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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No.: 000-27411
Promotions.com, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3898912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 West 19th Street
New York, New York 10011
(Address of principal executive offices) (Zip Code)
(212) 242-8800
(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 $.001 per share
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 (ss.229.405 of this chapter) 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 |_|.
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on March 1, 2000: $ 116,642,832*
Common Stock outstanding at March 1, 2000: 14,241,244
Documents Incorporated by Reference
The information required by Part III of this report, to the extent not set
forth herein, is incorporated by reference from the registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
2000, which definitive proxy statements shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this Report relates.
*Includes voting stock held by third parties which may be deemed to
be beneficially owned by affiliates, but for which such affiliates
have disclaimed beneficial ownership.
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Promotions.com, Inc.
(Formerly Webstakes.com, Inc.)
1999 Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
Item 1. Business ......................................................... 3
Item 2. Properties........................................................ 12
Item 3. Legal Proceedings ................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... 13
Item 6. Selected Financial Data .......................................... 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations ................. 15
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk....................................................... 25
Item 8. Financial Statements and Supplementary Data ...................... 25
Item 9. Changes in and Disagreements with Accountants
and Accounting and Financial Disclosure .......................... 42
PART III
Item 10. Directors and Executive Officers of the Registrant ............... 42
Item 11. Executive Compensation ........................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and Management ... 42
Item 13. Certain Relationships and Related Transactions.................... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 42
SIGNATURES .................................................................. 44
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PART I
ITEM 1. BUSINESS
OVERVIEW
Promotions.com, Inc. is a leading provider of technology-driven direct marketing
and promotion solutions to advertisers, agencies, Web publishers and e-commerce
merchants worldwide. We provide a broad range of promotion, technology and data
products and services. Our products and services are designed to increase brand
awareness, stimulate sales and enhance the effectiveness of our customers
promotion and marketing campaigns on the Internet and through other media. Our
patent-pending iDIALOG(TM) technology is the platform for most of our solutions
and enables our customers to use preselected criteria to deliver targeted offers
to consumers during a promotion. During the year ended December 31, 1999, we
served promotions and offers for more than 220 customers.
Our revenues are derived from three principal sources as follows:
PROMOTIONS.COM CUSTOM SOLUTIONS. Promotions.com CUSTOM SOLUTIONS provides
the infrastructure, technology and creative solutions enabling customers
to run integrated Internet promotions under their own brand name on their
own Web sites. Customers include NBC, The Sharper Image, Road Runner and
Compaq Computer Corporation, among others.
WEBSTAKES.COM. WEBSTAKES.COM is a leading media property and promotion
portal that offers advertising and promotion solutions to marketers,
including ESPN.COM, Disney, Freeshop and Lifeminders, among others.
WEBSTAKES.COM offers hundreds of promotions and offers in 16 targeted
interest categories. Each category is designed to appeal to consumers with
a specific interest and includes prizes and offers related to the theme of
the interest category. We deliver targeted promotional offers on
WEBSTAKES.COM while consumers are entering our promotions using our
iDIALOG(TM) technology.
PROMOTIONS.COM DIRECT. Promotions.com DIRECT, is a leading provider of
opt-in promotion email products and permission email marketing services.
We have developed a comprehensive database of more than 4 million
demographic profiles. We use our proprietary database and our iDIALOG(TM)
technology to generate leads, increase response rates and help our
customers profit from their email marketing campaigns.
The Internet has emerged as an attractive medium for promotions due to the rapid
growth in the number of Web users, the amount of time such Web users spend on
the Web, the increase in electronic commerce, the interactive nature of the Web,
the Web's global reach and a variety of other factors. Promotions and direct
marketing are used by marketers to stimulate consumer spending. Promotions are
designed to stimulate an immediate action and could include a product purchase,
a request for further information or a visit to a place of business for the
purchase of a specific product or service. American businesses spent $85.4
billion on promotion marketing in 1998, a 7.6% increase over 1997, according to
PROMO Magazine. Promotions include sweepstakes, premium incentives, product
samples, coupons, points and loyalty programs, rebates (cash incentives paid
upon a purchase), games, contests, and promotional research.
Forrester Research, Inc. estimates that Internet promotions are three to five
times more effective than traditional promotions. Forrester estimates that 50%
to 70% of total Internet marketing budgets will be spent on promotions over the
next five years, compared to less than 15% of Internet marketing budgets
currently being spent on promotions.
We believe that in addition to the tremendous growth potential of the domestic
promotion market, markets outside the U.S. will become an increasingly important
component of Internet promotions.
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iDIALOG(TM) TECHNOLOGY OVERVIEW
Many of our products and services are powered by our patent-pending iDIALOG(TM)
technology, which enables centralized offer delivery, consumer lead generation,
and reporting. We use our unique iDIALOG(TM) technology to deliver promotional
offers to consumers as they participate in our promotions. We direct a
customer's offer to consumers based on the consumer's demographic profile or
their responses to personalized questions generated in earlier promotions by our
iDIALOG(TM) technology. The following steps illustrate how consumers utilize our
iDIALOG(TM) technology when participating in promotions:
1. Web user enters a promotion utilizing the Company's
iDIALOG(TM) technology.
2. Web user selects the prize incentive they are interested in winning.
3. iDIALOG(TM) receives the request and checks if the Web user has
already voluntarily registered in our database.
4. If the Web user has not completed the initial voluntary registration
in our database, they are presented with a registration form to
complete. Upon completion of the registration form, the Web user's
browser requests a targeted offer from a Promotions.com server.
5. If the Web user is already registered in our database, the Web
user's browser requests a targeted offer from a Promotions.com
server.
6. Promotions.com iDIALOG (TM) then compares the Web user's profile
with the targeting criteria of the hundreds of offers available in
its database and instantly delivers a dynamically targeted offer.
The Web user can 'opt-in' or 'pass' on the targeted offer.
7. Our servers then direct the Web user's browser to the marketers
desired targeted destination.
Our iDIALOG(TM) technology dynamically targets and delivers offers to Web users
based on pre-selected criteria, including the promotion category, age, gender,
time of day and regional geographic location. Because iDIALOG(TM) technology is
Web-based, continuous enhancements to the technology can be made without the
need for our customers to upgrade or purchase new equipment or software
upgrades. We continue to enhance and develop our patent-pending iDIALOG(TM)
technology platform. Enhancements of the iDIALOG(TM) technology have allowed for
the development of additional features, including (i) instant win games, (ii)
promotional email and (iii) iDIALOG(TM) KIDSAFE technology which provides
marketers with the ability to run promotions compliant with the Children's
Privacy Act of 2000.
PROMOTIONS.COM CUSTOM SOLUTIONS
Promotions.com CUSTOM SOLUTIONS provides customers the opportunity to run a
promotion on the customer's own Web site under its own brand name with an
appearance that is unique and consistent with its own Web site design, while
using our infrastructure and proprietary technology. Our custom solutions are
designed to integrate the online and offline promotional objectives of our
customers to maximize a campaign's effectiveness. Our custom solutions provide
marketers with a portfolio of targeting products and services, in-depth consumer
profiles and comprehensive reporting to develop customized solutions, which
create accountability and greater returns for their promotional spending.
Promotions.com CUSTOM SOLUTIONS utilizes iDIALOG(TM) technology to facilitate
and support its Internet promotions. Marketers benefit from the iDIALOG(TM)
technology by improving the effectiveness of the promotion on their Web sites
and allowing them to make targeted offers to Web users as they are participating
in their promotions. Our Custom Solutions services range from simple
syndications of pre-existing promotions produced by Promotions.com to custom
promotions
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that require development efforts and ongoing technical services. A client can
choose a complete promotion package or any one or a combination of specific
services. We guide custom solutions customers through the promotion-creation
process and allow customers to choose those features appropriate for their
promotion. Customers generally select their own prizes or offers for the
promotion, and we tailor the other aspects of the promotion to help them meet
their goals and objectives. Custom promotions often include lead generation
through email campaigns and management reports.
Web users entering Custom Solution promotions register for prizes through our
technology and registration process. This enables our Custom Solution customers
to use our technology to offer our one-time lifetime registration, which makes
it easier for their visitors to enter our sweepstakes or a series of promotions
run by our customers. Customers of Promotions.com CUSTOM SOLUTIONS have included
Autobytel.com, Hyundai, NBC, Netscape, Panasonic, The Sharper Image, Toshiba and
Universal Studios, among others.
We provide the technological, business and creative infrastructure necessary to
effectively produce and conduct online promotions on a cost-effective basis.
These capabilities include the following:
Creative Services
o Theme, naming and concept development of promotions--create
appropriate prize interest categories; create theme-based and
custom solution promotions
o Promotion design and production--create and produce visually
attractive, easy-to-use promotions
Automation of Process
o Collection and maintenance of demographic information--manage
data provided by member registration, prize selection and
other member activity
o Promotion research--measure effectiveness of promotions;
suggest alternatives to better satisfy client goals
o Winner selection, notification and affidavit
collection--select winners in compliance with sweepstakes
laws; collect affidavits; verify accuracy of information
provided by winner
o Customer service--respond to email questions o Promotion
support services--handle postal entries; provide lists of
winners
o Legal compliance services--distribute IRS Form 1099's as
required; create and provide official rules
Fulfillment
o Prize selection and acquisition--select appropriate
prizes; acquire prizes from suppliers
o Prize fulfillment--arrange for shipment of prizes
WEBSTAKES.COM PROMOTIONS PORTAL
WEBSTAKES.COM is a media property and promotions portal organized by categories
of interest to consumers. WEBSTAKES.COM enables marketers to benefit from the
dynamic offer matching, targeting and delivering functionality provided by our
iDIALOG(TM) technology. As a result, marketers can customize their opt-in offer
delivery on WEBSTAKES.COM within specific categories of interest, within
specific promotions, or by targeting based on a variety of factors including
user interest and user geographical location. We generate revenues from the sale
of sponsorships and advertising on WEBSTAKES.COM. To capitalize on the global
reach of the Internet, we intend to establish WEBSTAKES.COM internationally.
Every time a consumer enters a promotion on WEBSTAKES.COM, our iDIALOG(TM)
technology enables our customers to present them with an offer for products or
services and requests permission to send them follow-up information relating to
such offers. Our iDIALOG(TM) technology targets these opt-in offers based upon
our members' demographic profiles and interests. Responses to these questions
are stored in our database, and we send follow-up emails to our members if we
have been granted permission to do so. Each time a member enters a promotion or
answers or responds to a iDIALOG(TM) question, our database is updated to
include such information.
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WEBSTAKES.COM services are most typically sold in sponsorship packages, each of
which includes a combination of WEBSTAKES.COM services tailored to satisfy a
customer's objectives. The choice and level of services included in a
sponsorship package is determined by the level of sponsorship selected by the
customer. Our sponsorship packages vary by:
o the number of interest categories in which a customer's logo appears;
o the size of the customer's logo, and whether a text message accompanies
the logo;
o the number of guaranteed impressions or visitors delivered to a customer's
logo, advertisement or Web site;
o the number of times a customer's offer appears in the Webstakes Update
newsletter; and
o the number of email campaigns.
We display the banners and logos of our sponsors on various pages throughout
WEBSTAKES.COM. After a consumer completes an entry in one of our promotions, we
typically deliver them to a page from one of our sponsor's Web sites which
effects a click-through to our customer's Web site.
Webstakes.com features promotions produced and created by Promotions.com in
addition to a listing of promotions created by other companies. These promotions
offer consumers the opportunity to win products and cash prizes, free travel,
gift certificates and to receive coupons for discounts on purchases from leading
merchants 24 hours a day, seven days a week. When they participate in our
promotions, consumers may also request to receive offers and information about
our customers' products through our iDIALOG(TM) technology. iDIALOG(TM) allows
us to target offers based on the consumer's demographic profile and interests.
Since its inception in 1996, WEBSTAKES.COM has offered consumers a chance to
receive offers and win prizes in different interest categories. Each category is
designed to appeal to consumers' specific interests and includes promotional
offers and prizes related to the theme of the interest category. Presently,
there are 16 Prize Club interest categories:
o Auto
o Books & Music
o Business & Finance
o Campus
o Computing Products
o Family & Kids
o Fashion & Beauty
o Games & Casino
o Gifts, Flowers & Food
o Home Sweet Home
o House & Home
o Mind Your Business
o Sports & Health
o Travel & Outdoors
o TV, Movies & Video
o Webstakes@The Movies
In addition, several special promotions run at different times throughout the
year on WEBSTAKES.COM. These include promotions designed around holidays such as
Mother's Day and Christmas and events such as the Super Bowl, movie premiers and
the Academy Awards. At any given time, there are typically sweepstakes for over
100 prizes available on WEBSTAKES.COM. We have recently introduced a variety of
new information and features on WEBSTAKES.COM, including interactive content and
comprehensive listings about a broad array of online promotions. For example, we
recently introduced an instant win game on WEBSTAKES.COM. After entering their
email address and/or registering to become a WEBSTAKES.COM member (if not
already a member) they receive a game card that can be "scratched-off" by moving
their mouse back and forth to expose images that determine whether they have won
a prize. We have also introduced a variety of other interactive games and
contests, an extensive listings of coupon offers, free samples and other
promotions available online.
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Membership Registration and Newsletter Subscriptions
Visitors to WEBSTAKES.COM must register as members to participate in our
promotions and receive targeted opt-in offers. Visitors become members by
completing our one-time registration form that requires them to provide certain
demographic information. Once this information is provided, a visitor becomes a
lifetime member and never has to provide the registration information again,
other than to update any changed information, to enter any other promotion on
WEBSTAKES.COM.
Many of our members choose to subscribe to our WEBSTAKES.COM newsletter. We
publish both a weekly edition, the Webstakes Update, which currently has more
than 2.1 million subscribers, and a daily edition, the Daily Reminder, which
currently has more than 850,000 subscribers. These newsletters are 100% opt-in
meaning that they are only distributed to members who have specifically
requested to receive them, either during our registration process, through an
iDIALOG(TM) offer or some other venue. The newsletters provide an important
means for us to communicate with our members and to provide them with
information about our promotions and about special offers from our customers.
Affiliate Program
Our Affiliate Program allows a member to put a free link to the WEBSTAKES.COM
Affiliate Program sweepstakes on their personal home page. Members with their
own personal Web site can request the information necessary to feature a
WEBSTAKES.COM banner on their Web page. We have received more than 23,000
requests for this information. A visitor to a member's personal home page can
click on the WEBSTAKES.COM banner, register as a WEBSTAKES.COM member and enter
a monthly $1,000 sweepstakes run exclusively for the Affiliate Program. After
entering the special sweepstakes, the visitor is taken to the WEBSTAKES.COM home
page and can then enter other WEBSTAKES.COM promotions. Every affiliate is
automatically entered into a special monthly $500 sweepstakes we conduct to
encourage participation in the Affiliate Program. This program can make personal
home pages more fun while at the same time increasing the exposure of
WEBSTAKES.COM.
Tell-A-Friend
We also promote awareness of WEBSTAKES.COM and its promotions through our
Tell-a-Friend Program, which enables recipients of our email and Webstakes
Update, as well as visitors to WEBSTAKES.COM, to forward any promotion to
friends and family via email, and provides incentives to members who tell others
about WEBSTAKES.COM.
PROMOTIONS.COM DIRECT
Our third revenue source, Promotions.com DIRECT was launched in January 2000 and
provides marketers with access to the company's database of opt-in consumers.
DIRECT provides comprehensive direct marketing services including email campaign
management and lead generation. Our services enable marketers to target their
products and services to consumers who have opted-in to receive such offers.
These consumers can opt-out, or unsubscribe from receiving such offers, at any
time.
We provide access to our opt-in list, email delivery services and promotional
tools to enhance email results as follows:
EMAIL ADDRESS LIST RENTAL. We provide marketers a solution to reach
consumers fitting their targeted criteria to help achieve maximum response
rates to their offers. Promotions.com manages email campaigns on behalf of
direct marketers enabling them to precisely target emails based on the
full demographic profiling available in our database. We support more than
20 different selection criteria. Our direct marketing staff can provide
assistance with email address list recommendations. Full creative services
are available including copywriting and design of html email messages.
TRACKING AND REPORTING. Through our systems, we can provide real-time
email campaign results to our customers.
PROMOTIONAL ENHANCEMENTS. We have developed several techniques for
improving the response rates of our customers' email marketing campaigns
through the inclusion of promotional tools in their marketing messages.
Essentially, we can include a simple sweepstakes offer or instant win game
card as part of any direct marketing campaign.
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Opt-in email offers three key advantages to businesses as compared to direct
mail marketing and online banner advertising:
SPEED. Opt-in email campaigns can be prepared and sent out within hours,
unlike direct mail campaigns that can take weeks to produce at printers
and lettershops. Email campaign results begin within moments of
transmission, with most responses received in 2-3 days. Direct mail
campaigns can take weeks to accumulate responses.
RESPONSIVENESS. Opt-in email campaigns typically generate higher response
rates than direct mail or online banner campaigns. Forrester Research
estimates that opt-in email campaigns generated click-through rates of
between 14.0-22.0% (March 1999). These click-through rates greatly exceed
both online banner response rates of between .5 - 1.0% and direct mail
response rates of between 1.0-2.0%. We also believe that our ability to
add promotional components into our email campaigns results in our list
generating higher response rates than other email lists on the market.
COST. Opt-in email campaigns are less expensive than direct mail
campaigns. Forrester Research estimates that the typical cost for email
campaigns per email message sent (including list rental and transmission)
is 20-25 cents. This compares to an average cost of 60 cents per delivery
for a direct mail campaign, including list rental, printing, postage and
processing fees. While banner ads may cost less than email campaigns on a
CPM (cost per thousand) basis, banner campaigns often end up costing more
due to low response rates.
We have only recently begun offering customers the opportunity to send emails to
our database as part of stand alone marketing efforts where we will charge on a
CPM basis. However, based on the feedback we have received to date, we believe
there is sufficient demand in the marketplace to warrant this type of service.
Forrester estimates that by 2004, US marketers will send 200 billion emails
generating a $1.6 billion opportunity for list owners. In the short time that we
have offered this service, our customers include Hewlett Packard, Bell South,
eNews and Buildscape, among others. Our service allows demographic selection of
email addresses based on the self-reported data provided by our members when
they initially registered with us. Selection is also based on behavior of
consumers while on WEBSTAKES.COM including category and prize affinity, answers
to survey questions and response to direct marketing offers. By maximizing the
demographic information that we receive from our members, we can effectively
target offers to consumers for our customers.
Our Promotions.com DIRECT opt-in database offers marketers the opportunity to
reach more than 2.3 million consumers via email. We provide leading marketers
and e-commerce retailers the opportunity to access a selection of targeted email
lists designed to achieve maximum response to their offers.
The goal of Promotions.com DIRECT is to become a leader in opt-in direct
marketing promotion solutions on the Internet and to provide promotional tools
that can be used to enhance online direct marketing efforts for ourselves, our
direct marketing customers, as well as other direct marketing service providers.
Key elements of our strategy include the following:
ENRICH OUR DATABASE WITH TRANSACTIONAL DATA. We can learn more about our
members every time they visit our Web site, WEBSTAKES.COM. Every time one
of our members registers to win a prize, this information enhances our
knowledge about the types of products and services they are interested in.
Our members are also continually responding to direct marketing offers
through our iDIALOG(TM) direct marketing system, which provides us with
further understanding of their interests. We intend to offer marketers the
opportunity to make selections from our membership database based on these
additional criteria.
DEVELOP NEW INTERNET MARKETING PRODUCTS AND SERVICES. We intend to expand
our direct marketing services to enable direct marketing emails to include
incentive programs and other promotional tools such as sweepstakes and
instant win games. The tools that we offer will work in the context of
emails we distribute to our members under the WEBSTAKES.COM brand, and
they will also work with third party mailings sent by our marketing
customers under their own brand names as well as mailings sent by other
Internet direct marketing companies.
EXPAND OUR SALES CHANNELS. We have recently entered into an arrangement
with a list manager pursuant to which they will be marketing our opt-in
email list to the list brokerage community. This arrangement facilitates
our access to traditional direct marketers seeking to run email campaigns.
We will also continue to engage in direct sales to our customer base.
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OUR TECHNOLOGY PLATFORM
Promotions.com proprietary iDIALOG(TM) technology serves as the enabling
platform for all of our solutions. This centralized promotion management
technology, resident on our servers, is linked to every promotion and
instantaneously completes the dynamic offer matching, targeting and delivering
functions. In 1999, our iDIALOG(TM) technology generated approximately 3.7
million leads worldwide. iDIALOG(TM) is a promotion tracking and reporting tool.
Detailed daily online performance reports allow marketers to actively monitor
and react to the success of particular promotions, marketing campaigns and Web
site traffic patterns. We have leveraged the iDIALOG(TM) technology to develop
additional promotional products including (i) instant win games, (ii)
tell-a-friend, (iii) match and win and (iv) promotional email and (v)
iDIALOG(TM) KIDSAFE technology which provides marketers with the ability to run
promotions compliant with the Children's Privacy Act.
Our operating infrastructure is designed to support the creation and delivery of
millions of page views each day. This infrastructure currently uses hundreds of
application, Web and database servers to provide timely and efficient delivery
of our services to customers and members. Our servers run on Sun Solaris and
Linux. Our standard database system is Oracle.
We have developed a broad array of information systems to perform site
management, Web user interaction, tracking, searching, transaction processing
and fulfillment functions. When available, our systems use third-party licensed
technologies to augment internally developed software. We focus our development
efforts on improving and enhancing our specialized tools with the goal of
automating as many processes as possible to increase member and customer
satisfaction.
Our iDIALOG(TM) technology consists of three integrated systems: a publishing
system, an Internet promotion engine and a data processing system, all of which
are supported by relational databases and multi-dimensional data warehousing
systems.
Publishing System
The publishing system contains the relevant information about our promotions,
including prizes, interest categories and customers. Once a customer's offer or
advertisement has been designed, each component, such as color, text and
graphics, is published as data objects in our Oracle relational database
management systems. Various combinations of these data objects are accessed and
published to the promotion.
Internet Promotion Engine
When a member visits a promotion, the Internet promotion engine creates a Web
page of various data objects by accessing the online Oracle databases. The
components of each Web page are dynamically generated based on the demographic
characteristics and preferences of the member, The Internet promotion engine
also deploys email campaigns to members on an opt-in basis based on information
stored in the Oracle databases. The online promotion engine uses a combination
of Java, Linux and Netscape and Apache Webservers as the vehicle to interact
with the Oracle databases. This software handles all transactional events and
queries, updates the Oracle databases and manages WEBSTAKES.COM, which is
designed to give members a convenient and safe environment to register for
offers.
Data Processing System
Our data processing system retrieves member demographic data from our Oracle
databases through the Internet promotion engine, processes the data, creates and
issues offers to members and manages all winner selections. The system was
designed to give employees and customers instant online access to information
related to specific promotions. Our salespeople can access member profiles to
search and analyze demographics and usage patterns to suggest promotions and
offers to customers. Generally, only aggregate data, and not individual member
profiles, is available to our customers. Members decide whether their data may
be used by third parties.
The structure of our hardware and software is designed to allow for rapid
expansion while maintaining our desired Web user performance standards. In the
rapidly changing Internet environment, we believe that the ability to update an
application to stay current with new technologies is important. Our system
design allows for the additional, modification or replacement of applications in
a cost-efficient and expeditious manner. We continually evaluate emerging
technologies and new developments in Web technologies with the objective of
optimizing our member and customer interfaces, Web site features and operational
systems.
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Our Internet connectivity is provided by Frontier GlobalCenter. We have entered
into an Internet-hosting agreement with Frontier to maintain all of our
production servers at Frontier's New York and California data centers. Frontier
provides comprehensive facilities management services, including human and
technical monitoring of all production servers 24 hours per day, seven days per
week. Frontier provides unlimited bandwidth and redundant connectivity for our
servers to communicate with the end users. The facility has two independent
uninterruptible power supplies, as well as two independent diesel generators
designed to provide power to the systems within seconds in the event of a power
outage. We safeguard our information using large RAID devices. We have backup
copies of all of our programs and data at an offsite location.
OUR STRATEGY
Our objective is to be the leading provider of global Internet promotion
solutions. Key elements of our strategy are to:
PROVIDE THE MOST COMPREHENSIVE INTERNET PROMOTION SOLUTIONS. We intend to
leverage the information aggregated from the millions of individual Web
users that visit our promotions on WEBSTAKES.COM and the Web sites of
marketers using the CUSTOM SOLUTIONS service to further enhance our
existing solutions and facilitate the development of additional solutions.
We believe that our proprietary iDIALOG(TM) technology and the experience
and knowledge gained through the delivery of thousands of Internet
promotions provide us with a significant competitive advantage over other
Internet promotion solutions providers. We intend to leverage our
technology, our demographic profile database and promotion expertise to
continue to develop new solutions and technological capabilities that meet
the needs of marketers. In addition, we intend to continue to add new
features and functionality to our iDIALOG(TM) technology.
INCREASE THE SIZE OF OUR DATABASE OF DEMOGRAPHIC PROFILES. We seek to
continually expand the size of our profile database and deepen our
proprietary database to provide a large audience to our marketers and the
ability to more accurately target messages for our customers. To increase
the size of our database, we use a variety of approaches, including online
advertising, offline acquisitions programs, referrals, strategic
partnerships and Custom Solutions. We increase the depth of our database
each time a person enters a promotion created by Promotions.com from which
we collect demographic and behavioral data. As more people enter our
promotions, and with each additional contact with each person, the extent
and precision of our information continues to grow. We intend to use our
growing database and our knowledge and experience to assist customers to
tailor offers and encourage future participation in Internet promotions.
ENHANCE AND EXPAND WEBSTAKES.COM. By enhancing and expanding
WEBSTAKES.COM, we believe that it will become a leading solution for
marketers worldwide. We intend to expand WEBSTAKES.COM by continuously
adding additional promotions, new categories of interest and a full array
of promotion tools. Any such additions will be required to meet the strict
inclusion and maintenance criteria in order to ensure that they will
continue to provide the desired audiences for marketers. We also plan to
continue to enhance WEBSTAKES.COM by introducing additional promotional
tools.
EXPAND CUSTOM SOLUTIONS & DIRECT SERVICES. We provide promotion services
to marketers that need full-service promotion solutions. We intend to
continue to focus on identifying appropriate marketers that may be
interested in utilizing our Promotion solutions.
EXPAND SALES AND MARKETING. We believe that a strong sales and marketing
organization is essential to effectively sell and market Internet
promotion solutions. We intend to continue to expand our sales and
marketing efforts. We believe that brand awareness of Promotions.com and
its solutions is critical to its success given the emerging nature of the
Internet promotion market. As a result, we are targeting our efforts to
marketers in order to establish and expand the recognition of its
corporate identity and service offerings through its Web site,
advertisements within trade publications, direct mail, promotional
activities, trade show participation and other media events. From January
1, 1999 to December 31, 1999, our sales and marketing organization
increased from 17 people to 62 people. We have entered into an agreement
with Excite to market our promotions on Excite.com, MatchLogic and with
NBC to advertise on national television and NBC.com.
EXTEND GLOBAL PRESENCE. We are developing our products and services
internationally. We believe that our products and technology can both help
U.S.-based businesses to reach international consumers and help
international businesses to reach U.S. and international consumers. We
intend to open sales offices in selected foreign countries and to employ
non-exclusive sales agents to expand international sales. We also intend
to create foreign language promotion services to increase foreign sales.
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SALES AND MARKETING
UNITED STATES
We sell our promotion and direct marketing solutions in the United States
through a sales and marketing organization that consisted of 62 employees as of
December 31, 1999. These employees are located at our headquarters in New York,
NY and in our office in San Francisco, CA. Our sales organization is divided
into dedicated groups that separately sell our services and product offerings,
and within these groups, our sales representatives are further divided into
separate teams to serve the needs of our diverse client base.
We have created sales subgroups for each of the industry categories we serve.
Salespeople are assigned to a particular industry category in order to develop
an in-depth understanding of the evolving needs of a particular category and the
marketers within such category. This expertise allows us to more effectively
manage existing categories and take advantage of opportunities to expand into
additional categories.
To support our direct sales efforts and to actively promote the Promotions.com
brand, we conduct comprehensive marketing programs, including public relations,
print advertisements, online advertisements, trade shows and ongoing customer
communications programs.
INTERNATIONAL
Promotions.com is in the process of expanding its operations worldwide through
the creation of strategic business relationships. Such relationships enable us
to leverage the local marketplace knowledge of our business partners. As we
continue to expand internationally, we intend to expand our direct sales and
marketing capabilities to create direct sales organizations in certain
international markets and, in other markets, to enter into strategic business
relationships with companies having knowledge of the particular marketplace.
CUSTOMERS
We served approximately 220 customers in 1999 and approximately 125 customers in
1998. In 1999, our five largest customers accounted for approximately 17% of our
revenues.
PRIVACY
We believe that it is important to build and maintain the trust of the consumers
in our database. We are committed to maintaining the privacy of the consumers in
our database and their personally identifiable information. We are a member of
TRUSTe, an independent, non-profit initiative whose mission is to build Web
users' trust and confidence in the Internet by promoting the principles of
disclosure and informed consent. As a member of TRUSTe, we disclose our
information practices on WEBSTAKES.COM and in our promotions, and we comply with
specified information disclosure practices. During the registration process and
thereafter, WEBSTAKES.COM visitors must grant us permission to send them the
Webstakes Update and email offers from us and/or our customers. If Web users do
not specifically authorize us to send them information, they will not receive
email from us or our customers. We seek to ensure that our privacy policy
satisfies consumer expectations and evolving Internet practices.
Promotions.com continues to promote the advancement of key privacy standards and
is working with the Privacy Council, one of the nation's leading privacy
consultancy groups to ensure the highest privacy standards on the Internet.
Promotions.com has always valued the trust of its members, which has been a key
to the Company's growth over the past four years. The Company maintains a 100%
opt-in policy to ensure that the consumer always decides what type of marketing
messages they receive from the Company.
The Federal Trade Commission, or FTC, adopted regulations effective April 21,
2000, regarding the collection and use of personal identifying information
obtained from individuals when accessing Web sites, with particular emphasis on
access by minors. These regulations also include enforcement and redress
provisions. The Company is implementing programs to ensure full compliance with
the FTC regulations.
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COMPETITION
Competition in the Internet promotion services market is intense. We expect
competition in our market to continue to intensify as a result of increasing
market size, greater visibility of the market opportunity for Internet promotion
services and minimal barriers to entry. Competition may also increase as a
result of industry consolidation, particularly among narrowly-focused promotion
companies. We believe that our ability to compete depends on many factors both
within and beyond our control, including the following:
o the success of the sales and marketing efforts of us and our competitors;
o the ease of use, performance, price and reliability of promotions
developed by us and our competitors; and
o the timing and market acceptance of new services developed by us and our
competitors.
The online promotion services market is highly fragmented, with many companies
focusing generally on only one aspect of the promotions market. We also compete
with offline promotion companies, large Internet publishers, search engines and
other portal companies, a variety of Internet advertising networks and other
companies that facilitate the marketing of products and services on the
Internet.
Please see "Risk Factors - We face significant competition, and we may not be
able to compete successfully" for a more detailed description of the risks of
our competition.
Employees
As of December 31, 1999, we employed 121 people including 62 in sales and
marketing, 45 in engineering and product development and 14 in finance, human
resources, business operations and administration. We are not subject to any
collective bargaining agreements and believe that our relationship with our
employees is good.
CORPORATE INFORMATION
We were incorporated in New York on January 8, 1996 as Webstakes, Inc. We
reincorporated in Delaware as Netstakes, Inc. on June 5, 1996 and we continued
doing business under the name Webstakes. We changed our name to Webstakes.com,
Inc. on June 11, 1999. On September 24, 1999, we completed our initial public
offering of common stock, receiving net proceeds of approximately $44.9 million.
On January 27, 2000, we changed our name to Promotions.com, Inc.
Our principal executive offices are located at 11 West 19th Street, 10th Floor,
New York, New York 10011. Our telephone number at that location is (212)
242-8800.
ITEM 2. PROPERTIES
As of December 31, 1999, our principal offices were located in two separate
facilities in New York, New York. These facilities consist of a total of
approximately 12,850 square feet and are under leases, which expire in August
2000 and February 2002. We intend to consolidate our principal offices in the
third quarter of 2000 to a larger facility and in January 2000 entered into a
ten year lease for approximately 36,000 square feet of office space in New York,
New York. This space is currently under construction to provide for the
expansion of personnel and facilities. While this construction is ongoing, the
Company is occupying temporary space of approximately 4,800 square feet. We also
lease approximately 2,400 square feet of space for our sales and marketing
efforts in San Francisco, California. We are continually evaluating our
facilities requirements and believe, to the extent additional space will be
required, such space will be available at market rates.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
We have not declared or paid any dividends on our capital stock since our
inception and do not anticipate paying dividends in the foreseeable future. Our
current policy is to retain earnings, if any, to finance the expansion of our
business. The future payment of dividends will depend on the results of
operations, financial condition, capital expenditure plans and other factors
that we deem relevant and will be at the sole discretion of our board of
directors.
Market Information
Since our initial public offering on September 24, 1999, our common stock has
been traded on the Nasdaq National Market. From September 24, 1999 through
February 1, 2000, our stock traded under the symbol "IWIN" and since February 2,
2000, our stock trades under the symbol "PRMO." The following table sets forth
the high and low closing prices of the common stock, for the periods indicated,
as reported by the Nasdaq National Market.
High Low
---- ---
Year Ended December 31, 1999
Third Quarter (commencing September 24, 1999)........... $11.50 $8.88
Fourth Quarter.......................................... $26.19 $6.28
The market price of our common stock is highly volatile and fluctuates in
response to a wide variety of factors. See "Risk Factors- Our Common Stock Price
is Likely to be Highly Volatile."
Holders
On March 1, 2000, we had approximately 52 holders of record of common stock.
This does not reflect persons or entities who hold their stock in nominee or
"street" names through various brokerage firms.
Use of Proceeds From IPO
Pursuant to Rule 701 of Regulation S-K, the use of proceeds from the Company's
offering of common stock which commenced on September 24, 1999, is as follows as
of December 31, 1999:
Shares registered: 3,575,000
Aggregate price of offering amount registered: $50,050,000
Shares sold: 3,575,000
Aggregate price of offering amount sold $50,050,000
Director or indirect payments to
directors, officers, general
partners of the issuer or their
associates, to persons owning ten
percent or more of any class of
equity securities of the issuer and
to affiliates of the issuer: $-0-
Direct or indirect payments to others: $5,070,641
Net offering proceeds to the issuer after
deducting expenses: $44,979,359
Detail uses to date:* $10,331,729
Working capital reserves: $-0-
Temporary investments in cash and cash equivalents: $34,647,630
* As of December 31, 1999, the proceeds used from our initial public offering
were used towards payments due to Excite and Matchlogic and for working capital
and general corporate purposes.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read together with the financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in Item 7.
The statement of operations for the years ended December 31, 1999, 1998 and
1997, and the balance sheet data as of December 31, 1999 and 1998, are derived
from our audited financial statements included in this annual report. The
statement of operations data for the period from January 8, 1996 (inception)
through December 31, 1996 and the balance sheet data as of December 31, 1997 and
1996 has been derived from our audited financial statements not included in this
annual report.
<TABLE>
<CAPTION>
Year Ended December 31, January 8, 1996
------------------------------------------ (Inception) to
1999 1998 1997 December 31, 1996
---- ---- ---- -----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................... $ 10,456 $ 4,799 $ 1,618 $ 80
Loss from operations ....................... (19,023) (1,338) (190) (213)
Net loss ................................... (18,371) (1,414) (227) (221)
Net loss attributable to common
stockholders ............................. $ (27,083) $ (1,414) $ (227) $ (221)
=========== =========== =========== ===========
Basic and diluted net loss per share
attributable to common
stockholders ............................. $ (3.61) $ (0.27) $ (0.05) $ (0.06)
=========== =========== =========== ===========
Weighted average shares of
common stock used in
computing basic and diluted net
loss per share ........................... 7,502,575 5,181,356 4,278,916 3,999,576
=========== =========== =========== ===========
</TABLE>
The following table is a summary of our balance sheet as of December 31, 1999,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
As of December 31,
------------------
1999 1998 1997 1996
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash ............................................ $34,648 $ 18 $ 85 $ 24
Working Capital ................................. 41,605 (1,124) (149) (249)
Total Assets .................................... 53,725 1,196 476 134
Notes payable (excluding current
portion) ........................................ -- 67 -- --
Total stockholders' equity
(deficit) ....................................... 47,856 (753) 125 (191)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
Promotions.com contains forward-looking statements relating to the future events
and the future events and the future performance of Promotions.com within the
meaning of section 27A of the Securities Exchange Act of 1933, as amended, and
section 21E of the Securities Exchange Act of 1934, as amended. Stockholders are
cautioned that such statements involve risks and uncertainties. Promotions.com's
actual results and timing of certain events could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this report and in Promotions.com's other public filings on file
with the Securities & Exchange Commission.
OVERVIEW
During 1999, revenue was generated primarily by promotion services. Principally
all of the company's historical revenues have been derived from the sale of
promotion services. We expect to derive substantially all of our revenues from
the sale of promotion services for the foreseeable future.
We recognize revenues from promotion services ratably over the period during
which we provide promotion services, provided that no significant obligations
remain and collection of the resulting receivable is reasonably assured.
Payments received from customers prior to providing promotion services are
recorded as deferred revenue and are recognized as revenue ratably as the
services are provided. With respect to revenue generated from our promotions
portal, WEBSTAKES.COM, we generally guarantee a minimum number of impressions,
or times that the customer's name, logo or other identifier appears in pages
viewed by visitors to WEBSTAKES.COM, and/or times that our visitors are
delivered to our customer's web site. To the extent that these minimum
guarantees are not met, we defer recognition of the corresponding revenues until
the guaranteed levels are achieved.
Promotion.com CUSTOM SOLUTIONS services provides custom turnkey solutions to
create and manage promotions on a customer's own web site. Revenues are derived
principally from contracts in which the company typically provides services for
the administration and implementation of the promotion. The contracts typically
include cancellation clauses ranging from 30 to 60 days. Since there are
significant up front customized design work incurred before a promotion begins,
the company recognizes the portion of revenue related to the customized design
work at the time the work is performed. The remaining revenue is recognized
ratably in the period in which the promotion is run, provided that no
significant company obligations remain.
Revenues include revenues from barter transactions in which we exchange
promotion services for advertising and prizes. Revenues from these barter
transactions are recorded as promotion revenues at the lower of the estimated
fair value of the goods or services received or delivered and are recognized
when we deliver the promotion services. Advertising expenses related to barter
are recognized when our advertisements are run on the reciprocal web site, which
is typically in the same period as the corresponding barter revenues are
recognized. Prize expenses related to barter are recognized when prizes are
awarded. In 1999, barter revenues were 20% of our total revenues. We expect
that, as our cash revenues grow, barter as a percentage of our revenues will
decrease.
The period-to-period comparisons of our historical operating results should not
be relied upon as indicative of future performance. Our annual report should be
considered in light of the risks, expenses and difficulties encountered by
companies in the early stages of development, particularly companies in the
rapidly evolving stages of the Internet market. Although we have experienced
revenue growth in recent periods, we anticipate that we will incur operating
losses for the foreseeable future due to a high level of planned operating and
capital expenditures. In particular, we expect to increase our operating
expenses in order to expand our sales force and marketing personnel and to
develop, integrate and scale our technology.
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RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 1999, 1998, and 1997
Revenues. Revenues primarily result from the sale of promotion services.
Revenues were approximately $10.5 million for 1999, $4.8 million for 1998 and
$1.6 million for 1997. We recorded barter revenues of approximately $2.1 million
during 1999, $2.0 million during 1998 and $485,000 during 1997, representing
approximately 20%, 42% and 30% of total revenues during those periods. The
period-to-period growth in revenues was primarily attributable to the increasing
number of marketers purchasing promotional services on the Company's on-line
media property and purchasing CUSTOM SOLUTIONS as well as larger longer-term
purchases by certain marketers. Approximately 220 customers purchased
promotional services during 1999 as compared to approximately 125 in 1998 and 67
in 1997. No one customer accounted for more than 10% of total revenues or net
accounts receivable for the years ended December 31, 1999 and 1998, and one
customer accounted for 35% of total revenues for the year ended December 31,
1997. In 1999, 1998 and 1997, revenues from the Company's five largest customers
accounted for 17%, 24% and 53% of total revenues, respectively. There can be no
assurances that the online promotion market will grow, customers will continue
to purchase promotional services, that customers will not make smaller and
shorter term purchases, or that market prices for Web-based promotional services
will not decrease due to competitive or other factors.
Product Development Expenses. Product development expenses include the personnel
costs associated with the design and development of WEBSTAKES.COM, our
promotions infrastructure and technology, as well as software licensing costs.
Product development expenses were approximately $2.1 million or 20% of total
revenues for 1999, $549,000 for 1998, or 11.4% of total revenues and $181,000
for 1997, or 11.2% of total revenues. The year-to-year increases in absolute
dollars are primarily attributable to increases in the number of engineers that
develop and enhance the features and functionality of WEBSTAKES.COM and, in
1999, the Company's increased focus on Promotions.com CUSTOM SOLUTIONS services
and the roll-out of new products. Historically, we expensed our product
development costs as incurred. However, in the first quarter of 1999, we began
to capitalize the labor costs of improvements and betterments to our software
under Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Such improvements and betterments
include improving the functionality and navigability of WEBSTAKES.COM.
Therefore, we have capitalized $196,000 of product development expenses for the
year ended December 31, 1999 and are amortizing these costs over three years. We
believe that timely deployment of new and enhanced products and technology is
critical to attaining our strategic objectives. Accordingly, we intend to
continue recruiting and hiring experienced product development personnel and to
make additional investments in product development. Consequently, the Company
expects to incur increased product development expenditures in absolute dollars
in future periods.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
advertising costs, salaries and commissions of sales and marketing personnel,
costs of trade shows, conventions and marketing materials and other marketing
expenses. Sales and marketing expenses were approximately $19.9 million for 1999
or 190% of total revenues, $3.6 million for 1998, or 75.4% of total revenues and
$1.1 million for 1997, or 67.4% of total revenues. The period-to-period
increases in sales and marketing expenses reflect the growth of the Company and
are due to increases in advertising costs, compensation expense associated with
the growth of the Company's sales force and marketing personnel and an increase
in sales commission associated with the increase in revenues. In 1999, the
increase was primarily attributed to an increase in advertising costs associated
with the Company's aggressive marketing strategy. The Company anticipates that
sales and marketing expenses in absolute dollars will increase in future periods
as it continues to pursue an aggressive marketing strategy through advertising
and continues to expand its international operations, and continues to build its
sales force.
General and Administrative Expenses. General and administrative expenses consist
primarily of services and related costs of general corporate functions,
including finance, accounting costs and facilities. General and administrative
expenses were approximately $6.7 million for 1999, or 64% of total revenues,
$2.0 million for 1998, or 41.0% of total revenues and $536,000 for 1997, or
33.1% of total revenues. The increases in general and administrative expenses
were primarily attributable to increased salaries and related expenses
associated with hiring additional personnel, and increased professional fees and
facility expenses to support the growth of our operations. In addition, we
incurred bonus expenses of $435,000 in 1999 related to the initial public
offering. The increase was also due in part to an increase in allowance for
doubtful accounts. This increase in the allowance for doubtful accounts was the
result of an increase in cash revenues, an increase in the percentage of cash
revenues reserved for doubtful accounts and the establishment of a reserve for
one account for which collection is in doubt. We expect to incur additional
general and administrative expenses as we hire additional personnel and incur
additional costs related to the growth of our business and operation as a public
company. We expect these expenses to include facilities expansion, investor
relations programs and professional service fees. Accordingly, we anticipate
that general and administrative expenses will continue to increase in absolute
dollars. We
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<PAGE>
expect that general and administrative expenses will follow the pattern for a
growth company, increasing initially and then, once a certain revenue base is
achieved, decreasing, as a percentage of revenue.
Interest Income, Net. Interest income, net of expense, consists primarily of
interest earned on our cash balance and the interest expense on our outstanding
debt. We recognized net interest income of approximately $652,000 for 1999, and
net interest expense of $76,000 for 1998 and $37,000 for 1997. The increase was
primarily attributable to a higher average cash balance, principally due to
proceeds received from a private placement and initial public offering during
1999. Interest income in future periods is likely to go down as a result of a
reduction in average cash balances maintained by the Company and changes in the
market rates of its investments.
Income Taxes. No income tax benefit is reflected in the financial statements as
a valuation allowance was provided for deferred tax assets relating to net
operating losses. As of December 31, 1999, we had approximately $28.5 million of
federal net operating loss carryforwards for tax reporting purposes to offset
future taxable income. Our federal net operating loss carry forwards expire in
the years 2012 through 2019.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the private
and public placement of equity securities and the incurrence of indebtedness. On
September 24, 1999, we completed the initial public offering of 3,575,000 shares
of common stock for gross proceeds of $50.1 million and net proceeds of $44.9
million, after deducting expenses of the offering.
Net cash used in operating activities was approximately $21.7 million (net of
$5.7 million of MatchLogic & Excite expenses) for 1999, compared to
approximately $1.5 million for 1998 and $125,000 for 1997. The increase in cash
used in operating activities for 1999 was primarily due to the net loss of $18.3
million during the period which resulted from costs incurred to support the
Company's sales and marketing efforts and the increased personnel required to
manage the Company's growing operations combined with higher levels of accounts
receivable resulting from increased revenues which was partially offset by
increases in accounts payable and accrued expenses.
Net cash used in investing activities was approximately $2.3 million for 1999,
$301,000 for 1998 and $203,000 for 1997. As of December 31, 1999, our principal
capital commitments consisted of obligations outstanding under operating and
capital leases. All net cash used in investing activities was used for capital
expenditures, primarily the acquisition of equipment. We estimate that our
capital expenditures will be approximately $8.0 million for 2000. We currently
expect that our principal capital expenditures through 2000 will relate to
improvements to our technical infrastructure and expansion of our headquarters.
Net cash provided by financing activities were approximately $64.4 million for
1999, $1.7 million for 1998 and $390,000 for 1997. Net cash provided by
financing activities in 1999 was primarily attributable to our private
placements and initial public offering. Net cash provided by financing
activities in 1998 was primarily attributable to incurrence of indebtedness and,
to a lesser extent, borrowings under a secured credit facility related to
equipment financing. We borrowed $200,000 available under a credit facility in
December 1997 to purchase equipment. To date, we have made all payments due
under this equipment loan.
We have a financing agreement with a leasing company for the leasing of
equipment in an amount up to $1.0 million in operating and/or capital leases,
secured by certain accounts receivable and the equipment purchased pursuant to
the agreement. To date, we have leased approximately $840,000 of equipment under
the agreement. The leases have terms of up to three years and the interest rates
under the leases range from 8 1/2% to 13%. We are required to make monthly
payments of interest and principal under the leases.
We have a two-year sponsorship agreement with Excite under which Excite agreed
to promote WEBSTAKES.COM through ad banner placements and links to WEBSTAKES.COM
and its promotions on Excite.com, WebCrawler.com and Classified2000.com. We have
prepaid Excite $5.6 million during 1999 for this two year agreement. At Home
Corporation, the parent company of Excite, is one of our principal stockholders.
Each quarter we recognize approximately $683,000 of expense related to this
agreement.
We have a service agreement with MatchLogic, a wholly owned subsidiary of
Excite, pursuant to which MatchLogic will provide ad serving and targeting, data
processing, analysis, enhancement and other services to Promotions.com. The term
of the agreement is two years. We have prepaid MatchLogic $13.1 million, during
1999 for this two-year agreement. Each quarter we recognize approximately $1.5
million of expense related to this agreement.
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In June 1999, we redeemed all outstanding shares of class A mandatorily
redeemable convertible preferred stock and 1,714,608 shares of common stock for
an aggregate amount of $24.0 million. To finance the redemption and to provide
working capital, we issued shares of new class B mandatorily redeemable
convertible preferred stock to a group of investors, including among others, At
Home Corporation, XL Ventures, a subsidiary of Big Flower Holdings, and
Travelers, for an aggregate purchase price of $40.0 million. Upon completion of
the initial public offering, the class B mandatorily redeemable convertible
preferred stock automatically converted into 6,666,668 shares of common stock.
The class A mandatorily redeemable convertible preferred stock and class B
mandatorily redeemable convertible preferred stock are not be available for
reissue. The excess of the consideration paid to the holders of the class A
mandatorily redeemable convertible preferred stock over the carrying amount of
the class A mandatorily redeemable convertible preferred stock represents a
deemed dividend or return to the holders of the class A mandatorily redeemable
convertible preferred stock of $8.7 million.
Our capital requirements depend on numerous factors, including the amount of
resources the Company devotes to advertising and marketing our brand, the
resources the Company devotes to expanding our sales and marketing capabilities,
resources devoted to acquire or invest in complementary businesses,
technologies, products or services or to invest in geographic expansion.
Management believes that our cash on hand as of December 31, 1999 of $34.6
million together with cash flows will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for our existing business for
the next 12 months based on our current rate of cash use. However, we will need
to raise additional funds during 2000 in order to fund more rapid expansion,
adopt a more aggressive marketing strategy or in response to competitive
pressures. There can be no assurances that any required additional financing
will be available on terms favorable to us, or will be available at all. If
adequate funds are not available on acceptable terms, we may be unable to fund
our expansion, successfully promote our brand name, develop or enhance our
services, respond to competitive pressures or take advantage of acquisition
opportunities. Any of these events could have a material adverse effect on our
business, results of operations or financial condition.
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RISK FACTORS
An investment in our Company involves a high degree of risk. You should consider
carefully the risks below, together with the other information contained in this
annual report, before you decide to invest in our Company. If any of the
following risks actually occur, our business, results of operations and
financial condition could be harmed, the trading price of our common stock could
decline and you could lose all or part of your investment.
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
We were incorporated, and launched our first promotion, in January 1996.
Accordingly, we have a limited operating history upon which to evaluate our
operations and future prospects. In addition, our revenue model is evolving and
relies substantially upon the growth of promotion spending on the Internet and
our ability to become a full-service Internet promotion company. As an early
stage company in a new and rapidly evolving market, we face risks and
uncertainties relating to our ability to successfully implement our business
plan, which are described in more detail below. We may not successfully address
these risks.
WE HAVE NOT BEEN PROFITABLE AND MAY NOT BECOME PROFITABLE, IN WHICH EVENT OUR
BUSINESS AND STOCK PRICE WOULD BE ADVERSELY AFFECTED.
To date, we have not been profitable. We may never be profitable, or, if we
become profitable, we may be unable to sustain profitability. We expect to
continue to incur losses for the foreseeable future because we expect to
continue to spend significant resources to expand our business. Although we have
experienced revenue growth in recent periods, these growth rates may not be
sustainable or indicative of future growth. We reported a loss of $18.4 million
for the year ended December 31, 1999. As of December 31, 1999, our accumulated
deficit was approximately $20.2 million. For us to make a profit, our revenues
will need to increase sufficiently to cover our costs and expenses.
A SIGNIFICANT PORTION OF OUR REVENUES HAVE BEEN DERIVED FROM BARTER
TRANSACTIONS, AND WE MAY NOT BE SUCCESSFUL IN GENERATING SUFFICIENT CASH
REVENUES TO COVER OUR COSTS AND EXPENSES IN THE FUTURE.
For the year ended December 31, 1999, approximately 20% of our revenues were
derived from the trading of promotion services for advertising and prizes. We do
not receive cash for sales involving barter agreements. We expect that barter
agreements will continue to account for a significant portion of our revenues in
the future and we may not generate sufficient cash to pay our cash expenses.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH MAY CAUSE THE PRICE OF OUR
COMMON STOCK TO DECREASE.
We expect our operating results to vary significantly from quarter to quarter
due to many factors discussed in this Risk Factors section, some of which are
beyond our control. It is possible that in future periods our results of
operations will be below the expectations of public market analysts and
investors. In this event, the price of our common stock would likely decrease.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance.
The rapidly evolving market in which we operate and potential seasonal
fluctuations in promotional spending and Internet use make it difficult to
forecast our revenues accurately. Our operating expenses are based on our
expectations of future revenues and are relatively fixed in the short term.
Accordingly, we may not be able to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. If we have a shortfall in
revenues in relation to our expenses, or if our expenses precede expected
revenues, then our results of operations and financial condition would be
materially adversely affected.
19
<PAGE>
IF THE DEMAND FOR INTERNET PROMOTION SERVICES DOES NOT INCREASE, OUR BUSINESS
WILL BE HARMED.
Our success depends in part on the increased acceptance of online promotion
services. The market for Internet promotion services has only recently begun to
develop and is evolving rapidly. Most businesses have little or no experience
using the Internet for promotion purposes. As a result, many businesses have
allocated only a limited portion of their marketing budgets to Internet
promotion spending. An increase in the demand for these services is dependent in
part on the effectiveness of the promotions and the recognition of this
effectiveness by customers and potential customers. The market for Internet
promotion services may not grow and any growth may not be sustained.
IF WE ARE UNABLE TO ATTRACT VISITORS TO WEBSTAKES.COM AND THE WEB SITES OF OUR
CUSTOMERS, THE EFFECTIVENESS OF OUR PROMOTIONS WOULD BE REDUCED, AND OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD BE MATERIALLY
ADVERSELY AFFECTED.
Our future success depends upon our ability to continue to attract and retain
visitors with demographic characteristics desired by our clients to
WEBSTAKES.COM and the web sites of our customers. In addition, we guarantee our
clients that visitors will view their pages and/or link to their web sites a
minimum number of times. If we are unable to meet these minimum guarantees, we
will be required to defer recognition of the related revenues until the
guaranteed minimum is achieved. In addition, we will be required to provide
services to the customer for free until we are able to meet our guaranteed
minimum, which may reduce our promotion inventory in future periods.
IF WE ARE UNSUCCESSFUL IN BROADENING OUR PRODUCT OFFERINGS, OUR REVENUE GROWTH
WILL BE LIMITED.
To date, substantially all of our revenues have been derived from conducting
sweepstakes on the Internet. Our growth is largely dependent upon our ability to
leverage our sweepstakes expertise to become a full-service Internet promotion
company. In the event that we are unable to successfully implement our growth
strategy, our business, results of operations and financial condition would be
materially adversely affected.
WE FACE SIGNIFICANT COMPETITION, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The market for Internet promotion services is intensely competitive. We expect
competition in our market to continue to intensify as a result of increasing
market size, greater visibility of the market opportunity for Internet promotion
services and minimal barriers to entry. Industry consolidation may also increase
competition. We compete with many types of companies, including both online and
offline promotion companies, large Internet publishers, search engine and other
Internet portal companies, a variety of Internet-based advertising networks and
other companies that facilitate the marketing of products and services on the
Internet. Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customers bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to compete more effectively and be
more responsive to industry and technological change than us. We may not be able
to compete successfully and competitive pressures may reduce our revenues and
result in increased losses or reduced profits.
Our ability to compete depends on many factors both within and beyond our
control. These factors include:
o the success of the sales and marketing efforts of us and our
competitors;
o the ease of use, performance, price and reliability of promotions
offered by us and our competitors; and
o the timing and market acceptance of new promotion services developed
by us and our competitors.
IF OUR CUSTOMERS DO NOT RENEW THEIR AGREEMENTS OR TERMINATE THEM PRIOR TO THEIR
SCHEDULED EXPIRATIONS, OUR REVENUES WILL BE REDUCED.
Our agreements with customers generally have terms ranging from one to 12
months. In addition, substantially all of our agreements permit our customers to
terminate their relationships with us on relatively short notice. Our customers
may not remain customers for the full term of their agreements or renew such
agreements when they expire.
20
<PAGE>
OUR BRAND MAY NOT ACHIEVE THE RECOGNITION NECESSARY TO INCREASE OUR MEMBERSHIP
BASE AND ATTRACT CUSTOMERS.
To be successful, we must continue to build our brand identity. We believe that
the importance of brand recognition will increase as more companies enter our
market. We may not be successful in our marketing efforts or in increasing our
brand awareness.
SWEEPSTAKES REGULATIONS MAY LIMIT OUR ABILITY TO CONDUCT SWEEPSTAKES OR LIMIT
PARTICIPATION IN OUR SWEEPSTAKES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
The sweepstakes industry is subject to extensive regulation on the local, state
and national levels, regardless of whether promotions are conducted online or
offline. Congress and many state attorneys general and legislatures recently
have announced regulatory initiatives aimed at the sweepstakes industry due to
recently reported deceptive industry practices. The publicity generated by these
initiatives may adversely affect demand for our services. Although we believe
that additional laws and regulations are likely to be enacted, we cannot predict
what they will be. Any new sweepstakes regulations may have a material adverse
affect on our business, results of operations and financial condition.
Additionally, the Internet is a new medium for sweepstakes, and it is difficult
to predict how existing laws and regulations will be interpreted.
OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR
BUSINESS.
In order to successfully implement our business plan, we must grow
significantly. Our anticipated future growth will likely place a significant
strain on our management resources and systems. To manage our growth
effectively, we will need to continue to improve our operational, financial and
managerial controls and reporting systems and procedures, and we will need to
continue to expand, train and manage our workforce. If we do not manage our
growth effectively, our business, results of operations and financial condition
would be materially adversely affected.
WE MAY BE UNABLE TO INCREASE OUR SALES FORCE, WHICH WOULD HAVE A MATERIAL
ADVERSE EFFECT ON THE GROWTH OF OUR BUSINESS.
We need to substantially expand our sales force to increase market awareness and
sales of our promotion services. Competition for qualified sales personnel is
intense, and we might not be able to hire the quality and number of sales
personnel we require. New hires require extensive training and typically take
several months to achieve productivity. If we fail to effectively increase our
sales force, our business, results of operations and financial condition would
be materially adversely affected.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO RETAIN KEY PERSONNEL.
Our future success is substantially dependent upon the continued service of our
founders, Steven H. Krein, Chief Executive Officer, and Daniel J. Feldman,
President, and other executive officers. The loss of the services of any of our
executive officers could have a material adverse affect on our business. Many of
our executive officers have only been employed by us for a short time, including
our Chief Financial Officer, who joined us in April 1999 and our Chief Operating
Officer, who joined us in December 1999. We do not currently have "key person"
life insurance policies on any of our employees. We have employment agreements
only with Messrs. Krein and Feldman. Competition for senior management is
intense, and we may not be successful in attracting and retaining key personnel.
THE INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND ANY INFRINGEMENT
ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, COULD ADVERSELY AFFECT OUR
BUSINESS AND FINANCIAL CONDITION.
Third parties may infringe or misappropriate our patents, trademarks or other
intellectual property rights, which could have a material adverse effect on our
business, results of operations or financial condition. The actions we take to
protect our trademarks and other proprietary rights may not be adequate. In
addition, the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries are uncertain and still evolving. Although
we have patent and trademark applications pending, none have been granted to
date.
21
<PAGE>
Third parties may assert infringement claims against us. Any claims and any
resulting litigation, should they occur, could subject us to significant
liability for damages. In addition, even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention. Any claims from third parties may also result in limitations
on our ability to use the intellectual property subject to these claims unless
we are able to enter into contractual arrangements with the third parties making
these claims, which arrangements may not be available on commercially reasonable
terms.
WE MAY REQUIRE ADDITIONAL FINANCING TO EXPAND OUR BUSINESS, AND WE MAY NOT BE
ABLE TO OBTAIN ADDITIONAL FINANCING.
We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to make acquisitions.
Additional financing may not be available on terms favorable to us, and may not
be available at all. If adequate funds are not available on acceptable terms, we
may be unable to fund our expansion, successfully promote our brand, take
advantage of acquisition opportunities, develop or enhance services or respond
to competitive pressures, any of which could have a material adverse effect on
our business, results of operations and financial condition. If additional funds
are raised by our issuing equity securities, stockholders may experience
dilution of their ownership interest and the newly issued securities may have
rights superior to those of the common stock. If additional funds are raised by
our issuing debt, we may be subject to limitations on our operations, including
limitations on the payment of dividends.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FOR PRODUCTS GIVEN AS PRIZES IN
OUR PROMOTIONS AND FOR PRODUCTS SOLD BY OUR CUSTOMERS OVER THE INTERNET.
Consumers may sue us if any of the products we give as prizes are defective,
fail to perform properly or injure the user. We may also be sued by consumers
who purchase products that are offered or marketed through WEBSTAKES.COM.
Although our agreements with our customers typically contain provisions intended
to limit our exposure to these product liability claims, these limitations may
not eliminate our liability. Liability claims could require us to spend
significant time and money in litigation or pay significant damages. We do not
carry product liability insurance. As a result, any of these claims, whether or
not successful, could have a material adverse effect on our business, results of
operations and financial condition.
PRIVACY AND SECURITY CONCERNS MAY CAUSE CONSUMERS NOT TO PARTICIPATE IN OUR
PROMOTIONS, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
An important feature of the services we provide our customers is our ability to
develop and maintain demographic and other information about consumers
participating in our promotions. Privacy and other security concerns may cause
consumers to resist providing us with personal data, which would reduce the
value of our services. Moreover, privacy and security concerns may inhibit
consumer acceptance of the Internet as a means of commerce. If privacy and other
security concerns of consumers are not adequately addressed, our business would
be materially adversely affected.
OUR GROWTH WILL DEPEND ON THE GROWTH OF INTERNET USAGE.
We depend on continued growth in the use of the Internet by businesses and
consumers. If electronic commerce does not grow or grows more slowly than
expected, the use of the Internet by businesses may decline or grow more slowly
than anticipated. In addition, the acceptance and growth in the use of the
Internet by consumers could be negatively affected by consumer concerns about
the security of electronic commerce transactions and privacy. Even if Internet
usage grows, the Internet infrastructure may not be able to support the demands
placed on it and its performance or reliability may decline.
WE MAY BE UNABLE TO RESPOND TO TECHNOLOGICAL CHANGE EFFECTIVELY.
Our industry is characterized by rapid technological change, frequent new
service introductions, changing consumer demands and evolving industry standards
and practices. Our inability to anticipate and effectively respond to these
changes on a timely basis would materially adversely affect our business,
results of operations and financial condition. Our future success will depend,
in part, on our ability to cost-effectively adapt to rapidly changing
technologies, to enhance existing services and to develop and introduce a
variety of new services to address changing demands of consumers and our clients
on a timely basis.
22
<PAGE>
THE FAILURE OF OUR COMPUTER OR COMMUNICATIONS SYSTEMS MAY ADVERSELY AFFECT OUR
BUSINESS.
Our business depends on the efficient and uninterrupted operation of our
computer and communications systems. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or
decreases the responsiveness of WEBSTAKES.COM or the web sites of our customers
could materially adversely affect our business. WEBSTAKES.COM could also be
affected by computer viruses, electronic break-ins or other similar disruptions.
Our insurance policies have coverage limits of $775,000 per occurrence and
therefore may not adequately compensate us for any losses that may occur due to
any interruptions in our service.
Frontier GlobalCenter, Inc. maintains all of our production servers at their
Manhattan Data Center. Our operations depend on Frontier's ability to protect
its own systems and our systems against damage from fire, power loss, water,
telecommunications failures, vandalism and other malicious acts, and similar
unexpected adverse events. Any disruption in the Internet access provided by
Frontier could have a material adverse effect on our business, results of
operations and financial condition.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INTERNET INFRASTRUCTURE.
Our success depends upon the development and maintenance of a viable Internet
infrastructure. The current Internet infrastructure may be unable to support an
increased number of web users. The timely development of products such as
high-speed modems and communications equipment will be necessary to continue
reliable Internet access. Furthermore, the Internet has experienced outages and
delays as a result of damage to portions of its infrastructure. Such outages and
delays could adversely affect WEBSTAKES.COM and the level of traffic on our
customers' web sites. The effectiveness of the Internet may decline due to
delays in the development or adoption of new standards and protocols designed to
support increased levels of activity. If such new infrastructure, standards or
protocols are developed, we may be required to incur substantial expenditures to
adapt our services to the new technologies.
LAWS AND REGULATIONS PERTAINING TO THE INTERNET MAY ADVERSELY AFFECT OUR
BUSINESS.
There are an increasing number of laws and regulations pertaining to the
Internet. These laws and/or regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. Moreover, the
applicability to the Internet of existing laws governing intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment, personal privacy and other issues is uncertain and
developing. Any new law or regulation pertaining to the Internet, or the
application or interpretation of existing laws, could decrease the demand for
our promotion services, increase our cost of doing business or otherwise have a
material adverse effect on our business, results of operations and financial
condition. Please see "Business--Government Regulation and Legal Uncertainties."
CHANGES IN THE LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE
PRIVACY OF INTERNET USERS AND OTHER INDIVIDIUALS COULD HARM OUR BUSINESS
The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In addition, in October 1998, the European Union adopted a directive that could
limit our ability to collect and use information regarding Internet users in
Europe. Since many of the proposed laws or regulations are just being developed,
we cannot yet determine the impact these regulations may have on our business.
23
<PAGE>
In addition, growing public concern about privacy and the collection,
distribution and use of information about individuals has led to self-regulation
of these practices by the direct marketing industry and to increased federal and
state regulation. The Direct Marketing Association, or DMA, the leading trade
association of direct marketers, has adopted guidelines regarding the fair use
of this information which it recommends participants, such as us, should use. We
are also subject to various federal and state regulations concerning the
collection, distribution and use of information regarding individuals. As a
consequence of government legislation or regulation or enforcement efforts or
evolving standards of fair information collection practices, we may be required
to make changes to our business in ways that could diminish the effectiveness of
our business or its attractiveness to potential customers. Although our
compliance with the DMA's guidelines and applicable federal and state laws and
regulations has not had a material adverse effect on us, we cannot assure you
that the DMA will not adopt additional, more burdensome guidelines or that
additional, more burdensome federal or state laws or regulations, including
antitrust, consumer privacy and fair collection laws, will not be enacted or
applied to us or our customers, which could materially and adversely affect our
business, financial condition and results of operations.
OUR OFFICERS AND DIRECTORS MAY CONTROL US.
Our executive officers and directors in the aggregate, beneficially own
approximately 40.6% of our common stock. These stockholders may be able to
effectively exercise control over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of us, which could have a material
adverse effect on our stock price.
THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE IN THE OPEN MARKET COULD DEPRESS OUR
STOCK PRICE
Sales of significant amounts of common stock in the public market in the future
or the perception that sales will occur could materially and adversely affect
the market price of the common stock or our future ability to raise capital
through an offering of our equity securities. There are approximately 10,641,000
shares of common stock held by our stockholders that are "restricted
securities," as that term is defined in Rule 144 of the Securities Act of 1933.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption for registration under Rules 144, 144(k), or 701
under the Securities Act. Currently, approximately 472,000 shares of the
restricted securities are eligible for sale in the public market under Rule 144
without volume limitations or further registration under the Securities Act, not
including approximately 3,528,000 shares held by our "affiliates," within the
meaning of the Securities Act. These 3,528,000 shares are eligible for public
sale subject to volume limitations. After June 14, 2000, approximately 6,667,000
additional shares of restricted securities will be eligible for sale in the
public market under Rule 144 subject to volume limitations. The holders of these
shares are entitled to require us to register their shares for public sale.
There are outstanding options to purchase 2,025,290 shares of common stock which
are eligible for sale in the public market from time to time depending on
vesting. In addition, there are outstanding warrants to purchase up to 221,683
shares of common stock upon exercise. The securities issued upon the exercise of
such warrants will be "restricted securities," as that term is defined in Rule
144 of the Securities Act, however, will be eligible for sale in the public
market pursuant to Rule 144 subject to volume limitations.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
The market price of our common stock has been and will likely continue to be
highly volatile. The stock market has experienced significant price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the company
issuing the securities. This type of litigation could result in substantial
costs and a diversion of our management's attention and resources.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Currency Rate Fluctuations. Promotions.com's results of operations, financial
position and cash flows are not materially affected by changes in the relative
values of non-U.S. currencies to the U.S. dollar.
Market Risks. Our accounts receivable are subject, in the normal cause of
business, to collection risks. We regularly assess these risks and have
established policies and business practices to protect against the adverse
effects of collection risks. As a result, Promotions.com does not anticipate any
material losses in this area.
Interest Rate Risk. Our investments are classified as cash and cash equivalents
with original maturities of three months or less. Therefore, changes in the
market's interest rates do not affect the value of the investments as recorded
by Promotions.com.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Page
Independent Accountants Report 26
Balance Sheets as of December 31, 1999 and 1998 27
Statements of Operations for each of the three years in the
period ended December 31, 1999 28
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1999 29
Statements of Cash Flows for each of the three years in the
period ended December 31, 1999 30
Notes to Financial Statements 31
Financial Statement Schedules:
I - Computation of loss per share Exhibit 11.1
II - Valuation and qualifying Accounts for each
of the three years in the period ended
December 31, 1999 Exhibit 99.1
All other schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or Notes thereto.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Promotions.com, Inc.:
In our opinion the financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Promotions.com, Inc.
(formerly Webstakes.com, Inc.) at December 31, 1999 and 1998 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedules listed in the accompanying index present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which 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, 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 the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 28, 2000
26
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 34,647,630 $ 17,573
Accounts receivable, less allowance for bad debts of $574,876
and $125,000 .................................................................. 2,396,853 615,230
Prepaid expenses and other current assets , principally
related party in 1999 ......................................................... 9,976,198 125,174
------------ ------------
Total current assets ........................................................ 47,020,681 757,977
------------ ------------
Fixed assets, net .................................................................. 3,089,311 437,759
Other assets ....................................................................... 3,615,465 --
------------ ------------
Total assets ................................................................ $ 53,725,457 $ 1,195,736
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .............................................................. $ 1,754,255 $ 221,745
Accrued liabilities ........................................................... 2,821,005 169,136
Deferred revenues ............................................................. 483,366 117,297
Capital lease obligation ...................................................... 290,640 31,764
Notes payable - related party, current portion ................................ 66,667 1,342,222
------------ ------------
Total current liabilities ................................................... 5,415,933 1,882,164
------------ ------------
Capital lease obligation, net of current portion .............................. 436,424 --
Deferred gain on sale of assets ............................................... 17,531 --
Notes payable - related party, net of current
portion ....................................................................... -- 66,667
------------ ------------
Total liabilities ........................................................... 5,869,888 1,948,831
------------ ------------
Stockholders' equity (deficit):
Common stock---par value $.01, 50,000,000 shares authorized, 14,241,244 and
5,714,184 shares issued and outstanding at December 31,
1999 and 1998, respectively ................................................... 142,412 57,142
Additional paid-in capital .................................................... 67,969,343 1,140,624
Accumulated deficit ........................................................... (20,233,041) (1,861,977)
Deferred compensation ......................................................... (23,145) (88,884)
------------ ------------
Total stockholders' equity (deficit) ................................... 47,855,569 (753,095)
------------ ------------
Total liabilities and stockholders' equity ............................. $ 53,725,457 $ 1,195,736
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues ................................................................ $ 10,456,199 $ 4,798,893 $ 1,618,277
Operating expenses:
Product development ................................................ 2,130,134 548,818 181,260
Sales and marketing ................................................ 19,856,609 3,618,557 1,090,721
General and administrative exclusive of the non-cash financial
advisory services of $796,691 ................................... 6,695,332 1,969,214 535,963
Non-cash financial advisory
services ......................................................... 796,691 -- --
------------ ------------ ------------
Total operating expenses ......................................... 29,478,766 6,136,589 1,807,944
------------ ------------ ------------
Loss from operations ............................................... (19,022,567) (1,337,696) (189,667)
Interest income (expense), net .......................................... 651,503 (76,347) (37,172)
------------ ------------ ------------
Net loss ................................................................ $(18,371,064) $ (1,414,043) $ (226,839)
Deemed dividend on redemption of
class A mandatorily redeemable convertible
preferred stock .................................................. (8,712,352) -- --
------------ ------------ ------------
Net loss attributable to common
stockholders ..................................................... $(27,083,416) $ (1,414,043) $ (226,839)
============ ============ ============
Basic and diluted net loss per share
attributable to common
stockholders ..................................................... $ (3.61) $ (0.27) $ (.05)
============ ============ ============
Weighted average shares of
common stock used in
computing basic and diluted net
loss per share attributable to
common stockholders .............................................. 7,502,575 5,181,356 4,278,916
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Deferred Accumulated
Shares Amount Paid-In-Capital Compensation Deficit Total
------ ------ --------------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 .................. 3,999,576 $ 39,996 $ (9,967) $ (221,095) $ (191,066)
Debt to equity conversion at book value
plus interest ............................ 999,600 9,996 533,256 543,252
Stock options to non-employees ........... 3,625 $ (3,625) --
Net and comprehensive loss ............... (226,839) (226,839)
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1997 ................ 4,999,176 49,992 526,914 (3,625) (447,934) 125,347
============ ============ ============ ============ ============ ============
Debt to equity conversion at book value
plus interest ............................ 715,008 7,150 524,826 531,976
Amortization of deferred
compensation ............................. 3,625 3,625
Stock options to non-employees ........... 88,884 (88,884) --
Net and comprehensive loss ............... (1,414,043) (1,414,043)
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1998 ................ 5,714,184 57,142 1,140,624 (88,884) (1,861,977) (753,095)
============ ============ ============ ============ ============ ============
Repurchase of common stock ............... (1,714,608) (17,146) (10,270,502) (10,287,648)
Issuance of common stock ................. 3,575,000 35,750 44,943,609 44,979,359
Conversion of Class B mandatorily
Redeemable convertible preferred stock ... 6,666,668 66,666 39,933,334 40,000,000
Deemed dividend on redemption of Class
A mandatorily redeemable convertible
preferred stock .......................... (8,712,352) (8,712,352)
Adjustment of deferred compensation to
non-employees to current fair value ...... 140,840 (140,840) --
Stock options to non-employees ........... 793,790 (793,790) --
Amortization of deferred compensation .... 1,000,369 1,000,369
Net and comprehensive loss ............... (18,371,064) (18,371,064)
------------ ------------ ------------ ------------ ------------ ------------
Balance December 31, 1999 ................ 14,241,244 $ 142,412 $ 67,969,343 $ (23,145) $(20,233,041) $ 47,855,569
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ $(18,371,064) $ (1,414,043) $ (226,839)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of fixed assets and
patents ........................................................ 597,311 147,515 37,661
Amortization of deferred compensation expense .................. 203,678 -- --
Bad debt expense ............................................... 606,932 208,604 11,829
Gain on sale of assets ......................................... (4,542) -- --
Non-cash financial advisory services expense ................... 796,691 3,625 --
Interest payable converted into common stock ................... 35,000 24,826 33,256
Changes in operating assets and liabilities:
Increase in accounts receivable ................................ (2,388,440) (710,498) (72,184)
(Increase) in prepaid expenses and other
current assets, principally related party in 1999 ............ (9,851,024) (122,423) (2,751)
(Increase) decrease in other assets ............................ (3,615,465) 41,708 (41,708)
Increase in accounts payable ................................... 1,532,510 66,488 107,096
Increase in accrued liabilities ................................ 2,651,869 147,055 5,147
Increase in deferred revenue ................................... 366,069 93,964 23,333
------------ ------------ ------------
Net cash used in operating activities ............................... (27,440,475) (1,513,179) (125,160)
------------ ------------ ------------
Cash flows from investing activity:
Purchase of fixed assets ......................................... (2,498,014) (301,444) (203,060)
Proceeds from sale of fixed assets ............................... 157,294
------------ ------------ ------------
Net cash used in investing activity ................................. (2,340,720) (301,444) (203,060)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable .......................... 120,000 1,820,000 390,000
Principal payments on notes payable-related party ................ (72,222) (61,111) --
Proceeds from issuance of common stock, net ...................... 44,979,359 -- --
Principal payments on capital lease obligations .................. (190,885) (12,058) --
Proceeds from issuance of class A mandatorily
redeemable convertible preferred stock ......................... 3,575,000 -- --
Proceeds from issuance of class B mandatorily
redeemable convertible preferred stock ......................... 40,000,000 -- --
Redemption of class A mandatorily redeemable
convertible preferred stock and repurchase of
common stock ................................................... (24,000,000)
------------ ------------ ------------
Net cash provided by financing activities ........................... 64,411,252 1,746,831 390,000
------------ ------------ ------------
Net increase (decrease) in cash for the period ...................... 34,630,057 (67,792) 61,780
Cash and cash equivalents, beginning of period ...................... 17,573 85,365 23,585
------------ ------------ ------------
Cash and cash equivalents, end of period ............................ $ 34,647,630 $ 17,573 $ 85,365
------------ ============ ============
Cash paid during the period for interest ............................ $ 56,562 $ 18,530 $ --
============ ============ ============
<CAPTION>
Supplemental disclosure of non-cash investing, financing and other activities:
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Notes payable converted
into common and
preferred stock .................................................. $ 1,390,000 $ 521,956 --
Preferred stock converted
into common stock ................................................ $ 40,000,000 -- --
Equipment acquired
under capital leases ............................................. $ 840,000 $ 43,822 --
Barter transactions ................................................. $ 2,083,657 $ 2,039,144 $ 484,844
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Promotions.com, Inc. (the "Company"), was incorporated and commenced operations
in the state of New York on January 8, 1996 as Webstakes, Inc. and was
reincorporated in the State of Delaware on June 5, 1996 as Netstakes, Inc. On
June 11, 1999, the Company changed its name to Webstakes.com, Inc. On January
27, 2000, the Company changed its name to Promotions.com, Inc. Promotions.com,
Inc. is a global Internet promotion solutions company. Combining technology,
data and promotions expertise, the Company provides promotion solutions to help
companies achieve their overall marketing and business objectives. The company
generates revenues through WEBSTAKES.COM., a web site dedicated to Internet
sweepstakes and promotions; Promotions.com DIRECT, which offers targeted email
and lead generation; and Promotions.com CUSTOM SOLUTIONS, a full service
integrated Internet promotion services group.
The Company has a limited operating history and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in the new
and rapidly evolving markets for Internet products and services. These risks
include the failure to develop and extend the Company's online service brand,
the rejection of the Company's services by web consumers, vendors and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online service, as well as other risks and uncertainties. In the
event that the Company does not successfully implement its business plan,
certain assets may not be recoverable.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
PROMOTION SERVICES
During 1999, revenue was generated primarily by promotion services and promotion
custom solutions services. Principally all of the Company's historical revenues
have been derived from promotion services. Promotion services revenues are
derived principally from contracts in which the Company typically guarantees a
minimum number of impressions, or times that the customers name, logo or other
identifier appears in pages viewed by visitors to WEBSTAKES.COM, and/or times
that visitors are delivered to the customer's web site, over a specified period
of time for a fixed fee. The contracts typically include cancellation clauses
ranging from 30 to 60 days. Promotion services revenues are recognized ratably
in the period in which the promotion is run, provided that no significant
Company obligations remain. To the extent that minimum guarantees are not met,
the Company defers recognition of the corresponding revenues until the
guaranteed minimums are achieved and the customers receive credits or refunds
for the guaranteed services not provided. Promotion services revenues were
approximately 89%, 93% and 96% of total revenues for the years ended December
31, 1999, 1998 and 1997, respectively.
PROMOTION CUSTOM SOLUTIONS SERVICES
Promotion CUSTOM SOLUTIONS services provides custom turnkey solutions to create
and manage promotions on a customers own web site. Revenues are derived
principally from contracts in which the company typically provides services for
the administration and implementation of the promotion. The contracts typically
include cancellation clauses ranging from 30 to 60 days. Since there are
significant up front customized design work incurred before a promotion begins,
the company recognizes the portion of revenue related to the customized design
work at the time the work is performed. The remaining revenue is recognized
ratably in the period in which the promotion is run, provided that no
significant company obligations remain. Promotion CUSTOM SOLUTIONS services
revenues were approximately 11%, 7%, and 4% of total revenues for the years
ended December 31, 1999, 1998 and 1997, respectively.
Included in revenues are barter revenues from the exchange by the Company with
counterparties of promotion services for reciprocal advertising, or applicable
goods and services. Barter revenues are recorded as promotion service revenues
at the lower of the estimated fair value of goods and services received or
promotion services provided, and are recognized when the counterparty's
promotions are run by the Company. The fair value of promotional services
provided and received is determined based on the value of similar services sold
and purchased for cash by the Company. Barter revenues represented 20%, 42% and
30% of total revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. Barter expenses is recognized when the Company's promotions are
run on the counterparty's web sites, which is typically in the same period the
related barter revenue is recognized.
31
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CONCENTRATION OF CREDIT RISK
In 1999 and 1998, no one customer accounted for greater than 10% of total
revenues or 10% of net accounts receivable. One customer accounted for 35% of
total revenues in 1997. In 1999, 1998, and 1997, revenues from the Company's
five largest customers accounted for 17%, 24% and 53% of total revenues,
respectively.
FIXED ASSETS
Fixed assets are stated at costs. Fixed assets under capital leases are stated
at the lower of the present value of minimum lease payments at the beginning of
the lease term or the leased assets at the inception of the lease. The cost of
additions and betterment's are capitalized, and repairs and maintenance costs
are charged to operations in the periods incurred.
Depreciation of computer and office equipment and furniture and fixtures is
provided for using the straight-line method over their estimated useful lives of
three years to five years. Amortization of leasehold improvements is provided
for over the lesser of the term of the related lease or the estimated useful
life of the improvement. Accumulated amoritization includes the amortization of
assets recorded under capital leases. Depreciation and amortization expense has
been included in general and administrative expense. The Company recognizes
gains or losses on the sale or disposal of fixed assets in the period of
disposal.
As required by Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets may not be
recoverable. This evaluation is based on a number of factors including
expectations for operating income and undiscounted cash flows that will result
from the use of such assets. The Company has not identified any such
impairments.
INCOME TAXES
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax basis of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of change in tax rates is recognized in income in the period that
includes the enactment date. In addition, valuation allowances are established
when it is more likely than not that deferred tax assets will not be realized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include money market accounts and all highly liquid
investments purchased with original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and accrued liabilities, approximate fair
value because of their short maturities. The carrying amount of the Company's
note payable approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1999 and 1998.
32
<PAGE>
STOCK-BASED EMPLOYEE COMPENSATION
The accompanying financial position and results of operations of the Company
have been prepared in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"). Under APB No. 25, generally no compensation
expense is recognized in connection with the awarding of stock option grants to
employees, provided that, as of the grant date, all terms associated with the
award are fixed and the quoted market price of the Company's stock as of the
grant date is equal to or less than the option exercise price.
Disclosure required by Statement of Financial Accounting Standards No.
123,"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including
proforma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, has been included in Note 6.
The fair value of options and warrants granted to non-employees for goods or
services are included in the financial statements and expensed as the goods are
utilized or the services performed.
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 amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates and assumptions made by
the Company include those related to the useful lives and recoverability of
fixed assets, recoverability of deferred tax assets, allowance for doubtful
accounts and the fair value of products and services exchanged in barter
transactions.
NET LOSS PER SHARE
Basic loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted loss per share is computed using
the weighted-average number of common and common stock equivalent shares
outstanding during the period. Common equivalent shares are excluded from the
computation if their effect is antidilutive.
As the Company reported net losses for the years ended December 31, 1999, 1998,
and 1997 all 2,025,290, 114,009 and 66,228 of the options outstanding at
December 31, 1999, 1998 and 1997, respectively, were antidilutive and therefore,
there were no reconciling items between basic and diluted loss per share for the
years then ended.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," requires the presentation and disclosure of all changes in equity from
non-owner sources as "Comprehensive Income". The Company had no items of
Comprehensive Income in years ended December 31, 1999, 1998 and 1997.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform with the current
year's presentation.
ADVERTISING COSTS
Advertising production costs are recorded as expense the first time an
advertisement appears. All other advertising costs are expensed as incurred.
Advertising expense totaled approximately $14.0 million, $2.3 million, and
$524,000 for 1999, 1998, and 1997, respectively.
SEGMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information", in 1998. This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company has determined
that it does not have any separately reportable business segments as of December
31, 1999.
33
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FIXED ASSETS
Fixed assets consist of the following:
DECEMBER 31,
------------
1999 1998
---- ----
Computer and office equipment .................... $ 2,660,857 $ 542,144
Computer software costs .......................... 196,190 --
Furniture and fixtures ........................... 95,525 34,307
Leasehold improvements ........................... 10,133 10,133
Capital leases ................................... 839,475 43,822
----------- -----------
3,802,180 630,406
Less accumulated depreciation and amortization ... (712,869) (192,647)
----------- -----------
$ 3,089,311 $ 437,759
=========== ===========
Depreciation and amortization of fixed assets was approximately $597,311,
$147,515 and $37,661 for the years ended December 31, 1999, 1998 and 1997
respectively.
Computer Software Costs
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company adopted SOP 98-1 during the first
quarter of 1999. Costs incurred during the preliminary project stage are
expensed as incurred. Computer software costs incurred during the application
development stage are capitalized. Typically, these costs relate to internal
payroll costs of employees directly associated with the development of the
internal use computer software. Amortization commences once the software is
ready for its intended use and is amortized by the straight-line method over the
estimated useful life, typically twelve to eighteen months. Amortization expense
for computer costs totaled approximately $78,000 for 1999 and unamortized
computer software costs totaled approximately $118,000 as of December 31, 1999.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
------------
1999 1998
---- ----
Compensation and related expenses ............ $ 422,610 $ 18,194
Sales and marketing .......................... 1,581,749 --
Professional services ........................ 314,045 --
Other ........................................ 502,601 150,942
---------- ----------
$2,821,005 $ 169,136
========== ==========
5. RELATED-PARTY TRANSACTIONS (SEE ALSO NOTES 9 and 12)
The Company entered into advertising transactions with a stockholder in the
amounts of $0, $35,070 and $81,239, for the years 1999, 1998 and 1997,
respectively.
34
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK OPTION PLAN:
1997 Stock Option Plan
In 1997, the Company's Board of Directors and stockholders adopted the Company's
Stock Option Plan (the "Plan"). The Plan provides for the granting, at the
discretion of the Stock Option Committee of the Board of Directors (the "SOC"),
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of Section 422 of the Internal Revenue Code, as amended (the
"Code"), to employees and (ii) options not intended to so qualify to employees,
officers, consultants and directors. Amended in April 1999, the total number of
shares of common stock for which options may be granted under the Plan is
450,000.
The exercise price of all stock options granted under the Plan is determined by
the SOC at the time of grant. The maximum term of each option granted under the
Plan is 10 years from the date of grant. Options generally vest ratably over a
four year period.
As of December 31, 1999 and 1998, an aggregate of -0- and 135,991 shares were
available for future grants under the Plan, respectively.
1999 Equity Compensation Plan
In June 1999, the Company's Board of Directors and stockholders adopted the
Company's Equity Compensation Plan (the "1999 Plan"). The 1999 Plan provides for
the granting, at the discretion of a committee of the board of: (i) options that
are intended to qualify as incentive stock options, within the meaning of
Section 422 of the Code, to employees and (ii) options not intended to so
qualify to employees, officers, consultants and directors. The Company has
2,000,000 shares of common stock authorized for grants under the 1999 Plan.
The exercise price of all stock options granted under the 1999 Plan is
determined by the committee of the board at the time of the grant. The maximum
term of each option granted under the 1999 Plan is 10 years from the date of
grant. Options generally vest ratably over a four year period.
As of December 31, 1999, an aggregate of 424,710 were available for future
grants under the plan.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock--Issued to Employees" ("APB 25") and related interpretations in accounting
for its stock option issuances. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", whereby
compensation expense is recognized ratably over the vesting period. Had
compensation cost for the Company's stock options issued at the fair value of
the Company's stock been determined based on the fair value of the stock options
at the grant date for awards in 1999 and 1998 consistent with the provisions of
SFAS No. 123, the Company's net loss would have been adjusted to the pro forma
amounts indicated below:
DECEMBER 31,
------------
1999 1998
---- ----
Net loss
As reported .......................... $27,083,416 $1,414,043
Pro Forma ............................ $32,736,442 $1,426,552
Net loss per share
As reported--basic and diluted ...... $(3.61) $(0.27)
Pro forma--basic and diluted ........ $(4.36) $(0.28)
35
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK OPTION PLAN - (CONTINUED):
The fair value of each option granted in 1999 after the initial public offering
was estimated using the Black-Scholes option-pricing model which takes into
account as of the grant date the exercise price and expected life of the option,
the current price of the underlying stock and its expected volatility, expected
dividends, and the risk free interest rate for the expected term of the option.
The fair value of each option granted in 1999 prior to the initial public
offering and in 1998 was estimated using the minimum value method of the
Black-Scholes option pricing model which assumes no volatility. The values were
obtained using assumptions which were derived using information supplied by the
Company. Changes in the information would affect the assumptions and the option
prices derived from those assumptions. The weighted average assumptions used for
grants made in 1999 and 1998 were as follows:
1999 1998
---- ----
Risk free interest rate........................... 6.7 5.69
Expected option life (years)...................... 7 7
Expected future dividend yield.................... 0.0% 0.0%
Expected volatility............................... 59% 0.0%
As the fiscal year 1997 option grants were made on December 31, 1997, no
compensation cost would have resulted for the fiscal year.
In December 1997, the Company issued options to non-employee consultants to
purchase up to 27,028 shares of the Company's common stock, which vest ratably
over two years. During 1999, the Company issued options to non-employee
consultants to purchase up to 69,972 shares of the Company's common stock, which
vested on the date of grant. In accordance with Emerging Issues Task Force
Abstract No. 96-18, "Accounting for Equity Investments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services", the Company is recording the value of the services being received
based on the fair value of the options provided or the services received which
ever is more reliably measured. The fair value of these options has been
estimated using the Black-Scholes pricing model and has been recorded as
deferred compensation and is being amortized as service expense over the vesting
period. Final measurement will occur on the vesting date.
The following table summarizes the activity in options under both plans:
WEIGHTED
AVERAGE FAIR
VALUE/EXCERISE
OPTIONS / PRICE PER
SHARES OPTION/PER SHARE
------ ----------------
Outstanding, January 1, 1997 ................ -- --
Granted ..................................... 66,228 $1.16
Outstanding, December 31, 1997 .............. 66,228 $1.16
Granted ..................................... 73,081 $3.02
Forfeited ................................... (25,300) $2.82
Outstanding, December 31, 1998 .............. 114,009 $1.98
Granted ..................................... 1,974,059 $9.97
Forfeited ................................... (62,778) $10.48
Outstanding, December 31, 1999 .............. 2,025,290 $9.57
36
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK OPTION PLAN - (CONTINUED):
As of December 31, 1999 and 1998, 234,114 and 23,566 options were exercisable
with a weighted average per share fair value/exercise price of $7.45 and $1.19.
No options were exercisable at December 31, 1997.
At December 31, 1999, 1998 and 1997, the weighted average remaining contractual
life of the options outstanding was approximately 9.51 years, 9.47 years and
10.00 years, respectively.
7. DEFINED CONTRIBUTION PLAN
The Company began sponsoring a defined contribution plan for its employees which
was effective January 1, 1998. Under the 401(K) Savings Plan (the "Plan"),
employees are allowed to contribute up to 15% of their salary to the Plan, as
defined. The Company makes voluntary contributions to the Plan matching 50% of
the first 6% of employee contributions, which vest over a period of 4 years at
25% per year starting in the second year of service. The total Company
contributions in 1999 and 1998 were $44,808 and $24,556, respectively.
8. COMMITMENTS
LEASES:
The Company leases office space in New York and California under non-cancelable
operating leases expiring at various dates through 2002. The following is a
schedule of future minimum lease payments under non-cancelable operating leases
as of December 31, 1999:
YEAR ENDING
DECEMBER 31
2000.................................................... $267,663
2001.................................................... 142,191
2002.................................................... 19,792
--------
$429,646
========
Rent expense was $388,267, $90,693 and $16,439 for the periods ended December
31, 1999, 1998 and 1997, respectively.
LEASE AGREEMENT
In March 1999, the Company entered into a secured financing agreement with a
leasing company for the leasing of equipment in an amount up to $1 million. The
lease has a one-year availability period and a term of 36 months, with interest
and principal payable monthly. At December 31, 1999, the Company has leased
approximately $840,000 of equipment under the lease. These items have been
accounted for as a capital lease. The future minimum lease payments due under
capital leases, together with the present value of such payments is $809,589
less $82,525 representing interest.
9. CONVERTIBLE NOTES AND EQUIPMENT LOAN--RELATED PARTY
In July 1996, the Company entered into a promissory note agreement with a former
holder of class A mandatorily redeemable convertible preferred stock (the "Class
A") (the "holder"). Under the agreement, the Company received $260,000 during
1996 and an additional $240,000 during 1997. At the time of issuance, the note
was equal to the fair value of shares received upon conversion. This note, and
the interest related thereto, was converted into 999,600 shares of common stock
at $.54 per share in September 1997.
37
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. CONVERTIBLE NOTES AND EQUIPMENT LOAN--RELATED PARTY-(CONTINUED):
In September 1997, the Company entered into a promissory note agreement with the
holder. Under the agreement, the Company received $150,000 during 1997 and an
additional $350,000 during 1998. At the time of issuance, the note was equal to
the fair value of shares received upon conversion. This note, and the interest
related thereto, was converted into 715,008 shares of common stock at $.73 per
share in September 1998.
In December 1997, the Company entered into a promissory note agreement with the
holder. Under this agreement, the Company received $200,000 during 1998. The
terms of the agreement call for 36 equal monthly payments of principal and
accrued interest. At December 31 1999, minimum future payments due under notes
payable were $66,667 for the year 2000.
In July 1998, the Company entered into an agreement with the holder under which
the holder agreed to purchase at a future date 50,000 shares of class A. During
the course of 1998, and in January 1999, the holder advanced the Company
$1,270,000 and $120,000, respectively, at an interest rate of prime plus 3%. At
the time of issuance, the face amount of the note was equal to the fair value of
shares to be received upon conversion. On January 20, 1999, the outstanding
principal balance of $1,390,000 plus interest was converted into the agreed upon
50,000 class A and the Company received additional cash of $3,575,000 for the
remaining class A. See Note 10, below.
10. CAPITAL STOCK
At December 31, 1999, the authorized capital stock of the Company consisted of
50,000,000 shares of common stock, $.01 par value per share. The Board of
Directors (the "Board") of the Company has the authority to issue preferred
stock in classes with rights and privileges determined by the Board. Upon
formation of the Company, 3,999,576 shares of $.01 par value common stock were
issued to the founders.
In June 1999, the Company's board of directors and stockholders amended the
Company's Certificate of Incorporation to create the class B, $.01 par value and
authorized 6,700,000 shares of the class B. The previously existing class B
preferred stock became the class C preferred stock, no par value. Additionally,
the number of authorized shares of common stock was increased to 50,000,000
shares.
In 1997, the Board approved a 1 for 1,176 common stock split, which has been
retroactively restated to the inception date. However, the retroactive
restatement of the common stock, $.01 par value, at inception exceeded the
beginning capital infusion of $30,000, resulting in negative additional paid-in
capital at January 1, 1997 of $9,967.
PREFERRED STOCK
In January 1999, the Company issued 50,000 shares of the class A through a
private placement, in consideration for net proceeds of approximately
$5,000,000, inclusive of the conversion of $1,390,000 of advances plus interest.
The holders of the class A were entitled to receive cumulative or noncumulative
dividends when and if declared by the Board. The preferred shares were
redeemable at the option of the holders at any time after August 1, 2003 for
$100 per share (par value), plus accrued and unpaid dividends at the redemption
date.
38
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL STOCK-(CONTINUED):
PRIVATE PLACEMENT
In June 1999, the Company completed a private placement and issued 6,666,668
shares of class B, in consideration for net proceeds of $40,000,000.
Subsequently, the Company repurchased all 50,000 shares of class A and 1,714,608
shares of common stock for $24,000,000. The repurchased class A was cancelled.
In accordance with EITF D-42 "The Effect on the Calculation of Earnings per
Share for the Redemption or Induced Conversion of Preferred Stock," the excess
of the consideration paid to the holders of the class A in the redemption of the
50,000 shares over the carrying amount of class A represents a deemed dividend
or return to the holders of the class A of $8,712,352.
Each share of the class B is convertible into one share of common stock and
automatically converted, on terms as defined, at this one for one ratio upon
completion of the Company's IPO.
As the Class B was only convertible upon closing of the Company's IPO, which was
outside the control of the holder, in accordance with EITF D-60 "Accounting for
the Issuance of Convertible Preferred Stock and Debt Securities with a
Nondetachable Conversion Feature," the Company looked to the commitment date as
the measurement date in determining whether the issuance of the Class B included
a beneficial conversion feature. It was determined that as the issuance price
equaled the common stock fair value on that date, no beneficial conversion
feature existed.
WARRANTS
In March 1999, the Company issued to Allen & Co. warrants to purchase 168,350
shares of the Company's common stock (which was increased in June 1999 to a
total of 221,683 shares of common stock), for financial advisory services
provided plus three payments of $100,000 due on June 30, 1999, 2000 and 2001 in
exchange for financial advisory services to be provided from non-employee
consultants. The Company has recorded the value of the services being received
by valuing the warrants using the Black-Scholes pricing model and such cost is
being expensed over the vesting period. Final measurement will occur on the
vesting date. As the warrants vested upon issuance, all of the expense was
recognized as non-cash financial advisory services expense in the year ended
December 31, 1999.
39
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
There is no current provision for corporate income taxes as the Company
generated a net operating loss for tax purposes.
The difference between the provision for income taxes computed at the statutory
rate and the reported amount of tax expense attributable to income before income
taxes for the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax benefit at statutory rates ............................. $(6,429,872) $(494,915) $(79,394)
State and local income taxes, net of federal income
tax benefit ............................................. (2,020,817) (155,545) (24,952)
Other net .................................................. (25,799) 11,113 7,000
Valuation allowance adjustment ............................. 8,476,488 639,347 97,346
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
The components of the net deferred tax asset as of December 31, 1999, 1998 and
1997 consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforward ................................... $9,207,795 $757,574 $206,169
Allowance for doubtful accounts ............................... 264,439 57,500 5,842
Accrued expenses .............................................. -- 33,120 --
Other ......................................................... 15,717 3,450 --
---------- ---------- ----------
Total deferred tax assets ................................... 9,487,951 851,644 212,011
Deferred tax liabilities:
Capitalized software costs ....................................... 54,214 -- --
Depreciation and amortization .................................... 119,759 14,155 13,869
---------- ---------- ----------
Total deferred tax liabilities ........................... 173,973 14,155 13,869
---------- ---------- ----------
Net deferred tax asset ........................................... 9,313,977 837,489 198,142
Less: valuation allowance ........................................ 9,313,977 837,489 198,142
---------- ---------- ----------
Deferred tax asset ............................................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
The net deferred tax asset has been fully reserved due to the uncertainty of the
Company's ability to realize this asset in the future.
As of December 31, 1999, the Company had available for federal income tax
purposes net operating loss carryforwards of approximately $20.0 million which
expire in the years 2012 through 2019.
40
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. PREPAID EXPENSES-RELATED PARTY
In June 1999, the Company entered into a two-year sponsorship agreement with
Excite under which Excite agreed to promote WEBSTAKES.COM through ad banner
placements and links to WEBSTAKES.COM and its promotions on Excite.com., Web
Crawler.com and Classified 2000.com. The Company prepaid Excite $5.6 million
during 1999 for this two-year agreement. At December 31, 1999, the total prepaid
expense related to this agreement was $4.1 million of which $2.8 million is
recorded in prepaid expenses and other current assets and $1.3 million is
recorded in other assets. Amounts are being amortized ratably over the two year
term of the contract. At Home Corporation, the parent company of Excite, is a
principal stockholder of the Company.
In June 1999, the Company entered into a two-year service agreement with
MatchLogic, Inc., a wholly owned subsidiary of Excite, pursuant to which
MatchLogic will provide ad serving and targeting, data processing analysis,
enhancement and other services to Promotions.com. The Company prepaid MatchLogic
$13.1 million during 1999 for this two-year agreement. At December 31, 1999, the
total prepaid expenses related to this agreement was $8.9 million of which $6.6
million is recorded in prepaid expenses and other current assets and $2.3
million is recorded in other assets. Amounts are being amortized ratably over
the two year term of the contract.
13. SUBSEQUENT EVENTS (UNAUDITED)
LEASE
In January 2000, the Company entered into an agreement to lease an additional
36,000 square feet of office space in New York City. In lieu of a cash security
deposit, the Company delivered to the landlord an irrevocable, unconditional and
transferable letter of credit in the amount of $1,600,000.
41
<PAGE>
PROMOTIONS.COM, INC.
(FORMERLY WEBSTAKES.COM, INC.)
ITEM 9. Changes in and Disagreements with Accounts and Accounting Financial
Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.
Item 11. Executive Compensation
Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See Index to Financial Statements at Item 8 on
page 25 of this report.
(2) Financial Statement Schedule: See Index to Financial Statements at
Item 8 on page 25 of this report.
42
<PAGE>
(a)(3) Exhibits
The following is a list of exhibits filed as part of this report on Form
10-K. Where so indicated by footnote, exhibits that were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibit in the previous is indicated parenthetically except for those
situations where the exhibit number was the same as set forth below.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1(1) - Certificate of Incorporation
3.2(1) - Certificate of Amendment to the Certificate of Incorporation, dated February 23, 1999
3.3(1) - Certificate of Amendment to the Certificate of Incorporation dated January 17, 1999
3.4(1) - Certificate of Amendment to the Certificate of Incorporation, dated June 11, 1999
3.5(1) - Amended and Restated Bylaws
3.6(3) - Amended and Restated Bylaws dated September 29, 1999
3.7* - Certificate of Ownership and Merger dated January 26, 2000
10.1(1)(2) - Netstakes, Inc. Stock Option Plan
10.2(1)(2) - 1999 Equity Compensation Plan
10.3(1) - Master Lease Agreement No.L6731 with Leasing Technologies International, Inc. dated November
19, 1999
10.4(1) - Master Service Agreement between Registrant and Frontier Global Center dated February 8, 1999
10.5(1)(2) - Letter Agreement between Registrant and Steven H. Krein, dated June 11, 1999
10.6(1)(2) - Letter Agreement between Registrant and Daniel Feldman, dated June 11, 1999
10.7(1) - Stock Purchase Agreement dated June 11, 1999
10.8* - Master Lease Agreement between Registrant and 450 Westside Partners, LLC dated January 12, 2000
11.1* - Statement regarding computation of per share earnings
23.1* - Consent of PricewaterhouseCoopers LLP.
27.1* - Financial data schedule
99.1* - Valuation and Qualifying Accounts.
</TABLE>
* Filed herewith.
(1) Filed as an exhibit to the Registrants Registration Statement on Form S-1
(Registration No. 333-80593) filed with the Commission on June 14, 1999,
amended and incorporated herein by reference.
(2) Compensatory plans and arrangements for executives and others.
(3) Filed as an exhibit on Form 10-Q filed on November 15, 1999 and
incorporated herein by reference.
(b) Reports on form 8-K
No reports on Form 8-K were filed or required to be filed for the last
quarter of the fiscal year.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2000 Promotions.com, Inc.
By /s/ Steven H. Krein
-------------------------------
Steven H. Krein
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated this 30th day of March, 2000.
/s/ Daniel J. Feldman
- -----------------------------
Daniel J. Feldman President and Director
/s/ Thomas E. Brophy
- -----------------------------
Thomas E. Brophy Chief Financial Officer
(Chief Accounting Officer)
/s/ Dirk A. Hall
- -----------------------------
Dirk A. Hall Director
/s/ Kristopher A. Wood
- -----------------------------
Kristopher A. Wood Director
/s/ Arnold Greenberg
- -----------------------------
Arnold Greenberg Director
44
EXHIBIT 3.7
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PROMOTIONS.COM, INC.
INTO
WEBSTAKES.COM, INC.
Webstakes.com, Inc., a corporation organized and existing under the
laws of Delaware, does hereby certify:
FIRST: That this corporation was incorporated on the 6th day of
June, 1996, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this corporation owns all of the outstanding shares of
the stock of Promotions.com, Inc., a corporation incorporated on the 17th day of
December 1999, pursuant to the General Corporation Law of the State of Delaware.
THIRD: That this corporation, by the following resolutions of its
Board of Directors, duly adopted by the unanimous written consent of its
members, filed with the minutes of the Board on the 19th day of January, 2000
determined to and did merge into itself said Promotions.com, Inc.:
RESOLVED, that Promotions.com, Inc. be merged with and into the
Company and that the Company be the surviving corporation in such merger.
FURTHER RESOLVED, that the merger shall be effective January 31,
2000;
FURTHER RESOLVED, that upon the effectiveness of the merger, the
Company shall assume all of the liabilities and obligations of
Promotions.com, Inc.;
FURTHER RESOLVED, that the proper officers of this corporation be
and he or she are hereby authorized to make and execute a Certificate of
Ownership and Merger and to cause the same to be filed with the Secretary
of State and to do all acts and to execute, sign, verify, acknowledge,
deliver, file and record all such other instruments, returns and
documents, in the name and on behalf of Webstakes.com, Inc. and under its
corporate seal or otherwise, as they in their judgment shall deem
necessary, proper or advisable in order to affect said merger; and
<PAGE>
FURTHER RESOLVED, that upon the effectiveness of the merger, the
name of the Company shall be changed to "Promotions.com, Inc." by amending
Article I of the Certificate of Incorporation of this Company to read as
follows:
Article I
The name of the corporation is Promotions.com, Inc.
FOURTH: Anything herein or elsewhere to the contrary
notwithstanding, this merger may be amended or terminated and abandoned by the
Board of Directors of Webstakes.com, Inc. at any time prior to the time that
this merger being filed with the Secretary of State becomes effective.
FIFTH: Article I of the Certificate of Incorporation of the Company
is hereby amended, effective January 31, 2000, to read as follows:
Article I
The name of the corporation is Promotions.com, Inc.
IN WITNESS WHEREOF, Webstakes.com, Inc. has caused this Certificate
of Merger to be signed by Daniel J. Feldman, its President, this 26th day of
January, 2000.
WEBSTAKES.COM, INC.
By:
-----------------------------
Name: Daniel J. Feldman
Title: President
-2-
BES:PAL
1169800060
110599 V1
121099 V2
122199 V3
EXHIBIT 10.8
LEASE
450 WESTSIDE PARTNERS, LLC,
Landlord
TO
WEBSTAKES.COM, INC.
Tenant
- --------------------------------------------------------------------------------
Premises:
A portion of the Seventh (7th) floor
at 450 West 33rd Street,
New York, New York 10001
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
CAPTION PAGE
----
ARTICLE 1 Demise, Premises, Term, Rents....................................1
ARTICLE 2 Use..............................................................3
ARTICLE 3 Failure To Give Possession.......................................4
ARTICLE 4 Preparation of the Demised Premises..............................5
ARTICLE 5 Adjustments Of Rent.............................................11
ARTICLE 6 Security Deposit................................................20
ARTICLE 7 Subordination, Notice To Lessors And Mortgagees.................23
ARTICLE 8 Quiet Enjoyment.................................................25
ARTICLE 9 Assignment And Subletting.......................................25
ARTICLE 10 Compliance With Laws And Requirements Of Public Authorities....33
ARTICLE 11 Insurance......................................................36
ARTICLE 12 Rules And Regulations..........................................39
ARTICLE 13 Tenant's Changes...............................................40
ARTICLE 14 Tenant's Property..............................................43
ARTICLE 15 Repairs And Maintenance........................................45
ARTICLE 16 Electricity....................................................46
ARTICLE 17 Heat, Ventilating And Air-Conditioning.........................49
ARTICLE 18 Landlord's Other Services......................................51
ARTICLE 19 Access, Changes In Building Facilities, Name...................53
ARTICLE 20 Notice Of Accidents............................................55
ARTICLE 21 Non-Liability And Indemnification..............................55
ARTICLE 22 Destruction Or Damage..........................................57
ARTICLE 23 Eminent Domain.................................................59
ARTICLE 24 Surrender; Holdover............................................60
ARTICLE 25 Conditions Of Limitation.......................................61
ARTICLE 26 Re-Entry By Landlord...........................................63
ARTICLE 27 Damages........................................................64
ARTICLE 28 Waiver.........................................................66
ARTICLE 29 No Other Waivers Or Modifications..............................67
ARTICLE 30 Curing Tenant's Defaults, Additional Rent......................68
ARTICLE 31 Broker.........................................................69
ARTICLE 32 Notices........................................................69
ARTICLE 33 Estoppel Certificate...........................................70
2
<PAGE>
ARTICLE 34 Arbitration....................................................70
ARTICLE 35 No Other Representations, Construction, Governing Law,
Consents ......................................................71
ARTICLE 36 Parties Bound..................................................72
ARTICLE 37 Certain Definitions And Construction...........................72
ARTICLE 38 Adjacent Excavation And Construction; Shoring; Vaults..........73
ARTICLE 39 Renewal Option.................................................73
ARTICLE 40 Temporary Space................................................76
Testimonium and Signatures......................................71
Acknowledgments.................................................72
EXHIBIT A DESCRIPTION....................................................79
EXHIBIT B FLOOR PLAN.....................................................80
EXHIBIT C TEMPORARY SPACE................................................81
EXHIBIT D RULES AND REGULATIONS..........................................82
EXHIBIT E DEFINITIONS....................................................86
EXHIBIT F CERTIFICATE OF OCCUPANCY.......................................89
- -------------------------
This Index is included only as a matter of convenience of reference and
shall not be deemed or construed in any way to define or limit the scope of the
following lease or the intent of any provision thereof.
3
<PAGE>
LEASE
LEASE dated as of January 12, 2000, between 450 WESTSIDE PARTNERS, LLC, a
Delaware limited liability company, having an office at 230 Park Avenue, New
York, New York 10169 (hereinafter referred to as "Landlord") and WEBSTAKES.COM,
INC., a Delaware corporation having an office at 220 East 23rd Street, Suite
607, New York, New York 10010 (hereinafter referred to as "Tenant").
WITNESSETH:
ARTICLE 1..
Demise, Premises, Term, Rents
1.01 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the premises hereinafter described, in the building located at 450
West 33rd Street, in the Borough of Manhattan, City, County and State of New
York (hereinafter referred to as the "Building"), on the parcel of land more
particularly described in Exhibit A (hereinafter referred to as the "Land"), for
the term hereinafter stated, for the rents hereinafter reserved and upon and
subject to the conditions (including limitations, restrictions and reservations)
and covenants hereinafter provided. Each party hereby expressly covenants and
agrees to observe and perform all of the conditions and covenants herein
contained on its part to be observed and performed.
1.02 The premises hereby leased to Tenant are a portion of the
seventh (7th) floor of the Building, as shown on the floor plan annexed hereto
as Exhibit B. Said premises together with all fixtures and equipment which at
the commencement, or during the term, of this lease are thereto attached (except
items not deemed to be included therein and removable by
4
<PAGE>
Tenant as provided in Article 14) constitute and are hereinafter referred to as
the "Demised Premises".
1.03 The term of this lease, for which the Demised Premises are
hereby leased, shall commence on a date (herein referred to as the "Commencement
Date") which shall be (i) the day on which the portions of "Landlord's Work" (as
defined in Article 4) set forth in subsection 4.02(a) and (b) have been
substantially completed (as set forth in Section 4.04) and Landlord shall have
given Tenant at least three (3) days prior notice thereof (which notice,
notwithstanding anything in this lease to the contrary, may be hand-delivered)
or (ii) the day Tenant, or anyone claiming under or through Tenant, first
occupies the Demised Premises for business, whichever occurs earlier, and shall
end at 11:59 p.m. of the last day of the calendar month in which occurs the day
preceding the fifteenth (15th) anniversary of the Rent Commencement Date (as
defined in Section 1.08), which ending date is hereinafter referred to as the
"Expiration Date", or shall end on such earlier date upon which said term may
expire or be cancelled or terminated pursuant to any of the conditions or
covenants of this lease or pursuant to law. Promptly following the Commencement
Date the parties hereto (hereinafter sometimes referred to as the "parties" and
individually as a "party") shall enter into a recordable supplementary agreement
setting forth the dates of the Commencement Date and the Expiration Date and if
they cannot agree thereon within fifteen (15) days after either party's request
therefor, such dates shall be determined by arbitration in the manner provided
in Article 34. Notwithstanding the foregoing, the failure of the parties to
execute such agreement shall not defer the Commencement Date or otherwise
invalidate this lease.
1.04 The "rents" reserved under this lease, for the term thereof,
shall be and consist of:
(a) "fixed rent" as follows:
(i) $1,232,230.50 per annum ($102,685.88 per month) from
the Rent Commencement Date (as hereafter defined) through the day next preceding
the fifth (5th) anniversary of the Rent Commencement Date, both dates inclusive;
and
(ii) $1,342,579.50 per annum ($111,881.63 per month)
from the fifth (5th) anniversary of the Rent Commencement Date through the day
next preceding the tenth (10th) anniversary of the Rent Commencement Date, both
dates inclusive; and
(iii) $1,452,928.50 per annum ($121,077.38 per month)
from the tenth (10th) anniversary of the Rent Commencement Date and continuing
thereafter throughout the remainder of the term of this lease, all of which
shall be
5
<PAGE>
payable in equal monthly installments in advance on the first day of each and
every calendar month during the term of this lease (except that Tenant shall
pay, upon the execution and delivery of this lease by Tenant, the sum of
$102,685.88, to be applied against the first rents becoming due under this
lease), and
(b) "additional rent" consisting of all such other sums of
money as shall become due from and payable by Tenant to Landlord hereunder (for
default in payment of which Landlord shall have the same remedies as for a
default in payment of fixed rent), all to be paid to Landlord at its office, or
such other place, or to such agent and at such place, as Landlord may designate
by written notice to Tenant given at least ten (10) business days prior to the
due date thereof, in lawful money of the United States of America.
1.05 Tenant shall pay the fixed rent and additional rent herein
reserved promptly as and when the same shall become due and payable, without
demand therefor and without any abatement, deduction or setoff whatsoever except
as expressly provided in this lease.
1.06 If the Rent Commencement Date occurs on a day other than the
first day of a calendar month, the fixed rent for such calendar month shall be
prorated and the balance of the first month's fixed rent theretofore paid shall
be credited against the next monthly installment of fixed rent.
1.07 Tenant acknowledges that it has no rights to any development
rights, "air rights" or comparable rights appurtenant to the Land and Building,
and consents, without further consideration, to any utilization of such rights
by Landlord and agrees to promptly execute and deliver any instruments which may
be reasonably requested by Landlord, including instruments merging zoning lots,
evidencing such acknowledgment and consent. The provisions of this Section l.07
shall be deemed to be and shall be construed as an express waiver by Tenant of
any interest Tenant may have as a "party in interest" (as such quoted term is
defined in Section 12-10 Zoning Lot of the Zoning Resolution of the City of New
York) in the Land and Building.
1.08 For purposes of this lease, the term Rent Commencement Date
shall mean the date which is the six (6) month anniversary of the Commencement
Date, it being agreed and understood that Tenant shall have no obligation to pay
any fixed rent during the period from the Commencement Date to the Rent
Commencement Date.
ARTICLE 2.
Use
2.01
(a) Tenant shall use and occupy the Demised Premises for
executive and general offices and for no other purpose.
6
<PAGE>
(b) Notwithstanding anything to the contrary contained above
or elsewhere in this Lease, portions of the Demised Premises may be used for the
following: (i) installation and operation of one or more pantry areas for
warming or reheating but not for cooking, including microwave oven, dwyer unit,
one or more refrigerators and other similar equipment and machines for the
preparation and storage of food and beverages for Tenant's officers and
directors, employees, staff and business visitors; (ii) sale in the Demised
Premises for Tenant's officers and directors, employees, staff and business
visitors, by vending machines of any item the sale of which is not prohibited by
law, whether by Tenant or third parties; (iii) use of an area of the Demised
Premises as a lunchroom for consumption of food and beverages by Tenant's
officers and directors, employees, staff and business visitors; (iv)
installation and operation in the Demised Premises of general office equipment,
including electronic data, and word processing equipment, computers and business
machines and printing and other reproducing equipment and (v) installation and
operation of communication equipment (including, without limitation,
telecommunication equipment) (telecopiers, telex and video conferencing
equipment and other similar equipment as are now, or in the future, typically
installed in a business office).
2.02 If any governmental license or permit, other than a Certificate
of Occupancy or other license or permit required for the mere occupancy of the
Demised Premises for the purposes set forth in Section 2.01(a), shall be
required for the proper and lawful conduct of Tenant's business in the Demised
Premises, or any part thereof, and if failure to secure such license or permit
would in any way adversely affect Landlord, Tenant, at its expense, shall duly
procure and thereafter maintain such license or permit and submit the same for
inspection by Landlord. Tenant shall at all times comply with the terms and
conditions of each such license or permit. Upon Tenant's request and at Tenant's
expense, Landlord shall join in the application for any licenses, permits,
approvals and authorizations (except for an application to change the
Certificate of Occupancy) whenever such joining by Landlord shall be required by
any governmental agency having jurisdiction.
2.03 Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Demised Premises, or do or permit anything to be
done in the Demised Premises, in violation of the Certificate of Occupancy for
the Demised Premises or for the Building, a true and complete copy of which is
annexed hereto as Exhibit F.
ARTICLE 3.
Failure To Give Possession
3.01
(a) If the Demised Premises or any additional space to be
included within the Demised Premises shall not be available for occupancy by
Tenant on the
7
<PAGE>
specific date hereinbefore designated for the commencement of the term of this
lease or for the inclusion of such space for any reason whatsoever, then this
lease shall not be affected thereby but, in such case, said specific date shall
be deemed to be postponed until the date when the Demised Premises or the
additional space, as the case may be, shall be available for occupancy by
Tenant, and Tenant shall not be entitled to possession of the Demised Premises
or the additional space until the same are available for occupancy by Tenant;
provided, however, Tenant shall have no claim against Landlord, and Landlord
shall have no liability to Tenant by reason of any such postponement of said
specific date, and the parties hereto further agree that any failure to have the
Demised Premises or such additional space available for occupancy by Tenant on
said specific date or on the Commencement Date shall in no way affect the
obligations of Tenant hereunder nor shall the same be construed in any way to
extend the term of this lease. This Section 3.01 shall be deemed to be an
express provision to the contrary of Section 223-a of the Real Property Law of
the State of New York and any other law of like import now or hereafter in
force.
(b) Notwithstanding anything hereinabove or in this lease to
the contrary, in the event that the items (a) - (f) of Landlord's Work (as set
forth in Section 4.02) have not been substantially completed (as set forth in
Section 4.04) by April 1, 2000 (hereinafter referred to as the "Outside Date"),
Tenant shall be entitled to terminate this Lease by notice (hereinafter referred
to as the "Termination Notice") to Landlord sent within ten (10) days after the
Outside Date (hereinafter referred to as the "Notice Date") which Termination
Notice shall set forth a date (hereinafter referred to as the "Termination
Date") upon which this lease shall terminate and which Termination Date shall be
at least fifteen (15) business days after the Notice Date. In the event Tenant
sends the Termination Notice as set forth above and items (a)-(f) of Landlord's
Work shall not have been substantially completed by the Termination Date, this
lease shall terminate, Landlord shall return to Tenant all pre-paid fixed rent
and security previously paid to Landlord hereunder and neither party shall have
any further rights or obligations hereunder and said right of termination shall
be Tenant's sole remedy for the failure of items (a)-(f) of Landlord's Work to
have been substantially completed by the Termination Date. The Outside Date, the
Notice Date and the Termination Date shall each be postponed by one (1) day for
each day that items (a)-(f) of Landlord's Work have not been substantially
completed by reason of (x) any willful or negligent act or omission by Tenant or
any of its agents, employees, contractors or invitees or (y) any of the
occurrences set forth in Section 21.03 of this lease.
ARTICLE 4.
Preparation of the Demised Premises
4.01 Tenant has fully inspected the Demised Premises and is
satisfied with the condition thereof and except for Landlord's performance of
"Landlord's Work" as hereinafter
8
<PAGE>
defined, Tenant agrees to accept possession of the Demised Premises in their "as
is" condition (except for latent defects).
4.02 Landlord agrees that it shall perform the following items of
work, at its expense, as "Landlord's Work" (items 4.02(c)-(g) of which shall be
performed contemporaneously with the performance by or on behalf of Tenant of
"Tenant's Work" as defined in Section 4.03 and which items shall be
substantially completed (as set forth in Section 4.04) on or before the date
that Tenant substantially completes Tenant's Work );
(a) Demolish the present installation in the Demised Premises
except for the sprinkler system, and, to the extent not presently installed,
install any demising walls necessary to provide a perimeter of the Demised
Premises and to separate the Demised Premises from the balance of the seventh
(7th) floor and deliver same vacant and in broom clean condition.
(b) Deliver to Tenant an ACP-5 Certificate.
(c) Provide a connection point to the Building sprinkler
system (connection and distribution to be performed by Tenant).
(d) Provide a central point of connection to the Building
Class E fire system.
(e) Place all perimeter heating units in the Demised Premises
in good working order.
(f) Flash patch and level major imperfections in floor surface
as necessary.
(g) Furnish and install not more than two (2) building
standard water cooled air-conditioning units having an aggregate capacity of one
hundred (100) tons (ductwork to be provided by Tenant, at its expense) and
construct two (2) enclosures within the Demised Premises to house said
air-conditioning units using Building standard dry wall partitioning. Tenant
shall on or before March 1, 2000 deliver to Landlord plans and specifications
(hereinafter collectively referred to as the "Plans") indicating the location of
the two (2) enclosures and the capacities of each of the two (2) aforesaid
air-conditioning units, which shall not exceed an aggregate of one hundred (100)
tons. Landlord shall within fifteen (15) days of receipt thereof either approve
or disapprove the Plans (which approval shall not be unreasonably withheld,
conditioned or delayed). If Landlord disapproves the Plans, Tenant will revise
same in accordance with Landlord's comments and will resubmit them within ten
(10) days from receipt of Landlord's disapproval. Once the Plans are approved as
aforesaid, Landlord shall construct such enclosures and provide such
air-conditioning units within sixteen (16) weeks
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from the date of Landlord's approval of the Plans, which sixteen (16) week
period is subject to extension by reason of (x) any willful or negligent act or
omission by Tenant or any of its agents, employees, contractors or invitees
(including, without limitation, any failure of Tenant to submit or resubmit the
above-mentioned Plans by the dates required) or (y) any of the occurrences set
forth in Section 21.03 of this lease.
Any work performed, installations made or access permitted by Landlord
pursuant to this Article 4 or elsewhere in this lease shall be made with
reasonable diligence and in a manner designed to minimize interference with, or
disruption of, Tenant's normal business operations, provided, however, that,
Landlord shall not be obligated to employ contractors or labor at so-called
overtime or other premium pay rates or to incur any other overtime costs or
expenses whatsoever unless Tenant shall agree to pay solely overtime costs or
expenses. Landlord shall promptly repair any damage to the Demised Premises or
Tenant's property caused by such work or installations and all such work shall
be performed in a first class manner.
Any pipes, ducts, or conduits installed in or through the Demised Premises
pursuant to this Article 4 shall be concealed behind, beneath or within
partitioning, columns, ceilings or floors located or to be located in the
Demised Premises, or completely furred at points immediately adjacent to
partitioning columns or ceilings located or to be located in the Demised
Premises, provided that the installation of such pipes, ducts, or conduits, when
completed, shall not reduce the usable area of the Demised Premises (except to a
de minimis extent).
4.03 Any other installations, materials or work which may be
undertaken by or for the account of Tenant to equip, decorate or furnish the
Demised Premises for Tenant's occupancy (hereinafter referred to as "Tenant's
Work") shall be performed by Tenant, at its sole cost and expense, in accordance
with all the terms, covenants and conditions of this lease, including without
limitation, Articles 13 and 14 hereof, as if such Tenant's Work was a "Tenant's
Change" as defined in Article 13. Tenant's Work shall include the construction
of a unisex lavatory which complies with the requirements of The Americans with
Disabilities Act of 1990, as amended.
4.04 Landlord's Work shall be deemed substantially complete
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment, or decoration remain to the performed, the noncompletion
of which does not materially interfere with Tenant's use of the Demised
Premises. Landlord shall promptly commence and thereafter diligently pursue such
items to completion.
4.05 If and when Tenant shall take actual possession of the Demised
Premises to prepare the same for Tenant's occupancy, it shall be conclusively
presumed that the same were in satisfactory condition (except for latent defects
and completion of any punch list item) as of the date of such taking of
possession, unless within sixty (60) days after the Commencement
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Date Tenant shall give Landlord notice specifying the respects in which the
Demised Premises were not in satisfactory condition.
4.06
(a) Landlord agrees to pay to Tenant, as hereinafter provided,
after the Termination Date has occurred without Tenant having terminated this
lease pursuant to Section 3.01(b), an amount (hereinafter referred to as the
"Construction Reimbursement") equal to $932,075.00 to be applied to the costs
actually paid by Tenant to perform or cause the performance of, in accordance
with, and subject to, all of the terms, covenants and conditions of this lease,
all Tenant's Work (which may include architect's fees, engineering fees, space
planning fees and filing fees and expenses and other typical "soft costs"
(hereinafter collectively referred to as the "Soft Costs") provided Soft Costs
may not exceed fifteen (15%) percent of the aggregate Construction
Reimbursement), other than the cost of Tenant's Property (as herein defined) and
any other item which constitutes Tenant's personal property and which is
removable by Tenant from the Demised Premises on the Expiration Date, provided
that at the time the Construction Reimbursement (or any portion thereof) is
otherwise payable to Tenant hereunder, Tenant is not in default of any of the
terms, covenants and conditions of this lease on Tenant's part to observe,
perform or comply with which default continues after notice and the expiration
of any applicable cure period. In the event that any portion of the Construction
Reimbursement has not been expended upon the completed performance of Tenant's
Work, Tenant shall be allowed a credit in the amount of the unexpended balance
of the Construction Reimbursement against the fixed rent otherwise next becoming
due pursuant to the provisions of Section 1.04(a) of this lease.
(b) Subject to the provisions of paragraph (c) hereof, the
Construction Reimbursement (or the outstanding balance thereof, as the case may
be) shall be paid by Landlord to Tenant within thirty (30) days after the
following conditions have been met, provided Tenant is not then in default of
any of the terms, covenants and conditions of this lease on Tenant's part to
observe, perform or comply with which default continues after notice and the
expiration of any applicable cure period:
(i) Tenant's Work has been performed and substantially
completed in substantial accordance with the plans and specifications
theretofore approved by Landlord, and otherwise in accordance with, and subject
to, all of the applicable provisions of this lease and there are no violations
or liens pending as a result of Tenant's Work; and
(ii) Tenant shall have submitted to Landlord, upon such
completion of all Tenant's Work, the following:
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(w) copies of contractors' paid receipted invoices or
paid receipts for deposits for all work done and all supplies furnished in
connection with Tenant's Work;
(x) a written statement from Tenant's architect
certifying that Tenant's Work has been substantially completed, and, to
architect's knowledge, was performed and completed substantially in accordance
with the plans and specifications theretofore approved by Landlord;
(y) lien waivers and general releases from each
contractor, subcontractor and supplier to the extent of the total amount to be
paid to such parties for the portions of Tenant's Work performed or supplied by
such parties; and
(z) a requisition (herein referred to as the "Final
Request") for the Construction Reimbursement (or the outstanding balance
thereof, as the case may be).
(c) Notwithstanding anything to the contrary hereinbefore set
forth, but provided Tenant is not then in default of any of the terms, covenants
or conditions of this lease on Tenant's part to observe, perform or comply with
which default continues after notice and the expiration of any applicable cure
period, Landlord hereby agrees to make periodic payments of portions of the
Construction Reimbursement to Tenant, or, at Landlord's or Tenant's option,
directly to Tenant's contractor, as Tenant's Work progresses, in accordance with
the terms and conditions hereinafter set forth:
(i) Tenant shall submit to Landlord from time to time,
but not more often than once per month requisitions (each being herein referred
to as a "Tenant's Request") for such periodic payment with respect to the
portion(s) of Tenant's Work performed subsequent to the immediately preceding
Tenant's Request, together with the following:
(w) copies of invoices or paid receipts for deposits from the
contractors, subcontractors or suppliers performing, or supplying materials for,
the portions of Tenant's Work referred to in such Tenant's Request; and
(x) a certificate from Tenant's architect setting forth such
architect's good faith estimate of the total cost of Tenant's Work (including,
without limitation, the Soft Costs) (hereinafter referred to as the "Total
Cost") which Total Cost shall be subject to Landlord's verification thereof and
which Total Cost shall be adjusted from time to time as such Total Cost changes;
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(y) except with respect to disbursements made for soft costs,
a certificate from Tenant's architect that, to architect's knowledge, such
portion of Tenant's Work has been performed substantially in accordance with the
plans and specifications theretofore approved by Landlord, and otherwise
substantially in accordance with, and subject to, all of the applicable
provisions of this lease; and
(z) lien waivers and general releases from each contractor,
subcontractor and supplier to the extent of the amount to be paid to such
parties as provided in such Tenant's Request provided, however, that Landlord
shall not be entitled to refuse to make a payment requested in such Tenant's
Request solely because Tenant has not delivered such lien waivers or general
releases, provided that the aggregate amount of such work and supplies for which
lien waivers and general releases were not delivered, together with work and
supplies in previous Tenant's Requests for which lien waivers and general
releases were not delivered, do not exceed Fifty Thousand and 00/100
($50,000.00) Dollars.;
(ii) Landlord shall have the right, from time to time,
to enter the Demised Premises for the purpose of verifying that the portion of
Tenant's Work covered by Tenant's Request or the Final Request, as the case may
be, has been performed in accordance with said plans and specifications, either
by Landlord's architect or by an independent architect retained by Landlord at
Landlord's sole cost and expense, or to otherwise inspect any or all aspects of
Tenant's Work. Provided the portion of Tenant's Work with respect to which a
Tenant's Request (or, with respect to a Final Request, all of Tenant's Work)
shall have been completed in accordance with the applicable provisions of this
lease and Tenant shall otherwise have complied with the provisions of this
Section 4.06, then within thirty (30) days after Landlord's receipt of Tenant's
Request or the Final Request, as the case may be, together with the accompanying
documentation, Landlord shall pay to Tenant the "Percentage Payment" (as such
term is hereinafter defined) with respect to the amounts shown on such Tenant's
Request or the Final Request, as the case may be, for the portions of Tenant's
Work reflected thereon. For purposes hereof, the "Percentage Payment" shall mean
ninety (90%) percent of the product of (x) amounts shown on such Tenant's
Request or the Final Request, as the case may be, for portions of Tenant's Work
reflected thereon and (y) a fraction, the numerator of which is the amount of
the Construction Reimbursement and the denominator of which is the Total Cost,
as certified by Tenant's architect, as aforesaid (but in no event shall such
fraction be greater than one (1)). The balance of the Construction
Reimbursement, if any, after the completion of Tenant's Work, shall be paid to
Tenant in accordance with the terms and conditions set forth in Paragraph (b)
above, and after full satisfaction of such conditions. Notwithstanding anything
contained herein to the contrary, in no event shall the sum of all Percentage
Payments exceed the amount of the Construction Reimbursement.
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(iii) Notwithstanding anything to the contrary, in no
event shall the Construction Reimbursement, or the aggregate of all Percentage
Payments, exceed $932,075.00.
ARTICLE 5
Adjustments Of Rent
5.01 Tax Escalation. For the purpose of Sections 5.01-5.06:
(a) "Taxes" shall mean the real estate taxes and assessments
and special assessments imposed upon the Building and the Land including,
without limitation, any assessments for public improvement or benefit to the
Building or Land, or the locality in which the Land is situated, such as
Business Improvement District taxes and assessments. If at any time during the
term of this lease the methods of taxation prevailing at the commencement of the
term hereof shall be altered so that in lieu of or as an addition to or as a
substitute for the whole or any part of the taxes, assessments, levies,
impositions or charges now levied, assessed or imposed on real estate and the
improvements thereon, there shall be levied, assessed or imposed (i) a tax,
assessment, levy, imposition or charge wholly or partially as capital levy or
otherwise on the rents received therefrom, or (ii) a tax, assessment, levy,
imposition or charge measured by or based in whole or in part upon the Demised
Premises and imposed upon Landlord, or (iii) a license fee measured by the rents
payable by Tenant to Landlord, then all such taxes, assessments, levies,
impositions or charges, or the part thereof so measured or based, shall be
deemed to be included within the term "Taxes" for the purposes hereof;
The term "Taxes" shall not include any income, franchise, transfer,
inheritance, capital stock or other similar tax imposed on Landlord unless, due
to a future change in the method of taxation, an income, franchise, transfer,
inheritance, capital stock or other tax shall be levied against Landlord in
substitution for any tax or increase therein which would otherwise constitute
"Taxes", as defined in the first sentence of paragraph (a), in which event such
income, franchise, transfer, inheritance, capital stock or other tax shall be
deemed to be included in the term "Taxes" but any such income or similar tax
shall be computed as if the Building and the Land were the only property of
Landlord.
If, by law, any assessment may be paid in installments, then, for the
purposes hereof (i) such assessment shall be deemed to have been payable in the
maximum number of installments permitted by law and (ii) there shall be included
in Taxes, for each Tax Year in which such installments may be paid, the
installments of such assessment so becoming payable during such Tax Year,
together with any interest thereon payable during such Tax Year.
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(b) "Base Tax Year" shall mean fiscal year July 1, 1999 to
June 30, 2000, inclusive;
(c) "Base Tax Rate" shall mean the Taxes, as finally
determined, for the Base Tax Year;
(d) "Tax Year" shall mean the fiscal year for which Taxes are
levied by the governmental authority;
(e) "Tenant's Proportionate Share" shall mean for purposes of
this lease and all calculations in connection herewith 2.62%, which has been
computed on the basis of a fraction, the numerator of which is the agreed
rentable square foot area of the Demised Premises as set forth below (which
rentable square foot area is hereinafter sometimes referred to as the
"Multiplication Factor") and the denominator of which is the agreed rentable
square foot area of the Building as set forth below. The parties agree that the
rentable square foot area of the Demised Premises shall be deemed to be 36,783
square feet and that the agreed rentable square foot area of the Building shall
be deemed to be 1,405,000 square feet (hereinafter referred to as the "Building
Area").
(f) "Tenant's Projected Share of Taxes" shall mean the Tax
Payment (as hereinafter defined), if any, payable by Tenant for the immediately
prior Tax Year divided by twelve (12) and payable monthly by Tenant to Landlord
as additional rent.
5.02 If the Taxes for any Tax Year shall be more than the Base Tax
Rate, Tenant shall pay, as additional rent for such Tax Year, an amount equal to
Tenant's Proportionate Share of the amount by which the Taxes for such Tax Year
are greater than the Base Tax Rate. (The amount payable by Tenant is hereinafter
referred to as the "Tax Payment".) The Tax Payment and the Base Tax Rate shall
be appropriately prorated, if necessary, to correspond with that portion of a
Tax Year occurring within the Term of this lease. The Tax Payment shall be
payable by Tenant within thirty (30) days after receipt of a demand (hereinafter
referred to as a "Tax Statement") from Landlord therefor but in no event more
than thirty (30) days prior to the date such Taxes are due to the applicable
governmental authority, which Tax Statement shall be accompanied by a copy of
the tax bill together with Landlord's computation of the Tax Payment. If the
Taxes for any Tax Year are payable to the taxing authority on an installment
basis, the Tax Payment for such Tax Year shall be payable by Tenant, on a
corresponding installment basis.
5.03 Notwithstanding the fact that the increase in rent is measured
by an increase in Taxes, such increase is additional rent and shall be paid by
Tenant as provided herein regardless of the fact that Tenant may be exempt, in
whole or in part, from the payment of any
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taxes by reason of Tenant's diplomatic or other tax exempt status or for any
other reason whatsoever.
5.04 Only Landlord shall be eligible to institute tax reduction or
other proceedings to reduce the assessed valuation of the Land and Building.
Should Landlord be successful in any such reduction proceedings and obtain a
rebate or a reduction in assessment for periods during which Tenant has paid or
is obligated to pay Tenant's Proportionate Share of increases in Taxes then
either (a) Landlord shall, in the event a rebate is obtained, return Tenant's
Proportionate Share of such rebate to Tenant after deducting Landlord's actual
out-of-pocket expenses, including without limitation, reasonable attorneys' fees
and disbursements in connection with such rebate (such expenses incurred with
respect to a rebate or reduction in assessment being hereinafter referred to as
"Tax Expenses"), or, (b) if a reduction in assessment is obtained prior to the
date Tenant would be required to pay Tenant's Proportionate Share of such
increase in Taxes, Tenant shall pay to Landlord, upon written request, Tenant's
Proportionate Share of such Tax Expenses.
5.05 Commencing with the first Tax Year after Landlord shall be
entitled to receive a Tax Payment, Tenant shall pay to Landlord, as additional
rent for the then Tax Year, Tenant's Projected Share of Taxes. Upon each date
that a Tax Payment or an installment on account thereof shall be due from Tenant
pursuant to the terms of Section 5.02 hereof, Landlord shall apply the aggregate
of the installments of Tenant's Projected Share of Taxes then on account with
Landlord against the Tax Payment or installment thereof then due from Tenant. In
the event that such aggregate amount shall be insufficient to discharge such Tax
Payment or installment, Landlord shall so notify Tenant in a demand served upon
Tenant pursuant to the terms of Section 5.02, and the amount of Tenant's payment
obligation with respect to such Tax Payment or installment pursuant to Section
5.02 shall be equal to the amount of the insufficiency. If, however, such
aggregate amount shall be greater than the Tax Payment or installment, Landlord
shall forthwith, at Tenant's option, either (a) pay the amount of excess
directly to Tenant concurrently with the notice or (b) permit Tenant to credit
the amount of such excess against the next monthly installment of fixed rent due
hereunder and, if the credit of such payment is not sufficient to liquidate the
entire amount of such excess, Landlord shall then pay the amount of any
difference to Tenant within thirty (30) days of receipt of such determination.
5.06
(a) Anything in this Article 5 to the contrary
notwithstanding, in the event that the holder of any superior mortgage or the
lessor of any superior lease (as such terms are defined in Section 7.01 hereof)
shall require advance payments from Landlord on account of Taxes, then Tenant
will pay Tenant's Proportionate Share of any amounts required to be paid in
advance by Landlord with the holder of the superior mortgage or the lessor of
the superior lease to the extent that such payments made by Landlord exceed the
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Base Tax Rate. Any payments to be made by Tenant under this Section 5.06(a)
shall be made ten (10) days prior to the date Landlord is required to make such
payments to the holder of the superior mortgage or the lessor of the superior
lease;
(b) Anything in Sections 5.01 through 5.06 to the contrary
notwithstanding, in no event whatsoever shall the fixed rent be reduced below
the fixed rent initially set forth in Section 1.04(a) hereof as same may be
increased by provisions of this lease other than Sections 5.01 through 5.06.
5.07 Expense Escalation. For purposes of Sections 5.07 - 5.12:
(a) "Operating Expenses" shall mean any or all expenses
incurred by Landlord in connection with the operation of the Building including
all expenses incurred as a result of Landlord's compliance with any of its
obligations hereunder and such expenses shall include: (i) salaries, wages,
medical, surgical and general welfare benefits (including group life insurance),
pension payments and other fringe benefits of employees of Landlord at a level
of Building Manager or below engaged in the operation and maintenance of the
Building (the salaries and other benefits aforesaid of such employees servicing
the Building shall be comparable to those of employees servicing buildings
similar to the Building, located in the Borough of Manhattan); (ii) payroll
taxes, worker's compensation, uniforms and dry cleaning for the employees
referred to in subdivision (i); (iii) the cost of all charges for steam, heat,
ventilation, air conditioning and water (including sewer rental) furnished to
the public portions of the Building and/or used in the operation of all of the
service facilities of the Building and the cost of all charges for electricity
furnished to the public and service areas of the Building and/or used in the
operation of all of the service facilities of the Building including any taxes
on any of such utilities; (iv) the cost of all charges for rent, casualty, war
risk insurance (if obtainable from the United States government) and of
liability insurance for the Building to the extent that such insurance is
required to be carried by Landlord under any superior lease or superior mortgage
or if not required under any superior lease or superior mortgage then to the
extent such insurance is carried by owners of buildings comparable to the
Building; (v) the cost of all building and cleaning supplies for the common
areas of the Building and charges for telephone for the Building; (vi) the cost
of all charges for management, security, cleaning and service contracts for the
Building (if no managing agent is employed by Landlord, there shall be included
in Operating Expenses a sum equal to 2.5% of all rents and other charges
collected from tenants or other permitted occupants of the Building); (vii) the
cost of rentals of capital equipment designed to result in savings or reductions
in Operating Expenses which costs shall not exceed the savings realized; (viii)
the cost incurred , which are non-capital expenditures, in connection with the
maintenance and repair of the Building; and (ix) expenditures for capital
improvements (l) which under generally accepted accounting principles as applied
to real estate practice are expensed or regarded as deferred expenses and (2)
which are required by any law enacted after the date of this lease or any
amendment enacted after the date of this lease of any existing law and (3) which
are
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designed to result in a saving in the amount of Operating Expenses, in any of
such cases the cost thereof shall be included in Operating Expenses for the
Operational Year in which the costs are incurred and subsequent Operational
Years, amortized on a straight line basis, over the useful life thereof as
determined in accordance with generally accepted accounting principles
consistently applied, (except that, with respect to a capital improvement which
is of the type specified in clause (3), such cost shall be amortized over such
period of time as Landlord reasonably estimates such savings in Operating
Expenses will equal Landlord's cost for such capital improvement but in no event
in excess of the amount of savings actually realized in any Operational Year),
with an interest factor in any of such cases equal to two (2%) percent above the
prime rate (hereinafter referred to as the "Base Rate") of The Chase Manhattan
Bank, N.A. (or Citibank, N.A. if The Chase Manhattan Bank, N.A. shall not then
have an established prime rate; or the prime rate of any major banking
institution doing business in New York City, as selected by Landlord, if none of
the aforementioned banks shall be in existence or have an established prime
rate) at the time of Landlord's having incurred said expenditure. Landlord may
use related or affiliated entities to provide services or furnish materials for
the Building provided that the rates or fees charged by such entities are
reasonably competitive with those charged by unrelated or unaffiliated entities
in the same area in the Borough of Manhattan as the Building, for the same
services or materials. Provision in this lease for an expense to be Landlord's
expense or at Landlord's expense shall not affect the inclusion thereof, to the
extent provided above, in Operating Expenses.
Operating Expenses shall exclude or have deducted from them, as the case
may be, and as shall be appropriate:
1. leasing and brokerage commissions in connection with leases
of space in the Building;
2. salaries, fringe benefits and other compensation of
personnel above the grade of building manager;
3. the cost of any electricity furnished to the Demised
Premises or any other space leased or available for lease in the Building;
4. except as otherwise hereinabove provided, the cost of any
repair or replacement, alteration, addition or change or expenses of any kind or
nature whatsoever which is a capital expenditure under generally accepted
accounting principles consistently applied;
5. the cost of items, including overtime HVAC and insurance
premiums, for which Landlord is directly compensated or is entitled to be
compensated by payment by tenants, or any other party including this Tenant
(except pursuant to provisions
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similar in intent to Sections 5.07-5.11 for the payment of a share of the costs
of operating the Building), which are not included in fixed rent;
6. the cost of repairs or replacements incurred by reason of
insured fire or other casualty, or condemnation;
7. advertising and promotional expenditures and any other
expense incurred in connection with the renting of space;
8. legal and other professional or consulting fees incurred in
disputes with tenants, and legal, arbitration and auditing fees other than
legal, arbitration and auditing fees reasonably incurred (a) in connection with
the maintenance and operation of the Building or (b) in connection with the
preparation of statements required pursuant to rental escalation provisions;
9. depreciation of the Building, equipment or other
improvements;
10. mortgage or other interest and/or debt service; ground
rents or any other payments under any superior leases;
11. any initial construction work performed by Landlord for
tenants, and tenant alteration work or change work, including any utilities,
fees or services incurred in connection with the performance of such work;
12. painting and decorating of areas to be occupied by tenants
or licensees; special services (i.e., beyond the normal repair, maintenance and
operating of the Building) provided without extra charge, beyond fixed rent, to
some but not all tenants in the Building;
13. Taxes;
14. lease takeover costs and related expenses;
15. any wages, salaries, fringe benefits and other
compensation of Landlord's employees (except as set forth in Section 5.07(a)(i)
and (ii) above) or any general and administrative overhead of Landlord;
16. costs incurred with respect to a sale of all or any
portion of the Building or any interest therein or in connection with the
purchase or sale of any air or development rights;
17. any interest, fine, penalty or other late charges payable
by Landlord;
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18. the cost of removing, encapsulating or otherwise abating
any asbestos or other hazardous materials in the Building except with respect to
any materials which are determined to be hazardous after the date of this lease;
19. franchise, income, transfer, gains, inheritance, personal
property or other tax imposed on Landlord, the Building or the Land, subject to
the provisions of Sections 5.01-5.06, inclusive of this lease;
20. the cost of the acquisition or installation of any
sculpture, paintings or other objects of art in excess of amounts typically
spent for such items in comparable buildings in the vicinity of the Building;
21. the cost of performing work or furnishing services to or
for any tenant including Tenant, at Landlord's expense, to the extent such work
or service is in excess of any work or service Landlord is obligated to provide
to Tenant or generally to other tenants in the Building at Landlord's expense;
22. the cost of any items or services for which Landlord is
reimbursed, or is entitled to be reimbursed by insurance or otherwise (including
reimbursement by any tenant) or would have been reimbursed if Landlord would
have obtained the insurance required under this Lease;
23. the cost of furnishing and installing replacement light
bulbs and ballasts in tenanted areas of the Building;
24. any fee for the management of the Building other than the
fees specified in Section 5.07(a)(vi);
25. any rent, additional rent or other charge under any lease
or sublease to be assumed, directly or indirectly, by Landlord;
26. the cost of any work or service performed for any property
other than the Building and the Land; and
27. payments to Landlord or entities affiliated with Landlord
to the extent they are materially in excess of amounts that would have been paid
to third parties for the same item or service.
If during all or part of the Base Operational Year (as hereinafter
defined) or any other Operational Year, Landlord shall not furnish any
particular item(s) of work or service (which would otherwise constitute an
Operating Expense hereunder) to office portions of the Building due to the fact
that (i) such portions are not occupied or leased, (ii) such item of work or
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service is not required or desired by the tenant of such portion, or (iii) such
tenant is itself obtaining and providing such item of work or service, then, for
the purposes of computing Operating Expenses, the amount for such item and for
such period shall be deemed to be increased by an amount equal to the additional
costs and expenses which would reasonably have been incurred during such period
by Landlord if it had at its own expense furnished such item of work or services
to such portion of the Building or to such tenant.
(b) "Operational Year" shall mean each calendar year during
the Term hereof.
(c) "Base Operational Year" shall be calendar year 2000;
(d) "Operating Expense Base" shall mean Operating Expenses for
the Base Operational Year;
(e) "Tenant's Projected Share of Operating Expenses" shall
mean Tenant's Operating Expense Payment (as hereinafter defined), if any, for
the prior Operational Year divided by twelve (12) and payable monthly by Tenant
to Landlord as additional rent.
5.08 After the expiration of the Base Operational Year, Landlord
shall furnish Tenant a statement setting forth the aggregate amount of the
Operating Expenses for the Base Operational Year. After the expiration of each
Operational Year after the Base Operational Year, Landlord shall furnish Tenant
a statement setting forth the aggregate amount of the Operating Expenses for
such Operational Year. The statement furnished under this Section 5.08 is
hereinafter referred to as an "Operating Statement".
5.09 If the Operating Expenses for any Operational Year shall be
more than the Operating Expense Base, Tenant shall pay, as additional rent for
such Operational Year, an amount equal to Tenant's Proportionate Share of the
amount by which the Operating Expenses for such Operational Year are greater
than the Operating Expense Base. (The amount payable by Tenant is hereinafter
referred to as the "Operating Expense Payment".) The Operating Expense Payment
shall be prorated, if necessary, to correspond with that portion of an
Operational Year occurring within the Term of this lease. The Operating Expense
Payment shall be payable by Tenant within thirty (30) days after receipt of the
Operating Statement.
5.10 Commencing with the first Operational Year after Landlord shall
be entitled to receive an Operating Expense Payment, Tenant shall pay to
Landlord as additional rent for the then Operational Year, Tenant's Projected
Share of Operating Expenses. If the Operating Statement furnished by Landlord to
Tenant at the end of then Operational Year shall
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indicate that Tenant's Projected Share of Operating Expenses exceeded the
Operating Expense Payment, Landlord shall forthwith, at Tenant's option, either
(a) pay the amount of excess directly to Tenant concurrently with the notice or
(b) permit Tenant to credit the amount of such excess against the subsequent
payment of fixed rent due hereunder; if such Operating Statement furnished by
Landlord to Tenant hereunder shall indicate that the Operating Expense Payment
exceeded Tenant's Projected Share of Operating Expenses for the then Operational
Year, Tenant shall, within thirty (30) days of Landlord's written demand
therefor, pay the amount of such excess to Landlord.
5.11 Every Operating Statement given by Landlord pursuant to Section
5.08 shall be conclusive and binding upon Tenant unless (i) within sixty (60)
days after the receipt of such Operating Statement Tenant shall notify Landlord
that it disputes the correctness of the Operating Statement, specifying the
particular respects in which the Operating Statement is claimed to be incorrect,
and (ii) if such dispute shall not have been settled by agreement, shall submit
the dispute to arbitration within one hundred fifty (150) days after receipt of
the Operating Statement. Pending the determination of such dispute by agreement
or arbitration as aforesaid, Tenant shall within thirty (30) days after receipt
of such Operating Statement, pay additional rent, if due, in accordance with the
Operating Statement and such payment shall be without prejudice to Tenant's
position. If the dispute shall be determined in Tenant's favor, Landlord shall,
on demand, pay Tenant the amount of Tenant's overpayment of rents, if any,
resulting from compliance with the Operating Statement. Upon Tenant's request
sent within the sixty (60) day period set forth in (i) above, Landlord agrees to
grant Tenant, or its certified public accountant, reasonable access to
Landlord's books and records for the purpose of verifying Operating Expenses
incurred by Landlord and to have and make copies of any and all bills and
vouchers relating thereto and subject to reimbursement by Tenant for the cost of
such copies. Tenant agrees that all information with respect to Operating
Expenses to which Tenant , or its certified public accountant, is given access
shall be held in confidence and Tenant shall require that any agent, or its
certified public accountant, or outside party it may retain shall agree, in
writing, to hold such information in confidence.
5.12 Landlord's failure during the lease term to prepare and deliver
any of the tax bills, statements, notice or bills set forth in this Article 5,
or Landlord's failure to make a demand, shall not in any way cause Landlord to
forfeit or surrender its rights to collect any of the foregoing items of
additional rent which may have become due during the term of this lease.
Landlord's and Tenant's liability for the amounts due under this Article 5 shall
survive for twenty-four (24) months after the expiration of the term of this
lease.
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ARTICLE 6
Security Deposit
6.01 Tenant has deposited with Landlord the sum of $1,600,000.00 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,
which default continues after any required notice and the expiration of any
applicable cure period, Landlord may use, apply or retain the whole or any part
of the security so deposited or the proceeds of the Letter of Credit (as set
forth in Section 6.02 hereof) 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 accrued before or after
summary proceedings or other re-entry by Landlord. The security shall be
deposited in a separate interest bearing account segregated from Landlord's
funds, in a bank selected by Landlord and any interest earned thereon (less any
administrative fee to which Landlord may be entitled pursuant to applicable law)
shall be paid to Tenant annually provided Tenant is not then in default in the
observance or performance of any of its obligations under this lease which
continues after notice and the expiration of any applicable cure period. 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
promptly 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 Landlord applies or retains any portion or all of the security deposited,
Tenant shall forthwith restore the amount so applied or retained so that,
subject to the provisions of Sections 6.07 and 6.08, at all times the amount
deposited shall be $1,600,000.00.
6.02 In lieu of a cash deposit, Tenant may deliver to Landlord a
clean, irrevocable, unconditional and transferable (without cost to the
beneficiary thereof) letter of credit (hereinafter referred to as the "Letter of
Credit") issued by and drawn upon any commercial bank which is a member of the
New York Clearing House Association (hereinafter referred to as the "Issuing
Bank") with offices for banking purposes in the City of New York and having a
net worth of not less than Five Hundred Million and 00/100 ($500,000,000.00)
Dollars, which Letter of Credit shall have a term of not less than one year, be
in form and content satisfactory to Landlord, be for the account of Landlord and
be in the amount of $1,600,000.00. The Letter of Credit shall provide that:
(i) The Issuing Bank shall pay to Landlord or its duly
authorized representative an amount up to the face amount of the Letter of
Credit upon presentation of the Letter of Credit and a sight draft in the amount
to be drawn;
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(ii) The Letter of Credit shall be deemed to be
automatically renewed, without amendment, for consecutive periods of one year
each during the term of this lease, unless the Issuing Bank sends written notice
(hereinafter referred to as the "Non-Renewal Notice") to Landlord by certified
or registered mail, return receipt requested, not less than thirty (30) days
next preceding the then expiration date of the Letter of Credit, that it elects
not to have such Letter of Credit renewed;
(iii) Landlord, within twenty (20) days of its receipt
of the Non-Renewal Notice, shall have the right, exercisable by a sight draft,
to receive the monies represented by the Letter of Credit (which moneys shall be
held by Landlord as a cash deposit pursuant to the terms of this Article 6
pending the replacement of such Letter of Credit or Tenant's default hereunder);
and
(iv) Upon Landlord's sale of Landlord's interest in the
Land and the Building, the Letter of Credit shall be transferable by Landlord as
provided in Section 6.03 hereof.
6.03 In the event of a sale of Landlord's interest in the Land and
the Building, Landlord shall have the right to transfer the cash security or
Letter of Credit, as the case may be, deposited hereunder to the vendee or
lessee, and Landlord shall thereupon be released by Tenant from all liability
for the return of such cash security or Letter of Credit. In such event, Tenant
agrees to look solely to the new Landlord for the return of said cash security
or Letter of Credit. It is agreed that the provisions hereof shall apply to
every transfer or assignment made of said cash security or Letter of Credit to a
new Landlord.
6.04 Tenant covenants that it will not assign or encumber, or
attempt to assign or encumber, the monies or Letter of Credit deposited
hereunder as security, and that neither Landlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment, or
attempted encumbrance.
6.05 Landlord agrees that it will not draw down the proceeds of the
Letter of Credit except in the event of a default by Tenant hereunder which
continues after any required notice and the expiration of any applicable cure
period or the non-renewal of such Letter of Credit by the Issuing Bank.
6.06 In the event that at any time during the term of this lease
Landlord, in Landlord's reasonable opinion, believes (a) that the net worth of
the Issuing Bank shall be less than the minimum amount specified in Section
6.02, or (b) that circumstances have occurred indicating that the Issuing Bank
may be incapable of, unable to, or prohibited from honoring the then existing
Letter of Credit (hereinafter referred to as the "Existing L/C") in accordance
with the terms thereof, then, upon the happening of either of the foregoing,
Landlord may send written
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notice to Tenant (hereinafter referred to as the "Replacement Notice") requiring
Tenant within ten (10) days to replace the Existing L/C with a new letter of
credit (hereinafter referred to as the "Replacement L/C") from an Issuing Bank
meeting the qualifications described in Section 6.02. Upon receipt of a
Replacement L/C meeting the qualifications of Section 6.02, Landlord shall
forthwith return the Existing L/C to Tenant. In the event that (i) a Replacement
L/C meeting the qualifications of Section 6.02 is not received by Landlord
within the time specified or (ii) Landlord reasonably believes an emergency
exists, then in either event, the Existing L/C may be presented for payment by
Landlord and the proceeds thereof shall be held by Landlord in accordance with
Section 6.01 subject, however, to Tenant's right, at any time thereafter prior
to a Tenant's default hereunder, to replace such cash security with a new letter
of credit meeting the qualifications of Section 6.02.
6.07 Notwithstanding anything in this Article 6 to the contrary,
subject to the provisions of 6.08 hereof, Tenant may, upon notice to Landlord
(hereinafter referred to as the "Security Reduction Notice") request that
Landlord return to Tenant portions of the cash security deposited by Tenant
pursuant to Section 6.01 so as to reduce the cash security to the amounts set
forth in Section 6.08(b) during the periods set forth in Section 6.08(b) or, if
Tenant has provided a Letter of Credit, exchange the then existing Letter of
Credit for a new Letter of Credit or provide an amendment of the then existing
Letter of Credit reasonably acceptable to Landlord in the amounts set forth in
Section 6.08(b) and otherwise meeting the requirements of Section 6.02.
6.08
(a) Provided Tenant is not in default under this lease, which
default continues after notice and the expiration of any applicable cure period,
both on the date Landlord receives the Security Reduction Notice and on the date
reimbursement is to be made to Tenant or the existing Letter of Credit is to be
exchanged or the amendment is to be delivered to and accepted by Landlord, and
Landlord has not previously applied any such security in accordance with the
provisions of this Article 6 which has not been restored by Tenant, Landlord
will return to Tenant portions of the cash security so as to reduce the cash
security to the amounts set forth in such Section (b) below during the periods
set forth therein, or exchange the then existing Letter of Credit for the new
Letter of Credit or accept an amendment of such existing Letter of Credit (which
acceptance must be evidenced in writing by Landlord) as set forth in Section
6.07(a).
(b) PERIOD AMOUNT OF SECURITY
From the fifth (5th) anniversary of
the Rent Commencement Date to the day
next preceding the seventh (7th) anniversary
of the Rent Commencement Date, both dates
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inclusive.................................................$1,200,000.00
From the seventh (7th) anniversary of
the Rent Commencement Date to the day
next preceding the ninth (9th) anniversary
of the Rent Commencement Date, both dates
inclusive.................................................$ 800,000.00
From the ninth (9th) anniversary of the
Rent Commencement Date and thereafter.....................$ 400,000.00
ARTICLE 7
Subordination, Notice To Lessors And Mortgagees
7.01 This lease, and all rights of Tenant hereunder, are and shall
be subject and subordinate in all respects to all ground leases, overriding
leases and underlying leases of the Land and/or the Building now or hereafter
existing and to all mortgages which may now or hereafter affect the Land and/or
the Building and/or any of such leases, whether or not such mortgages shall also
cover other lands and/or buildings, to each and every advance made or hereafter
to be made under such mortgages, and to all renewals, modifications,
replacements and extensions of such leases and such mortgages and spreaders and
consolidations of such mortgages. This Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver the then standard form
of instrument that the lessor of any such lease or the holder of any such
mortgage or any of their respective successors in interest may reasonably
request to evidence such subordination. In the event Tenant fails to execute and
deliver to Landlord such instrument within twenty (20) days of request therefor,
Landlord may, but shall not be obligated to, execute such instrument for and on
behalf of Tenant as its attorneys-in-fact. In acknowledgment thereof, Tenant
hereby appoints Landlord as its irrevocable attorney-in-fact coupled with an
interest solely to execute and deliver any instruments required to carry out the
intent of this Section 7.01 on behalf of Tenant. The leases to which this lease
is, at the time referred to, subject and subordinate pursuant to this Article
are hereinafter sometimes referred to as "superior leases" and the mortgages to
which this lease is, at the time referred to, subject and subordinate are
hereinafter sometimes referred to as "superior mortgages" and the lessor of a
superior lease or its successor in interest at the time referred to is sometimes
hereinafter referred to as a "lessor".
7.02 In the event of any act or omission of Landlord which would
give Tenant the right, immediately or after lapse of a period of time, to cancel
or terminate this lease, or to claim a partial or total eviction, Tenant shall
not exercise such right (i) until it has given written notice of such act or
omission to the holder of each superior mortgage and the lessor of each superior
lease whose name and address shall previously have been furnished to Tenant in
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writing, and (ii) unless such act or omission shall be one which is not capable
of being remedied by Landlord or such mortgage holder or lessor within a
reasonable period of time, until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when such holder or lessor shall have become entitled under such
superior mortgage or superior lease, as the case may be, to remedy the same
(which reasonable period shall in no event be less than the period to which
Landlord would be entitled under this lease or otherwise, after similar notice,
to effect such remedy), provided such holder or lessor shall with due diligence
give Tenant written notice of intention to, and promptly commence and diligently
continue to remedy such act or omission.
7.03 If the lessor of a superior lease or the holder of a superior
mortgage shall succeed to the rights of Landlord under this lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then at the request of such party so succeeding to Landlord's rights (herein
sometimes referred to as "successor landlord") and upon successor landlord's
written agreement to accept Tenant's attornment, Tenant shall attorn to and
recognize such successor landlord as Tenant's landlord under this lease, and
shall promptly execute and deliver the then standard form of instrument that
such successor landlord may reasonably request to evidence such attornment. Upon
such attornment this lease shall continue in full force and effect as, or as if
it were, a direct lease between the successor landlord and Tenant upon all of
the terms, conditions and covenants as are set forth in this lease and shall be
applicable after such attornment except that the successor landlord shall not
be:
(a) liable for any previous act or omission of Landlord (or
its predecessor in interest) under this lease;
(b) bound by any previous modification of this lease, not
expressly provided for in this lease, or by any previous prepayment of more than
one month's fixed rent, unless such modification or prepayment shall have been
expressly approved in writing by the lessor of the superior lease or the holder
of the superior mortgage through or by reason of which the successor landlord
shall have succeeded to the rights of Landlord under this lease;
(c) responsible for any monies owing by Landlord to the credit
of Tenant except as expressly provided for under the terms of this lease;
(d) subject to any credits, offsets, claims, counterclaims,
demands or defenses which Tenant may have against Landlord (or its predecessors
in interest);
(e) bound by any covenant to undertake or complete any
construction of the Demised Premises or any portion thereof or pay for or
reimburse Tenant for any costs incurred in connection with such construction;
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(f) required to account for any security deposit other than
any security deposit actually delivered to the successor landlord;
(g) bound by any obligation to make any payment to Tenant or
grant or be subject to any credits except as expressly provided for under this
lease and except for services, repairs, maintenance and restoration provided for
under this lease to be performed after the date of attornment, it being
expressly understood, however, that the successor landlord shall not be bound by
an obligation to make payment to Tenant with respect to construction performed
by or on behalf of Tenant at the Demised Premises.
7.04 If, in connection with obtaining financing or refinancing for
the Building of which the Demised Premises form a part, or Landlord's estate and
interest therein, a lender shall request reasonable modifications to this lease
as a condition to such financing or refinancing, Tenant will not withhold, delay
or defer its consent thereto, provided that such modifications do not increase
the obligations of Tenant or decrease Tenant's rights hereunder (except,
perhaps, to the extent that Tenant may be required to give notices of any
defaults by Landlord to such lender and/or permit the curing of such defaults by
such lender together with the granting of such additional time for such curing
as may be reasonably required for such lender to get possession of the Building
or Landlord's interest therein) or, except to a deminimus extent, adversely
affect the leasehold interest hereby created. In no event shall a requirement
that the consent of any such lender be given for any modification of this lease
or, subject to the provisions of this lease for any assignment or sublease, be
deemed to materially adversely affect the leasehold interest hereby created.
ARTICLE 8
Quiet Enjoyment
8.01 So long as Tenant pays all of the fixed rent and additional
rent due hereunder and performs all of Tenant's other obligations hereunder,
Tenant shall peaceably and quietly have, hold and enjoy the Demised Premises
subject, nevertheless, to the obligations of this lease and, as provided in
Article 7, to the superior leases and the superior mortgages.
ARTICLE 9
Assignment And Subletting
9.01 Except as otherwise expressly set forth in this Article 9, 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, nor suffer, nor
permit the Demised Premises or any part thereof to be used or occupied 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,
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Landlord may, after default by Tenant, collect rent from the assignee,
undertenant or occupant, and apply the net amount collected to the rent herein
reserved, but no assignment, underletting, occupancy or collection shall be
deemed a waiver of the provisions hereof, the acceptance of the assignee,
undertenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. The
consent by Landlord to an assignment or underletting shall not in any wise be
construed to relieve Tenant from obtaining the express consent in writing of
Landlord to any further assignment or underletting. In no event shall any
permitted sublessee assign or encumber its sublease or further sublet all or any
portion of its sublet space, or otherwise suffer or permit the sublet space or
any part thereof to be used or occupied by others, without Landlord's prior
written consent in each instance.
9.02 If Tenant shall at any time or times during the term of this
lease desire to assign this lease or sublet all or part of the Demised Premises,
Tenant shall give notice thereof to Landlord, which notice shall be accompanied
by (a) a detailed term sheet with respect to the proposed assignment or
sublease, the effective or commencement date of which shall be not less than
sixty (60) nor more than one hundred eighty (180) days after the giving of such
notice, (b) a statement setting forth in reasonable detail the identity of the
proposed assignee or subtenant, the nature of its business and its proposed use
of the Demised Premises, and (c) current financial information with respect to
the proposed assignee or subtenant, including, without limitation, its most
recent financial report. Except for any notice with respect to a proposed
assignment or sublease to any entity for which Landlord's consent is not
required pursuant to Section 9.11, such Tenant's notice shall be deemed an offer
from Tenant to Landlord whereby Landlord (or Landlord's designee) may, at its
option (hereinafter referred to as "Landlord's Option"), (i) sublease such space
(hereinafter referred to as the "Leaseback Space") from Tenant upon the terms
and conditions hereinafter set forth (if the proposed transaction is a sublease
of all or part of the Demised Premises), (ii) terminate this lease (if the
proposed transaction is an assignment or a sublease of all or substantially all
of the Demised Premises), or (iii) terminate this lease with respect to the
Leaseback Space (if the proposed transaction is a sublease of part of the
Demised Premises for a term expiring within the last year of the term of this
lease). Landlord's Option may be exercised by Landlord by notice to Tenant at
any time within thirty (30) days after such notice has been given by Tenant to
Landlord; and during such thirty (30) day period Tenant shall not assign this
lease nor sublet such space to any person.
9.03 If Landlord exercises Landlord's Option to terminate this lease
in the case where Tenant desires either to assign this lease or sublet all or
substantially all of the Demised Premises, then, this lease shall end and expire
on the date that such assignment or sublet was to be effective or commence, as
the case may be, and the fixed rent and additional rent shall be paid and
apportioned to such date.
9.04 If Landlord exercises Landlord's Option to terminate this lease
in part in any case where Tenant desires to sublet part of the Demised Premises
for a term expiring within
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the last year of the term of this lease, then, (a) this lease shall end and
expire with respect to such part of the Demised Premises on the date that the
proposed sublease was to commence; (b) from and after such date the fixed rent
and additional rent shall be adjusted, based upon the proportion that the
rentable area of the Demised Premises remaining bears to the total rentable area
of the Demised Premises; and (c) Tenant shall pay to Landlord, upon demand, the
actual out-of-pocket costs incurred by Landlord in physically separating such
part of the Demised Premises from the balance of the Demised Premises and in
complying with any laws and requirements of any public authorities relating to
such separation but only to the extent Tenant was obligated to perform such work
pursuant to the provisions of the term sheet set forth in Section 9.02;
otherwise such costs shall be at Landlord's expense.
9.05 If Landlord exercises Landlord's Option to sublet the Leaseback
Space, such sublease to Landlord or its designee (as subtenant) shall be at the
rentals set forth in the proposed sublease, and shall be for the same term as
that of the proposed subletting, and such sublease shall:
(a) be expressly subject to all of the covenants, agreements,
terms, provisions and conditions of this lease except such as are irrelevant or
inapplicable, and except as otherwise expressly set forth to the contrary in
this Section;
(b) be upon the same terms and conditions as those contained
in the proposed sublease, except such as are irrelevant or inapplicable and
except as otherwise expressly set forth to the contrary in this Section;
(c) give the sublessee the unqualified and unrestricted right,
without Tenant's permission, to assign such sublease or any interest therein
and/or to sublet the Leaseback Space or any part or parts of the Leaseback Space
and to make any and all changes, alterations, and improvements in the space
covered by such sublease and if the proposed sublease will result in all or
substantially all of the Demised Premises being sublet, grant Landlord or its
designee the option to extend the term of such sublease for the balance of the
term of this lease less one (1) day;
(d) provide that any assignee or further subtenant, of
Landlord or its designee, may, at the election of Landlord, be permitted to make
alterations, decorations and installations in the Leaseback Space or any part
thereof and shall also provide in substance that any such alterations,
decorations and installations in the Leaseback Space therein made by any
assignee or subtenant of Landlord or its designee may be removed, in whole or in
part, by such assignee or subtenant, at its option, prior to or upon the
expiration or other termination of such sublease provided that such assignee or
subtenant, at its expense, shall repair any damage and injury to that portion of
the Leaseback Space so sublet caused by such removal provided that Tenant shall
have no obligation to deliver the Leaseback Space to Landlord at the
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end of the term in any better condition than same was returned to Tenant by
Landlord at the expiration or sooner termination of the applicable sublease or
sub-sublease; and
(e) also provide that (i) the parties to such sublease
expressly negate any intention that any estate created under such sublease be
merged with any other estate held by either of said parties, (ii) any assignment
or subletting by Landlord or its designee (as the subtenant) may be for any
purpose or purposes that Landlord, in Landlord's reasonable discretion, shall
deem suitable or appropriate, (iii) Tenant, at Tenant's expense, shall and will
at all times provide and permit reasonably appropriate means of ingress to and
egress from the Leaseback Space so sublet by Tenant to Landlord or its designee,
(iv) Landlord, at Tenant's expense, may make such alterations as may be required
or deemed necessary by Landlord to physically separate the Leaseback Space from
the balance of the Demised Premises and to comply with any laws and requirements
of public authorities relating to such separation to but only to the extent
Tenant was obligated to perform such work pursuant to the provisions of the term
sheet set forth in Section 9.02 or pursuant to this lease; otherwise such costs
shall be at Landlord's expense, and (v) that, subject to the provisions of
Section 9.05(d), at the expiration of the term of such sublease, Tenant will
accept the space covered by such sublease in its then existing condition,
subject to the obligations of the sublessee to make such repairs thereto as may
be necessary to preserve the premises demised by such sublease in good order and
condition, reasonable wear and tear and casualty excepted.
9.06
(a) If Landlord exercises Landlord's Option to sublet the
Leaseback Space, Landlord shall indemnify, defend and save Tenant harmless from
all obligations under this lease as to the Leaseback Space during the period of
time it is so sublet to Landlord;
(b) Performance by Landlord, or its designee, under a sublease
of the Leaseback Space shall be deemed performance by Tenant of any similar
obligation under this lease and any default under any such sublease shall not
give rise to a default under a similar obligation contained in this Lease, nor
shall Tenant be liable for any default under this lease or deemed to be in
default hereunder if such default is occasioned by or arises from any act or
omission of the tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease;
(c) Tenant shall have no obligation, at the expiration or
earlier termination of the term of this lease, to remove any alteration,
installation or improvement made in the Leaseback Space by Landlord or its
designee or anyone claiming under Landlord or such designee.
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9.07 In the event Landlord does not exercise Landlord's Option
pursuant to Section 9.02 and providing that Tenant is not in default of any of
Tenant's obligations under this lease after notice and the expiration of any
applicable grace period, Landlord's consent (which must be in writing and in
form reasonably satisfactory to Landlord) to the proposed assignment or sublease
shall not be unreasonably withheld, conditioned or delayed and shall be granted
or denied within the thirty (30) day period set forth in Section 9.02, provided
and upon condition that:
(a) Tenant shall have complied with the provisions of Section
9.02 and Landlord shall not have exercised Landlord's Option under said Section
9.02 within the time permitted therefor;
(b) In Landlord's reasonable judgment the proposed assignee or
subtenant is engaged in a business and the Demised Premises, or the relevant
part thereof, will be used in a manner which (i) is in keeping with the then
standards of the Building, (ii) is limited to the uses permitted under this
lease, and (iii) will not violate any negative covenant as to use contained in
any other lease of space in the Building, Landlord agreeing to advise Tenant of
any such negative covenants promptly upon request;
(c) The proposed assignee or subtenant has sufficient
financial worth considering the responsibility involved, and Landlord has been
furnished with reasonable proof thereof;
(d) Provided Landlord then has comparably sized space
available for at least a comparable term, neither (i) the proposed assignee or
sublessee nor (ii) any person which, directly or indirectly, controls, is
controlled by, or is under common control with, the proposed assignee or
sublessee or any person who controls the proposed assignee or sublessee, is then
an occupant of any part of the Building;
(e) Provided Landlord then has comparably sized space
available for at least a comparable term, the proposed assignee or sublessee is
not a person with whom Landlord is then negotiating to lease space in the
Building;
(f) The form of the proposed sublease shall comply with the
applicable provisions of this Article;
(g) There shall not be more than four (4) entities (excluding
Landlord or its designee or their sub-subtenants) occupying the Demised Premises
at any time;
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(h) The rental and other terms and conditions of the sublease
are substantially the same as those contained in the term sheet furnished to
Landlord pursuant to Section 9.02;
(i) Tenant shall reimburse Landlord on demand for any
reasonable out-of-pocket costs that may be incurred by Landlord in connection
with said assignment or sublease, including, without limitation, the reasonable
costs of making investigations as to the acceptability of the proposed assignee
or subtenant and reasonable legal costs incurred in connection with the review
of any term sheet, proposed assignment or sublease or any documentation in
connection therewith and in the preparation of any documentation in connection
with any request for consent whether or not granted;
(j) Tenant shall not have advertised or publicized to the
public in any way the availability of the Demised Premises without prior notice
to and approval by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed, nor shall any advertisement state the name (as
distinguished from the address) of the Building or the proposed rental, but
Tenant may list the Demised Premises or the portion thereof to be subleased and
the terms of any proposed subletting or assignment with a licensed real estate
broker; and
(k) The sublease shall not allow the use of the Demised
Premises or any part thereof (i) for the preparation and/or sale of food for off
premises consumption or (ii) for use by a foreign or domestic government or
governmental agency.
Except for any subletting by Tenant to Landlord or its designee pursuant
to the provisions of this Article (which shall be subject to the terms and
conditions of Section 9.05), each subletting pursuant to this Article shall be
subject to all of the covenants, agreements, terms, provisions and conditions
contained in this lease. Notwithstanding any such subletting to Landlord or any
such subletting to any other subtenant and/or acceptance of rent or additional
rent by Landlord from any subtenant, Tenant shall and will remain fully liable
for the payment of the fixed rent and additional rent due and to become due
hereunder and for the performance of all the covenants, agreements, terms,
provisions and conditions contained in this lease on the part of Tenant to be
performed and all acts and omissions of any licensee or subtenant or anyone
claiming under or through any subtenant which shall be in violation of any of
the obligations of this lease, and any such violation shall be deemed to be a
violation by Tenant. Tenant further agrees that notwithstanding any such
subletting, no other and further subletting of the Demised Premises by Tenant or
any person claiming through or under Tenant (except as provided in Section 9.05)
shall or will be made except upon compliance with and subject to the provisions
of this Article. If Landlord shall decline to give its consent to any proposed
assignment or sublease, or if Landlord shall exercise Landlord's Option under
Section 9.02, Tenant shall indemnify, defend and hold harmless Landlord against
and from any and all loss, liability, damages, costs and expenses (including
reasonable counsel fees) resulting from any claims that may be made
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against Landlord by the proposed assignee or sublessee or by any brokers or
other persons claiming a commission or similar compensation in connection with
the proposed assignment or sublease.
9.08 In the event that (a) Landlord fails to exercise Landlord's
Option under Section 9.02 and consents to a proposed assignment or sublease, and
(b) Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within one hundred eighty (180) days after the giving of such
consent, then, Tenant shall again comply with all of the provisions and
conditions of Section 9.02 before assigning this lease or subletting all or part
of the Demised Premises.
9.09 With respect to each and every sublease or subletting
authorized by Landlord or where Landlord's consent is not required, in each case
under the provisions of this lease, it is further agreed:
(a) no subletting shall be for a term ending later than one
day prior to the expiration date of this lease;
(b) no sublease shall be valid, and no subtenant shall take
possession of the Demised Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(c) each sublease shall provide that it is subject and
subordinate to this lease and to the matters to which this lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess by
Landlord under this lease Landlord may, at its option, take over all of the
right, title and interest of Tenant, as sublessor, under such sublease, and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then
executory provisions of such sublease except that Landlord shall not (i) be
liable for any previous act or omission of Tenant under such sublease, (ii) be
subject to any offset, not expressly provided in such sublease, which
theretofore accrued to such subtenant against Tenant, or (iii) be bound by any
previous modification of such sublease or by any previous prepayment of more
than one month's rent.
9.10 If Landlord shall give its consent to any assignment of this
lease or to any sublease, Tenant shall in consideration therefor, pay to
Landlord, as additional rent:
(a) in the case of an assignment, an amount equal to 50% of
all sums and other considerations paid to Tenant by the assignee for or by
reason of such assignment (including, but not limited to, sums paid for the sale
of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings
or other personal property, less, in the case of a sale thereof, the then fair
market value thereof) and less the reasonable costs (hereinafter referred
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to as the "Assignment Expenses") paid by Tenant for alteration costs (or
contributions in lieu thereof), advertising, brokerage or consulting fees or
commissions and legal fees in connection with such assignment; and
(b) in the case of a sublease, an amount equal to 50% of any
rents, additional charge or other consideration payable under the sublease to
Tenant by the subtenant which is in excess of the fixed rent and additional rent
accruing during the term of the sublease in respect of the subleased space (at
the rate per square foot payable by Tenant hereunder) pursuant to the terms
hereof (including, but not limited to, sums paid for the sale or rental of
Tenant's fixtures, leasehold improvements, equipment, furniture or other
personal property, less, in the case of the sale thereof, the then fair market
value thereof) and less the reasonable costs (hereinafter referred to as the
"Subletting Expenses") paid by Tenant for alteration costs (or contributions in
lieu thereof), advertising, brokerage or consulting fees or commissions and
legal fees in connection with such subletting. The sums payable under Sections
9.10(a) and (b) shall be paid to Landlord as and when paid by the assignee or
subtenant, as the case may be, to Tenant and upon the execution and delivery of
such assignment or sublease, as the case may be, Tenant shall provide to
Landlord a statement of the Assignment Expenses or Subletting Expenses, as the
case may be, certified as correct by an officer or principal of Tenant. In the
event of any dispute with respect to the Assignment Expenses or the Subletting
Expenses, such dispute shall be determined by arbitration in accordance with the
provisions of Article 34 hereof.
9.11 If Tenant is a corporation other than a corporation whose stock
is listed and traded on a nationally recognized stock exchange, the provisions
of Section 9.01 shall apply to a transfer (however accomplished, whether in a
single transaction or in a series of related or unrelated transactions) of stock
(or any other mechanism such as, by way of example, the issuance of additional
stock, a stock voting agreement or change in class(es) of stock) which results
in a change of control of Tenant as if such transfer of stock (or other
mechanism) which results in a change of control of Tenant were an assignment of
this lease, and if Tenant is a partnership or joint venture or other entity,
said provisions shall apply with respect to a transfer (by one or more
transfers) of an interest in the distributions of profits and losses of such
partnership or joint venture or other entity (or other mechanism, such as, by
way of example, the creation of additional general partnership or limited
partnership interests) which results in a change of control of such partnership
or joint venture or other entity, as if such transfer of an interest in the
distributions of profits and losses of such partnership or joint venture or
other entity which results in a change of control of such partnership or joint
venture or other entity were an assignment of this lease; but the provisions of
the first sentence of Section 9.01, Landlord's Option, Section 9.07(a)-(e), (h)
and (j), and Section 9.10 shall not apply to transactions (including, without
limitation, subleases) with a corporation into or with which Tenant is merged or
consolidated or to which all or substantially all of Tenant's assets are
transferred (provided that the purpose for which such assets are transferred is
a valid business
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purpose and not merely to transfer this lease) or to any corporation which
controls or is controlled by Tenant or is under common control with Tenant,
provided that in the event of such merger, consolidation or transfer of all or
substantially all of Tenant's assets (i) the successor to Tenant has a net worth
computed in accordance with generally accepted accounting principles at least
equal to the net worth of Tenant herein named on the date of this lease, and
(ii) proof satisfactory to Landlord of such net worth shall have been delivered
to Landlord at least 10 days prior to the effective date of any such
transaction.
9.12 Any assignment or transfer, whether made with Landlord's
consent pursuant to Section 9.01 or without Landlord's consent pursuant to
Section 9.11, shall be made only if, and shall not be effective until, the
assignee shall execute, acknowledge and deliver to Landlord an agreement in form
and substance satisfactory to Landlord whereby the assignee shall assume the
obligations of this lease on the part of Tenant to be performed or observed and
whereby the assignee shall agree that the provisions in Section 9.01 shall,
notwithstanding such assignment or transfer, continue to be binding upon it in
respect of all future assignments and transfers. The original named Tenant
covenants that, notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this lease, and notwithstanding the acceptance of
fixed rent and/or additional rent by Landlord from an assignee, transferee, or
any other party, the original named Tenant shall remain fully liable for the
payment of the fixed rent and additional rent and for the other obligations of
this lease on the part of Tenant to be performed or observed. In no event shall
this lease be assigned to a foreign or domestic government or governmental
agency.
9.13 The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this lease.
9.14 The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or the Building directory, or otherwise, shall
not operate to vest any right or interest in this lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others.
ARTICLE 10
Compliance With Laws And Requirements Of Public Authorities
10.01 Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and
Tenant, at its expense, shall comply
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with all laws and requirements of public authorities which shall, with respect
to the Demised Premises or the use and occupation thereof, or the abatement of
any nuisance, impose any violation, order or duty on Landlord or Tenant, arising
from (i) Tenant's use of the Demised Premises, (ii) the manner of conduct of
Tenant's business or operation of its installations, equipment or other property
therein, (iii) any cause or condition created by or at the instance of Tenant,
other than by Landlord's performance of any work for or on behalf of Tenant, or
(iv) breach of any of Tenant's obligations hereunder. However, Tenant shall not
be so required to make any structural or other substantial change in the Demised
Premises unless the requirement arises from Tenant's manner of use of the
Demised Premises as distinguished from the mere use thereof for office purposes
or from a cause or condition referred to in clause (ii), (iii) or (iv) above.
Furthermore, Tenant need not comply with any such law or requirement of public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Section 10.02.
Landlord, at its expense, shall comply with all other such laws and requirements
of public authorities as shall affect the Demised Premises and the Building to
the extent that the failure to do so would (x) unreasonably restrict Tenant's
access to, or use of, the Demised Premises, (y) cause injury or damage to
persons or property in or about the Demised Premises, or (z) prevent Tenant from
being able to obtain any required permit for any approved Tenant's Work or
Tenant's Changes, but may similarly contest the same subject to conditions
reciprocal to Subsections (a), (b) and (d) of Section 10.02.
10.02 Tenant may, at its expense (and if necessary, in the name of
but without expense to Landlord) contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings, provided that:
(a) Landlord shall not be subject to criminal penalty or to
prosecution for a crime nor shall the Demised Premises or any part thereof be
subject to being condemned or vacated, by reason of non-compliance or otherwise
by reason of such contest;
(b) Tenant shall defend, indemnify and hold harmless Landlord
against all liability, loss or damage which Landlord shall suffer by reason of
such non-compliance or contest, including reasonable attorney's fees and other
expenses reasonably incurred by Landlord;
(c) such non-compliance or contest shall not constitute or
result in any violation of any superior lease or superior mortgage, or if such
superior lease and/or superior mortgage shall permit such non-compliance or
contest on condition of the taking of action or furnishing of security by
Landlord, such action shall be taken and such security shall be furnished at the
expense of Tenant; and
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(d) Tenant shall keep Landlord advised as to the status of
such proceedings.
Without limiting the application of Subsection (a) above thereto, Landlord shall
be deemed subject to prosecution for a crime within the meaning of said
Subsection, if Landlord, or any officer of Landlord individually, is charged
with a crime of any kind or degree whatever, whether by service of a summons or
otherwise, unless such charge is withdrawn before Landlord or such officer (as
the case may be) is required to plead or answer thereto.
10.03 Tenant shall not cause or permit "Hazardous Materials" (as
defined below) to be used, transported, stored, released, handled, produced or
installed in, on or from, the Demised Premises or the Building. The term
"Hazardous Materials" shall, for the purposes hereof, mean any flammable
explosives, radioactive materials, hazardous wastes, hazardous and toxic
substances, or related materials, asbestos or any material containing asbestos,
or any other substance or material, as defined by any federal, state or local
environmental law, ordinance, rule or regulation including, without limitation,
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, and in the regulations adopted and
publications promulgated pursuant to each of the foregoing. The parties agree
that nothing contained in this Section 10.03 shall prohibit, and Landlord
herewith consents to, Tenant's use and maintenance in the Demised Premises of
limited quantities of substances reasonably necessary in the ordinary operation
and maintenance of office equipment, provided such substances are used,
transported, stored, released, handled, and maintained within the Demised
Premises in accordance with all applicable laws and regulations. In the event
any asbestos containing material is exposed during any of Tenant's Work or
Tenant's Changes (as defined in Article 13) which exposure results from the
entry (whether or not authorized by Landlord) by Tenant into any column(s)
located in the Demised Premises in which vertical pipes and/or shaftways pass
through the Demised Premises, or other core areas of the Demised Premises and
which exposure, but for such entry, would not occur), Tenant will remove same as
required by applicable law at its sole cost and expense. Upon completion of
Tenant's Work or Tenant's Changes, Tenant shall provide Landlord with a written
certification from Tenant's general contractor or architect to the effect that
no Hazardous Materials have been incorporated into the Demised Premises by
reason of Tenant's Work or Tenant's Changes in violation of applicable law and
rules of governmental authorities. In the event of a breach of the provisions of
this Section 10.03, Landlord shall, in addition to all of its rights and
remedies under this lease and pursuant to law, require Tenant to remove any such
Hazardous Materials from the Demised Premises in the manner prescribed for such
removal by the applicable law, ordinance, rule or regulation. The provisions of
this Section 10.03 shall survive the Expiration Date or sooner termination of
this lease. Landlord hereby agrees to promptly remove or cause the removal of
any Hazardous Material from the Building as required by applicable law except
with respect to Hazardous Materials required to be removed by Tenant pursuant to
this lease.
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ARTICLE 11
Insurance
11.01 Tenant shall not violate, or permit the violation of, any
condition imposed by the standard fire insurance policy then issued for office
buildings in the Borough of Manhattan, City of New York, and shall not do, or
permit anything to be done, or keep or permit anything to be kept in the Demised
Premises which would subject Landlord to any liability or responsibility for
personal injury or death or property damage, or which would increase the fire or
other casualty insurance rate on the Building or the property therein over the
rate which would otherwise then be in effect (unless Tenant pays the resulting
premium as provided in Section 11.04) or which would result in insurance
companies of good standing refusing to insure the Building or any of such
property in amounts reasonably satisfactory to Landlord.
11.02 Tenant covenants to provide on or before the earlier to occur
of (i) the Commencement Date and (ii) ten (10) days from the date of this lease
and to keep in force during the term hereof the following insurance coverage
which coverage shall be effective on the Commencement Date:
(a) A policy of commercial general liability insurance naming
Landlord, Max AG 450 LLC and Max Capital Management Corp. as additional
insureds, protecting such parties and Tenant against any liability whatsoever
occasioned by accident on or about the Demised Premises or any appurtenances
thereto. Such policy shall have limits of liability of not less than Five
Million ($5,000,000.00) Dollars combined single limit coverage on a per
occurrence basis, including property damage. Such policy shall contain a
contractual liability coverage endorsement with respect to Tenant's
indemnification obligations under this lease. Such insurance may be carried
under a blanket policy covering the Demised Premises and other locations of
Tenant, if any, provided such policy contains an endorsement providing a
separate limit available for the Demised Premises equal to the limits of
liability required under this lease;
(b) Intentionally Omitted.
(c) Fire and extended coverage in an amount adequate to cover
the cost of replacement of all personal property, fixtures, furnishings,
valuable papers and documents, data, leasehold improvements and equipment,
including Tenant's Work and Tenant's Changes located in the Demised Premises.
The provisions of the last sentence of Section 11.02(a) shall apply with respect
to such fire and extended insurance coverage.
All such policies shall be issued by companies of recognized responsibility
licensed to do business in New York State and rated by Best's Insurance Reports
or any successor publication of comparable standing and carrying a rating of A-
VIII or better or the then equivalent of such
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rating, and all such policies shall contain a provision whereby the same cannot
be cancelled or modified unless Landlord and any additional insureds are given
at least thirty (30) days prior written notice of such cancellation or
modification.
Prior to the time such insurance is first required to be carried by
Tenant and thereafter, at least fifteen (15) days prior to the expiration of any
such policies, Tenant shall deliver to Landlord either duplicate originals of
the aforesaid policies or certificates evidencing such insurance including a
certified copy of the endorsement naming Landlord as an additional insured,
together with evidence of payment for the policy. Such certificates shall also
verify the primary nature of the coverage and note the waiver of subrogation in
favor of Landlord, Max AG 450 LLC and Max Capital Management Corp. If Tenant
delivers certificates as aforesaid, Tenant upon reasonable prior notice from
Landlord, shall make available to Landlord, at the Demised Premises, duplicate
originals of such policies from which Landlord may make copies thereof, at
Landlord's cost. Tenant's failure to provide and keep in force the
aforementioned insurance shall be regarded as a material default hereunder,
entitling Landlord to exercise any or all of the remedies as provided in this
lease in the event of Tenant's default. In addition in the event Tenant fails to
provide and keep in force the insurance required by this lease, at the times and
for the durations specified in this lease, Landlord shall have the right, but
not the obligation, at any time and from time to time, and without notice, to
procure such insurance and or pay the premiums for such insurance in which event
Tenant shall repay Landlord within five (5) days after demand by Landlord, as
additional rent, all sums so paid by Landlord and any costs or expenses incurred
by Landlord in connection therewith without prejudice to any other rights and
remedies of Landlord under this lease.
11.03 Landlord and Tenant shall each secure an appropriate clause
in, or an endorsement upon, each property fire or extended coverage policy
obtained by it and covering the Building, the Demised Premises, Tenant's Work
and Tenant's Changes (as hereinafter defined) or the personal property,
fixtures, furnishings, valuable papers and documents, data, leasehold
improvements and equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the insured, prior to
any loss, to agree with a third party to waive any claim it might have against
said third party. The waiver of subrogation or permission for waiver of any
claim hereinbefore referred to shall extend to the agents of each party and its
employees. Evidence of such renewal or replacement of a policy shall be
delivered by each party to the other at least twenty (20) days prior to the
expiration of such policy. If and to the extent that such waiver or permission
can be obtained only upon payment of an additional charge then, the party
benefiting from the waiver or permission shall pay such charge upon demand, or
shall be deemed to have agreed that the party obtaining the insurance coverage
in question shall be free of any further obligations under the provisions hereof
relating to such waiver or permission. Tenant shall provide Landlord with a
certificate of insurance verifying this waiver in favor of Landlord, Max AG 450
LLC, Max Capital Management Corp. and their respective employees and agents.
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Subject to the foregoing provisions of this Section 11.03, and insofar as may be
permitted by the terms of the insurance policies carried by it, each party and
their respective employees and agents hereby releases the other with respect to
any claim (including a claim for negligence) which it might otherwise have
against the other party for loss, damages or destruction with respect to its
property by fire or other casualty (including rental value or business
interruption, as the case may be) occurring during the term of this lease or
during the move into and out of the Demised Premises.
11.04 If, by reason of a failure of Tenant to comply with the
provisions of Section 10.01 or Section 11.01, the rate of fire insurance with
extended coverage on the Building or equipment or other property of Landlord
shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on
demand, for that part of the premiums for fire insurance and extended coverage
paid by Landlord because of such failure on the part of Tenant.
11.05 Landlord may, from time to time, require that the amount of
the insurance to be provided and maintained by Tenant under Section 11.02 hereof
be increased so that the amount thereof, in Landlord's reasonable determination,
adequately protects Landlord's interest but in no event in excess of the amount
that would be required by other tenants occupying similarly sized space in
first-class office buildings in the borough of Manhattan for office use.
11.06 If any dispute shall arise between Landlord and Tenant with
respect to the incurring or the amount of any additional insurance premium
referred to in Section 11.03 or the increase in amount of insurance referred to
in Section 11.05, the dispute shall be determined by arbitration.
11.07 A schedule or make up of rates for the Building or the Demised
Premises, as the case may be, issued by the New York Fire Insurance Rating
Organization or other similar body making rates for fire insurance and extended
coverage for the premises concerned, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rate
with extended coverage then applicable to such premises.
11.08 Each policy evidencing the insurance to be carried by Tenant
under this lease shall contain a clause that such policy and the coverage
evidenced thereby shall be primary with respect to any policies carried by
Landlord, and that any coverage carried by Landlord shall be excess insurance.
11.09 Landlord shall from and after the date of this lease through
the last day of the term hereof, procure and maintain (or cause to be procured
or maintained) fire and extended coverage insurance, in good and solvent
insurance companies authorized to do business in the State of New York, on the
Building (exclusive of foundations and footings) in an amount equal to the full
replacement value thereof. Such insurance may be carried under a blanket policy
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covering the Building and any other buildings or other properties of Landlord,
provided that the required amount of coverage is expressly reserved and
allocated to the Building, and may contain commercially reasonable deductibles.
Notwithstanding anything contained in this Section 11.09 to the contrary, if at
any time an "institutional lender" (as such term is hereinafter defined) shall
succeed to the rights of Landlord under this lease whether through sale,
exchange, lease, possession, foreclosure action, deed in lieu thereof, or
otherwise, the obligations of Landlord set forth in this Section 11.09 shall not
apply to such institutional lender. For the purposes of this Section 11.09, an
"institutional lender" shall mean any bank, savings and loan association, trust
company, insurance company, pension fund or similar institutional lender, which
in the ordinary course of its business, owns or operates first-class office
buildings and, in connection with such ownership or operation, is self-insured
with respect to fire and extended coverage and which has a "Standard & Poor's"
or "Moody's" (or any successor rating service or substitute rating service (if
either of the "Standard & Poor's" and "Moody's" services are not then
available)) "claims paying ability rating" or "debt rating" of AA or Aa (or
better) or a "Best's Insurance" (or any successor rating service or substitute
rating service, if "Best's insurance" is not then available) rating of A (or
better). If the rating scales of any of such rating services (or their
successors or substitutes) are changed, then the required rating shall be that
rating which is most nearly comparable to the current rating of "AA" (for
Standard & Poor's), "Aa" (for Moody's) or "A" (for Best's Insurance).
ARTICLE 12
Rules And Regulations
12.01 Tenant and its employees and agents shall faithfully observe
and comply with the Rules and Regulations annexed hereto as Exhibit D, and such
reasonable changes therein (whether by modification, elimination or addition) as
Landlord at any time or times hereafter may make and communicate in writing to
Tenant, which do not unreasonably affect the conduct of Tenant's business in the
Demised Premises except as required by any governmental law, rule, regulation,
ordinance or similar decree; provided, however, that in case of any conflict or
inconsistency between the provisions of this lease and any of the Rules and
Regulations as originally promulgated or as changed, the provisions of this
lease shall control.
12.02 Nothing in this lease contained shall be construed to impose
upon Landlord any duty or obligation to Tenant to enforce the Rules and
Regulations or the 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 or its employees, agents or visitors. However,
Landlord shall not enforce any of the Rules and Regulations in such manner as to
discriminate against Tenant or anyone claiming under or through Tenant.
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ARTICLE 13
Tenant's Changes
13.01 Tenant may from time to time during the term of this lease, at
its expense, make such other alterations, additions, installations,
substitutions, improvements and decorations (hereinafter collectively referred
to as "changes" and, as applied to changes provided for in this Article,
"Tenant's Changes") in and to the Demised Premises, excluding structural
changes, as Tenant may reasonably consider necessary for the conduct of its
business in the Demised Premises, on the following conditions:
(a) the outside appearance or the strength of the Building or
of any of its structural parts shall not be affected;
(b) no part of the Building outside of the Demised Premises
shall be physically affected and in no event may Tenant install or maintain any
window air-conditioning unit;
(c) the proper functioning of any of the mechanical,
electrical, sanitary and other service systems of the Building shall not be
adversely affected or the usage of such systems by Tenant shall not be
increased;
(d) in performing the work involved in making such changes,
Tenant shall be bound by and observe all of the conditions and covenants
contained in the following Sections of this Article;
(e) before proceeding with any Tenant's Changes, Tenant will
advise Landlord thereof and shall submit to Landlord proof reasonably
satisfactory of the cost thereof and the name of the contractor who will be
performing Tenant's Changes for Landlord's approval, which approval shall not be
unreasonably withheld, conditioned or delayed. In selecting a contractor, Tenant
will allow a contractor selected by Landlord to bid on the job but nothing
herein shall be deemed to require Tenant to select such contractor.
Additionally, before proceeding with any Tenant's Changes other than those of a
decorative nature such as painting, wall coverings and floor coverings, Tenant
shall submit to Landlord plans and specifications and all changes and revisions
thereto, for the work to be done for Landlord's approval (which approval shall
not be unreasonably withheld, conditioned or delayed except in connection with
Tenant's Changes which relate to items set forth in Section 13.01(a)-(c)) above
and Tenant shall, upon demand of Landlord, pay to Landlord the reasonable and
actual out-of-pocket costs incurred by Landlord for the review of such plans and
specifications and all changes and revisions thereto by its architect, engineer
and other consultants. Tenant agrees that any review or approval by Landlord of
any plans and specifications is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant with respect to the adequacy,
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correctness or efficiency thereof or otherwise. The granting by Landlord of its
approval to such plans and specifications shall in no manner constitute or be
deemed to constitute a judgment or acknowledgment by Landlord as to their
legality or compliance with laws and/or requirements of public authorities.
Landlord may as a condition of its approval require Tenant to make revisions in
and to the plans and specifications and to post a bond or other security
reasonably satisfactory to Landlord to insure the completion of such change.
Notwithstanding anything contained in this Lease to the contrary, Landlord's
consent shall not be required with respect to any nonstructural Tenant's Changes
(i) which do not affect the Building systems or any part of the Building
(including the exterior thereof) other than the Demised Premises, (ii) which do
not result in a violation of the Certificate of Occupancy, (iii) the estimated
cost of the labor and materials of which do not exceed One Hundred Thousand
Dollars ($100,000,000), either individually or in the aggregate with other
non-structural Tenant's Changes (for which Landlords' consent is not required
pursuant to the terms set forth herein) constructed within any twelve (12) month
period and (iv) which does not require a building permit from the New York City
Department of Buildings or other approval by any governmental authority having
jurisdiction; provided, however, that not less than ten (10) days prior to
making any such nonstructural Tenant's Changes, Tenant shall submit to Landlord
the plans and specifications for such Tenant's Changes (or if plans and
specifications are not required pursuant to any applicable laws or requirements
of public authorities thereto, such plans and specifications, design drawings or
sketches that Tenant has prepared in connection therewith which, at a minimum,
shall include sketches and attendant commentary which, together, constitute a
reasonably accurate description of the non-structural Tenant's Changes to be
performed. Any such Tenant's Changes shall otherwise be performed in compliance
with the applicable provisions of this lease, including, without limitation,
this Article 13.
13.02 Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Tenant's Changes and for final approval thereof upon completion and shall
furnish copies thereof to Landlord, and shall cause Tenant's Changes to be
performed in compliance therewith and with all applicable laws and requirements
of public authorities, and with all applicable requirements of insurance bodies,
and in good and workmanlike manner, using first-class materials and equipment.
Landlord agrees to cooperate with Tenant in connection with obtaining such
necessary governmental permits and certificates by signing any applications,
which are properly completed by Tenant, to the extent Landlord's signature is
required. Tenant's Changes shall be performed in such manner as not to
unreasonably interfere with or delay and (unless Tenant shall indemnify Landlord
therefor to the latter's reasonable satisfaction) as not to impose any
additional expense upon, Landlord in the renovation, maintenance or operation of
the Building or any portion thereof. Throughout the performance of Tenant's
Changes, Tenant, at its expense, shall carry, or cause to be carried, worker's
compensation insurance in statutory limits with a waiver of subrogation in favor
of Landlord, Max AG 450 LLC and Max Capital Management Corp. and otherwise as
set forth in
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Section 11.02(b) and commercial general liability insurance for any occurrence
in or about the Building with limits and otherwise as set forth in Section
11.02(a) hereof. Tenant shall furnish Landlord with satisfactory evidence that
such insurance is in effect at or before the commencement of Tenant's Changes
and, on request, at reasonable intervals thereafter during the continuance of
Tenant's Changes. If any of Tenant's Changes shall involve the removal of any
fixtures, equipment or other property in the Demised Premises which are not
Tenant's Property (as defined in Article 14), such fixtures, equipment or other
property shall be promptly replaced, at Tenant's expense, with first-class
fixtures, equipment or other property (as the case may be) of like utility and
of comparable value unless Landlord shall otherwise expressly consent in writing
and Tenant shall, upon Landlord's request, deliver any such fixtures, equipment
or property so removed to Landlord. All electrical and plumbing work in
connection with Tenant's Changes shall be performed by contractors or
subcontractors licensed therefor by all governmental agencies having or
asserting jurisdiction. Upon the completion of Tenant's Changes, Tenant shall
furnish to Landlord a complete set of "as-built" plans and specifications.
13.03 Tenant, at its expense, and with diligence and dispatch, shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenant's Changes which shall be issued by the
Department of Buildings or any other public or quasi-public authority having or
asserting jurisdiction. Tenant shall defend, indemnify and save harmless
Landlord against any and all mechanic's and other liens filed in connection with
Tenant's Changes, including the liens of any security interest in, conditional
sales of, or chattel mortgages upon, any materials, fixtures or articles so
installed in and constituting part of the Demised Premises and against all
costs, expense and liabilities incurred in connection with any such lien,
security interest, conditional sale or chattel mortgage or any action or
proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of all such liens within fifteen (15) days after
Landlord makes written demand therefor. However, nothing herein contained shall
prevent Tenant from contesting, in good faith and at its own expense, any such
notice of violation, provided that Tenant shall comply with the provisions of
Section 10.02.
13.04 Tenant agrees that the exercise of its rights pursuant to the
provisions of this Article 13 or any other provision of this lease shall not be
done in a manner which would actually create any work stoppage, picketing, labor
disruption or dispute or violate Landlord's union contracts affecting the Land
and/or Building nor interference with the business of Landlord or any Tenant or
occupant of the Building. In the event of the actual occurrence of any condition
described above arising from the exercise by Tenant of its right pursuant to the
provisions of this Article 13 or any other provision of this lease, Tenant
shall, immediately upon notice from Landlord, cease the manner of exercise of
such right giving rise to such condition. The parties agree that in such
instance, Landlord will suffer irreparable harm for which money damages will be
an insufficient remedy. For that reason, in the event Tenant fails to cease such
manner of exercise of its rights as aforesaid, Landlord, in addition to any
rights otherwise available to it under this lease and pursuant to law and
equity, shall have the right to a court order granting an
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injunction against Tenant's manner of exercise of its rights as aforesaid,
application for such injunction to be made without notice. With respect to
Tenant's Changes, Tenant shall make all arrangements for, and pay all expenses
incurred in connection with use of the freight elevators servicing the Demised
Premises. Freight elevator service shall be provided on a "first come, first
served" basis. There shall be no charge for freight elevator service on
"business days" (as defined in Section 17.01) between the hours of 8:00 a.m. to
5:30 p.m. Notwithstanding anything herein to the contrary, all construction
deliveries shall be made on business days prior to 8:00 a.m. or after 5:30 p.m.
or on days other than business days. Landlord will make available to Tenant the
use of the freight elevators in the Building on business days prior to 8:00 a.m.
or after 5:30 p.m. or on days other than business days, upon not less than 24
hours notice from Tenant to Landlord in each instance provided, however, that
Tenant shall pay to Landlord Landlord's then Building rate with respect to such
use which presently is $100.00 per hour with a one (1) hour minimum on business
days if the use of such freight elevator is scheduled to commence at 5:30 p.m.
and a four (4) hour minimum on days other than business days or on a business
day if the use of such freight elevator on a business day is scheduled to
commence after 5:30 p.m. Use of such after hours freight elevator facilities may
not be exclusive and Tenant may be required to share such after hours use with
other tenants who have requested such after hours use at the same time, on a
non-discriminatory basis, but in such event the other tenants using the same
shall share the costs and expenses in connection with such use. The present
Building rate is subject to increase as Landlord's costs to provide such service
increases.
ARTICLE 14
Tenant's Property
14.01 All fixtures, equipment, improvements and appurtenances
attached to or built into the Demised Premises at the commencement of or during
the term of this lease, whether or not by or at the expense of Tenant, shall be
and remain a part of the Demised Premises, shall be deemed the property of
Landlord and shall not be removed by Tenant, except as hereinafter in this
Article expressly provided.
14.02 All business and trade fixtures, machinery and equipment,
communications equipment and office equipment, whether or not attached to or
built into the Demised Premises, excluding all wiring and control panels, which
are installed in the Demised Premises by or for the account of Tenant, without
expense to Landlord, and can be removed without permanent structural damage to
the Building, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Demised Premises, (all of
which are sometimes referred to as "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by it at any time during the
term of this lease; provided that if any of Tenant's Property is removed, Tenant
or any party or person entitled to remove same shall repair or pay the cost of
repairing any damage to the Demised Premises or to the Building resulting from
such removal. Any equipment or other property other than Tenant's
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Property for which Landlord shall have granted any allowance or credit to Tenant
or which has replaced such items originally provided by Landlord at Landlord's
expense shall not be deemed to have been installed by or for the account of
Tenant, without expense to Landlord, and shall not be considered Tenant's
Property.
14.03 At or before the Expiration Date, or the date of any earlier
termination of this lease, or as promptly as practicable after such an earlier
termination date, Tenant at its expense, shall remove from the Demised Premises
all of Tenant's Property which is not attached to, or built into, the Demised
Premises except such items thereof as Tenant shall have expressly agreed in
writing with Landlord were to remain and to become the property of Landlord, and
shall fully repair any damage to the Demised Premises or the Building resulting
from such removal, provided, that, except as set forth in Section 14.05, nothing
in this lease shall be deemed to obligate Tenant to remove any of Tenant's
Changes or Tenant's Work consented to, or approved by Landlord, at the time of
Tenant's installation thereof. . Tenant's obligation herein shall survive the
termination of the lease.
14.04 Any other items of Tenant's Property (except money, securities
and other like valuables) which shall remain in the Demised Premises after the
Expiration Date or after a period of thirty (30) days following an earlier
termination date, may, at the option of Landlord, be deemed to have been
abandoned, and in such case either may be retained by Landlord as its property
or may be disposed of, without accountability, at Tenant's expense in such
manner as Landlord may see fit.
14.05
(a) For purposes of this lease, "Specialty Installation(s)"
shall mean installations consisting of executive bathrooms, raised computers
floors, computer installations, communication installations, security systems,
fire detection and suppression systems, vaults, internal staircases, pneumatic
tubes, horizontal transportation systems and other installations of similar
character or nature that are above and beyond standard or typical office
installations. Unless otherwise expressly advised in writing by Landlord to the
contrary, on or before the Expiration Date or sooner termination of this lease,
Tenant shall, at its sole cost and expense, remove all Specialty Installation(s)
from the Demised Premises and restore all slab and wall penetrations to the
condition that existed prior to such penetrations (such removal and repair work
being hereinafter referred to as the "Restoration Work").
(b) Tenant's obligation and liability with respect to the
removal of Specialty Installation(s) and the performance of the Restoration Work
shall survive the Expiration Date (as same may be extended) or sooner expiration
or termination of this lease.
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14.06 Notwithstanding anything set forth in this Lease to the
contrary, in no event shall Tenant be required to remove any installation in
place in the Demised Premises prior to the Commencement Date or to restore the
Demised Premises to the condition that existed prior to the Commencement Date.
ARTICLE 15
Repairs And Maintenance
15.01 Tenant shall take good care of the Demised Premises. Tenant,
at its expense, shall promptly make all repairs, ordinary or extraordinary,
interior or exterior, structural or otherwise, in and about the Demised Premises
and the Building, as shall be required by reason of (i) the performance or
existence of Tenant's Work or Tenant's Changes, (ii) the installation, use or
operation of Tenant's Property in the Demised Premises, (iii) the moving of
Tenant's Property in or out of the Building, or (iv) the negligence or willful
act of Tenant or any of its employees, agents or contractors; but Tenant shall
not be responsible for any of such repairs as are required by reason of
Landlord's negligence or other fault in the manner of performing any of Tenant's
Work or Tenant's Changes which may be undertaken by Landlord for Tenant's
account or are otherwise required by reason of negligence or other fault of
Landlord or its employees, agents or contractors. Except if required by the
negligence or other fault of Landlord or its employees, agents or contractors,
Tenant, at its expense, shall replace all scratched, damaged or other glass in
or about the Demised Premises and shall be responsible for all repairs,
maintenance and replacement of interior doors and wall and floor coverings in
the Demised Premises and, for the repair and maintenance of all lighting
fixtures therein. All repairs, except for emergency repairs, made by Tenant as
provided herein shall be performed by contractors or subcontractors reasonably
approved in writing by Landlord prior to commencement of such repairs, which
approval shall not be unreasonably withheld, conditioned or delayed.
15.02 Landlord, at its expense, shall keep and maintain the Building
and its systems and facilities serving the Demised Premises, in good working
order, condition and repair and shall make all repairs, structural and
otherwise, interior and exterior, as and when needed in or about the Demised
Premises, except for those repairs for which Tenant is responsible pursuant to
any other provisions of this lease.
15.03 Except as expressly otherwise provided in this lease, Landlord
shall have no liability to Tenant by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord, Tenant or others
making or failing to make any repairs or changes which, with respect to
Landlord, Landlord is required or permitted by this lease, or required by law to
make, in or to any portion of the Building or the Demised Premises, or in or to
the fixtures, equipment or appurtenances of the Building or the Demised
Premises, provided that Landlord shall use due diligence in making any repairs
and shall perform such repair work,
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except in case of emergency, at times reasonably convenient to Tenant and
otherwise in such manner as will not materially interfere with Tenant's use of
the Demised Premises.
ARTICLE 16
Electricity
16.01
(a) The Building is equipped with risers, feeders and wiring
to furnish electric service to the Demised Premises with a capacity of not less
than eight (8) watts per usable square foot connected load, exclusive of the
Building's heating, ventilating and air-conditioning system which electrical
service shall be brought into an electrical closet in the Demised Premises with
distribution therefrom to be performed by Tenant, at its sole cost and expense,
in accordance with the applicable provisions of this lease. A meter or meters
measures the amount of "Usage" (as defined in Section 16.02(a)) solely to the
Demised Premises. Where more than one meter measures the amount of Usage, Usage
through each meter shall be completed and billed separately in accordance with
the provisions of this Article 16;
(b) Any additional risers, feeders or other equipment or
service proper or necessary to supply Tenant's electrical requirements, will,
upon written request of Tenant, and subject to availability, be installed by
Landlord, at the sole cost and expense of Tenant, if in Landlord's reasonable
judgment, the same will not cause permanent damage or injury to the Building or
the Demised Premises or cause or create a dangerous or hazardous condition or
entail excessive or unreasonable alterations, repairs or expense or interfere
with or disturb other tenants or occupants. Tenant shall pay to Landlord an
amount equal to $350.00 (hereinafter referred to as the "AE Rate") per
additional amp of additional electrical service requested by Tenant and
furnished by Landlord, which AE Rate shall increase as Landlord's actual costs
to furnish additional electrical service increases. Rigid conduit only will be
allowed.
16.02 For purposes of Sections 16.02 and 16.03:
(a) "Usage" shall mean Tenant's actual usage of electricity in
the Demised Premises as measured by the aforesaid meter(s) for each calendar
month or such other period as Landlord shall determine during the term of this
lease and shall include the quantity and peak demand (kilowatt hours and
kilowatts) and all applicable taxes, surcharges, demand charges, energy charges,
fuel adjustment charges, and other adjustments made from time to time by the
public utility company supplying electric current to the Building or any
governmental authority having jurisdiction;
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(b) "Landlord's Rate" shall mean the service classification
SC4-I (Non Time of Day) (including all applicable taxes, surcharges, demand
charges, energy charges, fuel adjustment charges, and other sums payable in
respect thereof);
(c) "Basic Cost" shall mean the product of (i) Usage
multiplied by (ii) Landlord's Rate.
(d) "Tenant's Cost" shall mean an amount equal to the sum of
(i) the Basic Cost plus (ii) eight (8%) percent of the Basic Cost for Landlord's
overhead and expenses in connection with submetering.
16.03 Landlord shall, from time to time but not more often than
monthly, furnish Tenant with an invoice indicating the period during which the
Usage was measured and the amount of Tenant's Cost payable by Tenant to Landlord
for such period. Within thirty (30) days after receipt of each such invoice,
Tenant shall pay the amount of Tenant's Cost set forth thereon to Landlord as
additional rent. In addition, if any tax is imposed upon Landlord by any
municipal, state or federal agency or subdivision with respect to the purchase,
sale or resale of electrical energy supplied to Tenant hereunder, Tenant
covenants and agrees that, where permitted by law, Tenant's Proportionate Share
of such taxes shall be passed on to Tenant and included in the bill to, and paid
by, Tenant to Landlord, as additional rent.
16.04 Landlord shall not in anywise be liable or responsible to
Tenant for any loss or damage or expense which Tenant may sustain or incur if
either the quantity or character of electric service is changed or is no longer
available or suitable for Tenant's requirements.
16.05 In no event shall Tenant use or install any fixtures,
equipment or machines the use of which in conjunction with other fixtures,
equipment and machines in the Demised Premises would result in an overload of
the electrical circuits servicing the Demised Premises.
16.06 Tenant covenants and agrees that at all times its use of
electric current shall never exceed the capacity of the then existing feeders to
the Building or the risers or wiring installation. Tenant shall furnish, install
and replace, as required, all lighting tubes, lamps, bulbs and ballasts required
in the Demised Premises, at Tenant's sole cost and expense. All lighting tubes,
lamps, bulbs and ballasts so installed shall become Landlord's property upon the
expiration or sooner termination of this lease. Additionally, all fixtures, if
same do not conform to the description set forth hereafter, shall be lamped and
ballasted (or relamped and reballasted) throughout the Demised Premises by
Tenant at its expense as follows: fluorescent fixtures shall be lamped with
F40WW energy saving type lamps and ballasted with energy saving type ballasts;
and incandescent fixtures shall be lamped with ER50W and ER75W type lamps.
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16.07 In the event the meter(s) installed in the Demised Premises
for the measurement of electricity consumption in the Demised Premises or any
alternative submetering system installed by Landlord at a later date, becomes
prohibited from use, then Landlord, at its expense, may cause an independent
electrical engineer chosen by Landlord or an electrical consulting firm selected
by Landlord (hereinafter referred to as the "Electrical Consultant") to survey
and determine Usage in, and Basic Cost for, the Demised Premises from time to
time, at least once per twelve (12) month period, and the Electrical Consultant
shall make such determination using criteria generally accepted in the
Metropolitan New York City area and Landlord's Rate in effect at the time, and
shall include the quantity and peak demand, for all electricity consumed by
Tenant, plus eight (8%) percent of the Basic Cost for Landlord's expenses and
administration fees. The determination made by the Electrical Consultant shall
be binding on both Landlord and Tenant and such amount shall be deemed Tenant's
Cost.
16.08 Notwithstanding anything in Section 16.07 to the contrary,
Tenant shall have the right as hereinafter provided, to contest any amounts
determined by the Electrical Consultant pursuant to Section 16.07 as shall be
due to Landlord as a result of any such survey. In the event that Tenant fails
to send a written notice (hereinafter referred to as an "Objection Notice") to
Landlord within thirty (30) days after the date of the Electrical Consultant's
notice containing said Usage and Basic Cost, such notice shall become conclusive
and binding upon Tenant. If Tenant disputes any such notice by sending an
Objection Notice within the time and in the manner hereinbefore provided, then
Tenant shall, at its sole cost and expense, have the right to engage an
electrical engineer or electrical consulting firm (hereinafter referred to as
"Tenant's Consultant") who shall promptly make a survey (hereinafter referred to
as the "Disputing Survey") indicating Tenant's electrical usage in the Demised
Premises. In the event that Landlord and Tenant are unable to agree on the
amount of Usage and Basic Cost within thirty (30) days after the date Tenant
furnishes Landlord with a copy of the Disputing Survey, then the Electrical
Consultant and Tenant's Consultant shall select a mutually acceptable electrical
engineer or electrical consulting firm (hereinafter referred to as the "Third
Consultant") within ten (10) days after the expiration of such thirty (30) day
period. The Electrical Consultant and Tenant's Consultant shall submit the
dispute to the Third Consultant and the determination by the Third Consultant
shall be conclusive and binding upon Landlord and Tenant. During the pendency of
any such dispute, Tenant shall pay to Landlord the amount set forth in the
Electrical Consultant's notice until the dispute is finally determined in
accordance with the provisions of this Section and, in the event that such final
determination is less than the amount set forth in the Electrical Consultant's
notice, Landlord shall, at Tenant's election, refund to Tenant the amount of
such excess payment or credit any such excess against any amounts then due or
becoming due to Landlord under this lease. The cost of the Third Consultant
shall be borne equally by Landlord and Tenant.
16.09 Landlord shall, at no cost to Tenant, provide reasonably
sufficient space in the shafts of the Building, the approximate location of
which shall be reasonably acceptable to
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Landlord and Tenant and which location shall be subject to availability, to
allow Tenant, at Tenant's sole cost and expense, to run telephone communication
feeders and cables, in conduit, from the telephone frame room in the basement of
the Building to the Demised Premises. Such installation shall be performed in
accordance with, and subject to, the applicable provisions of this lease,
including, without limitation, Article 13 hereof.
ARTICLE 17
Heat, Ventilating And Air-Conditioning
17.01 Landlord, at its expense, shall maintain and operate the
perimeter heating system (hereafter referred to as the "heating system") and,
subject to energy conservation requirements of governmental authorities, shall
furnish heat (hereinafter collectively referred to as the "heating service") in
the Demised Premises through the heating system, as may be required for
reasonably comfortable occupancy of the Demised Premises during "regular hours"
(that is between the hours of 8:00 a.m. and 6:00 p.m.) of "business days" (which
term is used herein to mean all days except Saturdays, Sundays and days
(hereinafter referred to as "holidays") observed by the Federal or New York
State government as legal holidays or the building service employees' union
holidays) during the heating season which is on or about October 15 to on or
about April 15. If Tenant shall require heating service at any other time
(hereinafter referred to as "after hours") during the heating season, Landlord
shall furnish such after hours service upon reasonable advance notice from
Tenant, and Tenant shall pay on demand Landlord's building standard cost
therefor which is presently $50.00 per hour, which amount is subject to increase
as Landlord's actual out-of-pocket costs to provide such after hours service
increases. In the event the after hours service is shared by other tenants, the
cost thereof shall be prorated among all such tenants.
17.02 Air-conditioning and interior heating shall be provided to the
Demised Premises by means of either (a) any packaged air-conditioning system
being installed by Landlord as part of Landlord's Work, if any, and/or (b) any
packaged air-conditioning system being installed by Tenant as part of Tenant's
Work, if any. Landlord agrees that Tenant may install at Tenant's own cost and
expense, an air-conditioning system (which together with any air-conditioning
system set forth in 17.02(a) and (b) above is hereinafter collectively referred
to as the "Air-Conditioning System") to enable Tenant to receive, at any one
time, through the Air-Conditioning System not more than an aggregate of one
hundred (100) tons of air-conditioning for the Demised Premises. The costs of
installation (including, without limitation, connection to any condenser water
and steam sources), maintenance, repair and operation of the Air- Conditioning
System shall be borne by Tenant. The connection to the Building condenser water
and steam sources shall be performed by Landlord's Building contractors provided
that Landlord's Building contractor shall perform such connection at a
competitive rate and, if not, such connection may be performed by a contractor
selected by Tenant and approved by Landlord, which approval shall not be
unreasonably withheld,
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conditioned or delayed. Tenant shall pay Landlord a one-time tap-in charge, in
the amount of $2,000.00 per each point of tap-in for such Air-Conditioning
System to the extent such tap-in is a "dry" tap-in, but no tap-in charge shall
be payable by Tenant in connection with a "wet" tap-in. If Landlord's Building
contractor performs such connection, the connection charge shall be payable by
Tenant, as additional rent within fifteen (15) days of Landlord's demand and
does not include the costs for any labor, materials or services furnished to
Tenant in connecting the Air-Conditioning System to the Building condenser water
and steam sources. Tenant, at its sole cost and expense, shall enter into and
maintain, during the term of this lease, a maintenance and service contract with
respect to the Air-Conditioning System with an air-conditioning contractor
approved by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed.
17.03 Landlord shall furnish (a) steam to the Air-Conditioning
System during regular hours of business days during the heating season as set
forth in Section 17.01 and (b) condenser water to the Air-Conditioning System
during regular hours of business days, in each case, at no charge to Tenant and
in sufficient capacity to operate the Air Conditioning System. In the event
Tenant requires steam or condenser water on an after hours basis, Landlord upon
reasonable prior notice by Tenant, will furnish same to Tenant and Tenant
covenants and agrees to pay Landlord for such furnishing of (i) steam at the
rate of $50.00 per hour (hereinafter referred to as the "Steam Rate") for each
hour requested by Tenant and (ii) condenser water at the rate of $0.072
(hereinafter referred to as the "Base Rate") per hour per rated ton of cooling
capacity of the Air-Conditioning System as measured by a clock or similar
measuring device to be installed by Tenant on the Air-Conditioning System. The
Steam Rate and the Base Rate shall be subject to proportionate adjustment for
increases in the actual out-of-pocket cost to Landlord in connection with the
creating and furnishing of steam and/or condenser water, as the case may be,
over the costs which exist as of the date hereof. All payments due under this
Section shall be payable by Tenant within fifteen (15) business days after
demand from Landlord therefor. Tenant may, at its sole cost and expense connect
to Landlord's Building waste lines and the manner of such connection shall be
subject to Landlord's prior written approval, which approval shall not be
unreasonably withheld, conditioned or delayed. All facilities, machinery and
equipment related to the Air-Conditioning System shall be connected by Tenant
and operated and maintained by Tenant solely at Tenant's cost and expense. All
such facilities shall be solely within the Demised Premises. Tenant's blowers,
chilling equipment, heating coils, fans and other facilities, equipment and
machinery used in connection with the Air-Conditioning System shall operate on
electricity purchased by Tenant in accordance with the provisions of Article 16
of this lease. All facilities, equipment, machinery and ducts installed by
Tenant in connection with the Air-Conditioning System shall (x) be subject to
Landlord's prior written approval which approval shall not be unreasonably
withheld or delayed, (y) comply with Landlord's reasonable requirements as to
installation, maintenance and operation, and (z) comply with all other terms,
covenants and conditions of this lease applicable thereto.
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17.04
(a) Notwithstanding anything in this Article 17 to the
contrary, Landlord agrees that Tenant may install, at Tenant's sole cost and
expense and in accordance with the applicable provisions of this lease,
including, without limitation, Section 17.02 hereof, a supplemental
air-conditioning system (hereinafter referred to as the "Supplemental System")
to enable Tenant to receive, at any one time, not more than an additional five
(5) tons of supplemental air-conditioning in the Demised Premises. The cost of
installation (including, without limitation, connection to the condenser water
source), maintenance and operation of the Supplemental System shall be borne by
Tenant.
(b) Landlord shall furnish condenser water to the Supplemental
System in accordance with the provisions of Section 17.03, provided, however,
that with respect to the Supplemental System, Tenant shall pay for such
condenser water during regular hours of business days and on an after hours
basis or on days other than business days at the Base Rate, as same may increase
pursuant to the provisions of Section 17.03 of the Lease. Tenant shall install a
clock or similar measuring device on the Supplemental System, at its sole cost
and expense, of the type set forth in Section 17.03 with respect to the
Air-Conditioning System.
17.05 In connection with Tenant's obligation to maintain and repair
the Air-Conditioning System and the Supplemental System, Tenant shall enter into
a maintenance contract with a licensed air-conditioning maintenance company
reasonably satisfactory to Landlord to provide such maintenance and repair
services. To the extent the Air-Conditioning System, or any portion thereof, is
installed by Landlord as part of Landlord's Work, Tenant shall be entitled to
the benefits of any guaranty or warranty given to Landlord in connection with
such Air-Conditioning System.
ARTICLE 18
Landlord's Other Services
18.01 Landlord, at its expense, shall provide public elevator
service, passenger and freight, by elevators serving the floor on which the
Demised Premises are situated during regular hours of business days, and shall
have at least one passenger elevator subject to call 24 hours per day, 7 days
per week, 365 days per year.
18.02 Tenant shall, at its sole cost and expense, cause the Demised
Premises to be cleaned in a manner reasonably satisfactory to Landlord utilizing
a cleaning contractor approved by Landlord (which approval shall not be
unreasonably withheld or delayed). Tenant shall, at its sole cost and expense,
store, receive and transport all refuse and rubbish from the Demised Premises in
compliance with all present and future laws, orders, rules and regulations of
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any governmental or quasi-governmental authority having jurisdiction thereof and
shall deposit such refuse and rubbish on a daily basis in a location in the
Building designated by Landlord. Additionally, Tenant shall, at its sole cost
and expense, cause an extermination contractor, approved by Landlord (which
approval shall not be unreasonably withheld or delayed) to treat the Demised
Premises, on a periodic basis, to prevent the Demised Premises from infestation
by vermin or to exterminate any vermin therein. Such treatment shall be in
compliance with all present and future laws, orders, rules and regulations of
any governmental or quasi-governmental authority having jurisdiction.
Additionally, Tenant shall, at its sole cost and expense, cause the windows in
the Demised Premises, both inside and outside, to be cleaned at least one time
per calendar quarter by a contractor approved by Landlord, which approval shall
not be unreasonably withheld or delayed, and which window cleaning shall be
performed in compliance with all present and future laws, orders, rules and
regulations of any governmental or quasi-governmental authority having
jurisdiction.
18.03 Landlord, at its expense, shall furnish cold water to the
floor(s) on which the Demised Premises are located through the existing wet
columns for drinking, lavatory and cleaning purposes. If Tenant uses water for
any other purpose Landlord, at Tenant's expense, may install meters to measure
Tenant's consumption of cold water for such other purposes, as the case may be.
Tenant shall pay for the quantities of cold water shown on such meters, at
Landlord's cost thereof, within ten (10) days of the rendition of Landlord's
bills therefor. Hot water shall be furnished to the public lavatories on the
floor(s) on which the Demised Premises are located.
18.04 Landlord, at its expense, shall maintain the listing on the
Building directory of the names of Tenant and its permitted assignees and
sublessees, and the names of any of their respective officers and employees, in
Building standard lettering provided that the names so listed shall not take up
more than six (6) lines on the Building directory. In the event Tenant shall
require additional listing on the Building directory, Landlord shall, to the
extent space for such additional listing is available, maintain such listings
and Tenant shall pay to Landlord the then Building standard charge for each such
additional listing or any substitute listings.
18.05
(a) Landlord reserves the right, without any liability to
Tenant, except as otherwise expressly provided in this lease, to stop service of
any of the heating, ventilating, air conditioning, electric, sanitary, elevator
or other Building systems serving the Demised Premises, or the rendition of any
of the other services required of Landlord under this lease, whenever and for so
long as may be necessary, by reason of accidents, emergencies, strikes or the
making of repairs or changes which Landlord is required by this lease or by law
to make or in good faith deems necessary, by reason of difficulty in securing
proper supplies of fuel, steam,
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water, electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control. Landlord shall take reasonable steps to minimize
any inconvenience to Tenant in connection with such stoppage.
(b) Notwithstanding anything to the contrary contained in this
lease, if, as a result of (i) Landlord's failure to provide any service under
this lease which is required to be provided by Landlord, or (ii) Landlord's
failure to make or complete repairs to the Demised Premises and/or the Building
which it is required to make and complete pursuant to the provisions of this
lease or, (iii) in connection with making any such repair, Landlord materially
interferes with Tenant's use of the Demised Premises, in each case resulting
from causes other than the act, omission or negligence of Tenant, or its agents,
employees, contractors or invitees, or, with respect to items (i) and (ii)
above, of any public utility company serving the Building, Tenant is unable to
use all or any portion of the Demised Premises in the normal course of its
business and does not use all or such portion of the Demised Premises for a
period in excess of fifteen (15) consecutive business days by reason of such
failure, then Tenant shall be entitled to an abatement of fixed rent from and
after the sixteenth (16th) business day through the day when such service is
restored or repairs are completed based upon the ratio that the rentable square
foot area of the Demised Premises not used by Tenant bears to the rentable
square foot area of the Demised Premises. The foregoing provisions shall not
apply in the event the Demised Premises are damaged in whole or part as a result
of fire or other casualty, which is dealt with in other provisions of this
lease.
18.06 Landlord shall, at no cost to Tenant, provide reasonably
sufficient space in the shafts of the Building, the approximate location of
which shall be reasonably acceptable to Landlord and Tenant and which location
shall be subject to availability, to allow Tenant, at Tenant's sole cost and
expense, to run telephone communication feeders and cables, in conduit, from the
telephone frame room in the basement of the Building to the Demised Premises.
Such installation shall be performed in accordance with, and subject to, the
applicable provisions of this lease, including, without limitation, Article 13
hereof.
ARTICLE 19
Access, Changes In Building Facilities, Name
19.01 All except the inside surfaces of all walls, windows and doors
bounding the Demised Premises (including exterior Building walls, core corridor
walls and doors and any core corridor entrance) and any space in or adjacent to
the Demised Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts,
electric or other utilities, sinks or other Building facilities, and the use
thereof, as well as access thereto through the Demised Premises for the purpose
of operation, maintenance, decoration and repair, are reserved to Landlord.
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19.02 Tenant shall permit Landlord to install, use, replace and
maintain pipes, ducts and conduits within the demising walls, bearing columns
and ceilings of the Demised Premises.
19.03 Landlord or Landlord's agent shall have the right, upon
reasonable advance request (except in emergency as hereafter provided where no
request need be made) to enter and/or pass through the Demised Premises or any
part thereof, except for areas that Tenant has identified to Landlord in writing
where money or other valuables are kept (hereinafter referred to as "security
areas") at reasonable times during reasonable hours, (i) to examine the Demised
Premises and to show them to the fee owners, lessors of superior leases, holders
of superior mortgages, or prospective purchasers, mortgagees or lessees of the
Building as an entirety, and (ii) for the purpose of making such repairs or
changes in or to the Demised Premises or in or its facilities, as may be
provided for by this lease or as may be mutually agreed upon by the parties or
as Landlord may be required to make by law or in order to repair and maintain
said structure or its fixtures or facilities. Landlord shall be allowed to take
all materials into and upon the Demised Premises that may be reasonably required
for such repairs, changes, repainting or maintenance to the Demised Premises
only, without liability to Tenant, but Landlord shall not unreasonably interfere
with Tenant's use of the Demised Premises and shall not store same overnight in
the Demised Premises in an amount in excess of that which is necessary to
continue such work the next day. Landlord shall also have the right to enter on
and/or pass through the Demised Premises, or any part thereof, at such times as
such entry shall be required by circumstances of emergency affecting the Demised
Premises or the Building. In such circumstances of emergency, a policeman or
fireman shall accompany Landlord's entry into any security area whenever
possible and Landlord will endeavor to give Tenant notice prior to such entry
and if Landlord is unable to notify Tenant at or prior to such entry, Landlord
will give Tenant prompt notice after such entry.
19.04 During the period of twelve (12) months prior to the
Expiration Date Landlord may, upon reasonable advance notice, exhibit the
Demised Premises to prospective tenants.
19.05 Landlord reserves the right, at any time, without incurring
any liability to Tenant therefor, and without it constituting an actual or
constructive eviction, to make such changes in or to the Building and the
fixtures and equipment thereof, as well as in or to the size, composition,
number, arrangement or location of the public entrances, doors, doorways, halls,
passages, elevators, escalators and stairways and other public portions thereof,
as it may deem necessary or desirable, provided that (a) the services required
to be provided to Tenant pursuant to the provisions of this lease shall not be
adversely affected, and (b) the size of the Demised Premises shall not be
reduced and (c) Tenant shall, at all times, have ingress and egress to and from
the Building and the Demised Premises and (d) such changes will not materially
interfere with Tenant's business within the Demised Premises.
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19.06 Landlord may adopt any name for the Building. Landlord
reserves the right to change the name or address of the Building at any time.
19.07 For the purposes of Article 19, the term "Landlord" shall
include lessors of leases and the holders of mortgages to which this lease is
subject and subordinate as provided in Article 7.
19.08 Any reservation in this lease of a right by Landlord to enter
upon the Demised Premises and to make or perform any repairs, alterations or
other work in, to or about the Demised Premises which, in the first instance, is
the obligation of Tenant pursuant to this lease shall not be deemed to: (i)
impose any obligation on Landlord to do so, (ii) render Landlord liable (to
Tenant or any third party) for the failure to do so, or (iii) relieve Tenant
from any obligations to indemnify Landlord as otherwise provided elsewhere in
this lease
19.09 Landlord agrees that, subject to the provisions of Section
21.03, access to the Demised Premises and the Building will be available to
Tenant 24 hours per day, 7 days per week, 365 days per year, subject to
Landlord's reasonable security measures for the Building. A lobby desk shall be
located in the Building lobby and shall be staffed 24 hours per day, 7 days per
week.
ARTICLE 20
Notice Of Accidents
20.01 Tenant shall give notice to Landlord, promptly after Tenant
learns thereof, of (i) any accident in or about the Demised Premises for which
Landlord might be liable, (ii) all fires in the Demised Premises, (iii) all
damages to or defects in the Demised Premises, including the fixtures, equipment
and appurtenances thereof, for the repair of which Landlord might be
responsible, and (iv) all damage to or defects in any parts or appurtenances of
the Building's sanitary, electrical, heating, ventilating, air- conditioning,
elevator and other systems located in or passing through the Demised Premises or
any part thereof.
ARTICLE 21
Non-Liability And Indemnification
21.01 Neither Landlord nor any agent or employee of Landlord shall
be liable to Tenant for any injury or damage to Tenant or to any other person or
for any damage to, or loss (by theft or otherwise) of, any property of Tenant or
of any other person, irrespective of the cause of such injury, damage or loss,
it being understood that no property, other than such as might normally be
brought upon or kept in the Demised Premises as an incident to the reasonable
use of the Demised Premises for the purpose herein permitted, will be brought
upon or be kept in the Demised Premises.
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21.02
(a) Tenant shall indemnify and save harmless Landlord and its
members. employees, officers, directors, agents against and from (i) any and all
claims (x) arising from (A) the conduct or management of the Demised Premises or
of any business therein, or (B) any work done, or any condition created (other
than by Landlord for Landlord's or Tenant's account) in or about the Demised
Premises during the term of this lease or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Demised Premises, or (y) arising from any negligent or otherwise wrongful act or
omission of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors even if the claims described in (x) or (y)
above arise out of the concurrent negligence of Landlord, and (ii) all
reasonable costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon, including, without
limitation, reasonable attorneys' fees and expenses. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall resist and defend such action or proceeding by
attorneys reasonably acceptable to Landlord, Landlord agreeing that the
attorneys for the insurance company providing Tenant's insurance are acceptable.
(b) Landlord shall indemnify and save harmless Tenant and its
partners, directors, officers, employees and agents against and from (i) any and
all claims (x) arising from (A) the conduct or management of the Building (other
than the Demised Premises) or of any business therein, or (B) any work or thing
whatsoever done, or any condition created (other than by Tenant) in or about the
Building (other than the Demised Premises) during the term of this lease, or (y)
arising from any negligent or otherwise wrongful act or omission of Landlord or
any of its tenants or licensees or its or their employees, agents or contractors
if, and only if, the claims described in (x) or (y) above arise out of the sole
negligence, gross negligence or willful misconduct of Landlord or its agents and
employees, and (ii) all reasonable costs, expenses and liabilities incurred in
or in connection with each such claim or action or proceeding brought thereon,
including, without limitation, reasonable attorneys' fees and expenses.. In case
any action or proceeding be brought against Tenant by reason of any such claim,
Landlord, upon notice from Tenant, shall resist and defend such action or
proceeding by attorneys reasonably acceptable to Tenant, Tenant agreeing that
the attorneys for the insurance company providing Landlord's insurance are
acceptable.
21.03 Except as otherwise expressly provided in this lease, this
lease and the obligations of Tenant hereunder shall be in no wise affected,
impaired or excused because Landlord is unable to fulfill, or is delayed in
fulfilling, any of its obligations under this lease by reason of strike, other
labor trouble, governmental pre-emption or priorities or other controls in
connection with a national or other public emergency or shortages of fuel,
supplies or labor resulting therefrom, acts of God or other like cause beyond
Landlord's reasonable control.
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ARTICLE 22
Destruction Or Damage
22.01 If the Building or the Demised Premises shall be damaged or
destroyed by fire or other cause, Landlord, within ninety (90) days after such
damage or destruction, shall deliver to Tenant an estimate of the time
(hereinafter referred to as the "Estimated Time") required to repair or restore
the damage or destruction, prepared by an independent contractor or architect
(such estimate being hereinafter referred to as the "Estimate"). If the Building
or the Demised Premises shall be partially damaged or partially destroyed by
fire or other cause, the rents payable hereunder shall be abated to the extent
that the Demised Premises shall have been rendered untenantable and for the
period from the date of such damage or destruction to the date the damage shall
be repaired or restored in accordance with the provisions of Section 22.03. If
the Demised Premises or a major part thereof shall be totally (which shall be
deemed to include substantially totally) damaged or destroyed or rendered
completely (which shall be deemed to include substantially completely)
untenantable or inaccessible on account of fire or other cause, the rents shall
abate as of the date of the damage or destruction and until Landlord shall
repair, restore and rebuild the Building and the Demised Premises, provided,
however, that should Tenant reoccupy a portion of the Demised Premises for the
conduct of its business during the period the restoration work is taking place
and prior to the date that the same are made completely tenantable, rents
allocable to such portion shall be payable by Tenant from the date of such
occupancy.
22.02 If the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other cause, or if the Building shall be so
damaged or destroyed by fire or other cause (whether or not the Demised Premises
are damaged or destroyed) as to require a reasonably estimated expenditure of
more than 40% of the full insurable value of the Building immediately prior to
the casualty, then in either such case Landlord may terminate this lease by
giving Tenant notice to such effect within one hundred-eighty (180) days after
the date of the casualty. In case of any damage or destruction mentioned in this
Article Tenant may terminate this lease, (a) by notice to Landlord sent within
thirty (30) days after receipt of the Estimate if the Estimated Time exceeds
twelve (12) months or, (b) if Landlord has not completed the making of the
required repairs and restored and rebuilt the Building and the Demised Premises
within twelve (12) months from the date of such damage or destruction, or within
such period after such date (not exceeding three (3) months) as shall equal the
aggregate period Landlord may have been delayed in doing so by adjustment of
insurance, labor trouble, governmental controls, act of God, or any other cause
beyond Landlord's reasonable control, by notice to Landlord sent within thirty
(30) days after such twelve (12) month period (as same may be extended pursuant
to the provisions of Section 22.02(b)) or (c) by notice to Landlord sent within
thirty (30) days of receipt of the Estimate if such damage or destruction occurs
during the last two (2) years of the term hereof and the Estimated Time exceeds
nine (9) months, or (d) if such damage or destruction occurs during the last two
(2) years of the term hereof if Landlord shall not have completed
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making the required repairs and restoration and rebuilt the Building and Demised
Premises within nine (9) months from the date of such damage or destruction, by
notice to Landlord sent within thirty (30) days after such nine (9) month
period.
22.03 If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other cause, then, whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this lease shall not have been
terminated as in this Article provided), Landlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises, at its expense,
with reasonable dispatch after notice to it of the damage or destruction;
provided, however, that Landlord shall not be required to repair or replace any
of Tenant's Property nor to restore any Tenant's Work or Tenant's Changes.
22.04 No damages, compensation or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building pursuant
to this Article. Landlord shall use its best efforts to effect such repair or
restoration promptly and in such manner as to not unreasonably interfere with
Tenant's use and occupancy.
22.05 Notwithstanding any of the foregoing provisions of this
Article, if Landlord or the lessor of any superior lease or the holder of any
superior mortgage shall be unable to collect all of the insurance proceeds
(including rent insurance proceeds) applicable to damage or destruction of the
Demised Premises or the Building by fire or other cause, by reason of some
action or inaction on the part of Tenant or any of its employees, agents or
contractors, then, without prejudice to any other remedies which may be
available against Tenant, there shall be no abatement of Tenant's rents, but the
total amount of such rents not abated (which would otherwise have been abated)
shall not exceed the amount of the uncollected insurance proceeds.
22.06 Landlord will not carry insurance of any kind on Tenant's
Property, Tenant's Changes or Tenant's Work, and, except as provided by law or
by reason of its fault or its breach of any of its obligations hereunder, shall
not be obligated to repair any damage thereto or replace the same.
22.07 The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Demised Premises by
fire or other casualty, and Section 227 of the Real Property Law of the State of
New York, providing for such a contingency in the absence of an express
agreement, and any other law of like import, now or hereafter in force, shall
have no application in such case.
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ARTICLE 23
Eminent Domain
23.01 If the whole of the Building shall be lawfully taken by
condemnation or in any other manner for any public or quasi-public use or
purpose, this lease and the term and estate hereby granted shall forthwith
terminate as of the date of vesting of title in such taking (which date is
hereinafter also referred to as the "date of the taking"), and the rents shall
be prorated and adjusted as of such date.
23.02 If only a part of the Building shall be so taken, this lease
shall be unaffected by such taking, except that Tenant may elect to terminate
this lease in the event of a partial taking of the Demised Premises if the
remaining area of the Demised Premises shall not be reasonably sufficient for
Tenant to continue feasible operation of its business. Tenant shall give notice
of such election to Landlord not later than thirty (30) days after (i) notice of
such taking is given by Landlord to Tenant, or (ii) the date of such taking,
whichever occurs sooner. Upon the giving of such notice by Tenant this lease
shall terminate on the date of such taking and the rents shall be prorated as of
such termination date. Upon such partial taking and this lease continuing in
force as to any part of the Demised Premises, the rents apportioned to the part
taken shall be prorated and adjusted as of the date of taking and from such date
the fixed rent for the Demised Premises and additional rent payable pursuant to
Article 5 shall be appropriately adjusted according to the rentable area
remaining.
23.03 Landlord shall be entitled to receive the entire award in any
proceeding with respect to any taking provided for in this Article without
deduction therefrom for any estate vested in Tenant by this lease and Tenant
shall receive no part of such award, except as hereinafter expressly provided in
this Article. Tenant hereby expressly assigns to Landlord all of its right,
title and interest in or to every such award. Notwithstanding anything herein to
the contrary, Tenant may, at its sole cost and expense, make a claim with the
condemning authority for Tenant's moving expenses, the value of Tenant's
fixtures or Tenant's Changes which do not become part of the Building or
property of Landlord, provided however that Landlord's award is not thereby
reduced or otherwise adversely affected.
23.04 If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the term of this lease,
Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award for such taking which represents compensation for the use
and occupancy of the Demised Premises and, if so awarded, for the taking of
Tenant's Property and for moving expenses, and Landlord shall be entitled to
receive that portion which represents reimbursement for the cost of restoration
of the Demised Premises. This lease shall be and remain unaffected by such
taking and Tenant shall continue responsible for all of its obligations
hereunder insofar as such obligations are not affected by such taking and
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shall continue to pay in full the fixed rent and additional rent when due. If
the period of temporary use or occupancy shall extend beyond the Expiration
Date, that part of the award which represents compensation for the use or
occupancy of the Demised Premises (or a part thereof) shall be divided between
Landlord and Tenant so that Tenant shall receive so much thereof as represents
the period prior to the Expiration Date and Landlord shall receive so much
thereof as represents the period subsequent to the Expiration Date. All moneys
received by Tenant as, or as part of, an award for temporary use and occupancy
for a period beyond the date to which the rents hereunder have been paid by
Tenant shall be received, held and applied by Tenant as a trust fund for payment
of the rents falling due hereunder.
23.05 In the event of any taking of less than the whole of the
Building which does not result in a termination of this lease, or in the event
of a taking for a temporary use or occupancy of all or any part of the Demised
Premises which does not extend beyond the Expiration Date, Landlord, at its
expense, and to the extent any award or awards shall be sufficient for the
purpose, shall proceed with reasonable diligence to repair, alter and restore
the remaining parts of the Building and the Demised Premises to substantially
the condition existing prior to such taking to the extent that the same may be
feasible and so as to constitute a complete and tenantable Building and Demised
Premises.
23.06 Should any part of the Demised Premises be taken to effect
compliance with any law or requirement of public authority other than in the
manner hereinabove provided in this Article, then (i) if such compliance is the
obligation of Tenant under this lease, Tenant shall not be entitled to any
diminution or abatement of rent or other compensation from Landlord therefor,
but (ii) if such compliance is the obligation of Landlord under this lease, the
fixed rent hereunder shall be reduced and additional rents under Article 5 shall
be adjusted in the same manner as is provided in Section 23.02 according to the
reduction in rentable area of the Demised Premises resulting from such taking.
23.07 Any dispute which may arise between the parties with respect
to the meaning or application of any of the provisions of this Article shall be
determined by arbitration in the manner provided in Article 34.
ARTICLE 24
Surrender; Holdover
24.01 On the last day of the term of this lease, or upon any earlier
termination of this lease, or upon any re-entry by Landlord upon the Demised
Premises, Tenant shall quit and surrender the Demised Premises to Landlord in
good order and in broom clean condition, except for ordinary wear and tear and
Tenant shall remove all of Tenant's Property therefrom except as otherwise
expressly provided in this lease and shall restore the Demised Premises wherever
such removal results in damage thereto.
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24.02
(a) In the event this lease is not renewed or extended or a
new lease is not entered into between the parties, and if Tenant shall then hold
over after the expiration of the term of this lease, and if Landlord shall then
not proceed to remove Tenant from the Demised Premises in the manner permitted
by law (or shall not have given written notice to Tenant that Tenant must vacate
the Demised Premises) irrespective of whether or not Landlord accepts rent from
Tenant for a period beyond the Expiration Date, the parties hereby agree that
Tenant's occupancy of the Demised Premises after the expiration of the term
shall be under a month-to-month tenancy commencing on the first day after the
expiration of the term, which tenancy shall be upon all of the terms set forth
in this lease except Tenant shall pay on the first day of each month of the
holdover period as fixed rent, an amount equal to two (2) times one-twelfth of
the fixed rent and additional rent payable by Tenant during the last year of the
term of this lease (i.e., the year immediately prior to the holdover period).
Further, Landlord shall not be required to perform any work, furnish any
materials or make any repairs within the Demised Premises during the holdover
period. It is further stipulated and agreed that if Landlord shall, at any time
after the expiration of the original term or after the expiration of any term
created thereafter, proceed to remove Tenant from the Demised Premises as a
holdover, the fixed rent for the use and occupancy of the Demised Premises
during any holdover period shall be calculated in the same manner as set forth
above. In addition to the foregoing, Landlord shall be entitled to recover from
Tenant any losses or damages arising from such holdover.
(b) Notwithstanding anything to the contrary contained in this
lease, the acceptance of any rent paid by Tenant pursuant to subsection 24.02(a)
above shall not preclude Landlord from commencing and prosecuting a holdover or
summary eviction proceeding, and the preceding sentence shall be deemed to be an
"agreement expressly providing otherwise" within the meaning of Section 232-c of
the Real Property Law of the State of New York.
(c) All damages to Landlord by reason of holding over by
Tenant may be of the subject of a separate action and need not be asserted by
Landlord in any summary proceedings against Tenant.
ARTICLE 25
Conditions Of Limitation
25.01 To the extent permitted by applicable law this lease and the
term and estate hereby granted are subject to the limitation that whenever
Tenant shall make an assignment of all or substantially all of the property of
Tenant for the benefit of creditors, or shall file a voluntary petition under
any bankruptcy or insolvency law, or an involuntary petition alleging an act of
bankruptcy or insolvency shall be filed against Tenant under any bankruptcy or
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insolvency law, or whenever a petition shall be filed against Tenant under the
reorganization provisions of the United States Bankruptcy Act or under the
provisions of any law of like import, or whenever a petition shall be filed by
Tenant under the arrangement provisions of the United States Bankruptcy Act or
under the provisions of any law of like import, or whenever a permanent receiver
of Tenant or of or for the property of Tenant shall be appointed, then,
Landlord, (a) at any time after receipt of notice of the occurrence of any such
event, or (b) if such event occurs without the acquiescence of Tenant, at any
time after the event continues unstayed for one hundred twenty (120) days,
Landlord may give Tenant a notice of intention to end the term of this lease at
the expiration of five (5) days from the date of service of such notice of
intention, and upon the expiration of said five (5) day period this lease and
the term and estate hereby granted, whether or not the term shall theretofore
have commenced, shall terminate with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Article 27.
25.02 This lease and the term and estate hereby granted are subject
to the further limitation that:
(a) whenever Tenant shall default in the payment of any
installment of fixed rent, or in the payment of any additional rent or any other
charge payable by Tenant to Landlord, on any day upon which the same ought to be
paid, and such default shall continue for five (5) business days after Landlord
shall have given Tenant a notice specifying such default; or
(b) whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to Tenant a
notice specifying the same, or, in the case of a happening or default which
cannot with due diligence be cured within a period of thirty (30) days and the
continuance of which for the period required for cure will not subject Landlord
to the risk of criminal liability (as more particularly described in Section
10.02) or termination of any superior lease or foreclosure of any superior
mortgage, if Tenant shall not, (i) within said thirty (30) day period advise
Landlord of Tenant's intention to duly institute all steps necessary to remedy
such situation, (ii) duly institute within said thirty (30) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
same and (iii) complete such remedy within such time after the date of the
giving of said notice of Landlord as shall reasonably be necessary; or
(c) whenever any event shall occur or any contingency shall
arise whereby this lease or the estate hereby granted or the unexpired balance
of the term hereof would, by operation of law or otherwise, devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted by Article 9; or
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(d) whenever Tenant shall abandon the Demised Premises (unless
as a result of a casualty) unless Tenant provides, at its sole cost and expense,
reasonable security measures to prevent unauthorized access to the Demised
Premises, or
(e) when Tenant shall be in default in the observance or
performance of its obligations under any other lease in the Building,
then in any of said cases set forth in the foregoing Subsections (a), (b), (c)
(d) and (e), Landlord may give to Tenant a notice of intention to end the term
of this lease at the expiration of five (5) days from the date of the service of
such notice of intention, and upon the expiration of said five (5) days this
lease and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the Expiration Date, but Tenant shall remain liable for damages as provided
in Article 27.
ARTICLE 26
Re-Entry By Landlord
26.01 If Tenant shall default in the payment of any installment of
fixed rent, or of any additional rent, on any date upon which the same ought to
be paid, and if such default shall continue for five (5) business days after
Landlord shall have given to Tenant a notice specifying such default, or if this
lease shall expire as in Article 25 provided, Landlord or Landlord's agents and
employees may immediately or at any time thereafter re-enter the Demised
Premises, or any part thereof, in the name of the whole, either by summary
dispossess proceedings or by any suitable action or proceeding at law, or by any
lawful measures, without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any persons therefrom, to
the end that Landlord may have, hold and enjoy the Demised Premises again as and
of its first estate and interest therein. The word re-enter, as herein used, is
not restricted to its technical legal meaning. In the event of any termination
of this lease under the provisions of Article 25 or if Landlord shall re-enter
the Demised Premises under the provisions of this Article or in the event of the
termination of this lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord the
fixed rent and additional rent payable by Tenant to Landlord up to the time of
such termination of this lease, or of such recovery of possession of the Demised
Premises by Landlord, as the case may be, and shall also pay to Landlord damages
as provided in Article 27.
26.02 In the event of a breach or threatened breach by Tenant of any
of its obligations under this lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which Landlord may lawfully be entitled
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at any time and Landlord may invoke any remedy allowed at law or in equity as if
specific remedies were not provided for herein.
26.03 If this lease shall terminate under the provisions of Article
25, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article, or in the event of the termination of this lease, or of re-entry,
by or under any summary dispossess or other proceeding or action or any
provision of law by reason of default hereunder on the part of Tenant, Landlord
shall be entitled to retain all moneys, if any, paid by Tenant to Landlord,
whether as advance rent, security or otherwise, but such moneys shall be
credited by Landlord against any fixed rent or additional rent due from Tenant
at the time of such termination or re-entry or, at Landlord's option, against
any damages payable by Tenant under Article 27 or pursuant to law.
ARTICLE 27
Damages
27.01 If this lease is terminated under the provisions of Article
25, or if Landlord shall re-enter the Demised Premises under the provisions of
Article 26, or in the event of the termination of this lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay to
Landlord as damages, at the election of Landlord, either:
(a) a sum which at the time of such termination of this
lease or at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, discounted to present value at
the rate of six (6%) percent per annum, of:
1. the aggregate of the fixed rent and the additional rent
payable hereunder which would have been payable by Tenant (conclusively
presuming the additional rent to be the same as was payable for the year
immediately preceding such termination) for the period commencing with such
earlier termination of this lease or the date of any such re-entry, as the case
may be, and ending with the Expiration Date, had this lease not so terminated or
had Landlord not so re-entered the Demised Premises; over
2. the aggregate rental value of the Demised Premises for the
same period; or
(b) sums equal to the fixed rent and the additional rent
(as above presumed) payable hereunder which would have been payable by Tenant
had this lease not so terminated, or had Landlord not so re-entered the Demised
Premises, payable upon the due dates therefor specified herein following such
termination or such re-entry and until the
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Expiration Date, provided, however, that if Landlord shall relet the Demised
Premises during said period, Landlord shall credit Tenant with the net rents
received by Landlord from such reletting, such net rents to be determined by
first deducting from the gross rents as and when received by Landlord from such
reletting the expenses incurred or paid by Landlord in terminating this lease or
in re-entering the Demised Premises and in securing possession thereof, as well
as the expenses of reletting, including altering and preparing the Demised
Premises for new tenants, brokers' commissions, and all other expenses properly
chargeable against the Demised Premises and the rental therefrom; it being
understood that any such reletting may be for a period shorter or longer than
the remaining term of this lease; but in no event shall Tenant be entitled to
receive any excess of such net rents over the sums payable by Tenant to Landlord
hereunder, nor shall Tenant be entitled in any suit for the collection of
damages pursuant to this Subsection to a credit in respect of any net rents from
a reletting, except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square foot basis
(for equivalent space) shall be made of the rent received from such reletting
and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord for the
unexpired portion of the term of this lease, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting.
27.02 Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this lease would have expired if
it had not been so terminated under the provisions of Article 25, or under any
provision of law, or had Landlord not re- entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove for and obtain as
liquidated damages by reason of the termination of this lease or re-entry on the
Demised Premises for the default of Tenant under this lease, 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 any of the sums referred to
in Section 27.01.
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ARTICLE 28
Waiver
28.01 Tenant, for Tenant, and on behalf of any and all persons
claiming through or under Tenant, including creditors of all kinds, does hereby
waive and surrender all right and privilege which they or any of them might have
under or by reason of any present or future law, to redeem the Demised Premises
or to have a continuance of this lease for the term hereby demised after being
dispossessed or ejected therefrom by process of law or under the terms of this
lease or after the termination of this lease as herein provided.
28.02 In the event that Tenant is in arrears in payment of fixed
rent or additional rent hereunder, Tenant waives Tenant's right, if any, to
designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items against which any such payments shall be
credited.
28.03 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto.
28.04 The provisions of Articles 17 and 18 shall be considered
expressed agreements governing the services to be furnished by Landlord, and
Tenant agrees that any laws and/or requirements of public authorities, now or
hereafter in force, shall have no application in connection with any enlargement
of Landlord's obligations with respect to such services unless Tenant agrees, in
writing, to pay to Landlord, as additional rent, Landlord's reasonable charges
for any additional services provided.
28.05 If, at any time during the term of this lease, any requirement
of public authority shall have the effect of limiting, for any period of time,
the amount of the rents payable by Tenant, or receivable by Landlord, under this
lease, and the maximum rents so permitted to be paid by Tenant, or received by
Landlord, hereunder shall be less than the rents herein reserved, then:
(a) throughout the period of limitation, Tenant shall remain
liable for the maximum amount of rents that is lawfully payable; and
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(b) if and when the period of limitation ends, the requirement
of public authority imposing such limitation is repealed, or such limitation is
restrained or rendered unenforceable by any order or ruling of a court of
appropriate jurisdiction:
(i) to the extent that the same is not prohibited by any
requirement of public authority, Tenant shall pay to Landlord, on demand, all
amounts that would have been due from Tenant to Landlord during the period of
limitation, but that were not paid because of the requirements of public
authorities; and
(ii) thereafter, to the extent permitted by applicable
law, Tenant shall pay to Landlord all of the rents reserved under this lease,
all of which shall be calculated as if there had been no intervening period of
limitation.
ARTICLE 29
No Other Waivers Or Modifications
29.01 The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this lease, in whole
or in part, unless such executory agreement is in writing, refers expressly to
this lease and is signed by the party against whom enforcement of the change,
modification, waiver, release, discharge or termination or effectuation of the
abandonment is sought.
29.02 The following specific provisions of this Section shall not be
deemed to limit the generality of any of the foregoing provisions of this
Article:
(a) no agreement to accept a surrender of all or any part of
the Demised Premises shall be valid unless in writing and signed by Landlord.
The delivery of keys to an employee of Landlord or of its agent shall not
operate as a termination of this lease or a surrender of the Demised Premises.
If Tenant shall at any time request Landlord to sublet the Demised Premises for
Tenant's account, Landlord or its agent is authorized to receive said keys for
such purposes without releasing Tenant from any of its obligations under this
lease, and Tenant hereby releases Landlord from any liability for loss or damage
to any of Tenant's property in connection with such subletting.
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(b) the receipt by Landlord of rent with knowledge of breach
of any obligation of this lease shall not be deemed a waiver of such breach;
(c) no payment by Tenant or receipt by Landlord of a lesser
amount than the correct fixed rent or additional rent due hereunder shall be
deemed to be other than a payment on account, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance or pursue any other
remedy in this lease or at law provided.
ARTICLE 30
Curing Tenant's Defaults, Additional Rent
30.01
(a) if Tenant shall default in the performance of any of
Tenant's obligations under this lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform the same for the account
and at the expense of Tenant, without notice, in a case of emergency, and in any
other case, only if such default continues after the expiration of (i) five (5)
business days from the date Landlord gives Tenant notice of intention so to do,
or (ii) the applicable grace period provided in Section 25.02 or elsewhere in
this lease for cure of such default, whichever occurs later;
(b) if Tenant is late in making any payment due to Landlord
from Tenant under this lease for seven (7) or more days, then interest shall
become due and owing to Landlord on such payment from the date when it was due
computed at the rate of four (4%) percent per annum over the Base Rate but in no
event in excess of the maximum legal rate of interest chargeable to corporations
in the State of New York.
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30.02 Bills for any expenses incurred by Landlord in connection with
any such performance by it for the account of Tenant, and bills for all costs,
expenses and disbursements of every kind and nature whatsoever, including
reasonable and actual out-of-pocket counsel fees, involved in collecting or
endeavoring to collect the fixed rent or additional rent or any part thereof or
enforcing or endeavoring to enforce any rights against Tenant, under or in
connection with this lease, or pursuant to law, including any such cost, expense
and disbursement involved in instituting and prosecuting summary proceedings, as
well as bills for any property, material, labor or services provided, furnished,
or rendered, by Landlord or at its instance to Tenant, may be sent by Landlord
to Tenant monthly, or immediately, at Landlord's option, and, shall be due and
payable in accordance with the terms of such bills.
ARTICLE 31
Broker
31.01 Landlord and Tenant covenant, warrant and represent to each
other that they have not dealt with any broker or finder except Insignia/ESG,
Inc., the rental agent for the Building (hereinafter referred to as the
"Broker") concerning the renting of the Demised Premises to Tenant. Landlord and
Tenant agree to hold the other harmless against any claims for a brokerage
commission arising out of any assertion by any broker or finder except the
Broker that it dealt with such indemnifying party with respect to the renting of
the Demised Premises to Tenant. Landlord agrees to pay any fee or commission
owing to the Broker pursuant to separate agreement made by Landlord and Broker.
ARTICLE 32
Notices
32.01 Except for rent bills and emergency repair notices (which may
be hand-delivered or sent via facsimile machine and shall be deemed given upon
receipt) any notice, statement, demand or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this lease or pursuant to any applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
lease) and shall be deemed to have been properly given, rendered or made, if
sent by registered or certified mail, return receipt requested, addressed to the
other party at the address hereinabove set forth (except that after the
Commencement Date, Tenant's address, unless Tenant shall give notice to the
contrary, shall be the Building), or sent via nationally recognized overnight
courier providing for receipted delivery and shall be deemed to have been given,
rendered or made (a) if so mailed, three (3) days after the day so mailed, and
(b) if sent via nationally recognized overnight courier, on the date of receipt
or rejection. Copies of notices to Tenant of Tenant's default shall be sent to
Reid, Smith, Shaw & McClay LLP, 375 Park Avenue, New York, New York 10152,
attention: Joseph M. Marger, Esq. Either party may, by notice as aforesaid,
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designate a different address or addresses for notices, statements, demands or
other communications intended for it.
ARTICLE 33
Estoppel Certificate
33.01 Each party agrees, at any time and from time to time, as
requested by the other party, upon not less than twenty (20) days' prior notice,
to execute and deliver to the other a statement certifying (a) that this lease
is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications) and whether any options granted to Tenant pursuant to the
provisions of this lease have been exercised, (b) certifying the dates to which
the fixed rent and additional rent have been paid and the amounts thereof, and
stating whether or not, to the best knowledge of the signer, the other party is
in default in performance of any of its obligations under this lease, and, if
so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by others with whom the party requesting such certificate may be dealing.
Additionally, Tenant's Statement shall contain such other information as shall
be reasonably required by the holder or proposed holder of any superior mortgage
or the lessor or proposed lessor under any superior lease.
ARTICLE 34
Arbitration
34.01 Either party may request arbitration of any matter in dispute
wherein arbitration is expressly provided in this lease as the appropriate
remedy. The party requesting arbitration shall do so by giving notice to that
effect to the other party, and both parties shall promptly thereafter jointly
apply to the American Arbitration Association (or any organization successor
thereto) in the City and County of New York for the appointment of a single
arbitrator.
34.02 The arbitration shall be conducted in accordance with the then
prevailing rules of the American Arbitration Association (or any organization
successor thereto) in the City and County of New York. In rendering such
decision and award, the arbitrator shall not add to, subtract from or otherwise
modify the provisions of this lease.
34.03 If for any reason whatsoever a written decision and award of
the arbitrator shall not be rendered within ninety (90) days after the
appointment of such arbitrator, then at any time thereafter before such decision
and award shall have been rendered either party may apply to the Supreme Court
of the State of New York or to any other court having jurisdiction and
exercising the functions similar to those now exercised by such court, by
action, proceeding or otherwise (but not by a new arbitration proceeding) as may
be proper to determine the question in dispute consistently with the provisions
of this lease.
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34.04 All the expenses of the arbitration shall be borne by the
parties equally except that each party shall be responsible for the payment of
its own legal fees and disbursements and expert witness fees.
ARTICLE 35
No Other Representations, Construction, Governing Law, Consents
35.01 Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this lease or in
any other written agreement which may be made between the parties concurrently
with the execution and delivery of this lease and shall expressly refer to this
lease. This lease and said other written agreement(s) made concurrently herewith
are hereinafter referred to as the "lease documents". It is understood and
agreed that all understandings and agreements heretofore had between the parties
are merged in the lease documents, which alone fully and completely express
their agreements and that the same are entered into after full investigation,
neither party relying upon any statement or representation not embodied in the
lease documents, made by the other.
35.02 If any of the provisions of this lease, or the application
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
35.03 This lease shall be governed in all respects by the laws of
the State of New York.
35.04 Wherever in this lease Landlord's consent or approval is
required, if Landlord shall refuse such consent or approval, Tenant in no event
shall be entitled to make, nor shall Tenant make, any claim, and Tenant hereby
waives any claim, for money damages (nor shall Tenant claim any money damages by
way of set-off, counterclaim or defense) based upon any claim or assertion by
Tenant that Landlord unreasonably withheld or unreasonably delayed its consent
or approval. Tenant's sole remedy shall be an action or proceeding to enforce
any such provision, for specific performance, injunction or declaratory judgment
or for a determination as to whether Landlord reasonably withheld its consent
pursuant to either (a) the Simplified Procedure For Court Determination of
Disputes as set forth in the CPLR ss.3031 et seq. (or any successor thereto), or
(b) arbitration under the Expedited Procedures provisions (presently Rules 53
through 57, as same may be amended from time to time) of the American
Arbitration Association (or successor thereto) in the City of New York (and the
fees and
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expenses of such arbitration shall be borne by the unsuccessful party), and, if
Tenant elects either (a) or (b) above, the decision shall be final and
conclusive on the parties.
ARTICLE 36
Parties Bound
36.01 The obligations of this lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation of
the provisions of Article 9 shall operate to vest any rights in any successor or
assignee of Tenant and that the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 25.
However, the obligations of Landlord under this lease shall not be binding upon
Landlord herein named with respect to any period subsequent to the transfer of
its interest in the Building as owner or lessee thereof and in event of such
transfer said obligations shall thereafter be binding upon each transferee of
the interest of Landlord herein named as such owner or lessee of the Building,
but only with respect to the period ending with a subsequent transfer within the
meaning of this Article.
36.02 Tenant shall look only to Landlord's estate and property in
the Building (or the rental proceeds thereof or the proceeds derived from the
sale of the Building and/or the Land) and, where expressly so provided in this
lease, to offset against the rents payable under this lease, for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default by Landlord hereunder, and no other property or assets of such Landlord
or any partner, member, officer or director thereof, disclosed or undisclosed
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this lease, the
relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of
the Demised Premises.
ARTICLE 37
Certain Definitions And Construction
37.01 For the purposes of this lease and all agreements supplemental
to this lease, unless the context otherwise requires the definitions set forth
in Exhibit E annexed hereto shall be utilized.
37.02 The various terms which are bolded or underlined and defined
in other Articles of this lease or are defined in Exhibits annexed hereto, shall
have the meanings specified in such other Articles and such Exhibits for all
purposes of this lease and all agreements supplemental thereto, unless the
context shall otherwise require.
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ARTICLE 38
Adjacent Excavation And Construction; Shoring; Vaults
38.01 If an excavation or other substructure work 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
shall be reasonably necessary to preserve the wall of or the Building 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 or rent.
38.02 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.
ARTICLE 39
Renewal Option
39.01
(a) Provided that this lease shall be in full force and effect
without a default on the part of Tenant under this lease, on the date Tenant
exercises the "Renewal Option" (as hereinafter defined) which default continues
after notice and the expiration of any applicable cure period, Tenant shall have
the option (hereinafter referred to as the "Renewal Option") to renew this lease
for a renewal term (hereinafter referred to as the "Renewal Term") of five (5)
years, to commence on the day (hereinafter referred to as the "Renewal Term
Commencement Date") next succeeding the Expiration Date and to expire on the day
(herein referred to as the Renewal Term Expiration Date") which shall be the
fifth (5th) anniversary of the Expiration Date.
(b) Tenant shall exercise the Renewal Option by sending
written notice thereof (which notice is hereinafter referred to as the "Renewal
Notice")
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to Landlord by registered or certified mail, return receipt requested, on or
before the day which shall be twelve (12) months next preceding the Expiration
Date. If Tenant shall send the Renewal Notice within the time and in the manner
hereinbefore provided, this lease shall be deemed renewed for the Renewal Term
upon the terms, covenants and conditions hereinafter contained. If Tenant shall
fail to send the Renewal Notice within the time and in the manner hereinbefore
provided, the Renewal Option shall cease and terminate, and Tenant shall have no
further option to renew this lease.
39.02 The Renewal Term, if any, shall be upon, and subject to, all
of the terms, covenants and conditions provided in this lease for the original
term hereof, except that:
(a) Any terms, covenants, or conditions hereof that are
expressly or by their nature inapplicable to the Renewal Term (including,
without limitation, Articles 3 and 4 hereof) shall not apply during the Renewal
Term; and
(b) The annual fixed rent payable by Tenant during the Renewal
Term (hereinafter referred to as the "Renewal Rent"), subject to adjustment as
otherwise in this lease provided, shall be an amount equal to the fair market
rental value of the Demised Premises, to be determined as provided in Section
39.03 hereof and to be calculated as of the "Determination Date" (as defined in
Section 39.03) on the basis of a five (5) year letting of the Demised Premises.
39.03 In the event that Tenant shall exercise the Renewal Option as
provided in Section 39.01 hereof, the Renewal Rent shall be determined jointly
by Landlord and Tenant, and such determination shall be confirmed in a writing
(hereinafter referred to as the "Rental Agreement") to be executed in recordable
form by Landlord and Tenant not later than the day (hereinafter referred to as
the "Determination Date") which shall be ninety (90) days next preceeding the
Expiration Date. In the event that Landlord and Tenant shall have failed to join
in executing the Rental Agreement on or before the Determination Date because of
their failure to agree upon the Renewal Rent then the Renewal Rent shall be
determined by arbitration as follows:
(a) Landlord and Tenant shall each appoint an arbitrator by
written notice given to the other party hereto not later than thirty (30) days
after the Determination Date. If either Landlord or Tenant shall have failed to
appoint an arbitrator within such period of time and thereafter shall have
failed to do so by written notice given within a period of five (5) days after
notice by the other party requesting the appointment of such arbitrator, then
such arbitrator shall be appointed by the American Arbitration Association or
its successor (the branch office of which is located in or closest to the City
and State of New York), upon request of either Landlord or Tenant, as the case
may be;
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(b) The two (2) arbitrators appointed as above provided shall
attempt to reach an agreement as to the rental for the Renewal Term and in the
event they are unable to do so within thirty (30) days after their joint
appointment, then they shall appoint a third (3rd) arbitrator by written notice
given to both Landlord and Tenant, and, if they fail to do so by written notice
given within sixty (60) days after their appointment, such third (3rd)
arbitrator shall be appointed as above provided for the appointment of an
arbitrator in the event either party fails to do so;
(c) All of such arbitrators shall be real estate appraisers
having not less than ten (10) years experience in appraising the value of
leasehold interests in real estate similar to the Building located within the
City of New York and who are members of M.A.I. or S.R.E.A.;
(d) The three arbitrators, selected as aforesaid, forthwith
shall convene and render their decision in accordance with the then applicable
rules of the American Arbitration Association or its successor, which decision
shall be strictly limited to a determination of the Renewal Rent within twenty
(20) days after the appointment of the third (3rd) arbitrator. The decision of
such arbitrators shall be in writing and such decision shall be the average of
the two arbitrators' determinations coming closest to each other and, insofar as
the same is in compliance with the provisions and conditions of this Section
39.03 hereof shall, be binding upon Landlord and Tenant. Duplicate original
counterparts of such decision shall be sent forthwith by the arbitrators by
certified mail, return receipt requested, to both Landlord and Tenant. The
arbitrators, in arriving at their decision, shall be entitled to consider all
testimony and documentary evidence that may be presented at any hearing, as well
as facts and data which the arbitrators may discover by investigation and
inquiry outside such hearings. If, for any reason whatsoever, a written decision
of the arbitrators shall not be rendered within twenty (20) days after the
appointment of the third (3rd) arbitrator, then, at any time thereafter before
such decision shall have been rendered, either party may apply to the Supreme
Court of the State of New York or to any other court having jurisdiction and
exercising the functions similar to those now exercised by such court, by
action, proceeding or otherwise (but not by a new arbitration proceeding) as may
be proper, to determine the question in dispute consistently with the provisions
of this lease. The cost and expense of such arbitration, action, proceeding, or
otherwise shall be borne equally by Landlord and Tenant.
39.04 In the event that Tenant shall exercise the Renewal Option and
the Renewal Rent shall not be finally determined pursuant to the terms of
Section 39.03 hereof on or before the Renewal Term Commencement Date then:
(a) The annual fixed rent payable by Tenant during the Renewal
Term until the Renewal Rent shall be so finally determined shall, subject to
adjustment as herein provided, be equal to the fixed rent on a per square foot
basis payable during the last
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<PAGE>
year of the initial term of this lease multiplied by the then rentable square
footage of the Demised Premises (hereinafter referred to as the "Interim Renewal
Minimum Rent"), and
(b) In the event that the Renewal Rent as finally determined
pursuant to the terms of Section 39.03 hereof, shall be greater or less than the
Interim Renewal Minimum Rent (i) the annual fixed rent payable by Tenant for the
balance of the Renewal Term shall be and become the Renewal Rent as finally
determined, and (ii) Tenant shall forthwith pay to Landlord, or Landlord shall
repay to Tenant, as the case may be, an amount equal to the difference between
(x) the sum of the actual rental payments paid to Landlord during the Renewal
Term before such final determination and (y) the sum of the rental payments that
Tenant would have paid to Landlord if the Renewal Rent were finally determined
prior to the Renewal Term Commencement Date.
ARTICLE 40
Temporary Space
40.01 During the period (hereinafter referred to as the "Temporary
Period") commencing on the later to occur of (a) January 1, 2000 and (b) the
date which shall be fifteen (15) days after the date of mutual execution and
delivery of this lease and continuing until the date that shall be the earlier
to occur of (a) the six (6) month anniversary of the Commencement Date and (b)
the date Tenant commences business in the Demised Premises (such date being
hereinafter referred to as the "Temporary Space Expiration Date"), Landlord
shall make available to Tenant the space set forth on Exhibit C annexed hereto
and made a part hereof (hereinafter referred to as the "Temporary Space") which
Landlord and Tenant agree shall be deemed to consist of 4,750 rentable square
feet, for temporary occupancy by Tenant during such period that Tenant is
performing Tenant's Work. Tenant shall pay Landlord on account of its use of the
Temporary Space, as additional rent, the amount (hereinafter referred to as the
"Temporary Space Rent") of $126,817.50 per annum ($10,568.13 per month) payable
on the first day of each calendar month during the Temporary Period, which
Temporary Space Rent includes $12,567.50 per annum ($1,047.29 per month) on
account of electricity furnished to the Temporary Space by Landlord.
40.02 Such occupancy shall be upon all of the terms, covenants and
conditions of this Lease except that the provisions of Sections 1.03, 1.04,
1.08, 16.01, 16.02, 16.07 and 1608 and Articles 4, 5, 31 and 39 shall not apply
to the Temporary Space.
40.03 Tenant shall accept the Temporary Space in "as is" condition.
40.04 Notwithstanding anything herein to the foregoing, in the event
Tenant fails to surrender vacant possession of the entire Temporary Space to
Landlord on or before the Temporary Space Expiration Date, then from and after
the Temporary Space Expiration Date, up
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<PAGE>
to and including the date Tenant surrenders vacant possession of the entire
Temporary Space to Landlord, the reference in Section 24.02(a) to "fixed rent
and additional rent payable by Tenant under this lease" shall be deemed to refer
to the Temporary Space Rent and the provisions of Section 24.02(b) and (c) shall
apply with respect thereto with the reference in Section 24.02(b) to "any rent
paid by Tenant pursuant to Section 24.02(a) above" being deemed to refer to the
Temporary Space Rent.
40.05 Nothing herein shall be deemed an agreement of, or consent by,
Landlord to allow Tenant to remain in possession of the Temporary Space, or any
portion thereof, beyond the Temporary Space Expiration Date and if Tenant does
not surrender vacant possession of the entire Temporary Space to Landlord by the
Temporary Space Expiration Date, Landlord shall be entitled to exercise all
rights available to it at law, in equity and/or under this lease for a holdover
by Tenant with respect to the Temporary Space.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this lease as
of the day and year first above written.
LANDLORD:
450 WESTSIDE PARTNERS, LLC,
a Delaware limited liability company
By: MAX AG 450, LLC,
By: Max Capital Management Corp.,
a Member
By
-----------------------------------------
Title:
TENANT
WEBSTAKES, INC.
By
-----------------------------------------
Tenant's Employer Identification No.
--------------------------------------------
80
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the _____ day of ___________, in the year ______ before me, the
undersigned, a Notary Public in and for said State, personally appeared
_____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed
to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their capacity(ies), and that by his/her/their signature(s) on
the instrument, the individual(s), or the person upon behalf of which the
individual(s) acted, executed the instrument.
--------------------------
Notary Public
STATE OF NEW YORK )
)ss::
COUNTY OF NEW YORK )
On the _____ day of ___________, in the year ______ before me, the
undersigned, a Notary Public in and for said State, personally appeared
_____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed
to the within instrument and acknowledged to me that he/she/they executed the
same in his/her/their capacity(ies), and that by his/her/their signature(s) on
the instrument, the individual(s), or the person upon behalf of which the
individual(s) acted, executed the instrument.
--------------------------
Notary Public
81
<PAGE>
- - - - - - - - - - - - - - - - - - -
EXHIBIT A
DESCRIPTION
- - - - - - - - - - - - - - - - - - -
ALL that certain plot, piece or parcel of land, situate, lying and being
in the Borough of Manhattan, County of New York, City and State of New York,
bounded and described as follows:
ALL that certain plot, piece or parcel of land, situate, lying and being
in the Borough of Manhattan, County of New York, City and State of New York,
bounded and described as follows:
BEGINNING at a point at the corner formed by the intersection of the
easterly side of 10th Avenue and the northerly side of West 31st Street;
RUNNING THENCE, northerly along the easterly side of 10th Avenue, North 62
degrees 05 minutes 13 seconds East, 455 feet to the corner formed by the
intersection of the easterly side of 10th Avenue and the southerly side of West
33rd Street;
THENCE, easterly along the southerly side of West 33rd Street, South 27
degrees 54 minutes 47 seconds East 302 feet;
THENCE, southerly and parallel with the easterly side of 10th Avenue,
South 62 degrees 05 minutes 13 seconds West 455 feet to the northerly side of
West 31st Street;
THENCE, westerly along the northerly side of West 31st Street, North 27
degrees 54 minutes 47 seconds West 302 feet to the point or place of BEGINNING.
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<PAGE>
- - - - - - - - - - - - - - - - - - -
EXHIBIT B
FLOOR PLAN
- - - - - - - - - - - - - - - - - - -
(Follows immediately on next page)
83
<PAGE>
- - - - - - - - - - - - - - - - - - -
EXHIBIT C
TEMPORARY SPACE
- - - - - - - - - - - - - - - - - - -
(Follows immediately on next page)
84
<PAGE>
- - - - - - - - - - - - - - - - - - -
EXHIBIT D
RULES AND REGULATIONS
- - - - - - - - - - - - - - - - - - -
1. The rights of tenants in the entrances, corridors and elevators
of the Building are limited to ingress to and egress from the tenants' premises
for the tenants and their employees, licensees and invitees, and no tenant shall
use, or permit the use of, the entrances, corridors, or elevators for any other
purpose. No tenant shall invite to the tenant's premises, or permit the visit
of, persons in such numbers or under such conditions as to interfere with the
use and enjoyment of any of the entrances, corridors, elevators and other
facilities of the Building by other tenants. Fire exits and stairways are for
emergency use only, and they shall not be used for any other purpose by the
tenants, their employees, licensees or invitees. No tenant shall encumber or
obstruct, or permit the encumbrance or obstruction of any of the sidewalks,
entrances, corridors, elevators, fire exits or stairways of the Building.
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it deems best for the benefit of
the tenants generally.
2. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not having a
pass issued by Landlord or the tenant whose premises are to be entered or not
otherwise properly identified, and may require all persons admitted to or
leaving the Building outside of ordinary business hours to register. Any person
whose presence in the Building at any time shall, in the judgment of Landlord,
be prejudicial to the safety, character, reputation and interests of the
Building or of its tenants may be denied access to the Building or may be
ejected therefrom. In case of invasion, riot, public excitement or other
commotion, Landlord may prevent all access to the Building during the
continuance of the same, by closing the doors or otherwise, for the safety of
the tenants and protection of property in the Building. Landlord may require any
person leaving the Building with any package or other object to exhibit a pass
from the tenant from whose premises the package or object is being removed, but
the establishment and enforcement of such requirement shall not impose any
responsibility on Landlord for the protection of any tenant against the removal
of property from the premises of the tenant. Landlord shall, in no way, be
liable to any tenant for damages or loss arising from the admission, exclusion
or ejection of any person to or from the tenant's premises or the Building under
the provisions of this rule. Canvassing, soliciting or peddling in the Building
is prohibited and every tenant shall co-operate to prevent the same.
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<PAGE>
3. No tenant shall obtain or accept for use in its premises towel,
barbering, boot blacking, floor polishing, lighting maintenance, cleaning or
other similar services from any persons not authorized by Landlord in writing to
furnish such services, provided that the charges for such services by persons
authorized by Landlord are not excessive. Such services shall be furnished only
at such hours, in such places within the tenant's premises and under such
reasonable regulations as may be fixed by Landlord and applied in a
non-discriminatory manner.
4. No lettering, sign, advertisement, notice or object shall be
displayed in or on the windows or doors, or on the outside of any tenant's
premises, or at any point inside any tenant's premises where the same might be
visible outside of such premises, except that the name of the tenant may be
displayed on the entrance door of the tenant's premises, and in the elevator
lobbies of the floors which are occupied entirely by any tenant, subject to the
approval of Landlord as to the size, color and style of such display except that
Landlord's consent shall not be required with respect to Tenant's standard logo
or color scheme. The inscription of the name of the tenant on the door of the
tenant's premises shall be done by Landlord at the expense of the tenant.
Listing of the name of the tenant on the directory boards in the Building shall
be done by Landlord at its expense; any other listings shall be in the
discretion of Landlord.
5. No awnings or other projections over or around the windows shall
be installed by any tenant, and only such window blinds as are supplied or
permitted by Landlord shall be used in a tenant's premises. Linoleum, tile or
other floor covering shall be laid in a tenant's premises only in a manner
approved by Landlord.
6. Landlord shall have the right to prescribe the weight and
position of safes and other objects of excessive weight, and no safe or other
object whose weight exceeds the lawful load for the area upon which it would
stand shall be brought into or kept upon a tenant's premises. If, in the
judgment of Landlord, it is necessary to distribute the concentrated weight of
any heavy object, the work involved in such distribution shall be done at the
expense of Tenant and in such manner as Landlord shall determine. The moving of
safes and other heavy objects shall take place only outside of ordinary business
hours upon previous notice to Landlord, and the persons employed to move the
same in and out of the Building shall be reasonably acceptable to Landlord and,
if so required by law, shall hold a Master Rigger's license. Freight, furniture,
business equipment, merchandise and bulky matter of any description shall be
delivered to and removed from the premises only in the freight elevators and
through the service entrances and corridors, and only during hours and in a
manner approved by Landlord. Arrangements will be made by Landlord with any
tenant for moving large quantities of furniture and equipment into or out of the
building.
7. No machines or mechanical equipment of any kind, other than
typewriters and other ordinary portable business machines and similar typical
office equipment, may be installed or operated in any tenant's premises without
Landlord's prior written consent, and in no
86
<PAGE>
case (even where the same are of a type so excepted or as so consented to by
Landlord) shall any machines or mechanical equipment be so placed or operated as
to disturb other tenants but machines and mechanical equipment which may be
permitted to be installed and used in a tenant's premises shall be so equipped,
installed and maintained by such tenant as to prevent any disturbing noise,
vibration or electrical or other interference from being transmitted from such
premises to any other area of the Building.
8. No noise, including the playing of any musical instruments, radio
or television, which, in the reasonably judgment of Landlord, might disturb
other tenants in the Building, shall be made or permitted by any tenant, and no
cooking shall be done in the tenant's premises, except as expressly approved by
Landlord or as otherwise expressly permitted pursuant to the terms of this
lease. Nothing shall be done or permitted in any tenant's premises, and nothing
shall be brought into or kept in any tenant's premises, which would impair or
interfere with any of the Building services or the proper and economic heating,
cleaning or other servicing of the Building or the premises, or the use or
enjoyment by any other tenant of any other premises, nor shall there be
installed by any tenant any ventilating, air conditioning, electrical or other
equipment of any kind which, in the judgment of Landlord, might cause any such
impairment or interference. No dangerous, inflammable, combustible or explosive
object or material shall be brought into the Building by any tenant or with the
permission of any tenant.
9. No acids, vapors, paper towels or other materials shall be
discharged or permitted to be discharged into the waste lines, vents or flues of
the Building which may damage them. The water and wash closets and other
plumbing fixtures in or serving any tenant's premises shall not be used for any
purpose other than the purposes for which they were designed or constructed, and
no sweepings, rubbish, rags, acids or other foreign substances shall be
deposited therein.
10. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows in any tenant's premises and no lock on any door
therein shall be changed or altered in any respect. Additional keys for a
tenant's premises and toilet rooms shall be procured only from Landlord, which
may make a reasonable charge therefor. Upon the termination of a tenant's lease,
all keys of the tenant's premises and toilet rooms shall be delivered to
Landlord.
11. All entrance doors in each tenant's premises shall be left
locked and all windows shall be left closed by the tenant when the tenant's
premises are not in use. Entrance doors shall not be left open at any time.
12. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
87
<PAGE>
13. All windows in each tenant's premises shall be kept closed and
all blinds therein, if any, above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air-conditioning system to cool or ventilate the tenant's premises.
14. Landlord reserves the right, upon reasonable advance notice to
Tenant, to rescind, alter or waive any rule or regulation at any time prescribed
for the Building when, in its reasonable judgment, it deems it necessary,
desirable or proper for its best interest and for the best interests of the
tenants, and no alteration or waiver of any rule or regulation in favor of one
tenant shall operate as an alteration or waiver in favor of any other tenant.
Landlord shall not be responsible to any tenant for the non-observance or
violation by any other tenant of any of the rules and regulations at any time
prescribed for the Building.
88
<PAGE>
- - - - - - - - - - - - - - - - - - -
EXHIBIT E
DEFINITIONS
- - - - - - - - - - - - - - - - - - -
(a) The term mortgage shall include an indenture of mortgage and
deed of trust to a trustee to secure an issue of bonds, and the term mortgagee
shall include such a trustee.
(b) The terms include, including and such as shall each be construed
as if followed by the phrase "without being limited to".
(c) The term obligations of this lease, and words of like import,
shall mean the covenants to pay rent and additional rent under this lease and
all of the other covenants and conditions contained in this lease. Any provision
in this lease that one party or the other or both shall do or not do or shall
cause or permit or not cause or permit a particular act, condition, or
circumstance shall be deemed to mean that such party so covenants or both
parties so covenant, as the case may be.
(d) The term Tenant's obligations hereunder, and words of like
import, and the term Landlord's obligations hereunder, and words of like import,
shall mean the obligations of this lease which are to be performed or observed
by Tenant, or by Landlord, as the case may be. Reference to performance of
either party's obligations under this lease shall be construed as "performance
and observance".
(e) Reference to Tenant being or not being in default hereunder, or
words of like import, shall mean that Tenant is in default in the performance of
one or more of Tenant's obligations hereunder, or that Tenant is not in default
in the performance of any of Tenant's obligations hereunder, or that a condition
of the character described in Section 25.01 has occurred and continues or has
not occurred or does not continue, as the case may be.
(f) References to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean that Tenant is not entitled to terminate
this lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution of rent except as otherwise expressly
permitted pursuant to the terms of this lease, or to be relieved in any manner
of any of its other obligations hereunder, or to be compensated for loss or
injury suffered or to enforce any other kind of liability whatsoever against
Landlord under or with respect to this lease or with respect to Tenant's use or
occupancy of the Demised Premises.
89
<PAGE>
(g) The term laws and/or requirements of public authorities and
words of like import shall mean laws and ordinances of any or all of the
Federal, state, city, county and borough governments and rules, regulations,
orders and/or directives of any or all departments, subdivisions, bureaus,
agencies or offices thereof, or of any other governmental, public or
quasi-public authorities, having jurisdiction in the premises, and/or the
direction of any public officer pursuant to law.
(h) The term requirements of insurance bodies and words of like
import shall mean rules, regulations, orders and other requirements of the New
York Board of Fire Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.
(i) The term repair shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working order
and condition.
(j) Reference to termination of this lease includes expiration or
earlier termination of the term of this lease or cancellation of this lease
pursuant to any of the provisions of this lease or to law. Upon a termination of
this lease, the term and estate granted by this lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this lease and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided for
in this lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this lease, may be, performed
after such termination, and, in any event, unless expressly otherwise provided
in this lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this lease.
(k) The term in full force and effect when herein used in reference
to this lease as a condition to the existence or exercise of a right on the part
of Tenant shall be construed in each instance as including the further condition
that at the time in question no default on the part of Tenant exists, and no
event has occurred which has continued to exist for such period of time (after
the notice, if any, required by this lease), as would entitle Landlord to
terminate this lease or to dispossess Tenant.
(l) The term Tenant shall mean Tenant herein named or any assignee
or other successor in interest (immediate or remote) of Tenant herein named,
while such Tenant or such assignee or other successor in interest, as the case
may be, is in possession of the Demised Premises as owner of Tenant's estate and
interest granted by this lease and also, if Tenant is not an individual or a
corporation, all of the persons, firms and corporations then comprising Tenant.
90
<PAGE>
(m) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any particular
gender shall be deemed to include any other gender.
(n) The rule of ejusdem generis shall not be applicable to limit a
general statement following or referable to an enumeration of specific matters
to matters similar to the matters specifically mentioned.
(o) All references in this lease to numbered Articles, numbered
Sections and lettered Exhibits are references to Articles and Sections of this
lease, and Exhibits annexed to (and thereby made part of) this lease, as the
case may be, unless expressly otherwise designated in the context.
(p) The term "control" shall mean ownership of more than fifty (50%)
percent of all the voting stock of a corporation or more than fifty (50%)
percent of all the legal and equitable interest in any other entity.
(q) The term "Base Rate" shall mean the prime rate of The Chase
Manhattan Bank (or Citibank, N.A. if The Chase Manhattan Bank shall not then
have an established prime rate; or the prime rate of any major banking
institution doing business in New York City, as selected by Landlord, if none of
the aforementioned banks shall be in existence or have an established prime
rate) at the time of in question.
91
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- - - - - - - - - - - - - - - - - - -
EXHIBIT F
CERTIFICATE OF OCCUPANCY
- - - - - - - - - - - - - - - - - - -
(Follows immediately on next page)
92
<PAGE>
i
Exhibit 11.1
Computation of Loss Per Share
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Basic:
Net Loss ...................................................... $(18,371,064) $(1,414,043) $(226,839)
Deemed dividend ............................................... $ (8,712,352) -- --
------------
Net Loss applicable to
common stockholders ........................................... $(27,083,416) $(1,414,043) $(226,839)
------------ ------------ ------------
Basic weighted average
shares outstanding ............................................ 7,502,575 5,181,356 4,278,916
------------ ------------ ------------
Basic loss per common share ................................... $ (3.61) $ (.27) $ (.05)
------------ ------------ ------------
Diluted:
Net Loss applicable to
common stockholders ........................................... $(27,083,416) $(1,414,043) $(226,839)
------------ ------------ ------------
Basic weighted average shares outstanding ..................... 7,502,575 5,181,356 4,278,916
------------ ------------ ------------
Net effect of dilutive
securities .................................................... -- -- --
Diluted weighted average shares outstanding ................... $ (3.61) $ (.27) $ (.05)
------------ ------------ ------------
</TABLE>
Exhibit 23.1 - CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No.: 333-31000) of Promotions.com, Inc. (formerly
Webstakes.com, Inc.) of our report dated January 28, 2000 relating to the
financial statements and financial statement schedules , which appear in this
Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 29, 2000
Exhibit 99.1- Allowance for Doubtful Accounts
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at
Beginning of Charged to Costs and Balance at End of
Period Expenses Deductions Period
------ -------- ---------- ------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Provision for doubtful accounts .............. $2,499 $10,880 $679 $12,700
======= ======== ======= ========
For the year ended December 31, 1998:
Provisions for doubtful accounts ............. $12,700 $208,604 $96,304 $125,000
======= ======== ======= ========
For the year ended December 31, 1999:
Provisions for doubtful accounts ............. $125,000 $606,932 $157,056 $574,876
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1999 Form 10-K and is qualified in its entirety by reference to such
financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 34,647,630
<SECURITIES> 0
<RECEIVABLES> 2,971,729
<ALLOWANCES> 574,876
<INVENTORY> 0
<CURRENT-ASSETS> 47,020,681
<PP&E> 3,802,180
<DEPRECIATION> 518,978
<TOTAL-ASSETS> 53,725,457
<CURRENT-LIABILITIES> 5,415,933
<BONDS> 0
0
0
<COMMON> 142,412
<OTHER-SE> 47,713,157
<TOTAL-LIABILITY-AND-EQUITY> 53,725,457
<SALES> 10,456,199
<TOTAL-REVENUES> 10,456,199
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,478,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,316
<INCOME-PRETAX> (18,371,064)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,371,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,371,064)
<EPS-BASIC> (3.61)
<EPS-DILUTED> (3.61)
</TABLE>
