transmitting confidential information, such as
purchases of goods or services. Furthermore, decreased traffic and online sales
as a result of general security concerns could cause advertisers to reduce their
amount of online spending. To the extent that our activities or the activities
of third-party contractors involve the storage and transmission of information,
such as credit card numbers, security breaches could disrupt our business,
damage our reputation and expose us to a risk of loss or litigation and possible
liability. We could be liable for claims based on unauthorized purchases with
credit card information, impersonation or other similar fraud claims. Claims
could also be based on other misuses of personal information, such as for
unauthorized marketing purposes. We may need to spend a great deal of money and
use other resources to protect against the threat of security breaches or to
alleviate problems caused by security breaches.
29
<PAGE>
WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS
THROUGH OUR WEB SITE. We may be subjected to claims for defamation, negligence,
copyright or trademark infringement or based on other theories relating to the
information we publish on our Web site. These types of claims have been brought,
sometimes successfully, against Internet companies as well as print publications
in the past. Based on links we provide to other Web sites, we could also be
subjected to claims based upon online content we do not control that is
accessible from our Web site. Claims may also be based on statements made and
actions taken as a result of participation in our chat rooms or as a result of
materials posted by members on bulletin boards at our Web site. We also offer e-
mail services, which may subject us to potential risks, such as:
. liabilities or claims resulting from unsolicited e-mail;
. lost or misdirected messages;
. illegal or fraudulent use of e-mail; or
. interruptions or delays in e-mail service.
These claims could result in substantial costs and a diversion of our
management's attention and resources.
EFFORTS TO REGULATE OR ELIMINATE THE USE OF MECHANISMS WHICH AUTOMATICALLY
COLLECT INFORMATION ON USERS OF OUR WEB SITE MAY INTERFERE WITH OUR ABILITY TO
TARGET OUR MARKETING EFFORTS AND TAILOR OUR WEB SITE OFFERINGS TO THE TASTES OF
OUR USERS. Web sites typically place a tracking program on a user's hard drive
without the user's knowledge or consent. These programs automatically collect
data on anyone visiting a Web site. Web site operators use these mechanisms for
a variety of purposes, including the collection of data derived from users'
Internet activity. Most currently available Web browsers allow users to elect to
remove these mechanisms at any time or to prevent this information from being
stored on their hard drive. In addition, some commentators, privacy advocates
and governmental bodies have suggested limiting or eliminating the use of these
tracking mechanisms. Any reduction or limitation in the use of this software
could limit the effectiveness of our sales and marketing efforts.
WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF
AND LEGAL UNCERTAINTIES SURROUNDING THE INTERNET. Any new law or regulation
pertaining to the Internet, or the application or interpretation of existing
laws, could increase our cost of doing business or otherwise have a material and
adverse effect on our business, results of operations and financial condition.
Laws and regulations directly applicable to Internet communications, commerce
and advertising are becoming more prevalent. The law governing the Internet,
however, remains largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing laws
governing intellectual property, copyright, privacy, obscenity, libel and
taxation apply to the Internet. In addition, the growth and development of
online commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad. We also may be subject to future
regulation not specifically related to the Internet, including laws affecting
direct marketers. See "Business -- Government Regulation."
SAFE HARBOR PROVISION
Statements in this report expressing our expectations and beliefs regarding
our future results or performance are forward-looking statements that involve a
number of substantial risks and uncertainties. When used in this Form 10-K, the
words "anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. Our actual future results may differ
significantly from those stated in any forward-looking statements. These
statements include statements regarding our ability to increase revenues,
generate multiple revenue streams, increase visitors to our Web Site and build
customer loyalty; our ability to develop our sales
30
<PAGE>
and marketing teams; our ability to capitalize on our sales and marketing
efforts; our ability to capitalize on our promotions, sponsorship, advertising
and other revenue opportunities; our ability to build the Alloy brand name and
develop our on-line community; our ability to develop commercial relationships
with advertisers; our Web site's appeal to marketers and users; our ability to
meet anticipated cash needs for working capital and capital expenditures for the
next 24 months; our ability to enhance our infrastructure technology,
transaction-processing and automation capabilities of our Web Site; our ability
to increase the efficiency of our supply chain and fulfillment system; and our
ability to expand into international markets.
Such statements are based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by the forward-looking statements.
We caution that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors, including but not
limited to the following: our expected future losses; our planned sales
and marketing campaigns may not attract sufficient additional visitors to our
web site; our planned sales and marketing campaigns may not increase our
revenues or generate additional revenue streams; we lack experienced management
and personnel; we may fail to further develop our internal sales and marketing
organization to attract promotions, sponsorship, advertising and other revenues;
we may not be able to adapt as internet technologies and customer demands
continue to evolve; increased competition in the online commerce market would
reduce our revenues; and we may experience business disruptions with third
parties that provide us with essential business operations.
As a result of the foregoing and other factors, we may experience material
fluctuations in future operating results on a quarterly or annual basis which
could materially and adversely affect our business, financial condition,
operating results and stock price. We are not under any duty to update any of
the forward-looking statements in this report to conform these statements to
actual results, unless required by law. For further information, refer to the
more specific risks and uncertainities discussed above and throughout this
report.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
-----------------------------------------------------------
Alloy was not exposed to material market risks associated with activities
in derivative financial instruments, other financial instruments or commodity
instruments as of January 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
ALLOY ONLINE, INC. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of January 31, 1999 and 2000 33
Consolidated Statements of Operations and Comprehensive Loss for the Years
Ended January 31, 1998, 1999 and 2000 34
Consolidated Statements of Changes in Stockholders' (Deficit) Equity and
Accumulated Other Comprehensive Loss for the Years Ended
January 31, 1998, 1999 and 2000 35
Consolidated Statements of Cash Flows for the Years Ended January 31, 1998,
1999 and 2000 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Alloy Online, Inc.:
We have audited the accompanying consolidated balance sheets of Alloy Online,
Inc. (a Delaware corporation) and subsidiaries as of January 31, 1999 and 2000,
and the related consolidated statements of operations and comprehensive loss,
statements of changes in stockholders' (deficit) equity and accumulated other
comprehensive loss and cash flows for each of the three years in the period
ended January 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alloy Online, Inc. and
subsidiaries as of January 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2000 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 10, 2000 (except for the matters discussed in Note 13,
as to which the date is April 14, 2000)
32
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
January 31,
--------------------
1999 2000
-------- --------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents (includes restricted
cash of $182 at January 31, 1999) $ 2,983 $ 12,702
Marketable securities - 20,971
Accounts receivable, net 146 2,693
Stock subscription receivable (Note 7) 2,500 -
Inventories 810 3,981
Prepaid catalog costs 426 1,011
Other current assets 33 1,281
------- --------
Total current assets 6,898 42,639
PROPERTY AND EQUIPMENT, NET 178 2,187
GOODWILL, NET - 12,349
OTHER ASSETS 331 493
------- --------
Total assets $ 7,407 $ 57,668
======= ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 937 $ 7,297
Accrued expenses and other current liabilities 695 5,163
------- --------
Total current liabilities 1,632 12,460
OTHER LONG-TERM LIABILITIES 3,985 -
------- --------
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK:
$.01 par value; 1,678,286 shares authorized;
1,678,286 shares issued and outstanding at
January 31, 1999 4,836 -
------- --------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock; $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding - -
Common stock; $.01 par value; 50,000,000 shares
authorized; 8,479,727 and 14,686,437 shares
issued and outstanding, respectively 85 147
Additional paid-in capital 5,441 68,948
Accumulated deficit (8,347) (23,216)
Deferred compensation (225) (593)
Accumulated other comprehensive loss - (78)
------- --------
Total stockholders' (deficit) equity (3,046) 45,208
------- --------
Total liabilities and stockholders'
(deficit) equity $ 7,407 $ 57,668
======= ========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
33
<PAGE>
ALLOY ONLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the Years Ended January 31,
-------------------------------------
1998 1999 2000
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES:
Net merchandise revenues $ 1,800 $ 10,085 $ 28,254
Sponsorship and other revenues - 125 2,912
---------- ---------- -----------
Total revenues 1,800 10,210 31,166
Cost of goods sold 1,050 5,486 13,765
---------- ---------- -----------
Gross profit 750 4,724 17,401
---------- ---------- -----------
OPERATING EXPENSES:
Selling and marketing 1,967 9,166 27,822
General and administrative 682 1,683 5,423
Goodwill amortization - - 332
---------- ---------- -----------
Total operating expenses 2,649 10,849 33,577
---------- ---------- -----------
Loss from operations (1,899) (6,125) (16,176)
INTEREST INCOME (EXPENSE):
Interest income 34 125 1,695
Interest expense - (364) (153)
---------- ---------- -----------
Net loss before extraordinary item (1,865) (6,364) (14,634)
Extraordinary loss on early retirement
of debt (Note 11) - - (235)
---------- ---------- -----------
Net loss (1,865) (6,364) (14,869)
Unrealized loss on available-for-sale
marketable securities - - (78)
---------- ---------- -----------
Comprehensive loss $ (1,865) $ (6,364) $ (14,947)
========== ========== ===========
NET LOSS PER COMMON SHARE (Note 10):
Basic:
Net loss before extraordinary item $ (0.33) $ (0.75) $ $ (1.15)
Extraordinary loss on early
retirement of debt - - (0.02)
---------- ---------- -----------
Net loss $ (0.33) $ (0.75) $ (1.17)
========== ========== ===========
Diluted:
Net loss before extraordinary item $ (0.31) $ (0.71) $ (1.15)
Extraordinary loss on early
retirement of debt - - (0.02)
---------- ---------- -----------
Net loss $ (0.31) $ (0.71) $ (1.17)
========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 5,617,577 8,479,727 12,722,676
========== ========== ===========
Diluted 6,091,730 8,953,880 12,722,676
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
34
<PAGE>
ALLOY ONLINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Accumu-
lated
Other
Common Stock Additional Accumu- Deferred Compre-
------------------- Paid-In lated Compen- hensive
Shares Amount Capital Deficit sation Loss Total
---------- ------ -------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1997 4,060,800 $ 41 $ 209 $ (118) $ - $ - $ 132
Proceeds from issuance of common stock in connection
with private placements, net of issuance costs 3,707,367 37 3,985 - - 4,022
Issuance of stock options to consultants and employees - - 190 - - - 190
Net loss - - - (1,865) - - (1,865)
---------- ---- ------- -------- ----- ----- --------
BALANCE, January 31, 1998 7,768,167 78 4,384 (1,983) - - 2,479
Issuance of shares in connection with anti-dilution
protection included in private placement 711,560 7 (7) - - - -
Issuance of warrants to purchase common stock - - 213 - - - 213
Issuance of stock options to consultants and employees - - 858 - (230) - 628
Amortization of deferred compensation - - - - 5 - 5
Accretion of preferred stock issuance costs - - (7) - - - (7)
Net loss - - - (6,364) - - (6,364)
---------- ---- ------- -------- ----- ----- --------
BALANCE, January 31, 1999 8,479,727 85 5,441 (8,347) (225) - (3,046)
Proceeds from issuance of common stock in connection
with initial public offering, net of issuance costs 3,700,000 37 50,112 - - 50,149
Issuance of common stock in connection with
acquisitions (Note 3) 415,794 4 7,679 - - 7,683
Conversion of Series A Convertible Redeemable
Preferred Stock 1,678,286 17 4,829 - - 4,846
Issuance of stock options to employees and consultants - - 857 - (857) - -
Amortization of deferred compensation - - - - 489 - 489
Issuance of common stock pursuant to the exercise of
options and warrants and the employee stock purchase
plan 412,630 4 43 - - 47
Accretion of preferred stock issuance costs - - (13) - - - (13)
Net loss - - - (14,869) - - (14,869)
Unrealized loss on available-for-sale marketable
securities - - - - - (78) (78)
---------- ---- ------- -------- ----- ----- --------
BALANCE, January 31, 2000 14,686,437 $147 $68,948 $(23,216) $(593) $(78) $ 45,208
========== ==== ======= ======== ===== ===== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
35
<PAGE>
ALLOY ONLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
For the Years Ended
January 31,
---------------------------
1998 1999 2000
------- ------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,865) $(6,364) $(14,869)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 2 107 632
Loss on early retirement of debt - - 235
Compensation charge for issuance of options and
common stock 422 441 489
Accrued interest on promissory notes - 278 -
Provision for doubtful accounts - 12 136
Changes in operating assets and liabilities:
Accounts receivable - (158) (1,989)
Inventories (490) (298) (3,165)
Prepaid catalog costs (223) (202) (585)
Other assets (87) (151) (1,276)
Accounts payable and accrued expenses 492 1,064 8,306
------- ------- --------
Net cash used in operating activities (1,749) (5,271) (12,086)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - - (20,908)
Acquisitions of businesses, net of cash acquired - - (3,949)
Purchase of mailing lists and domain name - (4) (250)
Capital expenditures (22) (10) (1,901)
------- ------- --------
Net cash used in investing activities (22) (14) (27,008)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 4,072 - 50,149
Net proceeds from issuance of promissory notes - 3,657 -
Net proceeds from issuance of preferred stock - 2,329 2,497
Proceeds from exercise of options and warrants to
purchase common stock - - 47
Payments of principal on promissory notes - - (3,810)
Payments of capitalized lease obligation - (38) (70)
------- ------- --------
Net cash provided by financing activities 4,072 5,948 48,813
------- ------- --------
Net increase in cash and cash equivalents 2,301 663 9,719
CASH AND CASH EQUIVALENTS, beginning of year 19 2,320 2,983
------- ------- --------
CASH AND CASH EQUIVALENTS, end of year $ 2,320 $ 2,983 $ 12,702
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ 402
======= ======= ========
Income taxes $ - $ - $ 2
======= ======= ========
Non-cash investing and financing activities:
Issuance of common stock in connection with
acquisitions $ - $ - $ 7,683
======= ======= ========
Conversion of preferred stock into common stock $ - $ - $ 4,846
======= ======= ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share and per share data)
1. BUSINESS
- -----------
Alloy Online, Inc. ("Alloy") was incorporated in Delaware in January 1996, and
launched its Internet web site (www.alloy.com) in August 1996. Alloy is a
direct marketer that provides community, content, commerce and entertainment to
the high growth Generation Y marketplace (10 to 24 year-olds) through its
convergent media model that is centered around its web site and is complemented
by its print catalog and online offerings. Alloy's electronic and print media
provide a forum through which teens can interact, share information, explore
relevant content and shop for apparel, accessories, footwear, cosmetics and room
furnishings.
Alloy's revenues consist primarily of merchandise sales from its catalog and web
site, as well as sponsorship revenues generated from third-party advertising on
its web site and in its print catalogs. As of January 31, 2000, Alloy's
operations were based solely in the United States and have been managed as one
operating segment.
During the year ended January 31, 2000, Alloy completed two strategic
acquisitions (Note 3), which Alloy intends to integrate into and complement its
existing business model.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -- ------------------------------------------
Fiscal Year
- -----------
Alloy's fiscal year ends on January 31. All references herein to a particular
fiscal year refer to the year ended January 31, following the particular year
(i.e., "fiscal 1999" refers to the fiscal year ending, January 31, 2000).
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Alloy and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
- -------------------
Merchandise revenues are recognized at the time the products are shipped to
customers net of an allowance for sales returns, which is determined in
accordance with Alloy's return policy and is based on historical experience.
Advertising revenue is recognized in the period in which the advertisement is
displayed provided that no significant performance obligations remain and
collection of the related receivable is probable.
Alloy is subject to seasonal fluctuations in its merchandise sales and results
of operations. Alloy expects its net sales and operating results generally to
be lower in the first half of each fiscal year.
Other revenues consist of contract and publishing revenue. Contract revenues
are recognized upon the delivery of the services and when no significant vendor
obligation remains. The revenues and related expenses earned and incurred in
connection with publishing activities are recognized upon publication of such
property. Any amounts received or paid prior to publication are treated as
advances, and classified as a current liability.
37
<PAGE>
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 those estimates.
Cash and Cash Equivalents
- -------------------------
For purposes of the statements of cash flows, Alloy considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Alloy maintains cash balances in excess of federally insured
amounts with commercial banks.
Alloy's credit card processing services agreement required the maintenance of a
reserve balance, against which chargebacks were assessed. This requirement was
waived as of January 31, 2000. At January 31, 1999, cash and cash equivalents
included approximately $182 of cash restricted for such purposes.
Marketable Securities
- ---------------------
Alloy's marketable securities consist primarily of high quality short-to-
intermediate-term fixed income corporate debt securities, which are classified
as available-for-sale and are reported at fair value, with changes in fair value
recognized as a component of stockholders' equity within accumulated other
comprehensive income (loss). All of the debt securities at January 31, 2000
have contractual maturities of less than one year. In addition, at January 31,
2000, Alloy held $141 of corporate equity securities classified as available-
for-sale, which amount approximated the historical cost basis of the securities.
Credit Risk
- -----------
Alloy's fulfillment service provider performs credit card authorizations and
check verifications of its customers. Credit risk is limited due to the
collection of payments in advance or at time of shipment and Alloy's large
number of diversified customers. Alloy performs periodic credit evaluations of
its other accounts receivable (sponsorship, contracts and publishing). Credit
losses have historically been insignificant and consistent with management's
expectations.
Inventories
- -----------
Inventories, which consist of finished goods, are stated at the lower of cost
(first-in, first-out) or market value.
Catalog Costs
- -------------
Catalog costs consist of catalog production and mailing costs. Catalog costs
are capitalized and expensed over the expected future revenue stream, which is
principally three to four months from the date the catalogs are mailed. Prepaid
catalog costs as of January 31, 1999 and 2000 were approximately $426 and $1,011
respectively. Catalog costs expensed for the years ended January 31, 1998, 1999
and 2000 were approximately $845, $4,836 and $11,560, respectively, and are
included within selling and marketing expenses in the accompanying statements of
operations and comprehensive loss.
Deferred Financing Costs
- ------------------------
Deferred financing costs incurred in connection with Alloy's issuance of
promissory notes were included in other assets. In connection with the
repayment of the promissory notes during fiscal 1999, the unamortized
38
<PAGE>
portion of these costs were written off and included as a component of the
extraordinary loss on early retirement of debt (Note 11).
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the following estimated useful lives:
Computer equipment under capitalized leases Life of the lease
Leasehold improvements Life of the lease
Computer software and equipment 3 to 5 Years
Office furniture and equipment 5 to 10 Years
Computer Software Development Costs
- -----------------------------------
Alloy applies the provisions of Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", issued by the American Institute of Certified Public Accountants,
with respect to costs incurred in developing internal use software, including
web site development. All costs required to be capitalized pursuant to SOP 98-1
are included in property and equipment and are amortized on a straight-line
basis over three year periods. Costs incurred that do not meet the criteria for
capitalization are expensed in the period incurred.
Goodwill
- --------
Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired (Note 3). Total goodwill of $12,349 is stated net of
accumulated amortization of $332 as of January 31, 2000. Goodwill is being
amortized on a straight-line basis over periods ranging from three to five
years.
Intangible Assets
- -----------------
Alloy maintains intangible assets within other assets in the accompanying
consolidated balance sheets. Alloy's purchased intangible assets consist of its
domain name and mailing lists, which are being amortized on a straight-line
basis over periods ranging between three and five years.
Long-Lived Assets
- -----------------
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of," Alloy periodically reviews long-lived assets and identifiable
intangibles, including goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the fair value of the asset as
measured by the future net cash flows (on an undiscounted basis) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized would be measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Alloy has
not recorded any impairment related to long-lived assets during the three years
in the period ended January 31, 2000.
Stock Based Compensation
- ------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," allows companies to
account for stock-based compensation either under the provisions of SFAS No. 123
or under the provisions of Accounting
39
<PAGE>
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), but requires pro forma disclosure in the footnotes to the financial
statements as if the measurement provisions of SFAS No. 123 had been adopted.
Alloy has elected to account for its stock-based compensation in accordance with
the provisions of APB 25 and has provided the disclosures required under SFAS
No. 123 in Note 8.
Income Taxes
- ------------
Alloy accounts for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
Net Loss Per Share
- ------------------
Basic and diluted net loss per share are computed and presented in accordance
with SFAS No. 128, "Earnings per Share". Prior to the completion of its initial
public offering in May 1999, Alloy also applied the provisions of the Securities
and Exchange Commission ("SEC") Staff Accounting Bulletin No. 98 ("SAB 98"). SAB
98 requires that all equity instruments issued at nominal prices prior to the
effective date of an initial public offering be included in the calculation of
basic and diluted loss per share as if they were outstanding for all periods
presented whether or not the impact is dilutive. Basic net loss per share was
determined by dividing net loss by the weighted average number of common shares
outstanding during each period. Diluted net loss per share for fiscal 1997 and
1998 includes stock options issued at nominal prices prior to the initial public
offering and excludes the impact of the conversion of convertible preferred
stock and the exercise of outstanding warrants as the inclusion of these
instruments would have been anti-dilutive. Diluted net loss per share for fiscal
1999 is the same as basic net loss per share as the inclusion of any stock
options or warrants to purchase common stock would be antidilutive. A
reconciliation of the net loss attributable to common stockholders and the
number of shares used in computing basic and diluted net loss per share is
provided in Note 10.
Derivative Instruments and Hedging Activities
- ---------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "
Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000 as amended by SFAS No. 137. A company may also implement SFAS No.
133 as of the beginning of any fiscal quarter after issuance. SFAS No. 133
cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired or substantively modified after January 1, 1998, or
January 1, 1999, at the company's election. Alloy currently does not hold any
derivative instruments or engage in hedging activities and accordingly, does not
expect the impact of this pronouncement to have a material impact when
effective.
40
<PAGE>
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3. ACQUISITIONS
------------
Alloy completed two acquisitions during fiscal 1999, which have been accounted
for under the purchase method of accounting. The results of operations of the
acquired businesses are included in the consolidated financial statements from
the dates of acquisition.
In December 1999, Alloy acquired substantially all of the assets and assumed
certain liabilities of Celebrity Sightings, LLC, a business based in Marina del
Rey, California that operated a teen entertainment-based web site destination
that combines the elements of an online entertainment magazine with an online
community of popular teen stars. Alloy has continued to operate the website.
The total purchase consideration was $5,355, including 200,616 shares of Alloy's
common stock, which had a value of $3,837 or $19.125 per share at the time of
the acquisition. The excess of the purchase price over the fair values of the
net assets acquired was approximately $5,309 and has been recorded as goodwill
and is being amortized on a straight-line basis over a period of three years.
In January 2000, Alloy purchased all of the outstanding shares of 17th Street
Acquisition Corp. ("17th Street"), a New York based developer and producer of
media properties for teens, for $4,372, including expenses of the acquisition.
Alloy exchanged 215,178 shares of its common stock, which had a value of $3,846,
or $17.875 per share at the time of the acquisition, as part of the purchase
consideration. Alloy also made payments of $2,104 to the former sole
stockholder of a subsidiary of 17th Street, which was acquired by 17th Street in
October 1999. Alloy recorded $7,372 of goodwill in connection with this
purchase, which amount represented the excess of the purchase price over the
fair values of the net assets acquired. The goodwill for this purchase is being
amortized on a straight-line basis over a period of five years.
The allocations of purchase price for these acquisitions were based on
preliminary estimates of fair value. Accordingly, the amount of goodwill may be
adjusted to reflect the final allocation of purchase price, which will be
determined within one year of the acquisition dates, in accordance with
Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations".
The following unaudited proforma information presents a summary of Alloy's
consolidated results of operations as if the acquisitions had taken place on
February 1, 1998:
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
-------------------------------
1999 2000
-------------- -------------
<S> <C> <C>
Revenues $ 13,929 $ 34,662
Net loss before extraordinary item (10,475) (18,986)
Net loss (10,475) (19,221)
Net loss per share before extraordinary item $ (1.12) $ (1.45)
Net loss per share $ (1.12) $ (1.47)
</TABLE>
These unaudited proforma results have been prepared for comparative purposes
only and include adjustments for additional amortization expense as a result of
goodwill. They do not purport to be indicative of the results of
41
<PAGE>
operations that actually would have resulted had the combinations occurred on
February 1, 1998, or of future results of operations of the consolidated
entities.
4. PROPERTY AND EQUIPMENT, NET
- -- ---------------------------
At January 31, 1999 and 2000, property and equipment, net, consists of the
following:
<TABLE>
<CAPTION>
1999 2000
----------- ----------
<S> <C> <C>
Computer equipment under capitalized leases $ 162 $ 169
Computer software and equipment 22 2,064
Office furniture and equipment 17 395
Leasehold improvements - 797
----- -------
201 3,425
Less: accumulated depreciation and amortization (23) (1,238)
----- -------
$ 178 $ 2,187
===== =======
</TABLE>
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
----------------------------------------------
At January 31, 1999 and 2000, accrued expenses and other current liabilities
consist of the following:
<TABLE>
<S> <C> <C>
1999 2000
---------- ------------
Compensation $ 140 $ 398
Professional fees 200 258
Advances from publishers - 1,443
Other 355 3,064
----- ------
$ 695 $5,163
===== ======
</TABLE>
6. OTHER LONG-TERM LIABILITIES
- ---- ---------------------------
Other long-term liabilities consist of promissory notes and capitalized lease
obligations (Note 12).
Promissory Notes
- ----------------
In May 1998, Alloy issued $3,810 of promissory notes together with warrants to
purchase an aggregate of 480,682 shares of common stock. In connection with the
issuance of the notes, Alloy paid legal and financing costs of approximately
$153 and issued warrants to the placement agent to purchase 25,299 shares of
common stock. The notes bore interest at 10% per annum compounded quarterly and
were payable in full on the earlier of (i) May 31, 2001, (ii) the closing of an
initial public offering or (iii) the occurrence of certain other significant
events, as defined. Interest was payable upon maturity of the notes. As of
January 31, 1999, accrued interest payable was $278. The warrants issued in
connection with the notes carried certain anti-dilution provisions. The warrants
were exercisable until May 12, 2001 and had an initial exercise price of $5.47
per share. In accordance with the anti-dilution provision in the agreement, the
exercise price of the warrants was reduced to $5.06 per share as a result of the
issuance of the Series A Convertible Redeemable Preferred Stock (Note 7) in
November 1998. The impact of such revaluation was an increase to the debt
discount in the amount of $40.
42
<PAGE>
Alloy evaluated the fair market value of the warrants issued based upon the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0%, volatility of 50%, risk-free interest rate of 5.25% and expected
lives of 3 years. The fair market value of the warrants issued to the holders of
the notes was approximately $184 and was recorded as a discount on the notes.
The fair market value of the warrants issued to the placement agent, valued at
approximately $9, was recorded as deferred financing costs. The notes discount
of $184 and total deferred financing costs of $162 were being amortized as a
component of interest expense over the term of the notes. Amortization of notes
discount and deferred financing costs recorded in fiscal 1998 was approximately
$41 and $36, respectively. In connection with its initial public offering in
May 1999, Alloy repaid all of the outstanding promissory notes, including
accrued interest, totaling $4,212. The unamortized portions of the notes
discount and deferred financing costs were written-off as an extraordinary
charge in connection with the early retirement of this debt (Note 11).
7. SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
- -- -----------------------------------------------
In November 1998, Alloy issued 1,678,286 shares of its Series A Convertible
Redeemable Preferred Stock (the "Preferred Stock") to investors for
approximately $5,045. Alloy paid issuance costs of approximately $216, which was
recorded as a reduction of the carrying value of the Preferred Stock and was
being accreted over the expected period to redemption of five years. Accretion
of the issuance costs of approximately $7 and $13 was recorded in fiscal 1998
and 1999, respectively. The proceeds of the Preferred Stock were payable in two
installments. Alloy received the second installment of $2,500 in February 1999.
Each holder of Preferred Stock was entitled to vote on all matters as if their
shares were converted to voting common stock on a one-for-one basis. All
holders of the Preferred Stock had the right to convert into common stock. All
outstanding shares of Preferred Stock had an automatic conversion feature into
common stock upon the consummation of a firm commitment underwritten public
offering of at least $15 million with a valuation of Alloy greater than $75
million. In connection with Alloy's initial public offering in May 1999, each
share of Preferred Stock was converted into Alloy's common stock on a one-for-
one basis at the carrying value of the Preferred Stock, which was $4,846 at the
conversion date.
8. STOCKHOLDERS' EQUITY
--------------------
Common Stock:
Change in Par Value and Authorized Number of Shares
- ---------------------------------------------------
In June 1997, Alloy amended its Certificate of Incorporation to authorize
15,000,000 shares of common stock from 1,500 and to change the par value from no
par value per share to $.01 par value per share. In November 1998, Alloy amended
its Certificate of Incorporation to reduce the number of the authorized shares
of common stock from 15,000,000 to 11,500,000. In March 1999, Alloy amended and
restated its Certificate of Incorporation to authorize 55,000,000 shares of
capital stock, consisting of 50,000,000 shares of common stock, par value $.01
per share and 5,000,000 shares of preferred stock, par value $.01 per share.
Initial Public Offering
- -----------------------
Alloy completed its initial public offering in May 1999 through the issuance of
3,700,000 shares of common stock at a price of $15 per share. Alloy received
net proceeds, after deducting applicable underwriting discounts and offering
expenses, totaling $50,149. The net proceeds were used to repay the outstanding
promissory notes (Note 6) and for general corporate purposes and working capital
needs.
43
<PAGE>
Stock Splits
- ------------
Effective June 1997, Alloy authorized a 4,000-for-1 stock split of common
shares. Effective upon the closing of Alloy's initial public offering in May
1999, Alloy effected a 1.128-for-1 split of common shares. All share and per
share information included in these financial statements has been adjusted to
retroactively reflect these stock splits.
Private Placements
- ------------------
In June 1997, Alloy issued 2,732,219 shares of its common stock in a private
placement receiving net proceeds of $2,348 (after issuance expenses of
approximately $17). These stockholders each received one warrant with the
shares of stock they purchased which entitled the holders to dilution protection
in the event of a future sale of the Company's equity securities.
In January 1998, Alloy issued an additional 975,148 shares of its common stock
in a second private placement receiving net proceeds of $1,674 (after issuance
expenses of approximately $12). The second private placement, together with the
issuance of employee and consultant options and lessor warrants, resulted in
Alloy issuing 711,560 shares to the stockholders who participated in the June
1997 private placement in accordance with the dilution protection clause. The
dilution protection warrants expired on June 30, 1998.
Stock options:
In 1997, Alloy's Board of Directors adopted a Stock Option Plan (the "Plan").
The Plan as restated, authorizes the granting of options, the exercise of which
would allow up to an aggregate of 4,000,000 shares of Alloy's common stock to be
acquired by the holders of the options. The options can take the form of
Incentive Stock Options ("ISOs") or Non-qualified Stock Options ("NQSOs").
Options may be granted to employees, directors and consultants. ISOs and NQSOs
are granted in terms not to exceed ten years and become exercisable as set forth
when the option is granted. Options may be exercised in whole or in part.
Vesting terms of the options range from immediately vesting to a ratable vesting
period of ten years.
The exercise price of the ISOs must be at least equal to 100% of the fair market
value of Alloy's common stock on the date of grant. In the case of a plan
participant who owns directly or by reason of the applicable attribution rules
in Section 424(d) of the United States Internal Revenue Code of 1986, as
amended, more than 10% of the total combined voting power of all classes of
stock of Alloy, the exercise price shall not be less than 110% of the fair
market value on the date of grant. ISOs must be exercised within five to ten
years from the date of grant depending on the participant's ownership in Alloy.
The exercise price of all NQSO's granted under the Plan shall be determined by
Alloy's Board of Directors at the time of grant. The Plan will terminate on
June 30, 2007.
In fiscal 1997 and 1998, Alloy entered into option agreements with certain of
its employees that required Alloy to pay the full exercise price of their
options. Alloy valued the options granted under these agreements using the fair
value of the common stock at the date of grant. Alloy recorded compensation
expense of approximately $70 and $105 for the years ended January 31, 1998 and
1999, respectively, in connection with the granting of these options.
Alloy applies APB 25 in accounting for options issued under the Plan and,
accordingly, recognizes compensation expense for the difference between the fair
value of the underlying common stock and the grant price of the option at the
date of grant. Had compensation cost been determined consistent with SFAS No.
123, Alloy's net loss and loss per share for both fiscal 1997 and 1998 would
have remained unchanged due to the fact that the fair market value of the
options granted using the Black-Scholes options-pricing model was equal to the
44
<PAGE>
fair market value of the underlying common stock at the date of the grant.
Accordingly, the presentation of pro forma information pursuant to SFAS No. 123
is not required for fiscal 1997 and 1998. For fiscal 1999, Alloy's net loss and
net loss per share would have been:
<TABLE>
<S> <C>
Net loss:
As reported $(14,869)
Pro forma $(17,376)
Net loss per common share - basic and diluted
As reported $ (1.17)
Pro forma $ (1.37)
</TABLE>
Following is a summary of Alloy's stock option activity:
<TABLE>
<CAPTION>
For the Years Ended January 31,
----------------------------------------------------------------------------------
1998 1999 2000
----------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year - $ - 183,705 $ .26 389,553 $ 0.67
Options granted 183,705 .26 392,148 .67 2,072,534 15.79
Options exercised - - - - (381,660) 0.75
Options canceled or expired - - (186,300) (.27) (16,000) 14.05
-------- ------------ --------- ----- ---------- ------
Outstanding, end of year 183,705 $.26 389,553 $ .67 2,064,427 $15.75
======== ============ ========= ===== ========== ======
Exercisable, end of year 183,705 $.26 362,481 $ .67 77,736 $12.49
======== ============ ========= ===== ========== ======
Weighted-average fair value of
options granted during the year
$ 1.04 $ 2.77 $11.38
======== ========= ==========
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
For the Years Ended January 31
-------------------------------------------------
1998 1999 2000
------------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rates 5.25% 5.25% 5.95%
Expected lives 5 years 5 years 6 years
Expected volatility 50% 50% 50%
Expected dividend yield - - -
</TABLE>
45
<PAGE>
Summarized information about Alloy's stock options outstanding and exercisable
at January 31, 2000 is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------- -------------------------------
Average Average Average
Exercise Remaining Exercise Exercise
Price Range Options Contract Life Price Options Price
----------- -------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
$0.60 - $9.00 92,496 9.03 years $ 0.60 13,536 $ 0.60
$9.00 - $11.00 19,000 9.53 years $ 9.71 - -
$11.00 - $13.00 286,500 9.48 years $12.11 - -
$13.00 - $14.75 247,000 9.72 years $13.57 - -
$15.00 - $15.75 674,150 9.32 years $15.03 64,200 $15.00
$16.00 - $19.50 536,521 9.88 years $19.08 - -
$21.00 - $26.25 208,760 9.15 years $24.31 - -
All options 2,064,427 9.51 years $15.75 77,736 $12.49
</TABLE>
Consultant Option Agreement
- ---------------------------
In fiscal 1997, Alloy entered into an agreement granting 138,633 options to a
consultant for services rendered. Under the terms of the agreement, Alloy was
obligated to pay the full exercise price of the options and reimburse the
individual for certain taxes resulting from the exercise of such options. Such
agreement resulted in Alloy charging approximately $312 of compensation expense
equal to the fair market value of the options at the date of grant and related
taxes.
In fiscal 1998, Alloy entered into a new agreement with the consultant that
voided and nullified the original agreement and canceled the then outstanding
options. The new agreement provided that Alloy grant to the consultant an
option to purchase 282,000 shares of common stock at an exercise price of $.71
per share and pay to the consultant the full exercise price of his option. This
option is fully exercisable from the date of grant and expires ten years after
the date of the grant. Alloy has valued the options granted to the consultant
using the fair market value of the common stock at the date of grant. This
agreement and the nullification of the original agreement resulted in Alloy
charging additional compensation expense of approximately $356 for the year
ended January 31, 1999.
The consultant provided the Company with services in connection with the
development of strategic plans for human resources and market development. This
non-employee was the only shareholder who rendered services to the Company and
received compensation in the form of equity rights. Although there is no formal
agreement between the parties, these services have been provided from time-to-
time. There is no formal or informal commitment for the consultant to provide
additional services to the Company in the future.
46
<PAGE>
Warrants:
The following table summarizes all common stock and preferred stock warrant
activity:
<TABLE>
<CAPTION>
For the Years Ended January 31
--------------------------------------
1998 1999 2000
------ ------ -------
<S> <C> <C> <C>
Outstanding, beginning of year - - 517,261
Warrants issued - 517,261 -
Warrants exercised - - (30,901)
---- ------- -------
Outstanding, end of year - 517,261 486,360
==== ======= =======
</TABLE>
The weighted average fair value of the warrants granted during fiscal 1998 was
estimated as $0.38, using the Black-Scholes option-pricing model with the
following assumptions: dividend yield of 0%, volatility of 50%, risk-free
interest rate of 5.25% and expected lives of 3 years. At January 31, 2000, the
warrants have a weighted average exercise price of $5.064 per share and weighted
average remaining contractual term of 1.41 years.
In connection with the execution of a capital lease for computer equipment,
Alloy issued a warrant to purchase 11,280 shares of a common stock at an
exercise price of $2.66 per share. The warrant was exercisable at the earlier
of June 30, 2003 or the closing of an initial public offering. Upon Alloy's
initial public offering in May 1999, the warrant was exercised. Alloy recorded
prepaid interest, in the amount of $21, based on the fair value of the warrant
and is amortizing such amount over the life of the capital lease obligation.
Employee Stock Purchase Plan
- ----------------------------
In April 1999, Alloy adopted the 1999 Employee Stock Purchase Plan (the
"Employee Stock Plan"). The Employee Stock Plan allows eligible employees to
purchase Alloy's common stock pursuant to section 423 of the Internal Revenue
Code of 1986, as amended. A total of 500,000 shares of Alloy's common stock
have been made available for sale under the Employee Stock Plan, subject to
certain capitalization adjustments specified in the plan document. The Employee
Stock Plan will terminate on April 16, 2009 unless terminated sooner by the
Board of Directors. The Employee Stock Plan allows for purchases of common
stock under a series of six-month offering periods commencing February 1 and
August 1 of each year, the frequency of dates and duration of which may be
changed by the Board of Directors. Eligible employees can elect to participate
through payroll deductions between 1% and 10% of compensation that will be
credited to the participant's account. The terms of the Employee Stock Plan
provide for the granting of an option on the first day of each six-month
offering period ("Offering Date") to each eligible employee to purchase Alloy's
common stock on the last day of each six-month offering period ("Exercise Date")
at a price equal to the lower of 85% of the fair market value of a share of
Alloy's common stock at the Offering Date or 85% of the fair market value of a
share of Alloy's common stock on the Exercise Date.
The number of shares under the option will be determined by dividing an eligible
employee's accumulated contributions prior to the Exercise Date and retained in
the participant's account as of the Exercise Date by the lower of 85% of the
fair market value of a share of Alloy's common stock on the Offering Date, or
85% of the fair market value of a share of Alloy's common stock on the Exercise
Date. Unless a participant withdraws from the Employee Stock Plan, his or her
option for the purchase of shares will be exercised automatically on the
Exercise Date of the relative six-month offering period.
47
<PAGE>
Shares Reserved for Future Issuance:
At January 31, 2000, shares reserved for future issuance are as follows:
<TABLE>
<S> <C>
Preferred Stock 5,000,000
Stock Option Plan 3,618,340
Warrants 486,360
Employee Stock Plan 499,957
---------
9,604,657
=========
</TABLE>
9. INCOME TAXES
- ---- ------------
At January 31, 1999 and 2000, net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards $ 2,802 $ 8,276
Accruals and other reserves 233 1,345
Deferred compensation 362 217
------- -------
Deferred tax asset before valuation allowance 3,397 9,838
Valuation allowance (3,397) (9,838)
------- -------
Net deferred tax assets $ - $ -
======= =======
</TABLE>
Alloy has recorded a valuation allowance to fully reserve for the deferred tax
benefit attributable to its temporary differences and its net operating loss
carryforwards due to the uncertainty as to their ultimate realizability.
The provision for income taxes differed from the amount computed by applying the
U.S. federal statutory rate to the loss before income taxes due to the effects
of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1999 2000
Expected tax benefit at federal statutory rate (34%) (34%) (34%)
Future state benefit, net of federal benefit (10%) (10%) (10%)
Non-deductible expenses and other - - -
Increase in valuation allowance 44% 44% 44%
---- ---- ----
- - -
==== ==== ====
</TABLE>
Alloy was an S Corporation for income tax purposes through October 31, 1997. On
November 1, 1997, Alloy elected to be taxed as a C Corporation. The income tax
benefit represents the estimated benefit that would have been reported had Alloy
filed its tax return as a taxable C corporation for all periods presented.
At January 31, 2000, Alloy had net operating loss carryforwards aggregating
approximately $18,809, which may be applied against future years' income, with
expiration dates through 2020. Alloy's ability to utilize these
48
<PAGE>
NOLs will be limited pursuant to Section 382 of the Internal Revenue Code as a
result of changes in control that have occurred.
10. NET LOSS PER SHARE
------------------
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------
1998 1999 2000
-------------- ---------------- -----------
<S> <C> <C> <C>
NUMERATOR:
Net loss before extraordinary item $ (1,864) $ (6,364) $ (14,634)
Accretion of preferred stock - (7) (13)
---------- ---------- -----------
Net loss attributable to common stockholders
before extraordinary item (1,864) (6,371) (14,647)
Extraordinary loss on early retirement of debt - - (235)
---------- ---------- -----------
Net loss attributable to common stockholders $ (1,864) $ (6,371) $ (14,882)
========== ========== ===========
DENOMINATOR:
------------
Weighted average shares - Basic 5,617,577 8,479,727 12,722,676
Nominal issuances of stock options (Note 2) 474,153 474,153 -
---------- ---------- -----------
Weighted average shares - Diluted 6,091,730 8,953,880 12,722,676
========== ========== ===========
Basic net loss per share before extraordinary item $ (0.33) $ (0.75) $ (1.15)
Extraordinary loss on early retirement of debt - - (0.02)
---------- ---------- -----------
Basic net loss per share $ (0.33) $ (0.75) $ (1.17)
========== ========== ===========
Diluted net loss per share before extraordinary
item $ (0.31) $ (0.71) $ (1.15)
Extraordinary loss on early retirement of debt - - (0.02)
---------- ---------- -----------
Diluted net loss per share $ (0.31) $ (0.71) $ (1.17)
========== ========== ===========
</TABLE>
11. EXTRAORDINARY ITEM
------------------
In connection with Alloy's initial public offering in May 1999, the Company
redeemed its outstanding promissory notes including accrued interest thereon for
$4,212. The extraordinary charge of $235 resulted from the full recognition of
the remaining unamortized deferred financing costs and unamortized discount on
these notes, which had an original maturity of May 2001.
49
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
- ------
Alloy leases office space and certain computer equipment under noncancellable
leases with various expiration dates through 2010. As of January 31, 2000,
future net minimum lease payments were as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending January 31, Lease Lease
------------------------------------ ------------- -------------
<S> <C> <C>
2001 $59 $ 363
2002 - 373
2003 - 383
2004 - 325
Thereafter - 2,238
--- ------
Total minimum lease payments 59 $3,682
=== ======
</TABLE>
Rent expense was approximately $8, $33 and $88 for the years ended January 31,
1998, 1999 and 2000, respectively, under noncancellable operating leases.
Ordering, Fulfillment and Customer Service
- ------------------------------------------
In July 1997, Alloy entered into an agreement with a third-party service
organization ("TPS"), whereby the TPS provides Alloy with a comprehensive call
center and order fulfillment services in support of Alloy's direct marketing
operations. All aspects relating to fulfillment of customer orders are handled
by the TPS, including receipt and processing of customer orders, shipment of
merchandise to customers and customer service.
In consideration for performance of the services provided by the TPS during the
contract term, Alloy paid the TPS an initial start-up fee and is charged on a
fee for service basis. On October 9, 1998, the original agreement was amended
to permit a reduction in the fee for service charges.
Sales Tax
- ---------
Alloy does not collect sales and use taxes or other similar taxes on shipments
of goods into most states. However, various states or foreign countries may
seek to impose sales tax obligations on Alloy. A number of proposals have been
made at the state and local levels that would impose additional taxes on the
sale of goods and services through the Internet. In 1999, the United States
Congress passed legislation limiting for three years the ability of the states
to impose new taxes on Internet-based transactions. Failure to renew this
legislation could result in the imposition by various states of taxes on e-
commerce. A successful assertion by one or more states that Alloy should have
collected or should be collecting sales and use taxes on the sale of products
could have a material effect on Alloy's operations.
13. SUBSEQUENT EVENTS
-----------------
On April 14, 2000, Alloy entered into a financial and strategic arrangement with
Liberty Digital, Inc., a subsidiary of Liberty Media Group, Inc. pursuant to
which Alloy issued 2,922,694 shares of its common stock to a subsidiary of
Liberty Digital in exchange for $10 million in cash and 837,740 shares of
Liberty Digital common stock. The fair value of Alloy's common stock exchanged
was $35,072 on the transaction date.
50
<PAGE>
In April 2000, Alloy terminated its agreement with the TPS (Note 12) and entered
into an agreement with a new third-party service provider for similar services.
Management believes that the termination settlement with the TPS will not have a
material adverse impact on Alloy's financial position or results of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Information About Board of Directors and
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in our
Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in our Proxy
Statement for the 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Information About Alloy Online Common
Stock Ownership" in our Proxy Statement for the 2000 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Related Party Transactions" and
"Executive Compensation -- Employment Contracts and Change of Control
Arrangements" in our Proxy Statement for the 2000 Annual Meeting of
Stockholders.
III
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
-----------------------------------------------------------------
(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) Consolidated Financial Statements.
See "Index to Financial Statements" at Item 8 to this Annual Report on Form
10-K.
(2) Financial Statement Schedules.
No financial statement schedules have been included because they are not
applicable or the information is included in the financial statements or notes
thereto.
(3) Exhibits.
The following exhibits are filed with this report or incorporated by
reference as set forth below.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------
<C> <S>
2.1* Asset Purchase Agreement dated as of December 1, 1999 by and among Alloy Online, Inc., Alloy
Acquisition Corporation and Celebrity Sightings, LLC (incorporated by reference to Alloy
Online's Current Report on Form 8-K dated December 21, 1999)).
2.2* Agreement and Plan of Reorganization dated as of January 21, 2000 by and between Alloy Online,
Inc., Alloy Acquisition Sub, Inc., 17th Street Acquisition Corp. and Leslie Morgenstein and Ann
Brashares (incorporated by reference to Alloy Online's Current Report on Form 8-K dated February
7, 2000).
3.1* Restated Certificate of Incorporation of Alloy Online, Inc. (incorporated by reference into
Alloy Online's Registration Statement on Form S-1 (Registration Number 333-74159)).
3.2* Restated Bylaws (incorporated by reference into Alloy Online's Registration Statement on Form
S-1 (Registration Number 333-74159)).
3.3* See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and
Restated Bylaws of Alloy Online for the instruments defining the rights of holders of common
stock of Alloy Online
10.1 Lease Agreement between Alloy Online, Inc. and Abner Properties, c/o Williams Real Estate Co.,
Inc., dated as of November 2, 1999.
10.2 Sublease Letter Agreement between Guidance Solutions, Inc. and Celebrity Sightings, LLC, dated
as of November 23, 1999.
10.3 Agreement of Lease between Irving Realty Co. and Daniel Weiss Associates, Inc., dated as of
May 8, 1996.
10.4* Fulfillment Services Agreement dated July 23, 1997 by and between Harrison Fulfillment Services,
Inc. and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration
Statement on Form S-1 (Registration Number 333-74159)).
10.5* Amendment to Fulfillment Services Agreement dated September 1, 1997 by and between Harrison
Fulfillment Services, Inc. and Alloy Online, Inc. (incorporated by reference into Alloy Online's
Registration Statement on Form S-1 (Registration Number 333-74159)).
10.6* Second Amendment to Fulfillment Services Agreement dated October 9, 1998 by and between Harrison
Fulfillment Services, Inc. and Alloy Online, Inc. (incorporated by reference into Alloy Online's
Registration Statement on Form S-1 (Registration Number 333-74159)).
10.7* Services Agreement, dated February 9, 1999, between OneSoft Corporation and the Registrant
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.8* Restated 1997 Employee, Director and Consultant Stock Option Plan (incorporated by reference
into Alloy Online's Registration Statement on Form S-1 (Registration Number 333-74159)).
10.9* Employment Agreement dated April 19, 1999 between Matthew C. Diamond and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.10* Employment Agreement dated April 19, 1999 between James K. Johnson, Jr. and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.11* Employment Agreement dated April 19, 1999 between Samuel A. Gradess and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.12* Non-Competition and Confidentiality Agreement dated November 24, 1998 between Matthew C. Diamond
and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration Statement on
Form S-1 (Registration Number 333-74159)).
10.13* Non-Competition and Confidentiality Agreement dated November 24, 1998 between James K. Johnson,
Jr. and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration Statement
on Form S-1 (Registration Number 333-74159)).
10.14* Non-Competition and Confidentiality Agreement dated November 24, 1998 between Samuel A. Gradess
and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration Statement on
Form S-1 (Registration Number 333-74159)).
10.15* Employment letter dated February 22, 1999 between Neil Vogel and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.16 Non-Qualified Stock Option Agreement dated as of August 2, 1999 between Neil Vogel and Alloy
Online, Inc.
10.17 Non-Qualified Stock Option Agreement dated as of November 4, 1999 between Neil Vogel and Alloy
Online, Inc.
10.18* Flexible Standardized 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference
into Alloy Online's Registration Statement on Form S-1 (Registration Number 333-74159)).
10.19* 1999 Employee Stock Purchase Plan (incorporated by reference into Alloy Online's Registration
Statement on Form S-1 (Registration Number 333-74159)).
10.20* Investment Representation and Lockup Agreement dated as of January 21, 2000 by and between Alloy
Online, Inc. and Leslie Morgenstein (incorporated by reference to Alloy Online's Current Report
on Form 8-K dated February 7, 2000).
10.21* Investment Representation and Lockup Agreement dated as of January 21, 2000 by and between Alloy
Online, Inc. and Ann Brashares (incorporated by reference to Alloy Online's Current Report on
Form 8-K dated February 7, 2000).
10.22* Escrow Agreement dated as of January 21, 2000 by and among Alloy Online, Inc., Alloy Acquisition
Sub., Inc., Leslie N. Morgenstein, Ann Brashares and State Street Bank and Trust Company, as
Escrow Agent (incorporated by reference to Alloy Online's Current Report on Form 8-K dated
February 7, 2000).
10.23* Investment Representation and Lockup Agreement dated as of December 1, 1999 by and between Alloy
Online, Inc. and Celebrity Sightings, LLC (incorporated by reference to Alloy Online's Current
Report on Form 8-K dated December 21, 1999).
10.24* Escrow Agreement dated as of December 1, 1999 by and among Alloy Online, Inc., Alloy Acquisition
Corporation, Celebrity Sightings, LLC and State Street Bank and Trust Company, as Escrow Agent
(incorporated by reference to Alloy Online's Current Report on Form 8-K dated December 21,
1999).
21.1 Subsidiaries of Alloy Online, Inc.
23.2 Consent of Arthur Andersen, LLP
24.1* Power of Attorney (incorporated by reference into Alloy Online's Registration Statement on Form
S-1 (Registration Number 333-74159)).
27.1 Financial Data Schedule
</TABLE>
* Previously filed with the SEC.
(B) REPORTS ON FORM 8-K:
On December 21, 1999, the Company filed a Form 8-K under Item 2 regarding
the acquisition of Celebrity Sightings, LLC.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 1, 2000 Alloy Online, Inc.
By: /s/ Matthew C. Diamond
---------------------------------
Matthew C. Diamond
Chairman of the Board and Chief
Executive Officer
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Matthew C. Diamond Chief Executive Officer May 1, 2000
- ----------------------------------------
Matthew C. Diamond (Principal Executive Officer)
and Chairman
/s/ Samuel A. Gradess Executive Vice President, May 1, 2000
- ----------------------------------------
Samuel A. Gradess Chief Financial Officer
(Principal Financial and
Accounting Officer) and
Director
/s/ James K. Johnson, Jr. Executive Vice President, May 1, 2000
- -----------------------------------------
James K. Johnson, Jr. Chief Operating Officer and
Director
/s/ Peter M. Graham Director May 1, 2000
- -----------------------------------------
Peter M. Graham
/s/ David Yarnell Director May 1, 2000
- ----------------------------------------
David Yarnell
/s/ Lee Masters Director May 1, 2000
- ----------------------------------------
Lee Masters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------
<C> <S>
2.1* Asset Purchase Agreement dated as of December 1, 1999 by and among Alloy Online, Inc., Alloy
Acquisition Corporation and Celebrity Sightings, LLC (incorporated by reference to Alloy
Online's Current Report on Form 8-K dated December 21, 1999)).
2.2* Agreement and Plan of Reorganization dated as of January 21, 2000 by and between Alloy Online,
Inc., Alloy Acquisition Sub, Inc., 17th Street Acquisition Corp. and Leslie Morgenstein and Ann
Brashares (incorporated by reference to Alloy Online's Current Report on Form 8-K dated February
7, 2000).
3.1* Restated Certificate of Incorporation of Alloy Online, Inc. (incorporated by reference into
Alloy Online's Registration Statement on Form S-1 (Registration Number 333-74159)).
3.2* Restated Bylaws (incorporated by reference into Alloy Online's Registration Statement on Form
S-1 (Registration Number 333-74159)).
3.3* See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and
Restated Bylaws of Alloy Online for the instruments defining the rights of holders of common
stock of Alloy Online
10.1 Lease Agreement between Alloy Online, Inc. and Abner Properties, c/o Williams Real Estate Co.,
Inc., dated as of November 2, 1999.
10.2 Sublease Letter Agreement between Guidance Solutions, Inc. and Celebrity Sightings, LLC, dated
as of November 23, 1999.
10.3 Agreement of Lease between Irving Realty Co. and Daniel Weiss Associates, Inc., dated as of
May 8, 1996.
10.4* Fulfillment Services Agreement dated July 23, 1997 by and between Harrison Fulfillment Services,
Inc. and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration
Statement on Form S-1 (Registration Number 333-74159)).
10.5* Amendment to Fulfillment Services Agreement dated September 1, 1997 by and between Harrison
Fulfillment Services, Inc. and Alloy Online, Inc. (incorporated by reference into Alloy Online's
Registration Statement on Form S-1 (Registration Number 333-74159)).
10.6* Second Amendment to Fulfillment Services Agreement dated October 9, 1998 by and between Harrison
Fulfillment Services, Inc. and Alloy Online, Inc. (incorporated by reference into Alloy Online's
Registration Statement on Form S-1 (Registration Number 333-74159)).
10.7* Services Agreement, dated February 9, 1999, between OneSoft Corporation and the Registrant
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.8* Restated 1997 Employee, Director and Consultant Stock Option Plan (incorporated by reference
into Alloy Online's Registration Statement on Form S-1 (Registration Number 333-74159)).
10.9* Employment Agreement dated April 19, 1999 between Matthew C. Diamond and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.10* Employment Agreement dated April 19, 1999 between James K. Johnson, Jr. and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.11* Employment Agreement dated April 19, 1999 between Samuel A. Gradess and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.12* Non-Competition and Confidentiality Agreement dated November 24, 1998 between Matthew C. Diamond
and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration Statement on
Form S-1 (Registration Number 333-74159)).
10.13* Non-Competition and Confidentiality Agreement dated November 24, 1998 between James K. Johnson,
Jr. and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration Statement
on Form S-1 (Registration Number 333-74159)).
10.14* Non-Competition and Confidentiality Agreement dated November 24, 1998 between Samuel A. Gradess
and Alloy Online, Inc. (incorporated by reference into Alloy Online's Registration Statement on
Form S-1 (Registration Number 333-74159)).
10.15* Employment letter dated February 22, 1999 between Neil Vogel and Alloy Online, Inc.
(incorporated by reference into Alloy Online's Registration Statement on Form S-1 (Registration
Number 333-74159)).
10.16 Non-Qualified Stock Option Agreement dated as of August 2, 1999 between Neil Vogel and Alloy
Online, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------
<C> <S>
10.17 Non-Qualified Stock Option Agreement dated as of November 4, 1999 between Neil Vogel and Alloy
Online, Inc.
10.18* Flexible Standardized 401(k) Profit Sharing Plan Adoption Agreement (incorporated by reference
into Alloy Online's Registration Statement on Form S-1 (Registration Number 333-74159)).
10.19* 1999 Employee Stock Purchase Plan (incorporated by reference into Alloy Online's Registration
Statement on Form S-1 (Registration Number 333-74159)).
10.20* Investment Representation and Lockup Agreement dated as of January 21, 2000 by and between Alloy
Online, Inc. and Leslie Morgenstein (incorporated by reference to Alloy Online's Current Report
on Form 8-K dated February 7, 2000).
10.21* Investment Representation and Lockup Agreement dated as of January 21, 2000 by and between Alloy
Online, Inc. and Ann Brashares (incorporated by reference to Alloy Online's Current Report on
Form 8-K dated February 7, 2000).
10.22* Escrow Agreement dated as of January 21, 2000 by and among Alloy Online, Inc., Alloy Acquisition
Sub., Inc., Leslie N. Morgenstein, Ann Brashares and State Street Bank and Trust Company, as
Escrow Agent (incorporated by reference to Alloy Online's Current Report on Form 8-K dated
February 7, 2000).
10.23* Investment Representation and Lockup Agreement dated as of December 1, 1999 by and between Alloy
Online, Inc. and Celebrity Sightings, LLC (incorporated by reference to Alloy Online's Current
Report on Form 8-K dated December 21, 1999).
10.24* Escrow Agreement dated as of December 1, 1999 by and among Alloy Online, Inc., Alloy Acquisition
Corporation, Celebrity Sightings, LLC and State Street Bank and Trust Company, as Escrow Agent
(incorporated by reference to Alloy Online's Current Report on Form 8-K dated December 21,
1999).
21.1 Subsidiaries of Alloy Online, Inc.
23.2 Consent of Arthur Andersen, LLP
24.1* Power of Attorney (incorporated by reference into Alloy Online's Registration Statement on Form
S-1 (Registration Number 333-74159)).
27.1 Financial Data Schedule
</TABLE>
* Previously filed with the SEC.
(B) REPORTS ON FORM 8-K:
On December 21, 1999, the Company filed a Form 8-K under Item 2 regarding
the acquisition of Celebrity Sightings, LLC.
<PAGE>
Exhibit 10.1
AGREEMENT OF LEASE, made as of this 2nd day of November 1999, between ABNER
PROPERTIES, c/o Williams Real Estate Co. Inc., 380 Madison Avenue, New York, New
York 10017 party of the first part, hereinafter referred to as OWNER, and ALLOY
ONLINE INC., a Delaware corporation. Party of the second part, hereinafter
referred to as TENANT.
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the entire rentable area of the eleventh (11th) floor (the "demised
premises") in the building known as 151 West 26th Street (the "building") in the
Borough of Manhattan, City of New York, for the term of ten (10) years (the
"term"), subject to Article 76 (or until such term shall sooner cease and expire
as hereinafter provided) to commence on the 1st day of December nineteen hundred
and ninety nine, an to end on the 30th day of November two thousand and nine
both dates inclusive, at an annual rental rate as provided for in Article 73
hereof and subject to Article 74 which Tenant agrees to pay in lawful money to
the United State which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, in equal monthly installment(s) in
advance on the first day of each month during said term, at the office of Owner
or such other place as Owner may designate, without any set off or deduction
whatsoever, except that Tenant shall pay the first __________ installment(s) on
the execution hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby convenant
as follows:
OCCUPANCY:
1. Tenant shall pay the rent as above and as hereinafter provided.
2. Tenant shall use and occupy demised premises for general offices.
ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant at Tenant's
expense, may make alterations, installations, additions or improvements which
are non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved by Owner. Tenant shall, at its expense,
before making any alterations, additions, installations or improvements obtain
all permits, approval and certificates required by any governmental or quasi-
governmental bodies and (upon completion) certificates of final approval thereof
and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner, Tenant agrees to carry and will cause Tenant's
contractors and
1
<PAGE>
sub-contractors to carry such workman's compensation, general liability,
personal and property damage insurance as Owner may require. If any mechanic's
lien is filled against the demised premises, or the building of which the same
forms a part, for work done for, or materials furnished to, Tenant, whether or
not done pursuant to his article, the same shall be discharged by Tenant within
thirty days thereafter, at Tenant's expense, by filing the bond required by law
or otherwise. All fixtures and all paneling, partitions, railings and like
installations installed in the premises at any time, either by tenant or by
owner on tenant's behalf, shall, upon installation, become the property of owner
and shall remain upon and be surrendered with the demised premises unless owner,
by notice to tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
demised premises by Tenant prior to the expiration of the lease at Tenant's
expense. Nothing in this Article shall be construed to give Owner title to or to
prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, Tenant shall immediately and at
its expense, repair and restore the premises to the condition existing prior to
installation and repair any damage to the demised premises or the building due
to such removal. All property permitted or required to be removed, by Tenant at
the end of the term remaining fin the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or removed from the premises by Owner, at Tenant's expense.
Anything to the contrary notwithstanding appearing in paragraph 3 of the printed
form of this Lease, Tenant need not remove its original installations of the
premises (installed by Tenant on or about the Commencement Date) at the end of
the term of this Lease. On the submission by Tenant of plans for subsequent
installations Landlord shall advise Tenant in writing whether same are to be
removed by Tenant at the end of the term of this Lease.
REPAIRS:
4. Owner shall maintain and repair the exterior of and the public portions
of the building including, without limitation, the structural, mechanical,
electrical and plumbing systems of the building common areas in good condition.
Tenant shall, throughout the term of this lease, take good care of the demised
premises including the bathrooms and lavatory facilities (if the demised
premises encompany the entire floor of the building) and the windows and window
frames and, the fixtures and appurtenances therein and at Tenant's sole cost and
expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises cause by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after twenty days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant
shall give Owner prompt notice of any defective condition in
2
<PAGE>
any plumbing, heating systems or electrical lines located in the demised
premises and following such notice, Owner shall remedy the condition with due
diligence, but at the expense of Tenant, if repairs are necessitated by damage
or injury attributable to Tenant, Tenant's servants, agents, employees, invitees
or licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner. Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. The provisions of this
Article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty with regard to which Article 9 hereof shall apply.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window
in the demised premises to be cleaned from the outside in violation of Section
202 of the New York State Labor Law or any other applicable law or of the Rules
of the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. If, prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant shall, at Tenant's sole cost and
expense, promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any pubic officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, or the Insurance Services Office, or any similar body which shall
impose any violation, order or duty upon Owner or Tenant with respect to the
demised premises, arising out of Tenant's use or manner of use thereof, or, with
respect to the building, if arising out of Tenant's use or manner of use of the
demised premises or the building (including the use permitted under the lease).
Except as provided in Article 30 hereof, nothing herein shall require Tenant to
make structural repairs or alterations unless tenant has, by its manner of use
of the demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time carried
by or for the benefit of Owner. Tenant shall not keep anything in the demised
premises except s now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In
3
<PAGE>
any action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" or rate for the building or demised premises issued by a body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the fact therein stated and of the several items and charges in the fire
insurance rates then applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient, in Owner's judgment, to
absorb and prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Owner may
request. Landlord represents that as of the date hereof there is no mortgage on
the building of which the demised premises forms a part. Landlord shall utilize
its best efforts to obtain a Subordination, Non-Disturbance and Attornment
Agreement from any future mortgagee in form and content as may be approved by
said mortgagee.
PROPERTY LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees; Owner or its agents shall not be liable for any damage caused by
other tenants or persons in, upon or about said building or caused by operations
in connection of any private, public or quasi public work. If at any time any
windows of the demised premises are temporarily closed, darkened or bricked (or
permanently closed, darkened or bricked up, if required by law) for any reason
whatsoever except for Owner's voluntary own acts not related to alteration
and/or improvement work performed by Owner in the demised premises or to the
building of which the demises premises forms a part. Owner shall not be liable
for any damage Tenant may sustain thereby and Tenant shall not be entitled to
any compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction.
Tenant shall indemnify and same harmless Owner against and from all liabilities,
obligations, damages, penalties claims, costs and expenses for which Owner shall
not be reimbursed by insurance, including reasonable attorney's fees, paid,
suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant.
In case any action
4
<PAGE>
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist For defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered partially
unusable by fire or other casualty, the damages thereto shall be repaired by and
at the expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided and Tenant's right to terminate. (d) If the
demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in part) if the building shall be so damaged that Owner
shall decide to demolish it or to rebuild it, then, in any of such events, Owner
may elect to terminate this lease by written notice to Tenant, given within 30
days after such fire or casualty, specifying a date for the expiration of the
lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Owner's rights and remedies
against Tenant under the leases provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. If more than 50% of the demised premises are rendered wholly
unusable and remain so for at least 360 days after such fire or casualty, Tenant
shall have the right to terminate this Lease, as of the date of such casualty by
written notice to Landlord, with the same force and effect as if such date were
the date set forth above for the termination of this Lease. This right to
terminate shall not apply if Landlord has commenced re-construction work at the
building and/or the demised premises within 360 days of such casualty and
Landlord proceeds diligently to completion of such reconstruction shall serve a
termination notice as provided for herein. Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume thirty (30) days after written notice from Owner that the premises
are substantially ready for Tenant's occupancy. (e) Notwithstanding the
foregoing, each party shall look only to any insurance in its favor before
making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty, and to the extent that such insurance is
in force and collectible and to the extent permitted by law. Owner and Tenant
each hereby releases and waives all right of recovery against the other or any
one claiming through or under each of them by way of subrogation or otherwise.
The foregoing
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release and waiver shall be in force only if both releasers' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefiting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Owner in each instance.
Transfer of the majority of the stock of a corporate Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but not such
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise by construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing leeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building.
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ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this lease, or for the purpose of complying
with flaws, regulations and other directions of governmental authorities.
Tenant shall permit Owner to use and maintain and replace pipes and conduits in
and through the demised premises and to erect new pipes and conduits therein
provided, wherever possible, they are within walls or otherwise concealed.
Owner may, during the progress of any work in the demised premises, take all
necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitled to any abatement of
rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours upon reasonable
prior notice to Tenant for the purpose of showing the same to prospective
purchasers or mortgagees of the building, and during the last six months of the
term for the purpose of showing space to prospective tenants. If Tenant is not
present to open and permit an entry into the premises, Owner or Owner's agents
may enter the same whenever such entry may be necessary or permissible by master
key or forcibly in an emergency and provided reasonable care is exercised to
safeguard Tenant's property, such entry shall not render Owner or its agents
liable therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom, Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations hereunder.
Notwithstanding the provisions of Paragraph 13 of the printed form of this
Lease, any pipes or conduits installed by Landlord pursuant to said Paragraph
shall not materially interfere with Tenant's business or its use of the demised
premises. Landlord shall utilize its best efforts to conceal said pipes or
conduits behind the walls or ceiling of the demised premises. No work performed
by Landlord pursuant hereto or any other provision of this Lease shall
materially interfere with Tenant's business or its use of the demised premises.
No change made pursuant to the last sentence of Paragraph 13 shall materially
interfere with Tenant's use of or access to the demised premises nor materially
inconvenience Tenant nor substantially diminish the usable space hereby leased
to Tenant.
Notwithstanding anything in this Lease, including the rules and regulations
per (S)36, to the contrary, Tenant shall have access to the demised premises 24
hours per day, seven (7) days per week. However, Landlord's services are
available to Tenant only during the times as set forth in Paragraph 31 of the
printed form of this Lease (passenger elevators are self-service automatic
elevators).
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VAULT, VAULT SPACE AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner makes
no representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal
state or municipal authority or public utility. Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit. Landlord represents that
the Certificate of Occupancy for the building permits the use of the premises by
Tenant as permitted in Paragraph 2 of the Lease. A copy of the Certificate of
Occupancy has been exhibited to Tenant.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for rental value of the demised premises for the
same period. In the computation of such damages the difference between any
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installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the reletting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT
17. (1) If Tenant defaults in fulfilling any of the covenants of this
including but not limited to anything to the contrary notwithstanding, all five
(5) day periods in Paragraph 17 of the printed form of this Lease shall be ten
(10) days and three (3) day periods shall be five (5) days the covenants for the
payment of rent or additional rent; or if the demised premises becomes abandoned
or if this lease be rejected under (S)235 of Title 11 of the U.S. Code
(bankruptcy code); or if any execution or attachment shall be issued against
Tenant or any of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant; or if Tenant shall make default with
respect to any other lease between Owner and Tenant; or if Tenant shall have
failed, after five (5) days written notice, to redeposit with Owner any portion
of the security deposited hereunder which Owner has applied to the payment of
any rent and additional rent due and payable hereunder or failed to move into or
take possession of the premises within fifteen (15) days after the commencement
of the term of this lease, of which fact Owner shall be the sole judge; then in
any one or more of such events, upon Owner serving a written five (5) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said five (5) days, if Tenant shall have failed to comply with or remedy such
default, or if the said default or omission complained of shall be of a nature
that he same cannot be completely cured or remedied within said five (5) day
period, and if Tenant shall not have diligently commenced curing such default
within such five (5) day period, and shall not thereafter with reasonable
diligence and in good faith, proceed to remedy or cure such default, then Owner
may serve a written three (3) days' notice of cancellation of this lease upon
Tenant, and upon the expiration of said three (3) days this lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such three (3) day period was the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remain liable as
hereinafter provided. Anything to the contrary notwithstanding, all five (5)
day periods in Paragraph 17 of the printed form of this Lease shall be ten (10)
days and three (3) day periods shall be five (5) days.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid; or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any
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other payment herein required; then and in any of such events Owner may without
notice, re-enter the demised premises by lawful means and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the
premises as if this lease had not been made. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTIONS:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant
commercially reasonable concessions or free rent or charge a higher rental than
that in this lease, (c) Tenant or the legal representatives of Tenant shall also
pay Owner as liquidated damages for the failure of Tenant to observe and perform
said Tenant's convenants herein contained, any deficiency between the rent
hereby reserved and or covenanted to be paid and the net amount, if any, of the
rents collected on account of the subsequent lease or leases of the demised
premises for each month of the period which would otherwise have constituted the
balance of the term of this lease. The failure of Owner to re-let the premises
or any part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Owner may incur in connection with re-letting, such
as legal expenses, attorneys' fees, brokerage, advertising and for keeping the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for re-
rental may, at Owner's option make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any whatsoever for
failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such re-
letting, and in no event shall Tenant be entitled to receive any excess, if any,
of such net rents collected over the sums payable by Tenant to Owner hereunder.
In the event of a breach or threatened breach by Tenant of any of the covenants
or provisions hereof, Owner shall have the right of injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present for future laws.
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FEES AND EXPENSES
19. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, Owner may upon ten (10) business
days notice perform the obligation of Tenant thereunder. If Owner, in
connection with the foregoing or in connection with any default by Tenant in the
covenant to pay rent hereunder, makes any expenditures or incurs any obligations
for the payment of money, including but not limited to attorney's fees, in
instituting, prosecuting or defending any action or proceedings, then Tenant
will reimburse Owner for such sums so paid or obligations incurred with interest
and costs. The foregoing expenses incurred by reason of Tenant's default shall
be deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within five (5) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner as damages.
Notwithstanding anything to the contrary in Paragraph 19 of the printed
form of this Lease, in the event Landlord defaults in the observance or
performance of any of the terms and provisions of this Lease, and such default
results in a condition which materially adversely affects the condition of the
demised premises or materially adversely affects Tenant's use and occupancy
thereof, Tenant may, on ten (10) business days prior written notice to Landlord,
but shall not be obligated to, take such steps and incur such costs as may be
reasonably necessary to remedy such default for the account of Landlord, and
Landlord shall within ten (10) business days reimburse Tenant for any sums paid
or costs incurred following Tenant's billing therefor. Under no circumstances
shall Tenant be permitted to claim offset versus rent or additional rent due
Landlord hereunder for any of said costs or expenses. Landlord may, within the
ten (10) day notice period commence corrective action and prosecute same
diligently to completion.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting
an eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the party of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the
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demised premises, the rents, leases, expenses of operation or any other matter
or thing affecting or related to the demised premises or the building except as
herein expressly set forth and no rights, easements or licenses are required by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the demised
premises and is acquainted with their condition and agrees to take the same "as
is" on the date possession is tendered and acknowledges that the taking of
possession of the demised premises by Tenant shall be conclusive evidence that
the said premises and the building of which the same form a part were in good
and satisfactory condition at the same time such possession was so taken, except
as to latent defects subject to substantial completion of Landlord's Work
pursuant to Workletter annexed to this Lease and subject to "Punch List", if
any, of items to be completed by Landlord following walk-thru by Tenant
following Landlord's substantial completion of its Work. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and conditions, ordinary wear damage by fire or other casualty and
damages which Tenant is not required to repair as provided elsewhere in this
lease excepted, and Tenant shall remove all its property from the demised
premises. Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of this lease. If the last day of the term
of this Lease or any renewal thereof falls on Sunday, this lease shall expire at
noon on the preceding Saturday unless it be a legal holiday in which case it
shall expire at noon on the preceding business day.
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
34 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned. In the event Tenant closes its business operation by virtue of
Landlord's cessation of services provided for in Article 31 and such cessation
of services continues for more than three (3) days, then Tenant shall be
entitled to a pro-rata abatement of rent until services are restored or Tenant
reopens for business, whichever event shall first occur. If such cessation
continues for a consecutive period of thirty (30) days and Tenant has not opened
for business during said thirty (30) day period, Tenant shall have the right to
cancel this Lease by written notice to Landlord.
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FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding over or
retention of possession of any tenant, undertenant or occupants or if Owner has
not completed any work required to be performed by Owner, or for any other
reason. Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances nor shall the same be construed in any wise to extend
the term of this lease but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
any work required) until after Owner shall have given Tenant notice that the
premises are substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or to occupy
premises other than the demised premises prior to the date specified as the
commencement of the term of this lease. Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
If Landlord does not deliver the demised premises vacant and in substantially
completed condition pursuant to Landlord's Workletter herein on or before March
1, 2000, then and in that event Tenant may elect to terminate this Lease by
written notice to Landlord forwarded no later than March 30, 2000. Anything to
the contrary notwithstanding, Landlord need not complete replacement of windows
(Workletter No. 2) before ten (10) months from date hereof and failure to
perform said window installation shall not give Tenant a right to cancel this
Lease as aforesaid. However, Landlord shall utilize its best efforts to have the
windows replaced on/or before June 15, 2000.
NO WAIVER:
25. The failure of Owner to seek redress for violation of or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner or Tenant as the case may be, unless such
waiver be in writing signed by Owner or Tenant as the case may be. No payment
by Tenant or receipt by Owner of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this lease provided. All checks tendered to Owner as and for the rents of the
demised premises shall be deemed payments for the account of Tenant. Acceptance
by Owner of rent from anyone other than Tenant shall not be deemed to operate as
an attornment to Owner by the payor of such rent or as a consent by Owner to an
assignment or subletting by Tenant of the demises premises to such payor, or as
a modification of the provisions of this lease. NO act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises and no agreement
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to accept such surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary proceeding for
possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding, except mandatory
counterclaims.
INABILITY TO PERFORM:
27. The Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected hereunder on part of Tenant to be
performed shall in no wise be affected impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed in supplying any equipment or fixtures
if Owner is prevented from doing by reason of strike or labor troubles or any
cause whatsoever beyond Owner's sole control including, but not limited to,
government preemption in connection with a National Emergency or by reason of
any rule, order or regulation of any department or subdivision thereof of any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill, statement, notice
or communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered it, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
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WATER CHARGES:
29. If Tenant requires, uses or consumes water for any purpose in addition
to ordinary lavatory purposes, Owner may install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant shall pay Owner for
the cost of the meter and the cost of the installation thereof and throughout
the duration of Tenant's occupancy Tenant shall keep said meter and installation
equipment in good working order and repair at Tenant's own cost and expense in
default of which Owner may cause such meter and equipment to be replaced or
repaired and collect the cost thereof from Tenant as additional rent. Tenant
agrees to pay for water consumed, as shown on said meter as and when bills are
rendered, and on default in making such payment Owner may pay such charges and
collect the same from Tenant as additional rent, charge or any other tax, rent,
levy or charge which now or hereafter is assessed, imposed or a lien upon the
demised premises or the realty of which they are part pursuant to law, order or
regulation made or issued in connection with the use, consumption, maintenance
or supply of water, water system or sewage or sewage connection or system. If
the building or the demised premises or any part thereof is supplied with water,
Tenant shall pay to Owner, as additional rent, on the first day of each month,
$80.00 for the use of such water. Independently of and in addition to any of
the remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may
sue for and collect any monies to be paid by Tenant or paid by Owner for any of
the reasons or purposes hereinabove set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if
the New York Board of Fire Underwriters or the New York Insurance Exchange or
any bureau, department or official of the federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alteration, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system,
installations, modification, alteration, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate set by and said Exchange or by an fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or non-
structural in nature. Tenant shall pay to Owner as additional rent the sum of
$80.00 on the first day of each month during the term of this lease as Tenant's
portion of the contract price for sprinkler supervisory service.
ELEVATORS, HEAT, CLEANING:
31. Owner shall: (a) provide necessary passenger elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (b)
if freight elevator service is provided, same shall be provided only on regular
business days Monday through Friday inclusive, and on those days only between
the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c) furnish heat,
water and other services supplied by Owner to the demised
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premises, when and as required by law, on business days from 8 a.m. to 6 p.m.
and on Saturdays from 8 a.m. to 1 p.m.; (d) clean the public halls and public
portions of the building which are used in common by all tenants. Tenant shall,
at Tenant's expense, keep the demised premises, including the windows, clean and
in order, to the satisfaction of Owner, and for the purpose shall employ the
person or persons, or cooperation approved by Owner. Tenant shall pay to Owner
the cost of removal of any of Tenant's refuse and rubbish from the building.
Bills for the same shall be rendered by Owner to Tenant at such time as Owner
may elect and shall be due and payable hereunder, and the amount of such bills
shall be deemed to be, and be paid as, additional rent. Tenant shall, however,
have the option of independently contracting for the removal of such rubbish and
refuse in the event that Tenant does not wish to have same done by employees of
Owner. Under such circumstances, however, the removal of such refuse and rubbish
by others shall be subject to such rules and regulations as, in the judgment of
Owner, are necessary for the proper operation of the building. Owner reserves
the right to stop service of the heating, elevator, plumbing and electric
systems, when necessary, by reason of accident, or emergency, or for repairs,
alterations, replacements or improvements in the judgment of Owner desirable or
necessary to be made, until said repairs, alterations, replacement or
improvements shall have been completed. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner may
proceed with alterations necessary to substitute automatic control elevator
service upon ten (10) day written notice to Tenant without in any way affecting
the obligations of Tenant hereunder, provided that the same shall be done with
the minimum amount of inconvenience to Tenant, and Owner pursues with due
diligence the completion of the alterations.
SECURITY
32. Tenant has deposited with Owner the sum of $134,085.00 as security for
the faithful performance conditions of this lease: it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and additional
rent, Owner may after notice and the expiration of any applicable grace period
use, apply or retain the whole or any part of the security so deposited to the
extent required for the payment of any rent and additional rent or any other sum
as to which tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including, but not limited to, any
damages or deficiency in the re-letting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixes as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security; and Tenant agrees to look to
the new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner, Tenant further covenants that is will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successory or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
In lieu of a cash security deposit, Tenant shall have the right to provide
Landlord with a Letter of Credit from a Domestic Banking Institution located in
New York, NY in a form and content reasonably acceptable to Landlord.
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CAPTIONS:
33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
DEFINITIONS:
34. The term "Owner" as used in this lease means only the owner of the fee
or of the leasehold of the building, or the mortgages in possession, for the
time being of the land and building (or the owner of a lease of the building or
of the land and building) of which the demised premises form a party, so that in
the event of any sale or sales of said land and building or of said lease, or in
the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so-expressed or expressed in monthly
installments and "additional rent." "Additional rent" means all sums which
shall be due to new Owner from Tenant under this lease, in addition to the
annual rental rate. The term "business days" as used in this lease, shall
exclude Saturdays (except such portion thereof (as is covered by specific hours
in Article 31 hereof), Sundays and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable Operation
Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION - SHORING:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises for a
part from injury or damage and to support the same by proper foundations without
any claim of damages or indemnity against Owner, or diminution or abatement of
rent.
RULES AND REGULATIONS:
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
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Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. All rules and regulations shall be applied and enforced on a
nondiscriminatory basis with all other tenants in the building.
GLASS:
37. Owner shall replace, at the expense of the Tenant any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
ESTOPPEL CERTIFICATE:
38. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified in full force and effect (or, if there
have been modifications, that the same is in full force and effect as modified
and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
The provisions of Paragraph 38 of the printed from of this Lease are deemed to
be reciprocal between Landlord and Tenant. Tenant may not request a Landlord
Estoppel Certificate more than once in any calendar year.
DIRECTORY BOARD LISTING:
39. If, at the request of and as accommodation to Tenant, Owner shall
place upon the directory board in the lobby of the building, one or more names
of persons other than Tenant, such directory board listing shall not be
construed as the consent by Owner to an assignment or subletting by Tenant to
such person or persons.
SUCCESSORS AND ASSIGNS:
40. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
RENT ESCALATION TAX INCREASES:
41. The Tenant agrees to pay as additional rent annually during the term
of this lease 8.333 per cent of any increase in the Real Estate Taxes (as such
term is hereinafter defined) above those for the fiscal year 1999/2000. Such
additional rent shall be paid when the tax becomes fixed and within ten (10)
days after demand therefor by the Landlord and shall be
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collectible as additional rent. For the final year of the lease term the Tenant
shall be obligated to pay only a pro rata share of such percentage of any such
increase in taxes. Tax bills (except as hereinafter provided) shall be
conclusive evidence of the amount of such taxes and shall be used for the
calculation of the amounts to be paid by the Tenant.
The term "Real Estate" shall mean all the real estate taxes and
assessments, special or otherwise, levied, assessed or imposed by Federal, State
or Local Governments against or upon the building of which the demised premises
form a part and the land upon which it is erected. If due to a future change in
the method of taxation, any franchise, income, profit or other tax, or other
payment, shall be levied against Landlord in whole or in part in substitution
for or in lieu of any tax which would otherwise constitute a Real Estate Tax,
such franchise, income, profit, or other tax or payment shall be deemed to be a
Real Estate Tax for the purposes hereof. If Landlord should incur expense in
connection with Landlord's endeavor to reduce or prevent increase in assessed
valuation, Tenant shall be obligated to pay as additional rent the amount
computed by multiplying the percent set forth in line 2 hereof times such
expense of Landlord, and such amount shall be due and payable upon demand by
Landlord and collectible in the same manner as annual rent. The obligation to
make any payments of additional rent pursuant to this Article shall survive the
expiration or other termination of this lease. Provided Tenant has paid
additional rent pursuant to Paragraph 41 of the printed form of this Lease and
is not in monetary default under this Lease, Tenant shall be entitled to a pro-
rata refund after Landlord's expenses for any tax refund received by Landlord
for said year.
EXCULPATORY CLAUSE:
42. In any action brought to enforce the obligations of Landlord under
this lease, any judgment or decree shall be enforceable against Landlord only to
the extent of Landlord's interest in the building of which the demised premises
form a part, and no such judgment shall be the basis of execution on, or be a
lien on, asset of Landlord, or any assets of any party being a partner or
stockholder in Landlord, other than the interest in said building.
43. ASSIGNMENT & SUBLETTING (ARTICLE 11 CONTINUED)
Tenant may sublet all or a portion of the demised premises or assign this
lease with Landlord's prior written consent which shall not be unreasonably
withheld, provided that:
I
(a) Tenant shall furnish Landlord with the name and business address of the
proposed subtenant or assignee, a counterpart of the proposed subleasing or
assignment agreement, and satisfactory information with respect to the nature
and character of the business of the proposed subtenant or assignee together
with current financial information. Alternatively, Tenant may submit a term
sheet to Landlord containing the economic terms of the proposed sublease and
identifying the proposed sublessee and subsequently provide the proposed
document when available.
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(b) In the reasonable judgment of the Landlord the proposed subtenant or
assignee is financially responsible with respect to its proposed obligations
under the proposed agreement and is of a character and engaged in a business
which is in keeping with the standards of the building and the floor or floors
on which the demised premises are located.
(c) An executed duplicate original in a form satisfactory to Landlord for
review by Landlord's counsel of such subleasing or assignment agreement shall be
delivered to Landlord at least five (5) days prior to the effective date
thereof. In the event of any assignment, Tenant will deliver to Landlord at
least five (5) days prior to the effective date thereof an assumption agreement
wherein the assignee agrees to assume all of the terms, covenants and conditions
of this lease to be performed by Tenant hereunder and which provides that Tenant
named herein and such assignee shall after the effective date of such assignment
be jointly and severally liable for the performance of all of the terms,
covenants and conditions of this lease.
(d) Deleted.
(e) Tenant, at Tenant's expense, shall provide and permit reasonably
appropriate means of ingress to and egress from space sublet by Tenant.
(f) Except for any subletting or assignment by Tenant to Landlord, each
subletting or assignment shall be subject to all of the covenants, agreements,
terms, provisions and conditions contained in this lease.
(g) Tenant covenants and agrees that notwithstanding any subletting or
assignment to Landlord or to any other subtenant or assignee and/or acceptance
of rent or additional rent by Landlord from any subtenant or assignee. Tenant
shall and will remain fully liable for the payment of the annual rent and
additional rent due and to become due hereunder and for the performance of all
of the covenants, agreements, terms, provisions and conditions contained in this
lease on the part of the Tenant to be performed.
(h) Tenant further agrees that it shall not at any time publicly advertise
at a rental rate less than the fixed annual rental rate plus any additional rent
then payable hereunder, for assignment or sublease of all of the space demised
herein, or for sublease of any portion of the space demised herein, but nothing
herein contained shall be deemed to be Landlord's consent to any assignment or
subletting.
(i) Deleted.
(j) Tenant shall have no right to assign this lease or sublet the whole or
any part of the demised premises to any party who is dealing with or has dealt
with Landlord or Landlord's agent with respect to space then still available for
rent in the building within the six (6) months immediately preceding Landlord's
receipt of Tenant's notice pursuant to item 11 of this Article.
(k) Such subletting or assignment shall not cause Landlord any cost.
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(l) Tenant shall have complied and shall comply with each of the provisions
in this Article and Landlord shall not have made any election as provided in
item 11 hereof.
II
If Tenant shall desire to sublet all or a portion of the demised premises
or to assign this lease, Tenant shall send to Landlord a written notice by
registered mail at least thirty (30) days prior to the date such assignment or
subletting is to commence stating (w) that the intention is to assign this
lease, (x) the portion of the demised premises that the Tenant desires to
sublet, and if the portion intended to be sublet shall be less than the entire
demised premises and other than an entire floor or multiple thereof, such notice
shall be accompanied by a reasonably accurate floor plan of the premises to be
sublet, (y) the term of such proposed subletting and (z) the proposed
commencement date of such subletting or assignment.
(a) If Tenant desires to sublet all of the demised premises or to assign
this lease, then within thirty (30) days after receipt of the aforesaid notice
Landlord may notify Tenant that Landlord elects (1) to cancel this lease, in
which event, such cancellation shall become effective on the date set forth
pursuant to (z) above and this lease shall thereupon terminate on said date with
the same force and effect as if said date were the expiration date of this
lease; or (2) to require Tenant to assign this lease to Landlord effective from
the date set forth pusuant to (z) above. In either event Tenant shall be
obligated to surrender possession of the demised premises in the same condition
as Tenant is obligated to surrender possession at the end of the term as
provided in this lease. Such assignment to Landlord shall provide that the
parties to such assignment expressly negate any intention that any estate
created under such assignment be merged with any other estate held by either of
said parties.
(b) If Tenant desires to sublet less than all of the demised premises then
within thirty (30) days after receipt of the aforesaid notice Landlord may
notify Tenant that Landlord elects to require Tenant to sublease to Landlord as
subtenant of Tenant, the portion of the demised premises that Tenant had
specified in its notice to Landlord, for the term, and from the commencement
date specified in said notice. The annual rent and additional rent which
Landlord shall pay to Tenant shall be a pro rata apportionment of the annula and
additional rent payable hereunder and it is hereby expressly agreed that such
sublease to Landlord shall be upon all the covenants, agreements, terms,
provisions and conditions contained in this lease except for such thereof which
are inapplicable and such sublease shall give Landlord the unqualified and
unrestricted right without Tenant's permission to assign such sublease or any
interest therein and/or sublet the space covered by such sublease or any part or
parts of such space and to make or cause to have made or permit to be made any
and all changes, alterations, decorations, additions, and improvements in the
space covered by such sublease, and that such may be removed, in whole or part,
at Landlord's option, prior to or upon the expiration or other termination of
such sublease provided that any damage or injury caused by such removal shall be
repaired. Such sublease to Landlord shall also provide that the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties.
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(c) Tenant covenants and agrees that any such assignment or subletting to
Landlord or further assignment or subletting by Landlord or Landlord's assignee
or subleases may be for any purpose or purposes that Landlord, in Landlord's
uncontrolled discretion, shall deem suitable or appropriate. Tenant shall be
relieved of pro-rata liability under this Lease as to any space assigned or
sublet to Landlord pursuant to the provisions of Paragraph 43 II.
(d) If Landlord should fail to exercise any of the elections granted to it
pursuant to the provisions of sub-paragraphs "a" or "b" of Item 11 of this
Article and if Tenant should sublet all or a portion of the demised premises for
a rental in excess of the sum of annual rental stipulated herein and additional
rent arising hereunder, then Tenant shall pay to Landlord as additional rent
fifty percent (50%) of such excess amount. In computing such excess amount
appropriate pro rata adjustments shall be made with respect to a subletting of
less than all of the demised premises. Tenant may deduct its reasonable
attorneys fees, reasonable advertising costs, if any, and a maximum of $1,500 in
alteration costs for the sublet space for the purpose of computing the "50%
excess amount" due Landlord under the provisions of paragraph 43 11(d) of the
printed form of this Lease.
(e) Tenant hereby waives any claim against Landlord for money damages which
it may have based upon any assertion that Landlord has unreasonably withheld or
unreasonably delayed any consent to an assignment or a subletting pursuant to
this Article. Tenant agrees that its sole remedy shall be an action or
proceeding to enforce such provision or for specific performance.
III
If this lease is assigned and Landlord consents to such assignment, Tenant
covenants and agrees that the terms, covenants and conditions of this lease may
be changed, altered or modified in any manner whatsoever by Landlord and the
assignee without the prior written consent of Tenant and that no such change,
alteration or modification shall release Tenant from the performance by it of
any of the terms, covenants and conditions on its part to be performed under
this lease. Any such change, alteration or modification which would have the
effect of increasing or enlarging Tenant's obligations or liabilities under this
lease shall not, to the extent only of such increases or enlargement, be binding
upon Tenant.
IV
Tenant acknowledges that Williams from time to time may be obligated to
endeavor to rent competitive space available in the building on behalf of and
pursuant to the instructions of Landlord or another tenant of the building.
44. TENANT'S CHANGES
(a) Supplementing Article 3, Landlord's consent shall not be required for
minor changes to the demised premises such as the installation of furniture,
furnishings, cabinets and shelves which are not affixed to the realty or
painting, carpeting, wall hangings or decorations. All other renovations,
additions, installations, improvements and alterations of any
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kind or nature in or to the demised premises whether performed by Tenant or by
Landlord ("Tenant Changes") shall require the prior written consent of Landlord
which, in the case of non-structural interior Tenant Changes, Landlord agrees
not to unreasonably withhold, provided Tenant first complies with all applicable
requirements of this lease including any Workleter attached to this lease and
the building Rules and Regulations Governing Tenant Alterations (herein called
the "Alterations Rules"). In granting its consent to any Tenant Changes,
Landlord may impose such conditions (as to guarantee of completion including,
without limitation, requiring Tenant to post a bond to insure the completion of
Tenant Changes, payment for Tenant Changes and other charges payable under this
Article, restoration or otherwise), as Landlord may reasonably require. In no
event shall Landlord be required to consent to any Tenant Changes which would
affect the structure of the building, the exterior thereof, any part of the
building outside of the demised premises or the mechanical, electrical, heating,
ventilation, air conditioning, sanitary, plumbing or other service systems and
facilities (including elevators) of the building, and such Tenant Changes shall
be performed only by contractors designated or approved by Landlord. In
connection with Landlord's agent's review, modificiation, approval, supervision
and/or coordination of plans and specifications for Tenant Changes, agent shall
endeavor to advise Tenant whether the proposed Tenant's Changes are compatible
with building systems and facilities, in compliance with the requirements of
this lease, in conformity with applicable legal requirements or likely to result
in excessive cost to Tenant, but, notwithstanding the foregoing, Landlord's
agent shall have no liability in connection with such advice. Tenant shall,
promptly upon demand, reimburse Landlord's agent for any reasonable out-of-
pocket fees, expenses and other charges incurred by Landlord or its agent in
connection with the review, modification and/or approval of such plans and
specifications by Landlord's agents and other professional consultants of
Landlord. The hourly rate for such agent's review is $70/hour for Co-director of
Operations and Engineering, and $250/hour for Director of Property Management.
Landlord's imposition of conditions on Tenant changes (i.e. bond, guarantee) are
applicable only if the cost of the Work exceeds $25,000. Landlord shall not
unreasonably withhold its consent to approval of Tenant's contractors.
Landlord's charges for review of Tenant's plans and specifications for any item
of alteration shall not exceed $2,500. There shall be no Landlord charge for
review of Tenant's plans of its original alterations/installations at Lease
commencement.
(b) Nothing in this lease is intended to constitute a consent by Landlord
to the subjection of Landlord's or Tenant's interest in the building or the land
on which the building is located to any lien or claim by any person which
supplies any work labor, material, service or equipment to Tenant in performing
any Tenant Changes. Landlord hereby notifies all such persons of such intent
and each such person agrees that by performing any Tenant changes for Tenant it
accepts that Landlord has not granted such consent and that such person shall
not have a right to file any lien or claim against such interest of Landlord or
Tenant in the building or land upon which it is located. Tenant agrees to
provide a copy of this Article to all such persons prior to entering into any
contract for or otherwise having Tenant Changes performed. If Tenant's use of
any contractor, subcontractor, vendor, supplier or other party causes or
threatens to cause disharmony, labor disputes, strikes or picketing of any kind
whatsoever, such party shall be dismissed, removed from the job site, and
excluded from the building, and the work of such party shall be continued by
Tenant by others satisfactory to Landlord.
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(c) In performing any alterations or installations, Tenant shall be
responsible for the cost of compliance with all applicable governmental rules
and regulations including, without limitation, The Americans With Disabilities
Act of 1990, Public Law 101-336 42 U.S.C. Secs. 12101 et. seq., together with
all amendments thereto which may be adopted from time to time, and all
regulations and rules promulgated thereunder.
45. ELECTRIC CURRENT
If electric current is to be supplied to Tenant by the public utility
corporation serving the part of the city where the building is located, Tenant
agrees to purchase same from such public utility corporation. Any riser or
risers to supply Tenant's electrical requirements, upon written request of
Tenant, will be installed by Landlord, at the sole cost and expense of Tenant,
if in Landlord's sole judgment, the same are necessary and will not cause
permanent damage or injury to the building or demised premises or cause or
create a dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants or
occupants. In addition to the installation of such riser or risers Landlord
will also at the sole cost and expense of Tenant, install all other equipment
proper and necessary in connection therewith subject to the aforesaid terms and
conditions. Tenant covenants and agrees that at all times its use of electric
current shall never exceed the capacity of existing feeders to the building or
the risers or wiring installations. It is further covenanted and agreed by
Tenant that all the aforesaid costs and expenses shall be paid by Tenant to
Landlord within ten (10) days after rendition of any bill or statement to Tenant
therefor. Tenant shall make no alterations or additions to the electric
equipment and/or appliances without the prior written consent of Landlord in
each instance which shall not be unreasonably withheld or delayed. Rigid
conduit only will be allowed. If any tax is imposed upon Landlord's receipts
from the sale or resale of electric energy or gas or telephone service to Tenant
by any Federal, State or municipal Authority, Tenant covenants and agrees that,
where permitted by law, Tenant's pro-rata share of such taxes shall be passed on
to, and included in the bill of and paid by Tenant to Landlord. Any sums due
and payable to Landlord under this Article shall be collectible as additional
rent. Landlord shall provide 400 AMP electric service to the demised premises.
Landlord represents that electric service to the demised premises is separately
metered. Provided the Tenant is then not in default hereunder after notice and
beyond any applicable cure period, Tenant may, at its own cost and expense and
in compliance with applicable laws and building standards, provide additional
AMP electric service as may be reasonably required for its business operation at
the demised premises subject to the provisions of Paragraph 45 of the printed
form of this Lease. Any such additional AMP electric service is to be performed
only by Landlord's designated electrician with the customary cost and reasonable
charges of said electrician paid for by the Tenant. All plans for said Work are
to be submitted to Landlord for its prior written approval, which approval shall
not be unreasonably withheld or delayed.
46. DEPOSIT OF CHECKS
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47. PARTIAL PAYMENT
If Landlord receives from Tenant any payment (Partial Payment) less than
the sum of the fixed annual rent, additional rent and other charges then due and
owing pursuant to the terms of this lease, Landlord in its sole discretion may
allocate such Partial Payment in whole or in part to any fixed annual rent, any
additional rent and/or any other charges or to any combination thereof.
48. Whenever Landlord is required or permitted to send any notice or
demand to Tenant under or pursuant to this lease, including, but not limited to
any demand for rent or notice of default it may be given by Landlord's Agent,
attorney, executor, trustee or personal representative, with the same force and
effect as if given by the Landlord. Landlord hereby advises Tenant that
Landlord's current agent is Williams Real Estate Co. Inc., 380 Madison Avenue,
New York, New York 10017.
49. LEASE NOT BINDING UNLESS EXECUTED AND DELIVERED
It is specifically understood and agreed that this lease is offered to
Tenant by the managing agent of the building, solely in its capacity as such
agent and subject to Landlord's acceptance and approval and that Tenant has
hereunto affixed its signature with the understanding that the said lease shall
not in any way bind Landlord or its agent until such time as the same has been
approved and executed by Landlord and delivered to Tenant.
50. CONFLICT BETWEEN RIDER AND PRINTED LEASE
If and to the extent that any of the provisions of any rider or addendum to
this lease conflict or are otherwise inconsistent with any of the printed
provisions of this lease, whether or not such inconsistency is expressly noted
in the rider or addendum, the provisions of the rider or addendum shall prevail.
In the event the party of the first part is referred to in this lease as
"Owner", the term "Landlord", as used herein, shall be deemed synonymous with
the term "Owner".
51. SPECIAL SERVICES
Upon Tenant's request Landlord or its managing agent may, but, except as
otherwise expressly provided in this lease, shall not be obligated to, perform
or cause to be performed for Tenant from time to time various construction,
repair and maintenance work, moving services and other types of work or services
in or about the demised premises and the building. If such work or services
shall be performed for Tenant, Tenant agrees to pay therefor either the standard
charges of Landlord or its managing agent in effect from time to time, if any,
or the amount agreed to be paid for such services. Tenant agrees to pay all
such charges within ten (10) days after Landlord or Landlord's managing agent
has submitted a bill therefor and unless otherwise expressly provided in writing
such charges shall be payable as additional rental under this lease and in the
event of a default by Tenant in the payment thereof Landlord shall have all of
the remedies hereunder that Landlord would have in the event of a default in the
payment of annual rental.
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52. AS IS
Tenant acknowledges that it has inspected the building and the demised
premises, agrees to accept the demised premises in its "AS IS" physical
condition as of the date possession is tendered to Tenant and acknowledges that
Landlord shall not be obligated to make any improvements or alterations to the
demised premises whatsoever, except as may be provided on the Workletter annexed
hereto as Exhibit "A", if any, and rider and addendum.
53. ADDITIONAL ASSIGNMENT AND SUBLETTING PROVISIONS
The Article to this lease captioned "Assignment & Subletting (Article 11
continued)" is hereby amended by adding to Subdivision I thereof the following
sub-paragraphs:
(m) The consent by Landlord to any assignment, subletting, or occupancy
shall not in any wise be construed to relieve Tenant from obtaining the express
consent, in writing, of Landlord to any further assignment, subletting, sub-
subletting, or occupancy, which consent Landlord shall, subject to Landlord's
rights as set forth in this lease, shall not be unreasonably withheld, delayed
or conditioned.
(n) Tenant shall have no right to assign this lease or sublet the whole or
any part of the demised premises to any party which is then a tenant, subtenant,
licensee or occupant of any part of the building in which the demised premises
are located, if Landlord has comparable space available in the building.
(o) If Tenant hereunder shall be a corporation, the transfer of a majority
of the stock of Tenant shall be deemed an assignment of this lease except for
transfers of stock which take place on a nationally recognized public Stock
Exchange.
(p) Each sublease of the demised premises shall be deemed to contain the
following provisions, whether or not specifically included therein:
(1) "In the event of a default under any underlying lease of all or any
portion of the premises demised hereby which results in the termination of such
lease, or if the lessor under any such underlying lease shall exercise any right
to cancel or terminate such underlying lease, the subtenant hereunder shall, at
the option of the lessor under any such lease, attorn to and recognize such
lessor as Landlord hereunder and shall, promptly upon such lessor's request,
execute and deliver all instrument necessary or appropriate to confirm such
attornment and recognition. The subtenant hereunder hereby waives all rights
under present or future law to elect, by reason of the termination of such
underlying lease, to terminate this sublease or surrender possession of the
premises demised hereby. If the lessor under such underlying lease does not
exercise the aforesaid option, the term of this sublease shall terminate
simultaneously with the term of the underlying lease and subtenant hereby agrees
to vacate the premise subleased on or before the effective date of termination
of the underlying lease."
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(2) "This sublease may not be assigned or the sublet premises further
sublet, in whole or in part, without the prior written consent of the lessor
under any underlying lease of all or any portion of the premises demised
hereby."
Notwithstanding anything to the contrary in Paragraphs 11 or 43 of the
printed form of this Lease, Landlord's consent shall not be required with
respect to the following:
(a) transactions with an entity into which Tenant is merged or
consolidated, or to which all or substantially all of the stock or
assets of Tenant are transferred, or to which all or substantially all
of Tenant's business at the premises is transferred, provided such
merger or consolidation or transfer involves the transfer of Tenant as
an ongoing business entity;
(b) transactions with an entity which controls, is controlled by
or is under common control with Tenant; and
(c) the trading of Tenant's stock on a nationally recognized
Securities Exchange.
54. HOLDING OVER
If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this lease, such
holding over shall not be deemed to extend the term or renew this lease, but
such holding over thereafter shall continue upon the covenants and conditions
herein set forth except that the charge for use and occupancy of such holding
over for each calendar month or part thereof (even if such part shall be a small
fraction of a calendar month) shall be the sum of:
(a) 1/12 of the highest annual rent rate forth on page one of this lease,
times 2.0 plus
(b) 1/12 of the net increase, if any, in annual fixed rental due solely to
increases in the cost of the value of electric service furnished to
the premises in effect on the last day of the term of this lease, plus
(c) 1/12 of all other items of annual additional rental, which annual
additional rental would have been payable pursuant to this lease had
this lease not expired, plus
(d) those other items of additional rent (not annual additional rent)
which would have been payable monthly pursuant to this lease, had this
lease not expired,
which total sum Tenant agrees to pay to Landlord promptly upon demand, in full,
without set-off or deduction. Neither the billing nor the collection of use and
occupancy in the above amount shall be deemed a waiver of any right of Landlord
to collect damages for Tenant's failure to vacate the demised premises after the
expiration or sooner termination of this lease. The aforesaid provisions of
this Article shall survive the expiration or sooner termination of this lease.
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55. LIMITATION ON RENT
If at the commencement of, or at any time during the term of this lease,
the rent reserved in this lease is not fully collectible by reason of any
Federal, State, County or City law, proclamation, order or regulation, or
direction of a public officer or body pursuant to flaw, Tenant agrees to take
such steps as Landlord may request to permit Landlord to collect the maximum
rents which may be legally permissible from time to time during the continuance
of such legal rent restriction (but not in excess of the amounts reserved
therefor under this lease). Upon the termination of such legal rent
restriction, Tenant shall pay to Landlord, to the extent permitted by law, an
amount equal to (a) the rents which would have been paid pursuant to this lease
but for such legal rent restriction less (b) the rents paid by Tenant to
Landlord during the period such legal rent restriction was in effect.
56. BROKERAGE
Tenant warrants and represents to Landlord that it has had no dealings with
any broker or agent except Williams Real Estate Co. Inc. and the broker listed
below, if any, in connection with this lease and covenants and agrees to hold
harmless and indemnify Landlord and Williams Real Estate Co. Inc. from and
against any and all costs, expenses or liability for any compensation,
commissions, fees and charges claimed by any other broker or agent with respect
to this lease or the negotiation thereof. The obligation of Tenant contained in
this Article shall survive the expiration or earlier termination of this lease.
The provisions of Paragraph 56 of the Lease are deemed to be reciprocal between
Landlord and Tenant. Landlord shall pay any commission due Williams Real Estate
Co., Inc. pursuant to their separate written Agreement.
Other Broker: none.
57. GOVERNMENTAL REGULATIONS
If, at any time during the term of this lease, Landlord expends any sums
for alteratins or improvements to the building which are required to be made
pursuant to any law, ordinance or governmental regulation, or any portion of
such law, ordinance or governmental regulation, which is enacted and becomes
effective after the date hereof, Tenant shall pay to Landlord, as additional
rent, the same percentage of such cost as is set forth in the provision of this
lease which requires Tenant to pay increases in Real Estate Taxes within ten
(10) days after demand therefor. If, however, the cost of such alteration or
improvement is one which may be or is required to be amortized over a period of
time pursuant to applicable governmental regulations, Tenant shall pay to
Landlord, as additional rent, during each year in which occurs any part of this
lease term, the above-stated percentage of the reasonable annual amortization of
the cost of the alternation or improvement made. For the purposes of this
Article, the cost of any alternation or improvement made shall be deemed to
include the cost of preparing any necessary plans and the fees for filing such
plans.
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58. BASEMENT SPACE
If any basement or sub-basement space is included in the premises demised
hereunder, Tenant agrees that, notwithstanding anything to the contrary
contained in this lease, such basement or sub-basement space (i) shall not be
used for any purpose other than storage and (ii) shall not be sublet or used by
anyone other than Tenant without the prior written consent of Landlord, which
consent Landlord shall have the right to withhold for any reason whatever.
59. LANDLORD'S MANAGING AGENT
Tenant agrees that all of the representations, warranties, waivers and
indemnities made in this lease by Tenant for the benefit of Landlord shall also
be deemed to inure to and be for the benefit of Williams Real Estate Co. Inc.,
its officers, directors, employees, independent contractors, affiliates and
subsidiaries.
60. BUILDING DIRECTORY
At the written request of Tenant, Landlord shall list on the building's
directory the name of Tenant, any trade name under which Tenant has the right to
operate, any other entity permitted to occupy any portion of the demised
premises under the terms of this lease, and the officers and employees of each
of the foregoing entities, provided the number of named so listed does not
exceed the same percentage of the capacity of such directory as is set forth in
the provision of this lease which requires Tenant to pay increases in Real
Estate Taxes. If requested by Tenant, Landlord may (but shall not be required
to) list the name of Tenant's subsidiaries and affiliates; however, the listing
of any name other than that of Tenant shall neither grant such party or entity
any right or interest in this lease or in the demised premises nor constitute
Landlord's consent to any assignment or sublease to, or occupancy of the demised
premises by, such party or entity. Except for the name of Tenant, any such
listing may be terminated by Landlord, at any time, without notice. There shall
be no charge for Tenant's initial listings in the building directory at the
commencement of the Lease. Subsequent changes and/or additional listings shall
be paid by Tenant to Landlord based on Landlord's customary and reasonable
charges therefor.
61. INTEREST ON SECURITY
Landlord agrees to deposit the security referred to in the Article of this
lease captioned "Security" in an interest bearing account in a bank located in
New York State. To the extent not prohibited by law, Landlord shall be entitled
to receive and retain as an administrative expense that portion of the interest
received on such account which represents the maximum fee permitted under
applicable law, which fee Landlord shall have the right to withdraw from time to
time, as Landlord may determine. The balance of the interest shall be added to
and held as part of the security under this lease subject to and in accordance
with the provisions of the foregoing Article. Landlord shall not be required to
credit Tenant with any interest for any period during which Landlord does not
receive interest on the security deposited. Tenant shall receive any portion of
the interest on the security deposit to which it is entitled provided Tenant
requests same from Landlord in writing. Such request is limited to no more than
once in any calendar year.
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62. ADDITIONAL RENT
All payments other than the annual rental to be made by Tenant pursuant to
this lease shall be deemed additional rent and, in the event of any nonpayment
thereof, Landlord shall have all rights and remedies provided for herein or by
law for nonpayment of rent. Tenant shall have six (6) months from its receipt
of any additional rent statement to notify Landlord, by certified mail, return
receipt requested, that is disputes the correctness of such statement. After
the expiration of such six (6) month period, such statement shall be binding and
conclusive upon Tenant. If Tenant disputes the correctness of such statement,
Tenant shall, as a condition precedent to its right to contest such correctness,
make payment of the additional rent billed, without prejudice to its position.
If such dispute is finally determined in Tenant's favor, Landlord shall refund
to Tenant the amount overpaid (without interest).
63. SUBMISSION TO JURISDICTION, ETC.
This lease shall be deemed to have been made in New York County, New York,
and shall be construed in accordance with the laws of this State of New York.
All actions or proceedings relating, directly or indirectly, to this lease shall
be litigated only in courts located within the County of New York. Tenant, any
guarantor of the performance of its obligations hereunder ("Guarantor") and
their successors and assigns hereby subject themselves to the jurisdiction of
any state or federal court located within such county.
If (i) Landlord commences any action or proceeding against Tenant, or (ii)
Landlord is required to defend any action or proceeding commenced by Tenant, in
connection with this lease and such action or proceeding is disposed of, by
settlement, judgment or otherwise, favorably to Landlord, Landlord shall be
entitled to recover from Tenant in such action or proceeding, or a subsequently
commenced action or proceeding, Landlord's reasonable attorney's fees and
disbursements incurred in connection with such action or proceeding and all
prior and subsequent discussions and negotiations and correspondence relating
thereto.
If (i) Tenant commences any action or proceedings against Landlord, or (ii)
Tenant is required to defend any action or proceeding commenced by Landlord, in
connection with this Lease and such action or proceeding is disposed of, by
settlement, judgment or otherwise, favorable to Tenant, Tenant shall be entitled
to recover from Landlord in such action or proceeding, or a subsequently
commenced action or proceeding, Tenant's reasonable attorneys' fees and
disbursements incurred in connection with such action or proceeding and all
prior and subsequent discussions and negotiations and correspondence relating
thereto.
64. CONDITIONAL LIMITATION
If Tenant shall default in the payment of the rent reserved herein, or any
item of additional rent herein mentioned, or any part of either, during any
three months, whether or not consecutive, in any twelve (12) month period, and
(i) such default continued for more than ten (10) days after written notice of
such default by Landlord to Tenant, and (ii) Landlord, after the expiration of
such ten (10) day grace period, served upon Tenant petitions and notice of
petition
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to dispossess Tenant by summary proceedings in each such instance, then,
notwithstanding that such defaults may have been cured prior to the entry of a
judgment against Tenant, any further default in the payment of any money due
Landlord hereunder which shall continue for more than ten (10) days after
Landlord shall give a written notice of such default shall be deemed to be
deliberate and Landlord may thereafter serve written five (5) days' notice of
cancellation of this lease and the term hereunder shall end and expire as fully
and completely as if the expiration of such five (5) day period were the day
herein definitely fixed for the end and expiration of this lease and the term
thereof, and Tenant shall then quit and surrender the demised premises to
Landlord, but Tenant shall remain liable as elsewhere provided in this lease.
In addition, if Tenant shall have defaulted in the performance of the same
or a substantially similar covenant hereunder, other than a covenant for the
payment of rent or additional rent, three times during any consecutive twelve
(12) month period and Landlord, in each case, shall have given a default notice
in respect of such default, then, regardless of whether Tenant shall have cured
such defaults within any applicable grace period, if Tenant shall again default
in respect of the same or a substantially similar covenant hereunder within a
twelve (12) month period after Landlord gave the second such default notice,
Landlord, at its option, and without further notice to Tenant or opportunity for
Tenant to cure such default, may elect to cancel this lease by serving a written
five (5) days' notice of cancellation of this lease and the term hereunder shall
end and expire as fully and completely as if the expiration of such five (5) day
period were the day herein definitely fixed for the end and expiration of this
lease and the term hereof, and Tenant shall then quit and surrender the demised
premises to Landlord, but Tenant shall remain liable as elsewhere provided in
this lease.
65. EXCULPATION
If Tenant shall request Landlord's consent or approval and Landlord shall
fail or refuse to give such consent or approval, Tenant shall not be entitled to
any damages for any withholding by Landlord of its consent or approval, it being
agreed that Tenant's sole remedy shall be an action for specific performance or
an injunction, and that such remedy shall be available only in those cases where
Landlord has expressly agreed in writing not to unreasonably withhold its
consent or approval or where as a matter of law, Landlord may not unreasonably
withhold its consent or approval.
Tenant acknowledges and agrees that if Landlord shall be an individual,
joint venture, tenancy-in-common, firm or partnership, general or limited, there
shall be no personal liability on such individual or on the members of such
joint venture, tenancy-in-common, firm or partnership in respect of any of the
covenants or conditions of this lease. In addition, notwithstanding anything to
the contrary contained in this lease, it is agreed and understood that Tenant
shall look solely to the estate and property of Landlord in the Building for the
enforcement of any judgment (or other judicial decree) requiring the payment of
money by Landlord to Tenant by reason of any default or breach by Landlord in
the performance of its obligations under this lease, it being intended hereby
that no other assets of Landlord or its principals shall be subject to levy,
execution, attachment or other such legal process for the enforcement or
satisfaction of the remedies pursued by Tenant in the event of such default or
breach. If Landlord does not respond to any written request by Tenant for
Landlord's consent,
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permission or approval within the applicable period set forth in this Lease
after receipt of written notice by Tenant, it shall be deemed that Landlord has
consented or approved such request by Tenant or that Landlord has given its
permission thereto.
66. INSURANCE
Tenant shall obtain and keep in force, at its own expense, with respect to
the leased premises, a policy or policies of bodily injury and property damage
insurance with an insurance company or companies in a form reasonably
satisfactory to Landlord which shall be in the minimum amount of $2,000,000.00
million combined single limit per occurrence for bodily injury and property
damage. Such policy or policies shall include Landlord's interest with Landlord
named as an additional insured. Tenant shall deliver to Landlord such policy or
policies or certificates evidencing such coverage, together with a receipt
thereon evidencing payment of premium or other satisfactory proof thereof.
Landlord shall have the right to require Tenant to reasonably increase the
amount of coverage under such policy or policies. In the event of the Tenant's
failure to comply in any respect herein, the Landlord may cause same to be done
to the Tenant's account and the cost thereof, shall be deemed to be additional
rent. During the term hereby demised the Landlord shall insure the building of
which the demised premises are a part, and Tenant shall insure the demised
premises and its fixtures and contents for the full replacement value under an
"ALL RISK" type policy which shall include a waiver by the insurer of all right
of subrogation against Landlord or Tenant in connection with any loss or damage
thereby insured against. Neither party, nor its agents, employees or guest
shall be liable to the other for loss or damage caused by any risk covered by
such insurance. Each party shall deliver to the other satisfactory proof
evidencing such coverage throughout the term of this lease. If the release by
either Landlord or Tenant as herein set forth shall contravene any law with
respect to exculpatory agreements, the liability of the party in question shall
be deemed not released but secondary to the other's insurer.
67. DELETED
68. AIR CONDITIONING MAINTENANCE
Throughout the term of this lease Tenant shall at its own cost fan expense
(i) cause to be performed all maintenance of the air conditioning system,
equipment and facilities (hereinafter called the "A/C System"), if any, located
in or servicing the demised premises, including all repairs and replacements
thereto, and (ii) maintain in force and provide a copy of same to Landlord an
air conditioning service repair and full service maintenance contract in form
satisfactory to Landlord with an air conditioning contractor or servicing
organization approved by Landlord thirty (30) days after Tenant takes possession
of the demised premises for the conduct of Tenant's business. Any such contract
shall expressly state (i) that it shall be an automatically renewing contract
terminable by no less than thirty (30) days prior written notice to the
Landlord, and (ii) that the contractor providing such service shall maintain a
log at the demised premises detailing the service provided during each visit
pursuant to such contract. Tenant shall keep such log at the demised premises
and permit Landlord to review same promptly after Landlord's request. The
entire A/C System is and shall at all times remain the property of Landlord, and
at the expiration or sooner termination of this lease Tenant shall
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surrender to Landlord the entire A/C System in good working order and condition
Tenant shall not make any changes or additionals to the A/C System until Tenant
shall have received Landlord's written consent thereto. Should Tenant fail to
obtain the contract required herein, Landlord may do so and charge the Tenant
the monthly cost of same plus an administrative fee equal to fifteen percent
(15%) of such cost, as additional rent hereunder, and Tenant shall pay the first
installment of same by no later than the sooner to occur of (a) the tenth (10th)
day after Landlord bills Tenant for such charge, or (b) the date Tenant's next
installment of fixed rent is due. Thereafter, Tenant shall pay such monthly
charge with its monthly fixed rental installment.
69. ODORS, NOISE AND VIBRATIONS
Tenant shall not permit any unreasonable odors, noise or vibrations to
emanate from the demised premises. Tenant shall, within five (5) days after
written notice from Landlord, install at its cost and expense, control devices
or procedures to eliminate such odors, noise or vibrations (as the case or cases
may be) if any. In the event such condition is not remedied within said five
(5) day period, Landlord may, at its sole discretion, either (a) cure such
condition and thereafter add the cost and expense incurred by Landlord therefor
to the next monthly rental to become due and Tenant shall pay said amount, as
additional rent; or (b) treat such failure on the part of Tenant to eliminate
such odors, noise or vibrations (as the case or cases may be) as a material
default hereunder entitled Landlord to enforce any or all of the rights and
remedies provided for under the terms of this lease, including but not limited
to its termination. Landlord shall have the right to enter the demised premises
upon reasonable prior notice, during business hours, and accompanied by Tenant,
to inspect the same and ascertain whether they are clean and free of odors,
noise and vibration.
In the event Landlord requires Tenant to install such control devices or
procedures to eliminate such odors, noise or vibrations (as the case or cases
may be) the material, size and location of such installations shall be subject
to Landlord's prior written approval which approval shall not be unreasonably
withheld or delayed. Such work shall not be commenced until plans and
specifications therefor have been submitted to and approved by Landlord.
70. CERTAIN RENTAL PAYMENT PROVISIONS
Tenant agrees that annual rental shall be payable as provided in this lease
without prior notice or demand. All rental payable under this lease shall be
paid by check, subject to collection, drawn on a New York City branch of a
member of the New York Clearinghouse. If Tenant shall fail to pay any
installment of annual rental or any other additional rent payable under this
lease within ten (10) days after the same shall have become due and payable
hereunder, at Landlord's option such unpaid sums shall bear interest from the
due date(s) thereof until paid in full at a monthly rate of interest equal to
the lesser of (i) one-twelfth (1/12th) of the maximum annual rate of interest
permitted by law or (ii) one and one quarter (1-1/4) percent.
71. FUEL AND UTILITY COST PAYMENTS
A. For the purposes of this Article only, the following words and terms
shall have the following meanings:
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(i) "Fuel Cost" shall mean Landlord's cost for all fuel (including
but not limited to, oil, steam and coal) delivered to the
Building.
(ii) "Electric Cost" shall mean Landlord's cost for all electricity
used in lighting all the public and service areas, and in
operating all the common service facilities, of the Building.
Landlord and Tenant agree that if the public utility serving the
Building submits bills for periods ending on other than the last
day of a calendar month, the twelve (12) month period ending
closest to the last day of a calendar month shall be used for the
purposes of computing the Electric Cost. Since electric current
is supplied to tenants of the Building by the public utility
corporation servicing the Building, Landlord and Tenant agree
that the Electric Cost shall be deemed, for the purposes of this
Article, to constitute 100% of Landlord's total cost for
electricity consumed at the Building.
(iii) "Base Year" shall mean the calendar year 2000.
(iv) "Comparison Year" shall mean the twelve (12) month period
commencing on the first (1st) day of the calendar month
immediately following the end of the Base Year and each
successive twelve (12) month period in which occurs any part of
the term of this lease.
(v) "Tenant's Share" shall mean 8.333 %.
B. Tenant shall pay to Landlord, as additional rent, Tenant's share of the
Electric Cost, and if the Fuel Cost for any Comparison Year exceed the Fuel Cost
for the Base Year, Tenant shall pay to Landlord, as additional rent, Tenant's
Share of the excess. Such additional rents shall be due and payable within ten
(10) days after Landlord shall have furnished Tenant with the statement provided
for in Paragraph C of this Article. Tenant's obligations to pay the amount
herein provided for shall survive the expiration or earlier termination of this
lease. The amounts due and payable by Tenant for any partial Comparison Year
shall be appropriately prorated.
C. After the Base Year, Landlord shall furnish Tenant with a statement of
the Base Year Electric Cost and the Base Year Fuel Cost. Thereafter, Landlord
shall furnish to Tenant a statement of the Electric Cost and the Fuel Cost (the
"Utility Statement") for each Comparison Year and a computation of the amounts
payable by Tenant pursuant to Paragraphs B and D and E of this Article.
D. During the first Comparison Year, Tenant shall, on the first day of
each calendar month, pay to Landlord, on account of the amount due and payable
by Tenant pursuant to Paragraph B of this Article, one-twelfth (1/12th) of
Tenant's share of the total of (i) one hundred ten (110%) percent of the
Electric Cost and (ii) ten (10%) percent of the Base Year Fuel Cost. Such
payments shall be deferred until Landlord furnished Tenant with a statement of
the Base Year Electric Cost and the Base Year Fuel Cost, whereupon Tenant shall
pay promptly all
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deferred payments and commence such payments. During each succeeding Comparison
Year, Tenant shall pay to Landlord, on account of the amount due and payable by
Tenant pursuant to Paragraph B of this Article, one-twelfth (1/12th) of
Tenant's Share of the total of (i) one hundred ten (110%) percent of the
Electric Cost and (ii) ten (10%) percent of the Fuel Cost for the prior
Comparison Year. Notwithstanding the foregoing, until Landlord furnished Tenant
with the applicable Utility Statement for the preceding Comparison Year, Tenant
shall continue to pay to Landlord the amount of the monthly payment due and
payable pursuant to the Paragraph D during the last calendar month of the
preceding Comparison Year plus an additional ten (10%) percent of such amount.
E. If the payments made by Tenant pursuant to Paragraph D of this Article
for a Comparison Year exceed the amount payable to Landlord for such Comparison
Year pursuant to Paragraph B of this Article, such excess shall, at the option
of Landlord, either be paid to Tenant or be credited (without interest) against
the next ensuing payments provided for in said Paragraph D, except that if no
such payments shall be due or becoming due, such excess shall be paid (without
interest) by Landlord to Tenant. If the amount payable by Tenant for such
Comparison Year pursuant to Paragraph B of this Article exceeds the payments
made by Tenant pursuant to Paragraph D of this Article, Tenant shall pay the
difference within ten (10) days after Landlord furnishes Tenant with a Utility
Statement for such Comparison Year. "Tenant's share", as defined in Paragraph
71A(v) shall also mean the excess of "electric cost" over the "base year".
72. GUARD SERVICE
In the event Landlord now employs or hereafter employs a security guard or
guard service (hereinafter the "Guard") in the building, Tenant shall pay to
Landlord, as additional rent, in advance, together with each installment of the
annual rent provided for herein, a percentage of the cost of employing the
Guard, including, but not limited to, any employee benefits, social security
taxes and other expenses which are incurred by Landlord therefor, which
percentage shall be the same percentage as is now set forth in the provision of
this lease which provides for the payment by Tenant of increases in Real Estate
Taxes. Landlord reserves the right to (i) initially set the days and hours the
Guard is employed, (ii) to change, at will, such hours and days, and (iii) to
discontinue the employment of the Guard, all in its sole and absolute
discretion. The furnishing of the Guard by Landlord shall not be deemed to
impose any obligation on the part of the Landlord for the security of the
building, the demised premises or the contents of the demised premises, and
Tenant hereby unconditionally waives any rights or claims against Landlord and
Landlord's managing agent by reason of any acts or omissions of the Guard
employed.
73. THE ANNUAL RENTAL PAYABLE HEREUNDER SHALL BE:
(a) Two Hundred Sixty Six Thousand Two Hundred Fifty ($266,250.00) Dollars
per year from December 1, 1999 to and including November 30, 2000;
(b) Two Hundred Seventy Four Thousand Two Hundred Thirty Seven
($274,237.00) Dollars per year from December 1, 2000 to and including
November 30, 2001;
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(c) Two Hundred Eighty Two Thousand Four Hundred Sixty Four ($282,464.00)
Dollars per year from December 1, 2001 to and including November 30,
2002;
(d) Two Hundred Ninety Thousand Nine Hundred Thirty Seven ($290,937.00)
Dollars per year from December 1, 2002 to and including November 30,
2003;
(e) Two Hundred Ninety Nine Thousand Six Hundred Sixty Five ($299,665.00)
Dollars per year from December 1, 2003 to and including November 30,
2004;
(f) Three Hundred Thirty Eight Thousand Six Hundred Fifty Four
($338,654.00) Dollars per year from December 1, 2004 to and including
November 30, 2005;
(g) Three Hundred Forty Eight Thousand Eight Hundred Thirteen
($348,813.00) Dollars per year from December 1, 2005 to and including
November 30, 2006;
(h) Three Hundred Fifty Nine Thousand Two Hundred Seventy Seven
($359,277.00) Dollars per year from December 1, 2006 to and including
November 30, 2007;
(i) Three Hundred Seventy Thousand Fifty Five ($370,055.00) Dollars per
year from December 1, 2007 to and including November 30, 2008; and
(j) Three Hundred Eighty One Thousand One Hundred Fifty Six ($381,156.00)
Dollars per year from December 1, 2008 to and including May 31, 2010,
(the foregoing is referred to as the "rent" or "annual rental rate" herein).
74. ABATEMENT OF RENT
Anything herein to the contrary notwithstanding, and provided Tenant is not
then in default in any of the terms, covenants and conditions of this lease,
Fixed Rent payable hereunder for the months of December, 1999 to and including
March, 2000, or the first four (4) full calendar months following the
Commencement Date of this Lease, shall each abate by $22,187.50 per month; for
the month of December, 2000, or the first full calendar month of the Second
Lease Year shall abate by $22,853.09 per month, and for the month of December,
2001, or the first full calendar month of the Third Lease Year shall abate by
$23,538.67 per month.
75. SECURITY REFUND
If Tenant is not then in default under this lease after notice and the
expiration of any applicable cure period and it remains in effect with Landlord
holding the full amount of the security then required hereunder, the security
deposit set forth in Article 32 of this lease shall be: reduced by $44,695.00 on
December 1, 2001, and reduced by an additional $44,695.00 on December 1, 2004.
The aforesaid reductions shall be given in the form of an application of the
amount of the reduction of the security deposit to Tenant's rental obligations
thereafter coming due, with Landlord to retain the amount of the reduction and
to credit Tenant for the amount so retained.
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76. COMMENCEMENT/EXPIRATION DATE
Anything contained herein to the contrary notwithstanding, the terms of
this Lease shall commence on the date (the "Commencement Date") which shall be
the third business day after Landlord gives to Tenant notice that the work
required to be performed by Landlord under the Workletter attached hereto as
Exhibit "A" ("Landlord's Work") is substantially completed ("Substantial
Completion"), or the date on which Tenant (or its agent) enters, uses or
occupies any portion of the demised premises for the conduct of its business
operation, whichever occurs first. As soon as the Commencement Date and the
"Expiration Date" (defined below) are known, Landlord and Tenant shall execute a
memorandum confirming the same on demand, but any failure to execute such a
memorandum shall not affect any of those dates.
The term of this Lease (the "Term") shall expire, unless sooner terminated
as provided herein, on the date (the "Expiration Date") which is the last day of
the calendar month in which the tenth (10th) anniversary of the Commencement
Date occurs unless the Commencement Date is the first day of the calendar month,
in which event the Term shall expire on the day before such tenth (10th)
anniversary. If the Commencement Date is not the first day of a calendar month,
the first monthly installment of the fixed rent paid upon execution of this
Lease shall be prorated on the first day of the month which follows the
Commencement Date with Tenant to be credited for the portion of the previous
month which elapsed prior to the Commencement Date.
77. RIGHT OF FIRST OFFER
Landlord hereby grants to Tenant a right of first offer to lease any space
in the Building of a half floor or greater in area which may become available
for lease during the first eight (8) years of the Term of this Lease, upon the
following terms and conditions:
1. If, at any time prior to the expiration of the eighth year of the Term
of this Lease, any space in the Building constituting a half of a floor of area
or more shall become available for lease, the Landlord shall first offer to
lease such space to Tenant by written notice which shall include the rent and
other monetary terms upon which Landlord is willing to lease such space to
Tenant, including concessions or inducements, if any ("Landlord's Available
Space Notice").
2. Tenant may exercise its right to lease such space by written notice to
Landlord within ten (10) business days following Tenant's receipt of Landlord's
Available Space Notice.
3. If Tenant fails to timely exercise such right, Landlord shall be free
to lease such space to third parties, provided Landlord shall not lease such
space at a rent lower than or upon economic terms more favorable than the rent
and economic terms offered to Tenant.
4. If Tenant timely exercises such right, Landlord and Tenant shall enter
into an amendment of this lease incorporating the new space upon the agreed
terms within thirty (30) days following Tenant's exercising such right.
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5. For the purposes hereof, space shall be deemed "available for lease"
upon the expiration or earlier termination of any existing lease of space in the
Building or if such space is otherwise vacant and unencumbered by a lease;
provided that:
(a) Tenant's right shall not apply to space for which a lease is extended
or renewed with the existing Tenant of such space prior to Tenant receiving
Landlord's Available Space Notice; and
(b) Landlord may send Tenant an Available Space Notice up to (but not
earlier than) one (1) year prior to the date any such space will be available
and ready for occupancy. Landlord shall not be liable to Tenant for damages if
Tenant elects to lese available space and the existing Tenant holds over,
provided Landlord shall use reasonable and diligent efforts to deliver such
space to Tenant as soon as practicable.
6. The half floor area on the fourth (4th) floor which is currently vacant
shall be excluded from Tenant's right of first offer hereunder.
78. Landlord warrants and represents that the building electrical mechanical
and heating systems are in working order and condition on the date hereof and
the demised premises will be free of hazardous materials on the Commencement
Date.
79. Upon Tenant's receipt of a fully signed copy of this Lease Tenant is
permitted early access to the demised premises for the purpose of commencing its
initial Alteration Work. During said early access period Tenant shall not
interfere with the performance of Landlord's Work under the Workletter and this
Lease. Landlord may deny Tenant said early access to the demised premises r
deny continued early access if in Landlord's sole judgment access interferes
with Landlord's performance of its Work hereunder.
38
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Exhibit "A" (Workletter) annexed to and forming part of Lease dated
November 2, 1999 between ABNER PROPERTIES COMPANY, as Landlord, and ALLOY
ONLINE, INC., as Tenant, for 11th Floor, in the building known as 151 W. 26th
Street, New York, New York.
Provided the Tenant is not in default hereunder after notice and beyond any
applicable cure period, Landlord agrees, at its own cost and expense, to do the
following work within the demised premises in a good and workmanlike manner and
in compliance with applicable laws and building standard;
1. Install new hardwood flooring and apply one (1) coat of polyurethane
floor finish and one (1) coat of sealer.
2. Install new thermal pane windows throughout the demised premises.
3. Supply and install two (2) building standard twenty-five (25) ton air
conditioning units without duct-work in the location designated by Landlord.
Tenant to maintain in accordance with Article 68 of this Lease. All warranties
shall be assigned to Tenant if permitted by their terms.
4. Provide 400 Amps of electric power to the demised premises.
5. Provide four (4) (two male and two female) handicapped bathrooms
compliant with NY LL58 and ADA.
6. Owner will patch where necessary and paint the existing painted
surfaces of the entire demised premises with one (1) finish coat in Tenant's
choice of one (1) of Landlord's building standard latex color paints.
7. Owner to provide Tenant with an ACP 5 certificate.
8. Repair and/or replace all broken and/or missing window panes in
existing windows.
Any request by Tenant for Landlord to make any changes in or to the work
set forth above must be made in writing to Landlord who may consent to or reject
such requests. To the extent such changes result in additional costs or delay
the completion of Landlord's work, Tenant shall be responsible for such
additional costs and delay.
In addition, Tenant shall be liable for any material delays resulting from
Tenant's acts or omissions regarding the scheduling of Landlord's work or from
any other action of Tenant which otherwise impacts Landlord's ability to perform
such work and which are not cured within a reasonable time following Landlord's
request.
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Except as provided in this Workletter, Landlord shall be under no
obligation to make any other improvements or alterations in the demised premises
and Tenant agrees to accept the demised premises "as is" in its present
condition. Any work conditioned upon Tenants request is deemed waived unless
requested in writing more than six (6) months prior to expiration of the within
term.
LANDLORD:
Abner Properties Company
By: /s/ Jonathan P. Rosen
---------------------
Jonathan P. Rosen
General Partner
TENANT:
Alloy Online Inc.
By: /s/ Jim Johnson
---------------
Jim Johnson
President
40
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ACKNOWLEDGMENTS
CORPORATE TENANT
STATE OF NEW YORK,
COUNTY OF
On this day of , 19 , before me personally
came to me known, who being by me duly sworn, did
depose and say that he resides in and that he is the
of the corporation described in and which executed the foregoing
instrument, as TENANT: that he knows the seal of said corporation: that the seal
affixed to said instrument is such corporate seal: that it was so affixed by
order of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
INDIVIDUAL TENANT
STATE OF NEW YORK
COUNTY OF
On this day of , 19 , before me personally came
to me known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that executed
the same.
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND MADE A
PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others on the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and safeguards. If said premises are situated on the ground floor o the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
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3. No carpet, rug or other article shall be hung or shaken out of any window of
the building; and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the building
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the demised premises, or permit or suffer the demised
premises to be occupied or used in a manner offensive or objectionable to Owner
or other occupants of the buildings by reason of noise, odors, and or
vibrations, or interfere in any way, with other Tenants or those having business
therein, nor shall any animals or birds be kept in or about the building.
Smoking or carrying lighted cigars or cigarettes in the elevators of the
building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of the Owner.
5. No sign, advertisements, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises of the building or on the inside of the demised premises if an
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any violating this rule. Interior signs on doors
and directory tablet shall be inscribed, painted or affixed for each Tenant by
Owner at the expense of such Tenant, and shall be of a size, color and style
acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner to cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to an removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are part.
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9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootlicking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building between the hours of
6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at all hours
on Sundays and legal 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 same in writing. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Owner for all acts
of such persons. Notwithstanding the foregoing, Owner shall not be required to
allow Tenant or any person to enter or remain in the building, except 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.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, lends to impose the reputation of the building or its
desirability as a loft building, and upon written notice from Owner. Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought to kept in or on the demised
premises, any inflammable, combustible or explosive fluid, material, chemical or
substance, or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the demised
premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
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Exhibit 10.2
GUIDANCE
November 23, 1999
Celebrity Sightings, LLC
4134 Del Rey Avenue
Marina del Rey, CA 90292
Attention: Susanna Kim
President
This letter sets forth our understanding relating to the sublease of office
space to Celebrity Sightings LLC ("CS") by Guidance Solutions ("Guidance").
Currently, CS is subleasing from Guidance office space located at 4134 Del Rey
Avenue. Our intention is to complete the renovation and build out of additional
office space leased by Guidance located at 4086 Del Rey Avenue, and to provide
CS with office space at such new location at that time. Until the renovations
are complete, however, Guidance will continue to provide to CS office space and
facilities under the current terms. Upon completion of our new office space at
4086 Del Rey Avenue, we will sublease to CS approximately 2,000-3,000 square
feet of usable space at such new location for a term of at least one (1) year,
with options to renew this arrangement for additional terms. The rent for the
first year will be approximately $1.69 per square foot per month, including
facilities, maintenance, utilities, taxes and insurance fees. In order to
subsidize moving and build out costs, Guidance will pay to CS a subsidy in
amount to be mutually agreed. Rent for additional terms will be escalated in a
manner agreeable to both CS and Guidance. The foregoing matters, along with
other terms and conditions of our sub-lease arrangement to be finalized
(including, without limitation, square footage, improvements, parking
arrangements and renewal terms), will be subject to definitive documentation.
This letter agreement may not be assigned by CS except to a successor to all or
substantially all of its business or assets.
If the foregoing is acceptable, please cause an authorized officer to sign this
letter as provided below.
GUIDANCE SOLUTIONS, INC.
By: /s/ Joe Tang
-----------------------------
Name: Joe Tang
Title: President
Accepted and agreed:
CELEBRITY SIGHTINGS, LLC
By: /s/ Susanna Kim
-----------------------------
Name: Susanna Kim
Title: President
<PAGE>
Exhibit 10.3
-----------------------------------------------
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York
-----------------------------------------------
Agreement of Lease, made this 8th day of May 1996, between
IRVING REALTY CO, with offices at: 39 Gramercy Park N.
New York, NY 10010
party of the first part, hereinafter referred to as LANDLORD, and
DANIEL WEISS ASSOCIATES, INC. with offices at: 33 West 17th Street, 11/th/ Floor
New York, NY 10011
Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord
The entire ELEVENTH (11th) Floor, (The "demised premises")
in the building known as 33 West 17th Street, NY, NY 10011 (the "building")
in the borough of Manhattan, City of New York, for the term of Seven (7) years
(the "term")
(or until such term shall sooner cease and expire as hereinafter
provided), to commence on the 1st day of June nineteen hundred and ninety six,
and to end on the 31st day of May Two thousand and three, both dates inclusive,
at an annual rental rate of __________: See attached Rider A, Article Thirty-
Eight (#38)
which Tenant agrees to pay in lawful money of the United which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, in equal monthly installments in advance on the first day of each month
during said term, at the office of Landlord or such other place as Landlord may
designate, without any set or deduction whatsoever, except that Tenant shall pay
the first (____)monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Landlord
pursuant to the terms of another lease with Landlord or with Landlord's
predecessor in interest, Landlord may at Landlord's option and without notice to
Tenant sold the amount of such arrearages to any monthly installment of rent
payable hereunder and the same shall be payable to Landlord as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent:
1. Tenant shall pay the rent as above and as hereinafter provided.
<PAGE>
Occupancy:
2. Tenant shall use and occupy demised premises for general offices
use in connection with publishing business and for no other purpose.
Alterations:
3. Tenant shall make no changes in or to the described premises of
any nature without Landlord's prior written consent. Subject to the prior
written consent of Landlord, and to the provisions of this article, Tenant at
Tenant's expense, may make alterations, installations, additions or improvements
which are nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanic first approved by Landlord. All fixtures and all
paneling, partitions, railings and like installations, installed in the premises
at any time, either by Tenant or by Landlord on Tenant's behalf, shall, upon
installation, become the property of Landlord and shall remain upon and be
surrendered with the demised premises unless Landlord, by notice in Tenant no
later than twenty days prior to the date fixed as the termination of this lease,
offers to relinquish Landlord's right thereto and to have them removed by
Tenant, in which event, the same shall be removed from the premises by Tenant
prior to the expiration of the lease at Tenant's expense. Nothing in this
article shall be construed to give Landlord title to or to prevent Tenant's
removal of trade fixtures, removable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Landlord, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building caused in such
removal. All property permitted or required to be removed by Tenant at the end
of the term remaining in the premises after Tenant's removal shall be deemed
abandoned and may, at the election of Landlord, either be retained as
Landlord's property or may be removed from the premises by Landlord at Tenant's
expense. Tenant shall, before making any alterations, additions, installations
or improvements, at its expense, obtain all permits, approvals and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Landlord and Tenant agrees to
carry and will cause Tenant's contractors and sub-contractors to carry such
workman's compensation, general liability, personal and property damage
insurance as Landlord may require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant., whether or
not done pursuant to this article, the same shall be discharged by Tenant within
ten days thereafter, at Tenant's expense, by filing the bond required by law.
Repair:
4. Landlord shall maintain and repair the public portions of the
building, both exterior and interior. Tenant shall, throughout the term of this
lease, take good care of the demised premises and the fixtures and appurtenances
therein and at Tenant's sole cost and expense, make all nonstructural repairs
thereto as and when needed to preserve them in good working order and condition,
reasonable wear and tear, obsolescence and damage from the
<PAGE>
elements, fire or other casualty, excepted. Notwithstanding the foregoing, all
damages or injury to the demised premises or to any other part of the building,
or to is fixtures, equipment and appurtenances, whether requiring structural or
nonstructural repairs, caused by or resulting from carelessness, omission,
neglect or improper conduct of Tenant, Tenant's servants, employees, invitees or
licensees, shall be repaired promptly by Tenant at its sole cost and expense, to
the satisfaction of Landlord reasonably exercised. Tenant shall also repair all
damage to the building a nd the demised premises caused by the moving of
Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of
quality or class equal in the original work or construction. If Tenant fails
after ten days notice to proceed with due diligence to make repairs required to
be made by Tenant, the same may be made by the Landlord at the expense of Tenant
and the expenses thereof incurred by Landlord shall be collectible as additional
rent after rendition of a bill or statement therefor. If the demised premises be
or becomes infested with vermin, Tenant shall at Tenant's expense, cause the
same to be exterminated from time to time to the satisfaction of Landlord.
Tenant shall give Landlord prompt notice of any defective condition in any
plumbing, heating system or electrical lines located in, servicing or passing
through the demised premises and following such notice, Landlord shall remedy
the condition with due diligence but at the expense of Tenant, if repairs are
necessitated by damage or injury attributable to Tenant, Tenant's servants,
agents, employees, invitees or licensees as aforesaid. Except as specifically
provided in Article 9 or elsewhere in the lease, there shall be no allowance to
the Tenant for a diminution of rental value and no liability on the part of
Landlord by reason of inconvenience, annoyance or injury to business arising
from Landlord, Tenant or others making or failing to make any repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. The provisions of this Article 4 with respect to the making of repairs
shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the New York State Labor law or any other applicable law or of
the Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire Underwriters
or any similar body which shall impose any violation, order or duty upon
Landlord or Tenant with respect to the demised premises whether or not arising
out of Tenant's use or manner of use thereof, or with respect to the building or
arising out of Tenant's use or manner of use of the premises or the building
(including the use permitted under the law). Except as provided in Article 9
hereof, nothing herein shall require Tenants to make structural repairs or
<PAGE>
alterations unless Tenant has by its manner of use of the demised premises or
method of operation herein, violated any such laws, ordinances, orders, rules
regulations or requirements with respect thereto. Tenant may, after insuring
Landlord to Landlord's satisfaction against all damages, interest, penalties and
expenses, including, but not limited to, reasonable attorney's fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to
Landlord, contest and appeal any such laws, ordinances, orders, rules
regulations or requirements provided same is done with all reasonable promptness
and provided such appeal shall not subject Landlord to prosecution for a
criminal offense or constitute a default under any lease or mortgage under which
Landlord may be obligated, or cause the demised premises or any part thereof to
be condemned or vacated, Tenant shall not do or permit any act or thing to be
done in or to the demised premises which is contrary to law, or which will
invalidate or be in conflict with public liability, fire or other policies or
insurance at any time carried by or for the benefit of Landlord with respect to
the demised premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Landlord with respect to the demised premises
or the building of which the demised premises form a part, or which shall or
might subject Landlord to any liability or responsibility in any person or for
property damage, nor shall Tenant keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable in the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties or
damages, which may be imposed upon Landlord by reason of Tenant's failure to
comply with the provisions of this article and if by reason of such failure the
fire insurance rate shall, at the beginning o this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Landlord, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Landlord which shall have been charged because of
such failure by Tenant, and shall make such reimbursement upon the first day of
the month following such outlay by Landlord. In any action or proceeding
wherein Landlord and Tenant are parties a schedule or "make-up" of rate for the
building or demised premises issued by the New York Fire Insurance Exchange, or
other body making fire insurance rates applicable to said premises shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rate then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and
position of all sofas, business machines and mechanical equipment. Such
installation shall be placed and maintained by Tenant, at Tenant's expense, in
settings sufficient in Landlord's judgment, to absorb and prevent vibration,
noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and
<PAGE>
no further instrument of subordination shall be required by any ground or
underlying lessee or by any mortgage, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Landlord may request.
Property - Loss, Damage, Reimbursement, Indemnity:
8. Landlord or its agents shall not be liable for any damages to property
of Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees; nor shall Landlord or its agents be liable for any such damage caused
by other tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi public work. If at
any time any windows of the demised premises are temporarily closed, darkened or
bricked up (or permanently closed, darkened or bricked up, if required by law)
for any reason whatsoever including, but not limited to Landlord's own acts,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall not move any safe, heavy
machinery, heavy equipment, bulky matter, or fixtures into or out of the
building without Landlord's prior written consent. If such safe, machinery,
equipment, bulky matter or fixtures requires special handling, all work in
connection therewith shall comply with the Administrative Code of the City of
New York and all other laws and regulations applicable thereto and shall be done
during such hours as Landlord may designate. Tenant shall indemnify and save
harmless Landlord against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Landlord shall not be reimbursed
by insurance, including reasonable attorneys fees, paid, suffered or incurred as
a result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licenses, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensees. Tenant's liability under this lease
extends to the acts and omissions of any subtenant, and any agent, contractor,
employee, invitee or licensee of any sub-tenant. In case any action or
proceeding is brought against Landlord by reason of any such claim, Tenant, upon
written notice from Landlord, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Landlord in writing, such approval
not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate notice thereof to
Landlord and this lease shall continue in full force and effect except as
hereinafter set forth. (b) If the demised premises are partially damaged or
rendered partially unusable by fire or other casualty, the damages thereto shall
be repaired by and at the expense of Landlord and the rent, until such repair
shall be substantially completed, shall be apportioned from the day following
the casualty according to
<PAGE>
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Landlord, subject to Landlord's right to elect not to
restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Landlord shall decide
to demolish it or to rebuild it, then, in any of such events, Landlord may elect
to terminate this lease by written notice to Tenant given within 90 days after
such fire or casualty specifying a date for the expiration of the lease, which
date shall not be more than 60 days after the giving of such notice, and upon,
the date specified in such notice the term of this lease shall expire as fully
and completely as if such date were the date set forth above for the termination
of this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be returned to
Tenant. Unless Landlord shall serve a termination notice as provided for herein,
Landlord shall make the repairs and restorations under the conditions of (b) and
(c) hereof, with all reasonable expedition subject to delays due to adjustment
of insurance claims, labor troubles and causes beyond Landlord's control. After
any such casualty, Tenant shall cooperate with Landlord's restoration by
removing from the premises as promptly as reasonably possible, all of Tenant's
salvageable inventory and movable equipment, furniture, and other property.
Tenant's liability for rent shall resume five (5) days after written notice from
Landlord that the premises are substantially ready for Tenant's occupancy. (e)
Nothing contained hereinabove shall relieve Tenant from liability that may exist
as a result of damage from fire or other casualty. Notwithstanding the
foregoing, each party shall look first to any insurance in its favor before
making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty, and to the extent that such insurance is
in force and collectible and to the extent permitted by law, Landlord and Tenant
each hereby releases and waives all right of recovery against the other or any
one claiming through or under each of them by way of subrogation or otherwise.
The foregoing release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or waiver
shall not invalidate the insurance and also, provided that such a policy can be
obtained without additional premiums. Tenant acknowledges that Landlord will not
carry insurance on Tenant's furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances removable by Tenant and agrees that
Landlord will not be obligated to repair any damage thereto or replace the name.
(f) Tenant hereby waives the provisions of Section 227 of the Real Property Law
and agrees that the provisions of this article shall govern and control in lieu
thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease.
<PAGE>
Assignment, Mortgages, Etc.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Landlord in each instance.
If this lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, under tenant or occupant, and apply
the net amount collected to the rent herein reserved, but no such assignment,
underletting occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, under tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Landlord to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
underletting.
Electric Current:
12. Rates and conditions in respect to submetering or rent inclusing,
as the case may be, to be added in RIDER attached hereto. Tenant covenatns and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in
Landlord's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric servie shall in no wise make Landlord
liable or responsible to Tenant, for any loss, damages or expenses which Tenant
may sustain.
Access to Premises:
13. Landlord or Landlord's agent shall have the right (but shall not
be obligated) to enter the demised premises in any emergency at any time, and,
at other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Landlord may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Landlord may elect to perform following Tenant's failure to make repairs
or perform any work which Tenant is obligated to perform under this lease, or
for the purpose of complying with laws, regulations and other directions of
governmental authorities. Tenant shall permit Landlord to use and maintain and
replace pipes and conduits in and through the demised premises and to erect new
pipes and conduits therein. Landlord may, during the progress of any work in
the demised premises, take all necessary materials and equipment into said
premises without the same constituting an eviction nor shall the Tenant be
entitled to any abatement or rent while such work is in progress nor to any
damages by reason of loss or interruption of business or otherwise. Throughout
the term hereof Landlord shall have the right to enter the demised premises at
reasonable hours for the purpose of showing the same to prospective purchasers
or mortgagees of the building, and during the last six months of the term for
the purpose of showing the same to prospective tenants and may, during said six
month period, place upon the premises usual notices "To Let" and "For Sale"
which notices to Tenant shall permit to
<PAGE>
remain thereon without molestation. If Tenant is not present to open and permit
an entry into the premises, Landlord or Landlord's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property and
such entry shall not render Landlord or its agents liable therefor, not in any
event shall the obligations of Tenant hereunder be affected. If during the last
month of the term Tenant shall have removed all or substantially all of Tenant's
property therefrom, Landlord may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant therefor to change the arrangement and/or location
of public entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets, or other public parts of the building and to change the name, number or
designation by which the building may be known.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Landlord
makes no representation as to the location of the property line of the building.
All vaults and vault space and all such areas not within the property line of
the building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility. Landlord shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Landlord's work, if
any. In any event, Landlord makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations whether or
not of record.
Bankruptcy:
16. (a) If at the date fixed as the commencement of the term of this
lease or if at any time during the term hereby demised there shall be filed by
or against Tenant in any court pursuant to any statute either of the United
States or of any state, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, and within 60 days thereof, Tenant fails to secure
a dismissal thereof, or if Tenant make an assignment for the benefit of
creditors or petition for or enter into an arrangement, this lease, at the
option of Landlord, exercised within a reasonable time after notice of the
happening of any one or more of such events, may be cancelled and terminated by
written
<PAGE>
notice to the Tenant (but if any of such events occur prior to the commencement
date, this lease shall be ipso facto cancelled and terminated) and whether such
cancellation and termination occur prior to or during the term, neither Tenant
nor any person claiming through or under Tenant by virtue of any statute or of
any order of any court, shall be entitled to possession or to remain in
possession of the premises demised but shall forthwith quit and surrender the
premises, and Landlord, in addition to the other rights and remedies Landlord
has by virtue of any other provision herein or elsewhere in this lease contained
or by virtue of any statute or rule of law, may retain as liquidated damages,
any rent, security deposit or moneys received by him from Tenant or others in
behalf of Tenant. If this lease shall be assigned in accordance with its terms,
the provisions of his Article 16 shall be applicable only to the party then
owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder of r the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Landlord for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Landlord to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or if
the demised premises become vacant or deserted; or if the demised premises are
damaged by reason of negligence or carelessness of Tenant, its agents, employees
or invitees; or if any execution or attachment shall be issued against Tenant or
any of Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if Tenant shall make default with
respect to any other lease between Landlord and Tenant; or if Tenant shall fail
to move into or take possession of the premises within fifteen (15) days after
the commencement of the term of this lease, of which fact Landlord shall be the
sole judge; then, in any one or more of such events, upon Landlord serving a
written five (5) days notice upon Tenant specifying the nature of said default
and upon the expiration of said five (5) days, if Tenant shall have failed to
comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured or
remedied within said five (5) day period, and if Tenant
<PAGE>
shall not have diligently commenced curing such default within such five (5) day
period, and shall not thereafter with reasonable diligence and in good faith
proceed to remedy or cure such default, then Landlord may serve a written three
(3) days' notice of cancellation of this lease upon Tenant, and upon the
expiration of said three (3) days, this lease and the term thereof such three
(3) day period were the day herein definitely fixed for the end and expiration
of this lease and the term thereof and Tenant shall then quit and surrender the
demised premises to Landlord but Tenant shall remain liable as hereinafter
provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional payment herein
required; then and in any of such events Landlord may without notice, re-enter
the demised premises either by force or otherwise, and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the
premises as if this lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings to
that end. If Tenant shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease, Landlord may cancel and
terminate such renewal or extension agreement by written notice.
Remedies of Landlord and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration, together
with such expenses as Landlord may incur for legal expenses, attorneys' fees,
brokerages, and/or putting the demised premises in good order, or for preparing
the same for re-rental; (b) Landlord may re-let the premises or any part or
parts thereof, either in the name of Landlord or otherwise, for a term or terms
,which may at Landlord's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in this lease,
and/or (c) Tenant or the legal representatives of Tenant shall also pay Landlord
as liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount if any, of the rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. The failure of Landlord to re-let the premises or any part
or parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Landlord may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Landlord
to collect the deficiency for any subsequent month by a similar proceeding
Landlord. In putting the demised premises in good order or preparing the same
for re-rental may, at Landlord's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Landlord, in
Landlord's sole judgment, considers advisable and necessary for the purpose of
re-letting the demised premises,
<PAGE>
and the making of such alterations, repairs, replacements, and/or decorations
shall not operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such re-
letting, and in no event shall Tenant be entitled to receive any excess, if any,
of such net rents collected over the sums payable by tenant to Landlord
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenant or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this lease of any particular remedy, shall not preclude Landlord from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the event of Landlord
obtaining possession of demised premises, by reason of the violation by Tenant
of any of the covenants and conditions of this lease, or otherwise.
Fees and Expenses:
19. If tenant shall default in the observance or performance of any term
or covenant on tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, landlord may immediately or at any
time thereafter and without notice perform the obligation of tenant thereunder,
and if landlord, in connection therewith or in connection with any default by
tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited attorney's
fees, in instituting, prosecuting or defending any action or proceeding, such
sums so paid or obligations incurred with interest and costs shall be deemed to
be additional rent hereunder and shall be paid by tenant to landlord within five
(5) days of rendition of any bill or statement to tenant therefor, and if
tenant's lese term shall have expired at the time of making such expenditures or
incurring of such obligations, such sums shall be recoverable by landlord as
damages.
No Representations by Landlord:
20. Neither Landlord nor Landlord's agents have made any representations
or promises with respect to the physical condition of the building, the land
upon which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition, and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Landlord and tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect and abandonment of
it in while or in part, unless such executory agreement is in writing
<PAGE>
and signed by the party against whom enforcement of the change, modification,
discharge or abandonment is sought.
End of Term:
21. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear expected, and Tenant shall
remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If
the last day of the term of this lease or any renewal thereof, falls on Sunday,
this lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
Outlet Employment:
22. Landlord covenants and agrees with Tenant that upon Tenant paying
the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 33 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
Failure to Give Possession:
23. If Landlord is unable to give possession of the demised premises
on the date of the commencement of the term thereof, because of the holding-over
or retention of possession of any tenant, undertenant or occupants, or if the
premises are located in a building being constructed, because such building has
not been sufficiently completed to make the premises ready for occupancy or
because of the fact that a certificate of occupancy has not been procured or for
any other reason, Landlord shall not be subject to any liability for failure to
give possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for the inability to obtain possession) until after
Landlord shall have given Tenant written notice that the premises are
substantially ready for Tenant's occupancy. If permission is given to Tenant to
enter into the possession of the demised premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of the
term of this lease. Tenant covenants and agrees that such occupancy shall be
deemed to be under all the terms, covenants, conditions and provisions of this
lease, except as to the covenant to pay rent. The provisions of this article
are intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
No Waiver:
24. The failure of the Landlord to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this lease
or of any of the Rules or
<PAGE>
Regulations set forth or hereafter adopted by Landlord, shall not prevent a
subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Landlord of
rent with knowledge of the breach of any covenant of this lease shall not be
deemed a waiver of such breach and no provision of this lease shall be deemed to
have been waived by Landlord unless such waiver be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to remedy in this lease provided. No act or thing done by Landlord or
Landlord's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises and no agreement to accept such surrender shall
be valid unless in writing signed by Landlord. No employee of Landlord or
Landlord's agent shall have any power to accept the keys of said premises prior
to the termination of the lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises.
Waiver of Trial by Jury:
25. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damages) on any matter
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the premises Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding.
Inability to Perform:
26. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to makes, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing by reason of strike
or labor troubles or any cause whatsoever including, but not limited to,
government preemption in connection with a National Emergency or by reason of an
rule, order or regulation of any department of subdivision thereof of any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency.
Bills and Notices:
27. Except as otherwise in this lease provided, a bill, statement,
notice or communication which Landlord may desire or be require to give to
Tenant, shall be deemed sufficiently given or rendered if, in writing, delivered
to Tenant personally or sent by registered
<PAGE>
or certified mail addressed to Tenant at the building of which the demised
premises form a part or at the last known residence address or business address
of Tenant or left at any of the aforesaid premises addressed to Tenant, and the
time of the rendition of Tenant, mailed or left at the premises as herein
provided. Any notice by Tenant to Landlord must be served by registered or
certified mail address to Landlord at the address first hereinabove given or at
such other address as Landlord shall designate by written notice.
Water Charges:
28. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary lavatory purposes (of which fact Tenant constitutes
Landlord to be the sole judge) Landlord may install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant shall pay Landlord
for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost and
expense in default of which Landlord may cause such meter and equipment to be
replaced or repaired and collect the same from Tenant. Tenant covenants and
agrees to pay the sewer rent. If the building or the demised premises or any
part thereof be supplied with water through a meter through which water is also
supplied to other premises Tenant shall pay to Landlord as additional rent, on
the first day of each month, _____% ($75.00) of the total meter charges, as
Tenant's portion. Independently of and in addition to any of the remedies
reserved to Landlord hereinabove or elsewhere in this lease, Landlord may sue
for and collect any monies to be paid by Tenant or paid by Landlord for any of
the reasons or purposes hereinabove set forth.
Sprinklers:
29. Anything elsewhere in this lease to the contrary not-writers or
the New York Fire Insurance Exchange or any bureau, department or official of
the federal, state or city government require or recommend the installation of a
sprinkler system or that any changes, modifications, alterations, or additional
sprinkler heads or other equipment be made or supplied in an existing sprinkler
system by reason of Tenant's business, or the location of partitions, trade
fixtures, or other contents of the demised premises, or for any other reason, or
if any such sprinkler system installations, changes, modifications, alterations,
additional sprinkler heads or other such equipment, become necessary to prevent
the imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company. Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations and supply
additional sprinkler heads or other equipment as required whether the work
involved shall be structural or non- structural in nature. Tenant shall pay to
Landlord as additional rent the sum of $75.00 on the first day of each month
during the term of this lease, and Tenant's portion of the contract price for
sprinkler supervisory service.
Elevators, Heat, Cleaning:
30. As long as Tenant is not in default under any of the convenants
of this lease Landlord shall: (c) at Landlord's expense cause to be kept clean
the public halls and public
<PAGE>
portions of the building, which are used in common by all tenants. Tenant shall
at Tenant's expense, keep the demised premises clean and in order, to the
satisfaction of Landlord and for that purpose shall employ the person or
persons, or corporation approved by Landlord. Tenant shall pay to Landlord the
cost of removal of any of Tenant's refuse and rubbish from the building. Bills
for the same shall be rendered by Landlord to Tenant at such time as Landlord
may elect and shall be due and payable when rendered, and the amount of such
bills shall be deemed to be, and be paid as, additional rent. Tenant shall,
however, have the option of independently contracting for the removal of such
rubbish and refuse in the event that Tenant does not wish to have same done by
employees of Landlord. Under such circumstances, however, the removal of such
refuse and rubbish by others shall be subject to such rules and regulations as,
in the judgment of Landlord, are necessary for the proper operation of the
building. Landlord reserves the right to stop service of the heating, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements in the
judgment of Landlord desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. And
Landlord shall have no responsibility or liability for failure to supply heat,
elevator, plumbing and electric service during said period or when prevented
from so doing by strikes, accidents or by any cause beyond Landlord's control,
or by laws, orders or regulations of any Federal, State or Municipal Authority,
or failure or coal, oil or other suitable fuel supply, or inability by exercise
of reasonable diligence to obtain coal, oil or other suitable fuel. If the
building of which the demised premises are a part supplies manually operated
elevator service. Landlord may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder, provided that
the same shall be done with the minimum amount of inconvenience to Tenant and
Landlord pursues with due diligence the completion of the alterations.
Security:
31. Tenant has deposited with Landlord the sum of $12,000.00 as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease: it is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the reletting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Landlord. In the event that Tenant shall fully and faithfully
comply with all of the terms, provisions, covenants and conditions of this
lease, the security shall be returned to Tenant after the date fixed as the end
of the Lease and after delivery of entire possession of the demised premises to
Landlord. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part, Landlord shall have the
right to transfer the security to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
security, and Tenant agrees to look to the new Landlord solely for the return of
said security, and it is agreed that the provisions hereof shall apply to every
transfer or
<PAGE>
assignment made of the security to a new Landlord. Tenant further covenants that
it will not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and that neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
Captions:
32. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions:
33. The term "Landlord" as used in this lease means only the owner,
or the mortgagee in possession, for the time being of the land and building (or
the owner of a lease of the building or of the land and building) of which the
demised premises form a part, so that in the event of any sale or sales of said
land and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Landlord shall be and hereby is entirely
freed and relieved of all covenants and obligations of Landlord hereunder, and
it shall be deemed an construed without further agreement between the parties or
their successors in interest, or between the parties and the purchaser, at any
such sale, or the said lessee of the building, or of the land and building, that
the purchaser or the lessee of the building, or of the land and building, that
the purchaser or the lessee of the building has assumed and agreed to carry out
any and all covenants and obligations of Landlord hereunder. The words "re-
enter" and "re-entry" as used in this lease are not restricted to their
technical legal meaning. The term "business days" as used in this lease shall
exclude Saturdays (except) such portio nthereof as is covered by specific hours
in Article 30 hereof). Sundays and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
Adjacent Excavation - Shoring:
34. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Landlord, or diminution or abatement
of rent.
Rules and Regulations:
35. Tenant and Tenant's servants, employees, agents, visitors, and
licensee shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time to adopt. Notice of any
additional rules or regulations shall be given in such manner as
<PAGE>
Landlord may elect. In case Tenant disputes the reasonableness of any additional
Rule or Regulation hereafter made or adopted by Landlord or Landlord's agents,
the parties hereto agree to submit the question of the reasonableness of such
Rule or Regulation for decision to the New York office of the American
Arbitration Association, whose determination shall be final and conclusive upon
the parties hereto. The right to dispute the reasonableness of any additional
Rule or Regulation upon Tenant's part shall be deemed waived unless the same
shall be asserted by service of a notice, in writhing upon Landlord within ten
(10) days after the giving of notice thereof. Nothing in this lease contained
shall be construed to impose upon Landlord any duty or obligation to enforce the
Rules and Regulations or terms, covenants or conditions in any other lease, as
against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees.
Glass:
36. Landlord shall replace, at the expense of Tenant, any and all
plate and other glass damaged or broken from any cause whatsoever in and about
the demised premises, Landlord may insure and keep insured, at Tenant's expense,
all plate and other glass in the demised premises for and in the name of the
Landlord. Bills for the premiums therefore shall be rendered by Landlord to
Tenant at such times as Landlord may elect, and shall be due from, and payable
by, Tenant when rendered, and the amount thereof shall be deemed to be, and be
paid as, additional rent.
Successors and Assigns:
37. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Landlord and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns.
Articles # 38 through # 50 of this Lease are set
forth in Rider A to this Lease and are
incorporated herein by reference and made a part
hereof.
<PAGE>
In Witness Whereof, Landlord and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
LANDLORD:
Witness for Landlord: /s/ Norman Kurlan
_____________________________
By: Norman Kurlan
Irving Realty Co.
____________________________
TENANT:
Daniel Weiss Associates
Witness for Tenant: /s/ Daniel Weiss
--------------------------------
By: Daniel Weiss, President
/s/ Les Morgenstein
---------------------------------
By: Les Morgenstein
____________________________
Tenant taxpayer ID # 13 -
------
Tenant Attorney: Name:
Address:
Telephone:
Fax #:
<PAGE>
ACKNOWLEDGMENTS
CORPORATE LANDLORD
STATE OF NEW YORK ) ss.:
County of )
On this _____ date of ___________, 19__, before me personality came
________________, to me known, who being by me duly sworn, did depose and say
that he resides in ______________; that he is the ___________ of
____________________ the corporation described in and which executed the
foregoing instrument, as LANDLORD, that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
INDIVIDUAL LANDLORD
STATE OF NEW YORK ) ss.
County of )
On this _____ date of ___________, 19__, before me personality came
________________, to me known, and known to me to be the individual described in
and who, as LANDLORD, executed the foregoing instrument and acknowledged to me
that he executed the name,
CORPORATE TENANT
STATE OF NEW YORK ) ss.:
County of )
On this _____ date of ___________, 19__, before me personality came
________________, to me known, who being by me duly sworn, did depose and say
that he resides in ______________; that he is the ___________ of
____________________ the corporation described in and which executed the
foregoing instrument, as TENANT, that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that he
signed his name thereto by like order.
INDIVIDUAL TENANT
STATE OF NEW YORK ) ss.:
County of )
On this _____ date of ___________, 19__, before me personality came
________________, to me known, and known to me to be the individual described in
and who, as TENANT, executed the foregoing instrument and acknowledged to me
that he executed the name,
<PAGE>
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 35.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress in and egress from
the demised premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Landlord. There shall not be used in any space or in the public
hall of the building, either by any Tenant or by jobbers or others in the
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires and sideguards. If said premises are situate on the ground floor
of the building Tenant hereof shall further, at Tenant's expense, keep the
sidewalks and curb in front of said premises clean and free from ice, snow, dirt
and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from the
violation of the rule shall be borne by the tenant who, or whose clerks, agents,
employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the buildings; and no Tenant shall sweep or throw or permit to be
swept or thrown from the demised premises any dirt or other substances into any
of the corridors or halls, elevators, or out of the doors or windows or
stairways of the building, and Tenant shall not use, keep or permit to be used
or kept any foul or noxious gas or substance in the demised premises, or permit
or suffer the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the building by reason of noise,
odors and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside
walks of the building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other letterbox shall be
exhibited, inscribed, pointed or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the demised
premises if the same is visible from the outside of the premises without be
prior written consent of Landlord, except that the name of Tenant may appear on
the entrance door of the remises. In the event of the violation of the
foregoing by any Tenant, Landlord may remove same without any liability, and may
charge the expense incurred by such removal to Tenant or Tenants violating this
rule. Interior signs on doors and directory
<PAGE>
tablet should be inscribed, painted or affixed for each Tenant by Landlord at
the expense of such Tenant and shall be of size, color and style acceptable to
Landlord.
6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Landlord, and as Landlord may direct. No Tenant shall lay
linoleum, or other similar floor covering, so that the same shall come to direct
contact with the floor of the demised premises, and, if linoleum or other
similar floor covering is desired to be used an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use or cement or other similar adhesive material
being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys, no furnished, such Tenant shall pay to Landlord the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky
matter of any description shall be delivered to and removed from the premises
only on the freight elevators and through the service entrances and corridors,
and only during hours and in a manner approved by Landlord. Landlord reserves
the right to inspect all which violates any of these Rules and Regulations of
the lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice,
drinking water, towel and other similar services, or accept barbering or
bootblacking services in the demised premises, except from persons authorized by
Landlord, and at hours and under regulations fixed by Landlord. Canvassing,
soliciting and peddling in the building is prohibited and each Tenant shall co-
operate to prevent the same.
10. Landlord reserves the right to exclude from the building between
the hours of 6 P.M. and 8 A.M. and at all hours on Sunday, and legal holidays
all persons who do not present a pass to the building signed by Landlord.
Landlord will furnish passes to persons for whom any Tenant requests same in
writing. Each Tenant shall be responsible for all persons for whom he requests
such pass and shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
Tenant which, in Landlord's opinion, tends to impair the reputation of the
building or its desirability as a building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on
the demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
<PAGE>
RIDER A
RIDER TO A LEASE DATED April 22, 1996, BETWEEN Irving Realty Co., AS LANDLORD
AND Daniel Weiss Associates, Inc., AS TENANT.
________________________________-
38. RENT SCHEDULE:
--------------
At an annual rental of SEVENTY-EIGHT THOUSAND DOLLARS ($78,000.00),
------------------------------
payable in equal monthly installments of $6,500.00 from 6/1/96 to 12/31/96 and
then,
At an annual rental of EIGHTY THOUSAND AND SEVEN HUNDRED DOLLARS,
------------------------------------------
($80,700.00), payable in equal monthly installments of $6,725.00 from 1/1/97 to
12/31/97 and then,
At an annual rental of EIGHTY-SIX THOUSAND AND FOUR HUNDRED DOLLARS,
---------------------------------------------
($86,400.00), payable in equal monthly installments of $7,200.00 from 1/1/98 to
12/31/98 and then,
At an annual rental of NINETY-ONE THOUSAND AND TWO HUNDRED DOLLARS,
--------------------------------------------
($91,200.00), payable in equal monthly installments of $7,600.00 from 1/1/99 to
12/31/99 and then,
At an annual rental of NINETY-FOUR THOUSAND AND EIGHT HUNDRED DOLLARS,
-----------------------------------------------
($94,800.00), payable in equal monthly installments of $7,900.00 from 1/1/2000
to 12/31/2000 and then,
At an annual rental of NINETY-SEVEN THOUSAND AND TWO HUNDRED DOLLARS,
----------------------------------------------
($97,200.00), payable in equal monthly installments of $8,100.00 from 1/1/2001
to 12/31/2001 and then,
At an annual rental of NINETY-NINE THOUSAND DOLLARS ($99,000.00),
------------------------------------------
payable in equal monthly installments of $8,250.00 from 1/1/2002 to 5/31/2003.
ALL RENTS ARE DUE AND PAYABLE, ON THE FIRST OF EACH AND EVERY MONTH DURING THE
TERM OF THE LEASE COMMENCING ON THE FIRST OF JUNE 1996.
39. EXCULPATORY CLAUSE:
------------------
Anything to the contrary notwithstanding Landlords liability for its
negligence or failure to perform its obligation hereunder shall be
limited to its interest in the Land and Building. Tenant shall neither
seek to enforce nor enforce any judgment or other remedy against any
other asset of Landlord or any individual who holds interest in
Landlord.
40. EFFECTIVENESS, ETC.:
-------------------
The submission of this Lease to Tenant shall not constitute an offer
by Landlord to execute and exchange a Lease with Tenant and is made
subject to Landlord's acceptance, execution and delivery thereof.
<PAGE>
41. INSURANCE:
----------
Tenant shall obtain and keep in full force and effect during the Term a
policy of comprehensive general public liability and property damage
insurance with a broad form contractual liability endorsement under which
Tenant is named as insured and Landlord is named as additional insured.
The minimum limits of liability shall be a combined single limit with
respect to each occurrence of at least $1,000,000.00 for injury (or death)
and damage to property. Such insurance shall be effected under a valid and
enforceable policy issued by a reputable and independent insurer legally
permitted to do business in the State of New York.
42. ADDITIONAL RENT:
----------------
All payments other than Fixed Rent to be made by Tenant pursuant to this
Lease shall be deemed additional rent and, in the event of any non payment
thereof, Landlord shall have all the rights and remedies provided herein or
bylaw for non payment of rent.
43. SERVICES:
---------
Supplementing Article #30, Landlord shall provided elevator facility as
long as Tenant is NOT in default under any of the covenants of this Lease*,
and furnish and distribute heat at reasonable temperatures to the demised
premises on business days only and during the hours from 8:00 A.M. to 5:00
P.M. The term "business days" as used in this lease shall exclude (i)
Saturdays and Sundays, (ii) all days observed as legal holidays by either
the State of New York or the Federal Government, and (iii) all days
observed as Union holidays by Local Union 32BJ.
*After notice and beyond applicable cure period, if any.
44. ESCALATIONS:
------------
A. In a determination of any increase in the Fixed Rent under the
provisions of this Article #44, Landlord and Tenant agree as follows:
1. "TAXES" shall mean the aggregate amount of real estate taxes and any
general or special assessments (exclusive of penalties and interest
thereon) imposed by any governmental authority having jurisdiction upon the
Building and Land upon which it is situated or any tax or assessment
hereafter imposed in whole or in part, in substitution for such real estate
taxes and/or assessments.
2. "ASSESSED VALUATION" shall mean the amount for which the Real Property
is assessed pursuant to applicable provisions of the New York City Charter
and the Administrative Code of the City of New York for the purpose of
imposition of Taxes.
3. "TAX YEAR" shall mean the period from July 1 through June 30 (or such
other period as hereafter may be duly adopted by the City of New York as
its fiscal year for real estate tax purposes.)
4. "BASE TAXES" shall mean the taxes finally determined for the fiscal
year July 1, 1995 to June 30, 1996, (Tenant shall have the benefit of any
tax certiorari adjustment for years following the base period less costs,
including attorney's fees.)
5. "TENANTS PROPORTIONATE SHARE" shall mean Eleven (11%) Percent.
<PAGE>
6. "COMPARISON YEAR" shall mean (i) with respect to Taxes, the Tax Year
within the Commencement Date occurs and each subsequent Tax Year during the
Term and (ii) with respect to Operating Expenses (herein defined), the
calendar year during the Term for any part or all of which there is an
increase in the Fixed Rent pursuant to subsection B of this Article #44.
7. "OPERATING EXPENSES" shall mean the aggregate of those costs and
expenses (and any taxes, if any, thereon) paid or incurred by or on behalf
of Landlord (whether directly or through independent contractors) in
respect to the operation, maintenance, and management of the Land or the
Building and the sidewalks and areas adjacent thereto (hereinafter called
"Operation of the Property") which in accordance with the accounting
practices used by the Landlord are properly chargeable to the Operation of
the Property together with and including (but without limitation) the cost
of gas, steam, fuel, electricity, labor, utility taxes and financial
expenses incurred in connection with the operation of the property such as
increases in insurance premiums, attorney's fees and expenses, but
specifically excluding (i) Taxes, (ii) income taxes imposed upon the
Landlord, (iii) mortgage interest and principal, (iv) leasing commissions,
(v) the cost of electrical energy furnished directly to the Tenants of the
building, (vi) specific work performed for individual tenants, and (vii)
Tenant litigations.
44. ESCALATIONS: (continued)
------------------------
8. "BASE OPERATING EXPENSES" shall mean the operating expenses for the
period January 1, 1996 to December 31, 1996.
9. "LANDLORD'S STATEMENT" shall mean a statement containing a comparison
of any increase in the Fixed Rent for the preceding Comparison Year
pursuant to the provisions of this Article #44.
B.1. If the taxes payable for any Comparison Year (any part or all of
which falls within the Term) shall represent an increase above Base Taxes,
then the Fixed Rent for such Comparison Year, and continuing thereafter
until a new Landlord's Statement is rendered to Tenant, shall be increased
by Tenant's Proportionate Share of such interest.
2. If the Operating Expenses for any Comparison Year (any part or all of
which falls within the Term) shall be greater than the Base Operating
Expenses then the Rent for such Comparison Year and continuing thereafter
until a new Landlord's Statement is rendered to tenant, shall be increased
by Tenant's Proportionate Share of such increase.
C.1. At any time during or after any Comparison Year Landlord may render
to Tenant a Landlord's Statement showing the amount of the increase in the
Fixed Rent resulting from the operation of subsection B-1 of this Article
#44. Landlord's failure to render a Landlord's Statement during or with
respect to any Comparison Year shall not prejudice Landlord's right to
render a Landlord's Statement during or with respect to any subsequent
Comparison Year, and shall not eliminate or reduce Tenant's obligation to
pay increase in the Fixed Rent pursuant to this Article #44 for such
Comparison Year.
2. At any time after thirty (30) days following the expiration of any
Comparison Year, Landlord may render to Tenant a Landlord's Statement
showing the amount of the increase in the Fixed Rent resulting from the
operation of subsection B-2 oft his Article #44 with respect to the
applicable preceding Comparison Year. Landlord's failure to render a
Landlord's Statement with respect to any subsequent Comparison Year, and
shall not eliminate or reduce Tenant's obligation to pay any increase in
the Fixed Rent pursuant to this Article #44 for such Comparison Year.
<PAGE>
D. Tenant shall pay all increases computed pursuant to this Article #44
promptly upon Landlord rendering a Landlord's Statement.
E. The expiration or termination of this Lease during any Comparison Year
or any calendar year for any part or all of which there is an increase in
the Fixed Rent under this Article #344 shall not affect the rights or
obligations of the parties hereto respecting such increase and any
Landlord's Statement relating to such increase may, on a pro rata basis, be
sent to the Tenant subsequent to, and all such rights and obligations shall
survive, any such expiration or termination. All payment due under such
Landlord's Statement or comparative statement shall be payable within
twenty (20) days after such statement is sent to tenant.
45. ELECTRICITY:
------------
Supplementing Article #12 of this Lease:
A. Landlord shall not be obligated to furnish electricity to Tenant and
Tenant shall arrange to obtain electricity from the public utility or other
company servicing the Building. Such electricity may be furnished to
Tenant by means of the then existing electrical facilities servicing the
demised premises to the extent that the same are available, suitable, and
safe for such purposes. All meters and all additional panel boards,
feeders, risers, wiring and other conductors and equipment which may be
required to obtain electricity in excess of that presently provided shall
be installed by the Landlord, at Tenant's sole cost and expense, or by
Tenant, at Landlord's sole discretion, at Tenant's sole cost and expense by
electricians and mechanics approved by the Landlord in writing. A Utility
owned meter is now in place.
B. Landlord shall not be liable to Tenant in any way for any interruption,
curtailment or failure or defect in the supply or character or electricity
furnished to the demised premises by reason of any requirement, act or
omission of Landlord or any public utility or other company servicing the
Building with electricity or for any other reason except Landlord's willful
or negligent acts.
46. "AS IS"
-------
Supplementing Article #20 of this Lease:
The demised premises is currently occupied by the tenant and shall be
leased to tenant in their present "As Is" condition. EXCEPTION: Landlord
agrees to paint premises, colors to be selected by Tenant.
47. BROKERAGE:
----------
Tenant warrants and represents to Landlord that it has dealt with no
Broker, real estate salesman, or other similar person, firm or corporation
in connection with the within Lease. Tenant shall indemnify and hold
Landlord harmless of and from any and all claims, liabilities, loss, costs,
damages and expenses (including without limitation attorney's and expert's
fees and disbursements) which are based upon, result from or are incurred
by Landlord by reason of a claim by any broker, person, firm or corporation
for brokerage commissions and/or other compensation by reason of having
dealt with Tenant.
<PAGE>
48. INDEMNIFICATION OF LANDLORD:
----------------------------
Tenant shall indemnify and save harmless Landlord and Landlord' agent
against and from (1) any and all claims against Landlord or such agents of
whatever nature arising from any act, omission or negligence of Tenant or
any sublease and Tenant's and any subleasee's contractors, licensees,
agents, employees, invitees, or visitors; (ii) all claims against Landlord
or such agents arising from any accident, injury, or damage whatsoever
caused to any person or to the property of any person and occurring during
the term of this Lease in or about the demised premises, or occurring
outside of the demised premises, but anywhere within or about the building
where such accident, injury or damage results or is claimed to have
resulted from any act, omission or negligence of Tenant or any subleasee of
Tenant's or any sublessee's agents, employees, invitees or visitors; (iii)
any breach, violation, or nonperformance of any covenant, condition or
agreement in this Lease set forth and contained on the part of Tenant to be
fulfilled, kept, observed and performed; and (iv) any cost, liability, or
responsibility for the payment of any sales tax or other tax with respect
to any installments, furniture, fixtures, furnishings or other improvements
located, installed or constructed in the demised premises, or the filing of
any tax return if required by law), regardless of whether such tax is
imposed upon Landlord or Tenant. This indemnity and hold harmless
agreement shall include indemnity from and against any and all liability,
fines, suits, demands, costs and expenses (including, without limitation,
reasonable attorneys' and experts' fees and disbursements) of any kind or
nature incurred in or connection with any such claim or proceeding brought
thereon, and the defense thereof.
49. DIRECTORY:
----------
Landlord agrees to allow the Tenant to post four (4) names on the lobby
directory.
50. ALTERATION:
-----------
Tenant agrees to maintain at their sole cost and expense in a manner
reasonably acceptable to Landlord any leak created by the existing air
conditioning installed by tenant and any other damage to the building of
whatever kind of nature which results from the existing air conditioning
system.
***LAST PAGE OF LEASE***
<PAGE>
Exhibit 10.16
NON-QUALIFIED STOCK OPTION AGREEMENT
ALLOY ONLINE, INC.
AGREEMENT made as of August 2, 1999 between Alloy Online, Inc. (the
"Company"), a Delaware corporation, and Neil Vogel (the "Participant").
WHEREAS, the Company desires to grant to the Participant an Option to
purchase shares of its common stock, par value $.01 per share (the "Shares"),
under and for the purposes set forth in the Company's Restated 1997 Employee,
Director and Consultant Stock Option Plan (the "Plan"); and
WHEREAS, the Company and the Participant understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and
WHEREAS, the Company and the Participant each intend that the Option
granted herein shall be a Non-Qualified Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. GRANT OF OPTION. The Company hereby grants to the Participant the
---------------
right and option to purchase all or any part of an aggregate of one hundred
thousand (100,000) Shares, on the terms and conditions and subject to all the
limitations set forth herein and in the Plan, which is incorporated herein by
reference. The Participant acknowledges receipt of a copy of the Plan.
2. PURCHASE PRICE. The purchase prices of the Shares covered by the
--------------
Option shall be $11 3/4 per share, subject to adjustment, as provided in the
Plan, in the event of a stock split, reverse stock split or other events
affecting the holders of Shares. Payment shall be made in accordance with
Paragraph 7 of the Plan.
3. EXERCISABILITY OF OPTION. Subject to the terms and conditions set
------------------------
forth in this Agreement and the Plan, the Option granted hereby shall become
exercisable as follows:
On or after August 2, 2000 Up to twenty five thousand (25,000) Shares
On or after August 2, 2001 Up to an additional twenty five thousand (25,000)
Shares
On or after August 2, 2002 Up to an additional twenty five thousand (25,000)
Shares
On or after August 2, 2003 Up to an additional twenty five thousand (25,000)
Shares
The foregoing rights are cumulative and are subject to the other terms and
conditions of this Agreement and the Plan.
(i) If a Change of Control (as hereinafter defined) occurs while the
Employee is an
<PAGE>
employee, director or consultant of the Company or of an Affiliate, the Option
shall accelerate and become fully exercisable immediately prior to the
effectiveness of such Change of Control; and
(ii) If the Employee's employment is terminated by the Employee's employer
without "cause" (as defined in the Plan), the Option shall accelerate and become
fully exercisable upon the effectiveness of such termination of employment.
As used herein, "Change of Control" means that any of the following events
has occurred:
(a) Any person (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934), other than the Company, any employee benefit plan of the
Company or any entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Securities
Exchange Act) becomes the beneficial owner or owners (as defined in Rule 13d-3
and 13d-5 promulgated under the Securities Exchange Act), directly or
indirectly, of more than fifty percent (50%) of the outstanding Common Stock of
the Company, or otherwise becomes entitled to vote more than fifty percent (50%)
of the voting power entitled to be cast at elections for directors ("Voting
Power") of the Company;
(b) A consolidation or merger of the Company pursuant to which the holders
of the Company's shares of Common Stock immediately prior to such merger or
consolidation would not be the holders, directly or indirectly, immediately
after such merger or consolidation of more than fifty percent (50%) of the
Voting Power of the entity surviving such transaction;
(c) The sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company; or
(d) The liquidation or dissolution of the Company or the Company ceasing to
do business.
4. TERM OF OPTION. The Option shall terminate ten (10) years from the
--------------
date of this Agreement, but shall be subject to earlier termination as provided
herein or in the Plan.
If the Employee ceases to be an employee of the Company or of an Affiliate
(for any reason other than the death or Disability of the Employee or
termination of the Employee's employment by the Employee's employer for any
reason, the Option may be exercised, if it has not previously terminated, within
three (3) months after the date the Employee ceases to be an employee of the
Company or an Affiliate, or within the originally prescribed term of the Option,
whichever is earlier, but may not be exercised thereafter. In such event, the
Option shall be exercisable only to the extent that the Option has become
exercisable and is in effect at the date of such cessation of employment.
Notwithstanding the foregoing, in the event of the Employee's Disability or
death within three (3) months after the termination of employment, the Employee
or the Employee's Survivors may exercise the Option within one (1) year after
the date of the Employee's termination of employment, but in no event after the
date of expiration of the term of the Option. Notwithstanding the foregoing, in
the event of the Participant's Disability or death within three (3) months after
the termination of employment, directorship or consultancy, the
2
<PAGE>
Participant or the Participant's Survivors may exercise the Option within one
(1) year after the date of the Participant's termination of employment,
directorship or consultancy, but in no event after the date of expiration of the
term of the Option.
Notwithstanding any other provision of this Agreement, in the event the
Employee's employment is terminated by the Employee's employer without "cause"
(as defined in the Plan), the Option may be exercised, if it has not previously
terminated, within the originally prescribed term of the Option.
In the event the Participant's employment, directorship or consultancy is
terminated by the Company or an Affiliate for "cause" (as defined in the Plan),
the Participant's right to exercise any unexercised portion of this Option shall
cease as of such termination, and this Option shall thereupon terminate.
Notwithstanding anything herein to the contrary, if subsequent to the
Participant's termination, but prior to the exercise of the Option, the Board of
Directors of the Company determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which would
constitute "cause," then the Participant shall immediately cease to have any
right to exercise the Option and this Option shall thereupon terminate.
In the event of the Disability of the Participant, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the Participant's termination of service or, if earlier, within the term
originally prescribed by the Option. In such event, the Option shall be
exercisable:
(a) To the extent exercisable but not exercised as of the date of
Disability; and
(b) In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the Option as
would have accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability. The
proration shall be based upon the number of days during the accrual period prior
to the date of Disability.
In the event of the death of the Participant while an employee, director or
consultant of the Company or of an Affiliate, the Option shall be exercisable by
the Participant's Survivors within one (1) year after the date of death of the
Participant or, if earlier, within the originally prescribed term of the Option.
In such event, the Option shall be exercisable:
(x) To the extent exercisable but not exercised as of the date of death;
and
(y) In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the Option as
would have accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration shall be
based upon the number of days during the accrual period prior to the
Participant's death.
5. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
---------------------------
this Agreement, the Option may be exercised by written notice to the Company at
its principal
3
<PAGE>
executive office, in substantially the form of Exhibit A attached hereto. Such
notice shall state the number of Shares with respect to which the Option is
being exercised and shall be signed by the person exercising the Option. Payment
of the purchase price for such Shares shall be made in accordance with Paragraph
7 of the Plan. The Company shall deliver a certificate or certificates
representing such Shares as soon as practicable after the notice shall be
received, provided, however, that the Company may delay issuance of such Shares
until completion of any action or obtaining of any consent, which the Company
deems necessary under any applicable law (including, without limitation, state
securities or "blue sky" laws). The certificate or certificates for the Shares
as to which the Option shall have been so exercised shall be registered in the
name of the person or persons so exercising the Option (or, if the Option shall
be exercised by the Participant and if the Participant shall so request in the
notice exercising the Option, shall be registered in the name of the Participant
and another person jointly, with right of survivorship) and shall be delivered
as provided above to or upon the written order of the person or persons
exercising the Option. In the event the Option shall be exercised, pursuant to
Section 4 hereof, by any person or persons other than the Participant, such
notice shall be accompanied by appropriate proof of the right of such person or
persons to exercise the Option. All Shares that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and nonassessable.
6. PARTIAL EXERCISE. Exercise of this Option to the extent above stated
----------------
may be made in part at any time and from time to time within the above limits,
except that no fractional share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY. The Option shall not be transferable by the
-----------------
Participant otherwise than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act or the rules thereunder.
Except as provided in the previous sentence, the Option shall be exercisable,
during the Participant's lifetime, only by the Participant (or, in the event of
legal incapacity or incompetency, by the Participant's guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option shall be null and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Participant shall have no
---------------------------------------
rights as a stockholder with respect to Shares subject to this Agreement until
registration of the Shares in the Company's share register in the name of the
Participant. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization of the Company, no adjustment shall be
made for dividends or similar rights for which the record date is prior to the
date of such registration.
9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains provisions
----------------------------------------
covering the treatment of Options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to Options and the related provisions with respect to successors to the
business of the Company are hereby made
4
<PAGE>
applicable hereunder and are incorporated herein by reference, provided,
however, that in the event of an Acquisition (as defined in Section 16B of the
Plan) that also constitutes a Change of Control (as defined herein), the Option
shall become fully exercisable immediately prior to the effectiveness of and for
the purposes of such Acquisition.
10. TAXES. The Participant acknowledges that upon exercise of the Option
-----
the Participant will be deemed to have taxable income measured by the difference
between the then fair market value of the Shares received upon exercise and the
price paid for such Shares pursuant to this Agreement. The Participant
acknowledges that any income or other taxes due from him or her with respect to
this Option or the Shares issuable pursuant to this Option shall be the
Participant's responsibility. The Participant agrees that the Company may
withhold from the Participant's remuneration, if any, the appropriate amount of
federal, state and local withholding attributable to such amount that is
considered compensation includable in such person's gross income. At the
Company's discretion, the amount required to be withheld may be withheld in cash
from such remuneration, or in kind from the Shares otherwise deliverable to the
Participant on exercise of the Option. The Participant further agrees that, if
the Company does not withhold an amount from the Participant's remuneration
sufficient to satisfy the Company's income tax withholding obligation, the
Participant will reimburse the Company on demand, in cash, for the amount under-
withheld.
11. PURCHASE FOR INVESTMENT. Unless the offering and sale of the Shares
-----------------------
to be issued upon the particular exercise of the Option shall have been
effectively registered under the Securities Act of 1933, as now in force or
hereafter amended (the "1933 Act"), the Company shall be under no obligation to
issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at
the time of such exercise, that such person(s) are acquiring such Shares for
their own respective accounts, for investment, and not with a view to, or for
sale in connection with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s) evidencing the
Shares issued pursuant to such exercise:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have
received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there
shall have been compliance with all applicable state securities
laws;" and
(b) If the Company so requires, the Company shall have received an opinion
of its counsel that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration thereunder. Without limiting
the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any
5
<PAGE>
consent, which the Company deems necessary under any applicable law (including
without limitation state securities or "blue sky" laws).
12. RESTRICTIONS ON TRANSFER OF SHARES. If, in connection with a
----------------------------------
registration statement filed by the Company pursuant to the Securities Act, the
Company or its underwriter so requests, the Participant will agree not to sell
any Shares for a period not to exceed 180 days following the effectiveness of
such registration.
13. NO OBLIGATION TO MAINTAIN RELATIONSHIP. The Company is not by the
--------------------------------------
Plan or this Option obligated to continue the Participant as an employee,
director or consultant of the Company.
14. NOTICES. Any notices required or permitted by the terms of this
-------
Agreement or the Plan shall be given by hand delivery or by recognized courier
service, facsimile, registered or certified mail, return receipt requested,
addressed as follows:
If to the Company to: The Company at its principal business office.
If to the Participant to: The Participant at the address set forth below.
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service or three business days following mailing by registered or
certified mail.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with the law of the State of Delaware, without giving effect to the
conflict of law principles thereof.
16. BENEFIT OF AGREEMENT. Subject to the provisions of the Plan and the
--------------------
other provisions hereof, this Agreement shall be for the benefit of and shall be
binding upon the heirs, executors, administrators, successors and assigns of the
parties hereto.
17. ENTIRE AGREEMENT. This Agreement, together with the Plan, embodies
----------------
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or written agreements
and understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement not expressly set forth in this
Agreement shall affect or be used to interpret, change or restrict, the express
terms and provisions of this Agreement, provided, however, in any event, this
Agreement shall be subject to and governed by the Plan.
18. MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
----------------------------
Agreement may be modified or amended as provided in the Plan.
19. WAIVERS AND CONSENTS. Except as provided in the Plan, the terms and
--------------------
provisions of this Agreement may be waived, or consent for the departure
therefrom granted, only by written document executed by the party entitled to
the benefits of such terms or
6
<PAGE>
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Participant has hereunto set his or her
hand, all as of the day and year first above written.
ALLOY ONLINE, INC.
By: /s/ Samuel Gradess
--------------------------------------------
Name Samuel Gradess
Title Chief Financial Officer
PARTICIPANT
/s/ Neil Vogel
------------------------------------------------
Signature
Print Name: Neil Vogel
Address 115 West 30th Street, #201
New York, NY 10001
8
<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
[FORM FOR REGISTERED SHARES]
TO: ALLOY ONLINE, INC.
IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.
Ladies and Gentlemen:
I hereby exercise my Non-Qualified Stock Option to purchase ____ shares
(the "Shares") of the common stock, par value $.01 per share, of Alloy Online,
Inc. (the "Company"), at the exercise price of $________ per share, pursuant to
and subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated as of August 2, 1999.
I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:
_____________________
Please issue the stock certificate for the Shares (check one): [ ] to me;
or [ ] to me and ____________________________, as joint tenants with right of
survivorship and mail the certificate to me at the following address:
___________________________
My mailing address for shareholder communications, if different from the
address listed above, is: _____________________________________________________
Very truly yours,
------------------------------------------------
Participant (signature)
------------------------------------------------
Print Name
------------------------------------------------
Date
------------------------------------------------
Social Security Number
9
<PAGE>
Exhibit 10.17
NON-QUALIFIED STOCK OPTION AGREEMENT
ALLOY ONLINE, INC.
AGREEMENT made as of November 4, 1999 between Alloy Online, Inc. (the
"Company"), a Delaware corporation, and Neil Vogel (the "Participant").
WHEREAS, the Company desires to grant to the Participant an Option to
purchase shares of its common stock, par value $.01 per share (the "Shares"),
under and for the purposes set forth in the Company's Restated 1997 Employee,
Director and Consultant Stock Option Plan (the "Plan"); and
WHEREAS, the Company and the Participant understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and
WHEREAS, the Company and the Participant each intend that the Option
granted herein shall be a Non-Qualified Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. GRANT OF OPTION. The Company hereby grants to the Participant the
---------------
right and option to purchase all or any part of an aggregate of seventy five
thousand (75,000) Shares, on the terms and conditions and subject to all the
limitations set forth herein and in the Plan, which is incorporated herein by
reference. The Participant acknowledges receipt of a copy of the Plan.
2. PURCHASE PRICE. The purchase price of the Shares covered by the Option
--------------
shall be $13.25 per Share, subject to adjustment, as provided in the Plan, in
the event of a stock split, reverse stock split or other events affecting the
holders of Shares. Payment shall be made in accordance with Paragraph 7 of the
Plan.
3. EXERCISABILITY OF OPTION. Subject to the terms and conditions set
------------------------
forth in this Agreement and the Plan, the Option granted hereby shall become
exercisable as follows:
On or after the first anniversary up to 7,500 Shares
of the date of this Agreement
On or after the second anniversary up to an additional 7,500 Shares
of the date of this Agreement
On or after the third anniversary up to an additional 7,500 Shares
of the date of this Agreement
On or after the fourth anniversary up to an additional 7,500 Shares
of the date of this Agreement
<PAGE>
On or after the fifth anniversary up to an additional 7,500 Shares
of the date of this Agreement
On or after the sixth anniversary up to an additional 7,500 Shares
of the date of this Agreement
On or after the seventh anniversary up to an additional 7,500 Shares
of the date of this Agreement
On or after the eighth anniversary up to an additional 7,500 Shares
of the date of this Agreement
On or after the ninth anniversary up to an additional 7,500 Shares
of the date of this Agreement
On the tenth anniversary of the up to an additional 7,500 Shares
date of this Agreement
The foregoing rights are cumulative and are subject to the other terms and
conditions of this Agreement and the Plan.
If a Change of Control (as hereinafter defined) occurs while the Employee
is an employee, director or consultant of the Company or of an Affiliate, the
Option shall accelerate and become fully exercisable immediately prior to the
effectiveness of such Change of Control.
As used herein, "Change of Control" means that any of the following events
has occurred:
(a) Any person (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934), other than the Company, any employee benefit plan of the
Company or any entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Securities
Exchange Act) becomes the beneficial owner or owners (as defined in Rule 13d-3
and 13d-5 promulgated under the Securities Exchange Act), directly or
indirectly, of more than fifty percent (50%) of the outstanding Common Stock of
the Company, or otherwise becomes entitled to vote more than fifty percent (50%)
of the voting power entitled to be cast at elections for directors ("Voting
Power") of the Company;
(b) A consolidation or merger of the Company pursuant to which the holders
of the Company's shares of Common Stock immediately prior to such merger or
consolidation would not be the holders, directly or indirectly, immediately
after such merger or consolidation of more than fifty percent (50%) of the
Voting Power of the entity surviving such transaction;
(c) The sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company; or
(d) The liquidation or dissolution of the Company or the Company ceasing to
do business.
2
<PAGE>
4. TERM OF OPTION. The Option shall terminate ten (10) years from the
--------------
date of this Agreement, but shall be subject to earlier termination as provided
herein or in the Plan.
If the Participant ceases to be an employee, director or consultant of the
Company or of an Affiliate (for any reason other than the death or Disability of
the Participant or termination of the Participant for "cause" (as defined in the
Plan)), the Option may be exercised, if it has not previously terminated, within
three (3) months after the date the Participant ceases to be an employee,
director or consultant of the Company or an Affiliate, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to the extent
that the Option has become exercisable and is in effect at the date of such
cessation of employment, directorship or consultancy.
Notwithstanding the foregoing, in the event of the Participant's Disability
or death within three (3) months after the termination of employment,
directorship or consultancy, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the Participant's
termination of employment, directorship or consultancy, but in no event after
the date of expiration of the term of the Option.
In the event the Participant's employment, directorship or consultancy is
terminated by the Company or an Affiliate for "cause" (as defined in the Plan),
the Participant's right to exercise any unexercised portion of this Option shall
cease as of such termination, and this Option shall thereupon terminate.
Notwithstanding anything herein to the contrary, if subsequent to the
Participant's termination, but prior to the exercise of the Option, the Board of
Directors of the Company determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which would
constitute "cause," then the Participant shall immediately cease to have any
right to exercise the Option and this Option shall thereupon terminate.
In the event of the Disability of the Participant, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the Participant's termination of service or, if earlier, within the term
originally prescribed by the Option. In such event, the Option shall be
exercisable:
(a) To the extent exercisable but not exercised as of the date of
Disability; and
(b) In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the Option as
would have accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability. The
proration shall be based upon the number of days during the accrual period prior
to the date of Disability.
In the event of the death of the Participant while an employee, director or
consultant of the Company or of an Affiliate, the Option shall be exercisable by
the Participant's Survivors within one (1) year after the date of death of the
Participant or, if earlier, within the originally prescribed term of the Option.
In such event, the Option shall be exercisable:
(x) To the extent exercisable but not exercised as of the date of death;
and
3
<PAGE>
(y) In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights to exercise the Option as
would have accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration shall be
based upon the number of days during the accrual period prior to the
Participant's death.
5. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
---------------------------
this Agreement, the Option may be exercised by written notice to the Company at
its principal executive office, in substantially the form of Exhibit A attached
hereto. Such notice shall state the number of Shares with respect to which the
Option is being exercised and shall be signed by the person exercising the
Option. Payment of the purchase price for such Shares shall be made in
accordance with Paragraph 7 of the Plan. The Company shall deliver a
certificate or certificates representing such Shares as soon as practicable
after the notice shall be received, provided, however, that the Company may
delay issuance of such Shares until completion of any action or obtaining of any
consent, which the Company deems necessary under any applicable law (including,
without limitation, state securities or "blue sky" laws). The certificate or
certificates for the Shares as to which the Option shall have been so exercised
shall be registered in the name of the person or persons so exercising the
Option (or, if the Option shall be exercised by the Participant and if the
Participant shall so request in the notice exercising the Option, shall be
registered in the name of the Participant and another person jointly, with right
of survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising the Option. In the event the Option
shall be exercised, pursuant to Section 4 hereof, by any person or persons other
than the Participant, such notice shall be accompanied by appropriate proof of
the right of such person or persons to exercise the Option. All Shares that
shall be purchased upon the exercise of the Option as provided herein shall be
fully paid and nonassessable.
6. PARTIAL EXERCISE. Exercise of this Option to the extent above stated
----------------
may be made in part at any time and from time to time within the above limits,
except that no fractional share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY. The Option shall not be transferable by the
-----------------
Participant otherwise than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act or the rules thereunder.
Except as provided in the previous sentence, the Option shall be exercisable,
during the Participant's lifetime, only by the Participant (or, in the event of
legal incapacity or incompetency, by the Participant's guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option shall be null and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Participant shall have no
---------------------------------------
rights as a stockholder with respect to Shares subject to this Agreement until
registration of the Shares in the Company's share register in the name of the
Participant. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization of the
4
<PAGE>
Company, no adjustment shall be made for dividends or similar rights for which
the record date is prior to the date of such registration.
9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. The Plan contains provisions
----------------------------------------
covering the treatment of Options in a number of contingencies such as stock
splits and mergers. Provisions in the Plan for adjustment with respect to stock
subject to Options and the related provisions with respect to successors to the
business of the Company are hereby made applicable hereunder and are
incorporated herein by reference, provided, however, that in the event of an
Acquisition (as defined in Section 16B of the Plan) that also constitutes a
Change of Control (as defined herein), the Option shall become fully exercisable
immediately prior to the effectiveness of and for the purposes of such
Acquisition.
10. TAXES. The Participant acknowledges that upon exercise of the Option
-----
the Participant will be deemed to have taxable income measured by the difference
between the then fair market value of the Shares received upon exercise and the
price paid for such Shares pursuant to this Agreement. The Participant
acknowledges that any income or other taxes due from him or her with respect to
this Option or the Shares issuable pursuant to this Option shall be the
Participant's responsibility. The Participant agrees that the Company may
withhold from the Participant's remuneration, if any, the appropriate amount of
federal, state and local withholding attributable to such amount that is
considered compensation includable in such person's gross income. At the
Company's discretion, the amount required to be withheld may be withheld in cash
from such remuneration, or in kind from the Shares otherwise deliverable to the
Participant on exercise of the Option. The Participant further agrees that, if
the Company does not withhold an amount from the Participant's remuneration
sufficient to satisfy the Company's income tax withholding obligation, the
Participant will reimburse the Company on demand, in cash, for the amount under-
withheld.
11. PURCHASE FOR INVESTMENT. Unless the offering and sale of the Shares
-----------------------
to be issued upon the particular exercise of the Option shall have been
effectively registered under the Securities Act of 1933, as now in force or
hereafter amended (the "1933 Act"), the Company shall be under no obligation to
issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the Company, at
the time of such exercise, that such person(s) are acquiring such Shares for
their own respective accounts, for investment, and not with a view to, or for
sale in connection with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s) evidencing the
Shares issued pursuant to such exercise:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have
received an opinion of counsel satisfactory to it that an exemption
from
5
<PAGE>
registration under such Act is then available, and (2) there shall
have been compliance with all applicable state securities laws;" and
(b) If the Company so requires, the Company shall have received an opinion
of its counsel that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration thereunder. Without limiting
the generality of the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent, which the Company
deems necessary under any applicable law (including without limitation state
securities or "blue sky" laws).
12. RESTRICTIONS ON TRANSFER OF SHARES. If, in connection with a
----------------------------------
registration statement filed by the Company pursuant to the Securities Act, the
Company or its underwriter so requests, the Participant will agree not to sell
any Shares for a period not to exceed 180 days following the effectiveness of
such registration.
13. NO OBLIGATION TO MAINTAIN RELATIONSHIP. The Company is not by the
--------------------------------------
Plan or this Option obligated to continue the Participant as an employee,
director or consultant of the Company.
14. NOTICES. Any notices required or permitted by the terms of this
-------
Agreement or the Plan shall be given by hand delivery or by recognized courier
service, facsimile, registered or certified mail, return receipt requested,
addressed as follows:
If to the Company to: The Company at its principal business office.
If to the Participant to: The Participant at the address set forth below.
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service or three business days following mailing by registered or
certified mail.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with the law of the State of Delaware, without giving effect to the
conflict of law principles thereof.
16. BENEFIT OF AGREEMENT. Subject to the provisions of the Plan and the
--------------------
other provisions hereof, this Agreement shall be for the benefit of and shall be
binding upon the heirs, executors, administrators, successors and assigns of the
parties hereto.
17. ENTIRE AGREEMENT. This Agreement, together with the Plan, embodies
----------------
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior oral or written agreements
and understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement not expressly set forth in this
Agreement shall affect or be used to interpret, change or restrict, the express
terms and provisions of this Agreement, provided, however, in any event, this
Agreement shall be subject to and governed by the Plan.
6
<PAGE>
18. MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
----------------------------
Agreement may be modified or amended as provided in the Plan.
19. WAIVERS AND CONSENTS. Except as provided in the Plan, the terms and
--------------------
provisions of this Agreement may be waived, or consent for the departure
therefrom granted, only by written document executed by the party entitled to
the benefits of such terms or provisions. No such waiver or consent shall be
deemed to be or shall constitute a waiver or consent with respect to any other
terms or provisions of this Agreement, whether or not similar. Each such waiver
or consent shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver or consent.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Participant has hereunto set his or her
hand, all as of the day and year first above written.
ALLOY ONLINE, INC.
By: /s/ Samuel Gradess
---------------------------------------------
Name: Samuel Gradess
Title: Chief Financial Officer
PARTICIPANT
/s/ Neil Vogel
-------------------------------------------------
Signature
Name: Neil Vogel
Address: 115 West 30th Street, #201
New York, NY 10001
8
<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
[FORM FOR REGISTERED SHARES]
TO: ALLOY ONLINE, INC.
IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.
Ladies and Gentlemen:
I hereby exercise my Non-Qualified Stock Option to purchase ____ shares
(the "Shares") of the common stock, par value $.01 per share, of Alloy Online,
Inc. (the "Company"), at the exercise price of $13.25 per share, pursuant to and
subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated as of November 4, 1999.
I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:
_____________________
Please issue the stock certificate for the Shares (check one): [ ] to me;
or [ ] to me and ____________________________, as joint tenants with right of
survivorship and mail the certificate to me at the following address:
___________________________
My mailing address for shareholder communications, if different from the
address listed above, is:
_________________________________________________________
Very truly yours,
-------------------------------------------------
Participant (signature)
-------------------------------------------------
Print Name
-------------------------------------------------
Date
-------------------------------------------------
Social Security Number
9
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES
1. 17th Street Productions, Inc.
2. Alloy Acquisition Corporation
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report dated March 10, 2000 (except with respect to the matters discussed in
Note 13, as to which the date is April 14, 2000) included in this Form 10-K,
into the Company's previously filed Registration Statement File No. 333-90681.
ARTHUR ANDERSEN LLP
New York, New York
May 1, 2000
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 12,702
<SECURITIES> 20,971
<RECEIVABLES> 2,840
<ALLOWANCES> 147
<INVENTORY> 3,981
<CURRENT-ASSETS> 42,639
<PP&E> 3,425
<DEPRECIATION> 1,238
<TOTAL-ASSETS> 57,668
<CURRENT-LIABILITIES> 12,460
<BONDS> 0
0
0
<COMMON> 147
<OTHER-SE> 45,061
<TOTAL-LIABILITY-AND-EQUITY> 57,668
<SALES> 31,166
<TOTAL-REVENUES> 31,166
<CGS> 13,765
<TOTAL-COSTS> 13,765
<OTHER-EXPENSES> 33,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,542)
<INCOME-PRETAX> (14,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,634)
<DISCONTINUED> 0
<EXTRAORDINARY> (235)
<CHANGES> 0
<NET-INCOME> (14,869)
<EPS-BASIC> (1.17)
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