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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended January 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 0-21105
GKN HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3414302
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One State Street Plaza, New York, New York 10004
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(Address of principal executive offices) (Zip Code)
(212)509-3800
(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,
$.0001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value (based upon the last sale price) of the
registrant's Common Stock held by nonaffiliates on April 21, 1998, was
$16,353,000.
On April 21, 1998, 8,095,899 shares of the registrant's Common Stock were
outstanding.
Documents incorporated by reference:
Part III incorporates by reference portions of the definitive proxy statement
for the annual meeting of stockholders to be held July 15, 1998.
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GKN HOLDING CORP.
Form 10-K Annual Report
For the fiscal year ended January 31, 1998
Page
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Part I
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 32
Part III
Item 10. Directors and Executive Officers 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34
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PART I
ITEM 1. BUSINESS
GKN Holding Corp. (the Company) through its subsidiaries provides
institutional research, investment banking, securities brokerage and trading
services, with an emphasis on small and mid-capitalization companies. In the
fiscal year ended January 31, 1998, these subsidiaries consisted of GKN
Securities Corp. (GKN Securities), Southeast Research Partners, Inc.
(Southeast), Shochet Securities, Inc. (Shochet), and GKN Securities AG (GKN
AG). The Company also has operations in the money management business, through
its GKN Asset Management AG subsidiary (GKN Asset AG), and in merchant
banking, through its Dalewood Associates, Inc. (Dalewood) subsidiary.
The Company, which became a public company in July 1996, was incorporated in
Delaware in January 1987. It began operations through GKN Securities in
October 1987, and has since grown significantly through increasing its sales
force and more recently by acquisition. The Company acquired Shochet in
November 1995, commenced operations at GKN AG in Switzerland in February 1996,
acquired Dalewood in December 1996, acquired Southeast in March 1997, and
closed a financing and commenced operations at GKN Asset AG in Switzerland in
April 1998. The Company plans to continue growing both internally and through
acquisitions.
The Company derives revenues primarily from brokerage and investment banking
services. These activities generate commission and fee income, as well as
revenues from market making and principal transactions. The following table
indicates the percentage of total revenues represented by each of the
Company's principal activities during the past three fiscal years ended
January 31:
1998 1997 1996
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Commissions 79% 74% 71%
Investment banking 12% 17% 14%
Market making and principal transactions 4% 6% 13%
Interest and other 5% 3% 2%
Brokerage and Distribution
A significant portion of the Company's revenues are generated from
commissions. The Company charges commissions to its individual and
institutional clients for executing buy and sell orders of securities on
national and regional exchanges and in the over-the-counter (OTC) markets.
When the Company receives a buy or sell order for a security in which it makes
a market or has inventory, it may act as a principal and purchase from, or
sell to, its customers the desired security on a disclosed basis at a price
set in accordance with applicable securities regulations. In fiscal 1998 the
Company's brokerage and distribution activities were performed through its
brokerage subsidiaries: GKN Securities, Southeast, Shochet, and GKN AG. At
January 31, 1998, they collectively employed a total of 253 registered
representatives and serviced approximately 31,000 active customer accounts
with approximately $1 billion in assets. The brokerage subsidiaries serve a
diverse clientele with varying investment characteristics.
GKN Securities, Southeast, Shochet, and GKN AG currently use the services of
Schroder & Co. Incorporated (Schroder) as their clearing agent on a fully
disclosed basis. Schroder processes all securities transactions and maintains
customer accounts on a fee basis. Customer accounts are protected through the
Securities Investor Protection Corporation for up to $500,000, of which
coverage for cash balances is limited to $100,000. Additional protection is
provided by Schroder. The services of Schroder include billing, credit
control, receipt, and custody and delivery of securities. Schroder provides
operational support necessary to process, record, and maintain securities
transactions for the
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Company's brokerage and distribution activities. Schroder provides these
services to the Company and its customers at a total cost which is less than
it would cost the Company to process such transactions on its own.
Schroder lends funds to the Company's customers through the use of margin
credit. These loans are made to customers on a secured basis, with Schroder
maintaining collateral in the form of saleable securities, cash or cash
equivalents. Under the terms of the clearing agreement, the brokerage
subsidiaries indemnify Schroder for any loss on these credit arrangements. At
March 31, 1998, the Company had approximately $91 million of margin credit
outstanding to its customers through Schroder. In fiscal 1998 the Company's
losses from the margin credit activity were insignificant, while net interest
earned from margin credit activity totaled $874,000.
GKN Securities
GKN Securities, a full service securities brokerage and investment banking
firm, is a member of the National Association of Securities Dealers, Inc.
(NASD). At January 31, 1998, GKN Securities operated five branch offices in
New York City and Great Neck, New York; Stamford, Connecticut, and Boca Raton
and Miami, Florida, with a total of 187 registered representatives. During
fiscal 1998 GKN Securities generated approximately $27 million in commissions
from executing customers' secondary trades. GKN Securities' sales force serves
a clientele which primarily consists of individuals who invest in OTC equity
securities. GKN Securities intends to expand its brokerage business further
through the continued recruitment and hiring of additional registered
representatives for existing offices, as well as potentially opening or
acquiring additional offices in new geographic locations.
Southeast Research Partners
The Company acquired Southeast on March 13, 1997. Southeast, a research and
institutional brokerage boutique, is a member of the NASD. The firm's
clientele primarily consists of institutional investors who invest in listed
and OTC equity securities. At March 31, 1998, Southeast operated branch
offices in Boca Raton and Palm Beach, Florida; New York City, New York; and
Boston, Massachusetts, with a total of 23 registered representatives. During
the period from March 14, 1997 to January 31, 1998 Southeast generated
approximately $4.5 million in commissions from executing customers' secondary
trades.
Shochet
Shochet, a full service discount brokerage firm, is a member of the NASD. At
January 31, 1998, Shochet operated five branch offices in Hallandale, Miami
Beach, South Miami, Tamarac and Delray Beach, Florida, with a total of 40
registered representatives. During fiscal 1998 Shochet generated approximately
$6 million in commissions, primarily from executing customers' secondary
trades. The clientele served by Shochet's registered representatives is
generally retired individuals who invest in exchange-listed equity securities,
fixed income securities and mutual funds. The Company intends to expand
Shochet's business through the recruitment and hiring of additional registered
representatives for existing offices, as well as potentially opening or
acquiring additional offices in new geographic locations.
GKN Securities AG
The Company opened its first international office in Zurich, Switzerland, in
February 1996, with the commencement of operations of GKN AG. The primary
emphasis of the office is to serve European
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institutional money managers and clients investing in small capitalization
equity securities publicly traded in U.S. markets. At January 31, 1998, GKN AG
employed three registered representatives. The Company plans to expand its
international operations through the recruitment and hiring of additional
registered representatives and potentially opening additional international
offices. The revenues and operating profit generated by GKN AG during fiscal
1998 did not represent a material percentage of the Company's total revenues
and operating loss.
Investment Banking
Corporate Finance
The Company's investment banking revenues are principally derived from
managing or co-managing public offerings of equity securities, although the
private placement of equity or equity-related securities for both private and
publicly-held companies has recently become an increasingly important source
of investment banking revenues. The Company's underwriting activities have
historically focused on public equity underwritings for small capitalization,
emerging growth companies in a variety of industries. Historically, the
Company's expertise and proven ability to assist emerging growth companies,
which often have limited access to other sources of capital, have created a
significant source of ongoing and potential new investment banking clients.
Through Southeast, the Company now intends to broaden its underwriting
activity to include larger size offerings with an industry specialization
focus based upon the specific industry expertise brought by the research
analysts at Southeast.
Corporate Advisory
To date, the Company has not derived significant revenues from corporate
advisory services. Through its relationships with its investment banking
clients, the Company intends to expand this business with a concentration on
mergers and acquisitions, strategic partnering, fairness opinions and
corporate recapitalizations.
Syndicate
The Syndicate Department has historically served as an additional source of
product, through selling group or underwriter participation, for distribution
through the Company's various distribution channels. To date, revenues
generated by the Syndicate Department have been insignificant. The Company
expects that the emphasis of this department will expand to increase the
participation of other broker-dealers in the marketing and distribution of the
Company's underwritings, as well as allowing the Company to participate in the
selling group or as an underwriter in other investment banks' underwritings.
Principal Transactions
Market Making
The Company's market making activities primarily serve as an accommodation to
its customers. The firm carries inventories of securities to facilitate
brokerage transactions with customers and other dealers. Principal
transactions with customers are effected at prices in accordance with
applicable security regulations. At March 31, 1998, GKN Securities made
markets in more than 110 securities, while Southeast made markets in more than
20 securities. In the fiscal year ended January 31, 1998, principal
transactions related to securities in which the Company's brokerage
subsidiaries made markets, including realized and unrealized gains and losses,
accounted for a loss of $1 million.
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Investment Account
In connection with its investment banking activities of raising capital and
providing advisory services for client companies, the Company may receive
warrants which entitle it to purchase securities of these client companies.
These warrants, which are held in the Company's investment account, vary in
value based upon the market prices of the underlying securities. Warrants are
usually exercisable for four years beginning one year after issuance and are
valued by management based on a significant discount to the current market
values of the underlying securities. At March 31, 1998, the Company owned
warrants to purchase securities of 44 companies for which it has performed
investment banking services. These warrants had an underlying market value of
$2.6 million, of which the firm recognized $1.5 million in value, or 57%.
During fiscal 1998 the Company recognized total realized and unrealized gains
on its investment account warrants of $2.7 million, or 5% of the Company's
revenues.
Research
Southeast provides research services as an integral part of the Company's
investment banking and securities brokerage activities. Research activities
identify attractive investment opportunities in the securities of independent
companies as well as create support, sponsorship, and independent analysis for
the securities of companies underwritten by the Company. The Company's
acquisition of Southeast during fiscal 1998 enhances its research capabilities
by providing it with institutional quality research for institutional
investors. At March 31, 1998, the Company employed a total of thirteen
research analysts at Southeast. The industries covered by the Company's
research include technology, healthcare, energy, financial services,
consumer/leisure, building and infrastructure, pharmaceutical and retail.
Other Retail Products and Services
GKN Securities provides retirement planning and mutual fund investment
services through its Retirement Services Department. This department assists
clients with establishing retirement plans tailored to their specific needs,
solving problems with their existing plans, locating appropriate plan
administrators, and performing asset allocation studies for investment
allocations. Retirement Services also sources and administers the
relationships with third-party mutual funds, as well as advising customers
concerning such investments. To date, revenues generated by retirement
services and mutual fund investments have been insignificant.
Both GKN Securities and Shochet source and execute buy and sell orders for
fixed income securities, which are purchased on an agency or principal basis.
Amounts retained in inventory overnight and on an intraday basis are not
significant. During fiscal 1998, the execution of buy and sell orders for
fixed income securities accounted for an insignificant percentage of GKN
Securities' revenues and 9% of Shochet's revenues.
Money Management
The Company entered the money management business in 1995 through the
establishment of GKN Fund Management, Inc., which served as the managing
partner of Kaleidoscope Partners, L.P. (Kaleidoscope), a "fund of funds"
investment partnership which invested its capital in other funds managed by
independent money managers. In December 1997, the Company converted the
Kaleidoscope Partners funds into Remington Partners, LP, an investment limited
partnership managed by Remington Capital Corp., a subsidiary of the Company.
As of March 30, 1998, the Company terminated its relationship with Remington
Partners, LP and transferred the General Partner interest of Remington Capital
Corp. to an entity affiliated with the Portfolio Manager of the partnership.
The Company may re-enter the domestic money management industry during fiscal
1999.
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In January 1998, the Company, through its GKN AG subsidiary, launched Early
Bird Investors AG (Early Bird). Early Bird is a closed-end investment company
publicly traded on the Zurich stock exchange. Early Bird's investment
objective is to invest predominantly in U.S. small and mid-capitalization
equity securities. It was open for investment to only non-U.S. residents. GKN
Asset Management AG, a new subsidiary of the Company, provides investment
management services to Early Bird. On April 1, 1998, the initial capital raise
for Early Bird closed with CHF 60 million (US$40 million). Trading of Early
Bird is expected to begin in May 1998.
Merchant Banking
The Company entered the merchant banking business in 1996 with the acquisition
of Dalewood. Dalewood is the managing partner of Dalewood Associates L.P., an
investment partnership which makes equity investments in companies which are
viewed as suitable candidates for future initial public offerings. At March
31, 1998, Dalewood Associates L.P. had total assets of approximately $5.5
million, of which $4.3 million was invested in 19 companies. The Company had a
$2.1 million investment in Dalewood Associates L.P. at March 31, 1998. The
Company intends to expand its merchant banking activities.
Government Regulation
The securities industry in the United States is subject to extensive and
frequently changing federal and state laws and substantial regulation under
such laws by the Securities and Exchange Commission (SEC) and various state
agencies and self-regulatory organizations, such as the NASD. GKN Securities,
Shochet, and Southeast are registered as broker-dealers with the SEC and are
member firms of the NASD. Much of the regulation of broker-dealers has been
delegated to self-regulatory organizations, principally NASD Regulation, Inc.,
(NASDR), the regulatory arm of the NASD, which has been designated by the SEC
as the Company's primary regulator. The NASDR adopts rules, which are subject
to approval by the SEC, that govern its members and conducts periodic
examinations of member firms' operations. Securities firms are also subject to
regulation by state securities administrators in those states in which they
conduct business. GKN Securities is registered as a broker-dealer in all 50
states, the District of Columbia, and Puerto Rico. Shochet and Southeast are
registered as broker-dealers in 42 and 41 states, respectively.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods and supervision, trading
practices among broker-dealers, use and safekeeping of customers' funds and
securities, capital structure of securities firms, record keeping and the
conduct of directors, officers and employees. Additional legislation, changes
in rules promulgated by the SEC and self-regulatory organizations, or changes
in the interpretation or enforcement of existing laws and rules, may directly
affect the mode of operation and profitability of broker-dealers. The SEC,
self-regulatory organizations, and state securities commissions may conduct
administrative proceedings which can result in censure, fine, the issuance of
cease-and-desist orders or the suspension or expulsion of a broker-dealer, its
officers or employees. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the integrity of the
securities markets.
GKN AG is subject to certain Swiss federal and cantonal (state) laws.
Securities trading and brokerage in Switzerland, since February 1997, is
governed by the provisions of federal law. GKN AG is regulated by the Swiss
Federal Act on Stock Exchanges and Securities Trading (SESTA) and the
Ordinance on Stock Exchanges and Securities Trading (SESTO), which were both
effective February 1, 1997. Until a license according to SESTA is granted to
GKN AG by the Federal Banking Commission, GKN AG is also subject to the Law on
Professional Trading of Securities in the Canton of Zurich. Under these laws
GKN AG must maintain certain equity capital levels. The distribution of equity
capital is limited by the Swiss Code of Obligations. In order to transact
security trades in Switzerland, GKN AG currently
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operates under a B-license which was granted by the Department of Economy of
the Canton of Zurich in July 1996. GKN AG intends to obtain the required
securities trader license under SESTA by the February 1999 deadline.
Competition
The Company encounters intense competition in all aspects of the securities
business and competes directly with other securities firms, a significant
number of which have greater capital and other resources. In addition to
competition from firms currently in the securities business, there has
recently been increasing competition from other sources, such as commercial
banks and insurance companies offering financial services, and from other
investment alternatives. The Company believes that the principal factors
affecting competition in the securities industry are the quality and abilities
of professional personnel, and the quality, range, and relative prices of
services and products offered.
Employees
At January 31, 1998, the Company had a total of 442 employees, including 253
registered representatives. During January, February and March 1998, the
Company implemented a restructuring plan for its various businesses. On March
31, 1998, the Company had a total of 399 employees, including 242 registered
representatives.
ITEM 2. PROPERTIES
In February 1998, the Company's and GKN Securities' principal executive
offices moved from 61 Broadway, New York, New York to One State Street Plaza,
New York, New York, where they occupy approximately 48,000 square feet under
leases expiring in January 2013. The Company's subsidiaries currently lease
thirteen additional offices in the United States and one office in
Switzerland.
ITEM 3. LEGAL PROCEEDINGS
The Company's business involves substantial risks of liability, including
exposure to liability under federal and state securities laws in connection
with the underwriting or distribution of securities and claims by dissatisfied
customers for fraud, unauthorized trading, churning, mismanagement and breach
of fiduciary duty. The Company does not presently maintain an errors and
omissions insurance policy insuring it against these risks. In the normal
course of the Company's business, the Company from time to time is involved in
lawsuits and arbitrations brought by its customers. It is the opinion of
management that the resolution of all proceedings presently pending will not
have a material adverse effect on the consolidated financial condition of the
Company.
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 fiscal 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company's common stock is traded on the Nasdaq National Market System
under the symbol GKNS. The following table sets forth the high and low sales
prices for the Company's common stock, as reported by Nasdaq, for each
quarterly period ending January 31, 1998 following Company's July 30, 1996
initial public offering:
High Low
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Fiscal 1997
Quarter ended July 31, 1996 $6.50 $6.13
Quarter ended October 31, 1996 $6.63 $6.00
Quarter ended January 31, 1997 $6.38 $6.00
Fiscal 1998
Quarter ended April 30, 1997 $6.25 $5.00
Quarter ended July 31, 1997 $4.88 $4.50
Quarter ended October 31, 1997 $5.31 $3.75
Quarter ended January 31, 1998 $4.75 $2.19
Holders of Common Stock
On March 31, 1998, there were 86 holders of record of the Company's common
stock. The Company believes there are in excess of 700 beneficial owners of
the Company's common stock.
Dividends
To date, the Company has not paid any dividends on its common stock. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The
Company's ability to pay dividends in the future also may be restricted by its
brokerage subsidiaries' obligations to comply with the net capital
requirements imposed on broker-dealers by the SEC and the NASD. The Company
does not intend to declare any dividends in the foreseeable future, but
instead intends to retain all earnings for use in the Company's business.
Sales of Unregistered Securities
During the fiscal year ended January 31, 1998, the Company issued securities
without registration under the Securities Act of 1993, as amended (the
Securities Act) as described below.
In December 1997 the Company granted options to purchase 10,000 shares to
Richard Y. Roberts in conjunction with his becoming a director of the Company.
The options are exercisable for a period of ten years at a price of $4.00 per
share. The exemption claimed for this issuance is Section 4(2) of the
Securities Act.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes five years of consolidated financial data of
the Company (in thousands, except per share amounts and other data):
<TABLE>
<CAPTION>
Year ended January 31,
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues $48,676 $ 67,750 $ 43,019 $ 32,410 $ 32,956
Total expenses $58,632 $ 56,394 $ 36,732 $ 31,516 $ 25,534
Pre-tax (loss) income $(9,956) $ 11,356 $ 6,287 $ 894 $ 7,422
Net (loss) income $(6,513) $ 6,329 $ 3,469 $ 381 $ 4,006
Basic (loss) earnings per common share $( 0.80) $ 0.93 $ 0.69 $ 0.08 $ 0.81
Diluted (loss) earnings per common share $( 0.80) $ 0.88 $ 0.60 $ 0.07 $ 0.72
Weighted average shares
outstanding - basic 8,114 6,824 5,037 5,063 4,963
Weighted average shares
outstanding - diluted 8,114 7,175 5,737 5,695 5,530
Balance Sheet Data:
Total assets $36,972 $ 51,633 $ 27,853 $ 16,096 $ 16,123
Total liabilities (excluding
subordinated debt) $ 8,775 $ 15,869 $ 12,143 $ 4,339 $ 4,685
Subordinated debt $ 576 $ 738 $ 934 - -
Convertible subordinated notes - - - - $ 162
Stockholders' equity $27,621 $ 35,026 $ 14,776 $ 11,757 $ 11,276
Other Data:
Ratio of assets to stockholders'
equity 1.34 1.47 1.89 1.37 1.43
Return on average equity (19.9%) 25.0% 26.1% 3.3% 43.3%
Pre-tax return on average equity (30.4%) 44.9% 47.4% 7.8% 80.3%
Book value per share $ 3.41 $ 4.26 $ 3.02 $ 2.30 $ 2.27
Registered representatives 253 275 224 163 126
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Environment
GKN Holding Corp. and its subsidiaries (the Company) are primarily engaged in
institutional research, investment banking, securities brokerage and
securities trading, with an emphasis on small and mid-capitalization
companies. This represents a change during the fiscal year ended January 31,
1998, away from a focus on emerging growth and micro-cap companies. This
reorientation was in part driven by the acquisition of Southeast Research
Partners, Inc. (Southeast Research) and by a degradation of the business
fundamentals surrounding the micro-cap marketplace. The Company's
profitability is affected by many factors, including general economic and
market conditions and the volatility of trading markets, specifically the
small- and mid-capitalization market.
The Company acquired Southeast Research on March 13, 1997. Southeast Research
brought a proven track record of institutional quality research and
institutional brokerage. The acquisition of Southeast Research added nine new
research analysts to the Company, including four current or prior
Institutional Investor All Stars. See Note 3 of Notes to Consolidated
Financial Statements for descriptions of the Company's acquisitions.
The securities industry as a whole experienced another year of record-setting
results during calendar year 1997 and the Company's fiscal year ended January
31, 1998. This happened despite a rapidly deteriorating climate for micro-cap
stocks, where the Company has historically had a strong franchise. Declining
volumes combined with regulatory moves to depress this market. Regulatory
changes by the SEC and NASD relating to underwriting and trading of micro-cap
stocks sought to reduce investors' transaction costs and widen the
distribution of new offerings. Unfortunate and perhaps unintended consequences
of these moves were more volatile after-market and other trading, as well as
declining access to capital for micro-cap issuers. These events significantly
impacted our financial results for the year.
Combining the acquisition of Southeast Research with the macro-economic
changes to our business led us to a thorough analysis and self-assessment of
our business structure. As a result, the Company has altered its focus and
mission to evolve into a preeminent relationship-based, research-driven niche
investment bank focusing on small- and mid-capitalization companies -- offering
integrated research, investment banking, institutional and retail brokerage,
and asset management.
Results of any individual period should not be considered representative of
future profitability. A significant portion of the Company's expenses is fixed
and does not vary with market activity. Substantial fluctuations could occur
in the Company's revenues and net income from period to period.
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Results of Operations
Year Ended January 31, 1998 vs. Year Ended January 31, 1997
Basic earnings (loss) per share of common stock for the year ended January 31,
1998, were ($0.80) as compared to $0.93 for the year ended January 31, 1997.
Correspondingly, diluted earnings (loss) per share of common stock for the
comparable periods were ($0.80) and $0.88, respectively. The significant loss
in the current year was attributable to the deteriorating climate for
micro-cap stocks, which resulted in substantial decreases in revenue for the
Company, as well as expenses recognized for litigation, severance, and costs
related to the reorientation and restructuring of the Company's business.
Revenues
Total revenues decreased by $19,074,000, or 28%, to $48,676,000 for the fiscal
year, led by significant decreases in commission and investment banking
revenues. Fiscal 1998 revenues include $5,464,000 generated by Southeast
Research, which was not part of the Company in fiscal 1997. Hence, without
Southeast Research revenues would have decreased by $24,538,000, or 36%.
Commission revenues decreased by $11,825,000, or 24%. The decrease reflects
deteriorating market conditions in the micro-cap marketplace throughout the
year, causing a 28% decrease in the average commission per trade.
Investment banking revenues decreased by $5,367,000, or 47%. The Company
raised $112.6 million for its clients in fiscal 1998 through six public
offerings and seven private placements, a decrease from fiscal 1997, during
which the Company raised $136.3 million through ten public offerings and ten
private placements. The current year reflected the beginning of a transition
from the Company being the sole manager on underwritings to a co-manager on
larger transactions. This transition potentially decreases the average revenue
per transaction that is generated by the Company.
Revenues from principal transactions decreased by $2,562,000, or 60%. Market-
making activities generated $3,770,000 less revenue in fiscal 1998 than in
fiscal 1997. This decrease was partially offset by an increase in revenues
from the investment account of $1,208,000. The decrease in revenues
attributable to market-making was the direct result of regulatory changes
mandating smaller spreads between "bid" and "offer" prices and more
restrictive trading rules. A majority of the revenues generated in the
investment account was the result of profits on positions in one investment.
Interest income decreased by $281,000, or 17%, primarily due to lower cash
balances.
Other revenues increased by $961,000, primarily due to enhanced payment for
order flow on third market trades.
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Expenses
Total expenses for fiscal 1998 were $58,632,000, a 4% increase over fiscal
1997. Total expenses as a percentage of revenues increased from 83% to 120%.
Included in fiscal 1998 expenses are $5,295,000 in one-time charges. These
charges are composed of $2,260,000 related to litigation, $2,931,000 related
to the write-off of recruiting payments to brokers and $104,000 related to
severance and other restructuring charges. The litigation-related expenses are
entirely related to the Company's settlement with NASD Regulation, Inc.
(NASDR), resolving a previously disclosed NASDR investigation concerning
markups on warrants of seven companies GKN underwrote during the period
December 1993 through April 1996. Without the one time expenses, total
operating expenses for fiscal 1998 would have been $53,337,000 versus the
comparable operating expenses of $55,082,000 in fiscal 1997, reflecting a 3%
decrease.
Southeast Research was not part of the Company in fiscal 1997. As a result no
expenses for Southeast Research are included in fiscal 1997 results. During
fiscal 1998, Southeast Research generated $6,041,000 in expenses. Hence,
comparable operating expenses for the Company were $47,296,000 in fiscal 1998
versus $55,082,000 in fiscal 1997, representing a 14% decrease.
Compensation and benefit expense decreased 15% to $35,051,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission revenues generated. The expense decrease in fiscal 1998 is
consistent with the decrease in commission revenues, partially offset by the
addition of Southeast Research. Additionally, in accordance with the Company's
1996 Incentive Compensation Plan, a portion of annual incentive awards payable
to executive management and business unit managers are made in restricted
shares of the Company's common stock, which are subject to a minimum three-
year vesting period. Such awards are recognized as compensation expense over
the three- year vesting period. There was no such compensation expense
recognized in fiscal 1997, while during fiscal 1998 the Company recognized
$530,000 of such expenses. No stock awards were made relating to fiscal 1998
under the Company's 1996 Incentive Compensation Plan.
Communications expenses increased by $1,084,000, or 28%. This increase was
primarily caused by the addition of Southeast Research.
Brokerage, clearing and exchange fees increased by $957,000, or 41%. This
increase was primarily caused by the addition of Southeast Research.
Occupancy expense increased by 28% to $3,520,000. This increase was caused by
the additional four Southeast Research locations, one additional location and
one upgraded location in Shochet Securities and internal growth at GKN
Securities.
Business development expense increased by 37% to $2,072,000. This increase was
attributable to the addition of Southeast Research and increased promotional
expenses.
Professional fees increased by $599,000, or 54%, to $1,713,000. This increase
was entirely attributable to increased expenses incurred regarding litigation
and arbitrations.
Investigations and settlements increased by $948,000, or 72%, to $2,260,000 as
a result of the Company's settlement of the NASDR investigatory matter
concerning markups.
Other expenses increased by $3,458,000 to $5,805,000 primarily due to the
write-off of broker recruiting payments and the addition of Southeast
Research.
12
<PAGE>
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of earnings per share were 8,114,245 for basic
earnings per share in fiscal 1998, compared with 6,824,156 in fiscal 1997.
Correspondingly, the amounts used for diluted earnings per share were
8,114,245 in fiscal 1998, compared with 7,175,267 in fiscal 1997. The 19%
increase in the outstanding shares utilized in the basic earnings per share
calculation and the 13% increase in the outstanding shares utilized in the
diluted earnings per share calculation were both attributable to the full-year
impact of the 2,875,000 shares of common stock issued in the Company's initial
public offering on July 30, 1996.
Year Ended January 31, 1997 vs. Year Ended January 31, 1996
Basic earnings per share of common stock for the year ended January 31, 1997,
were $0.93, as compared to $0.69 for the year ended January 31, 1996. Diluted
earnings per share of common stock for the comparable periods were $0.88 and
$0.60, respectively. The increase in earnings was the result of a strong
investment climate in the first half of fiscal 1997 combined with the
Company's growth, resulting in increased securities brokerage and investment
banking volumes. Earnings for both fiscal 1997 and 1996 have been restated for
the effects of Statement of Financial Accounting Standards No. 128, Earnings
Per Share (see New Accounting Pronouncement).
Revenues
Total revenues increased by $24,731,000, or 57%, to $67,750,000 for the fiscal
year, led by significant increases in commission and investment banking
revenues.
Commission revenues increased by $19,735,000, or 65%. The increase reflects
strong market conditions in the small-capitalization stock sector in the first
five months of fiscal 1997, as well as a 23% increase in the number of
registered representatives employed by the Company. These two factors served
to increase the volume of trades processed by 69%.
Investment banking revenues increased by $5,388,000, or 90%. The Company
raised $136.3 million for its clients in fiscal 1997 through ten public
offerings and ten private placements, an increase from fiscal 1996, during
which the Company raised $72.7 million through five public offerings and five
private placements. The increase in underwriting activity was the result of
stronger market conditions and a more concentrated effort to develop a quality
investment banking clientele.
Revenues from principal transactions decreased by $1,406,000, or 25%.
Market-making activities generated increased revenues of $1,991,000, which
were more than offset by a revenue decrease of $3,397,000 from the Company's
investment account. The market-making revenues, which amounted to $2,809,000
in fiscal 1997, were generated almost entirely during the strong market
conditions experienced in February through June 1996. Market-making revenues
were negligible in the subsequent periods of market volatility and weakness,
specifically in the small-capitalization stock sector. The high degree of
volatility experienced in the markets during fiscal 1997 adversely impacted
the stock prices of the Company's underwriting clients, which was reflected in
the valuation of underwriter warrants held in the Company's investment
account. Investment account revenues for the year totaled $1,468,000.
Interest income increased by $1,080,000 due to higher cash balances primarily
resulting from the initial public offering proceeds, a greater use of margin
loans by the Company's brokerage customer, and a renegotiated interest sharing
arrangement with the Company's clearing broker.
13
<PAGE>
Expenses
Total expenses for fiscal 1997 were $56,394,000, a 54% increase over fiscal
1996. Total expenses as a percentage of revenues decreased to 83% from 85%.
Compensation and benefits expense increased 52% to $41,187,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission and investment banking revenues. In accordance with the Company's
1996 Incentive Compensation Plan, a portion of annual incentive awards payable
to executive management and business unit managers are to be made in
restricted shares of the Company's common stock, which are subject to a
minimum three-year vesting period. In March 1997 the Company awarded
$1,782,000 in restricted shares under this plan. The award will be recognized
as compensation expense over the three-year vesting period ending March 2000.
Communications expense increased by $1,215,000, or 46%, as a result of the
Company's growth and increased level of business activity. The 275 registered
representatives employed by the Company at January 31, 1997, represent a 23%
increase from January 31, 1996. During the same period total employees
increased by 27% to 476.
Brokerage, clearing and exchange fees increased by 72% primarily due to the
69% increase in trade volume in fiscal 1997.
Occupancy and equipment expenses increased by 31% as a result of the Company's
growth through the Shochet acquisition and internal growth at GKN Securities.
Business development expenses increased 73% to $1,507,000 due to additional
promotional activities implemented as a part of the Company's growth strategy.
Professional fees increased by $376,000 primarily due to higher costs
associated with the increase in business activities undertaken by the Company
in fiscal 1997.
Investigations and settlements expenses for fiscal 1997 were $1,312,000, as
compared to no such expenses in the prior fiscal year. These expenses were
entirely related to the Company's settlement with the SEC and NASDR
investigatory matter concerning markups.
Other expenses increased 18% primarily as a result of the Company's growth
through the Shochet acquisition and internal growth at GKN Securities.
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of basic earnings per common share was 6,824,156 in
fiscal 1997, compared with 5,037,019 in fiscal 1996. Correspondingly, the
number of shares outstanding used in the diluted earnings per share
computation was 7,175,267 in fiscal 1997, compared with 5,736,641 in fiscal
1996. The 35% and 25% increases in the weighted average shares for basic and
diluted shares, respectively, in fiscal 1997 resulted from the 2,875,000
shares of common stock issued in the Company's initial public offering on July
30, 1996.
14
<PAGE>
Liquidity and Capital Resources
Most of the Company's assets are highly liquid, consisting primarily of cash
and cash equivalents, securities inventories, and receivables from other
broker-dealers, all of which fluctuate depending upon the levels of customer
business and trading activity. Approximately 52% of the Company's assets
as of January 31, 1998 are highly liquid. Additionally, at January 31, 1998,
the Company had recognized income taxes receivable of $3,544,000, which
is expected to be received upon processing the current year's tax returns.
Receivables from broker-dealers, which are primarily from the Company's
clearing broker, turn over rapidly. As a securities dealer, the Company may
carry significant levels of trading inventories to meet customer needs. The
Company's inventory of market-making securities is readily marketable;
however, holding large blocks of the same security may limit liquidity and
prevent realization of full market value for the securities. Securities owned,
but not readily marketable, represent underwriter warrants and the securities
underlying such warrants. The liquidity of these securities is limited. A
relatively small percentage of the Company's total assets are fixed. The
Company's total assets or the individual components of total assets may vary
significantly from period to period because of changes relating to customer
demand, economic and market conditions, and proprietary trading strategies.
GKN Securities, Southeast Research, and Shochet Securities, the Company's
domestic operating broker-dealer subsidiaries, are subject to the net capital
rules of the National Association of Securities Dealers, Inc. (NASD) and the
Securities and Exchange Commission (SEC). As such, they and the Company are
subject to certain restrictions on the use of capital and its related
liquidity. GKN Securities', Southeast Research's and Shochet Securities'
respective net capital positions as of January 31, 1998, were $5,035,000,
$1,294,000, and $760,000, respectively, which were $4,785,000, $1,194,000 and
$660,000, respectively, in excess of their respective net capital
requirements.
On July 30, 1996, the Company raised $15,264,000, net of underwriters'
discount and commissions and associate costs, in an initial public offering of
the Company's common stock. Prior to its initial public offering, the Company
financed its operations through the private placement of debt and equity
securities and cash flow from operations.
In conjunction with the Company's move of its corporate headquarters in New
York City the Company has significantly upgraded its technological
infrastructure. The combined costs of the move and the technological
investment were financed through a series of operating leases. These leases
total $4.8 million. As security for these leases, the Company arranged for a
standby letter of credit to be issued in the same amount. As collateral for
the standby letter of credit, the Company has placed $2.4 million in a
restricted cash escrow account with the provider. See Note 5 of Notes to the
Consolidated Financial Statements for descriptions of the Company's leases.
The Company intends to use debt and lease financing prudently in the future.
On March 13, 1997, the Company acquired Southeast Research Partners, Inc. for
a purchase price of $2.8 million. $499,000 of the purchase price was paid in
cash, while the remaining consideration was composed of 152,000 shares of GKN
common stock and 1,140,000 shares of GKN preferred stock. In connection with
the Company's stock repurchase program, the Company repurchased an equal
number of shares of common stock in the open market at a price of $945,000.
During the year the Company repurchased an additional 453,000 shares of its
common stock at a price of $2,641,000. Of these shares approximately 289,000
were designated for employee stock bonus issuances. All repurchases were
funded from cash flow from operations.
The Company's overall capital and funding needs are continually reviewed to
ensure that its capital base can support the estimated needs of its business
units. These reviews take into account business needs as well as regulatory
capital requirements of the subsidiaries. Based upon these reviews, management
15
<PAGE>
believes that the Company's capital structure is adequate for current
operations and reasonably foreseeable future needs.
Other Matters
Year 2000 Computer Issue
Based upon a preliminary study, the Company expects a minimal internal impact
from the "Year 2000 Computer Issue". All of the Company's computer programs
are provided by third-party vendors and service providers. Most of the
programs were purchased after the Year 2000 Computer Issue became widely
recognized. The Company has sought, and expects to receive, written
confirmation from its third-party program and service providers that the Year
2000 Computer Issue has been appropriately managed. Schroder & Co., the
Company's clearing firm, is the Company's largest and most important computer
services related vendor. Schroder & Co. has provided the Company with
assurances that they expect to appropriately manage the Year 2000 Computer
Issue on a timely basis. Management does not expect the Year 2000 Computer
Issue to have a material effect on the Company's earnings. However, there can
be no assurance that the systems of other companies or third-party vendors and
service providers on which the Company's systems rely also will be
appropriately examined on a timely basis. The Year 2000 Computer Issue creates
risk for the Company from unforeseen problems in its own computer systems,
third-party vendors and service providers, and from third parties with whom
the Company deals on financial transactions worldwide. Such failures could
have a material impact on the Company's ability to conduct business.
New Accounting Pronouncement
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128),
effective beginning in the fiscal year ending January 31, 1998. This statement
changes the calculation and presentation of earnings per common share (EPS).
The new presentation consists of basic EPS, which includes no dilution and is
computed by dividing net income by the weighted-average number of common
shares outstanding for the period, and diluted EPS, which is similar to the
previous fully diluted EPS. The following Company financial statements reflect
the implementation of SFAS 128.
Safe Harbor Cautionary Statement
The Company occasionally makes forward-looking statements such as forecasts
and projections of expected future performance or statements of its plans and
objectives. When used in this annual report and in future filings by the
Company with the SEC, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "the Company expects," "will continue,"
"is anticipated," "estimated," "project," or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, each of which speaks only as of the date made. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors that could affect the Company's results of operations and
cause its results to differ from these statements include the volatility and
price level of the securities markets; the volume, size and timing of
securities transactions; the demand for investment banking services; the level
and volatility of interest rates; the availability of credit; legislation
affecting the business and financial communities; and the economy in general.
For a more complete discussion of these and other factors, see the Company's
registration statement filed on Form S-1, as amended (No.
16
<PAGE>
333-05273), and the Company's periodic Form 10-K, 10-Q, and 8-K filings with
the SEC. The Company has no obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date
of such statements.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
January 31,
-------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 8,111,000 $ 17,856,000
Receivable from brokers and dealers 896,000 9,357,000
Securities owned, at market value 10,154,000 14,610,000
Securities owned, not readily marketable, at fair value 1,443,000 1,365,000
Investments 3,640,000 2,692,000
Office furniture, equipment and leasehold improvements, net 1,043,000 1,251,000
Goodwill, net 3,684,000 1,619,000
Loans receivable 1,404,000 1,451,000
Income taxes receivable 3,544,000 -
Other assets 3,053,000 1,432,000
-------------- --------------
Total assets $ 36,972,000 $ 51,633,000
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value $ 2,320,000 $ 6,997,000
Commissions payable 1,441,000 2,186,000
Deferred compensation 1,796,000 1,409,000
Income taxes payable - 238,000
Deferred tax liability 236,000 636,000
Accrued expenses and other liabilities 2,982,000 4,403,000
-------------- --------------
8,775,000 15,869,000
Liability subordinated to the claims of general creditors 576,000 738,000
-------------- --------------
Total liabilities 9,351,000 16,607,000
-------------- --------------
Stockholders' equity:
Series A preferred stock, $.10 par value: 1,200,000
authorized, 1,140,000 shares issued and outstanding; and
no shares authorized, issued, and outstanding 114,000 -
Common stock, $.0001 par value; 35,000,000 shares
authorized; 9,209,875 and 9,217,875 shares issued;
8,095,899 and 8,225,512 shares outstanding 1,000 1,000
Additional paid-in capital 20,674,000 19,928,000
Retained earnings 11,734,000 18,247,000
-------------- --------------
32,523,000 38,176,000
Less treasury stock, at cost; 1,113,976 and 992,363 shares (4,902,000) (3,150,000)
-------------- --------------
Total stockholders' equity 27,621,000 35,026,000
-------------- --------------
Total liabilities and stockholders' equity $ 36,972,000 $ 51,633,000
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Commissions $ 38,328,000 $ 50,153,000 $ 30,418,000
Investment banking 6,024,000 11,391,000 6,003,000
Principal transactions 1,715,000 4,277,000 5,683,000
Interest 1,339,000 1,620,000 540,000
Other 1,270,000 309,000 375,000
-------------- -------------- --------------
Total revenues 48,676,000 67,750,000 43,019,000
-------------- -------------- --------------
Expenses:
Compensation and benefits 35,051,000 41,187,000 27,038,000
Communications 4,930,000 3,846,000 2,631,000
Brokerage, clearing and
exchange fees 3,281,000 2,324,000 1,350,000
Occupancy and equipment 3,520,000 2,757,000 2,112,000
Business development 2,072,000 1,507,000 869,000
Professional fees 1,713,000 1,114,000 738,000
Investigations and settlements 2,260,000 1,312,000 -
Other 5,805,000 2,347,000 1,994,000
-------------- -------------- --------------
Total expenses 58,632,000 56,394,000 36,732,000
-------------- -------------- --------------
(Loss) income before income taxes (9,956,000) 11,356,000 6,287,000
Income tax (benefit) (3,443,000) 5,027,000 2,818,000
--------------- -------------- --------------
Net (loss) income $ (6,513,000) $ 6,329,000 $ 3,469,000
=============== ============== ==============
Basic earnings per common share $ (0.80) $ 0.93 $ 0.69
============== ============== ==============
Diluted earnings per common share $ (0.80) $ 0.88 $ 0.60
============== ============== ==============
Weighted average common
shares outstanding - basic 8,114,245 6,824,156 5,037,019
============== ============== ==============
Weighted average common
shares outstanding - diluted 8,114,245 7,175,267 5,736,641
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional
----------------------- -------------------------- Paid-in Retained
Shares Amt. Shares Amt. Capital Earnings
------------ -------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 1995 5,397,875 $ 1,000 1,000 $ - $ 3,487,000 $ 8,449,000
Net income - - - - - 3,469,000
Expiration of
preferred stock - - (1,000) - - -
Purchase of
treasury stock - - - - - -
------------ -------- ------------ ----------- -------------- --------------
Balance at
January 31, 1996 5,397,875 1,000 - - 3,487,000 11,918,000
Net income - - - - - 6,329,000
Stock issued 3,070,000 - - - 16,008,000 -
Warrants issued - - - - 1,000 -
Stock options granted - - - - 36,000 -
Notes receivable - - - - (221,000) -
Stock options exercised 750,000 - - - 617,000 -
Purchase of
treasury stock - - - - - -
------------ -------- ------------ ----------- -------------- --------------
Balance at
January 31, 1997 9,217,875 1,000 - - 19,928,000 18,247,000
Net loss - - - - - (6,513,000)
Stock issued - acquisition - - 1,140,000 114,000 1,376,000 -
Stock issued - compensation plan - - - - (1,193,000) -
Amortization of unearned
compensation - - - - 545,000 -
Stock options exercised - - - - (45,000) -
Note receivable forgiven - - - - 100,000 -
Retirement of stock (8,000) - - - - -
Purchase of treasury stock - - - - - -
Other - - - - (37,000) -
------------ -------- ------------ ----------- -------------- --------------
Balance at
January 31, 1998 9,209,875 $ 1,000 1,140,000 $ 114,000 $ 20,674,000 $ 11,734,000
============ ======== ============ =========== ============== ==============
<CAPTION>
Treasury Stock
----------------------------
Shares Amount Total
------------ ------------- --------------
<S> <C> <C> <C>
Balance at
January 31, 1995 (287,500) $ (180,000) $ 11,757,000
Net income - - 3,469,000
Expiration of
preferred stock - - -
Purchase of
treasury stock (225,000) (450,000) (450,000)
------------ ------------- --------------
Balance at
January 31, 1996 (512,500) (630,000) 14,776,000
Net income - - 6,329,000
Stock issued - - 16,008,000
Warrants issued - - 1,000
Stock options granted - - 36,000
Notes receivable - - (221,000)
Stock options exercised 31,387 95,000 712,000
Purchase of
treasury stock (511,250) (2,615,000) (2,615,000)
-------- ------------- --------------
Balance at
January 31, 1997 (992,363) (3,150,000) 35,026,000
Net loss - - (6,513,000)
Stock issued - acquisition 152,000 482,000 1,972,000
Stock issued - compensation plan 288,944 1,193,000 -
Amortization of unearned
compensation - - 545,000
Stock options exercised 34,443 124,000 79,000
Note receivable forgiven - - 100,000
Retirement of stock 8,000 35,000 35000
Purchase of treasury stock (605,000) (3,586,000) (3,586,000)
Other (37,000)
------------ ------------- ---------------
Balance at
January 31, 1998 (1,113,976) $ (4,902,000) $ 27,621,000
============ ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net (loss) income $(6,513,000) $ 6,329,000 $ 3,469,000
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 724,000 578,000 442,000
Deferred taxes and other 344,000 (607,000) 1,206,000
------------- ------------- -------------
(5,445,000) 6,300,000 5,117,000
(Increase) decrease in operating assets:
Receivable from brokers and dealers 9,115,000 (4,544,000) (1,556,000)
Securities owned, at market value 4,623,000 (6,458,000) (2,711,000)
Securities owned, not readily marketable (78,000) 379,000 (1,271,000)
Loans receivable 47,000 (16,000) 130,000
Income taxes receivable (3,544,000) - 427,000
Other assets (1,199,000) (514,000) (405,000)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased (4,687,000) 2,982,000 2,221,000
Commissions payable (1,382,000) 194,000 788,000
Deferred compensation 387,000 1,078,000 187,000
Income taxes payable (252,000) (80,000) 426,000
Accrued expenses and other liabilities (2,279,000) 208,000 2,997,000
------------- ------------- -------------
Net cash (used in) provided by operating activities (4,694,000) (471,000) 6,350,000
------------- ------------- -------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (194,000) (745,000) (187,000)
Limited partnerships (948,000) (2,400,000) (292,000)
Acquisition, net of cash acquired (176,000) - -
Goodwill resulting from acquisition (36,000) (55,000) (1,605,000)
------------- ------------- -------------
Net cash used in investing activities (1,354,000) (3,200,000) (2,084,000)
------------- ------------- -------------
Financing activities:
Issuance of common stock 75,000 16,499,000 -
Issuance of common stock warrants - 1,000 -
Purchase of treasury stock (3,586,000) (2,615,000) (450,000)
Issuance of subordinated debt - - 934,000
Repayment of subordinated debt (186,000) (231,000) -
------------- ------------- -------------
Net cash (used in) provided by financing activities (3,697,000) 13,654,000 484,000
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents (9,745,000) 9,983,000 4,750,000
Cash and cash equivalents at beginning of year 17,856,000 7,873,000 3,123,000
------------- ------------- -------------
Cash and cash equivalents at end of year $ 8,111,000 $ 17,856,000 $ 7,873,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
GKN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include the activities of GKN Holding
Corp. and its subsidiaries (the Company). The Company provides institutional
research, investment banking, securities brokerage and trading services, with
an emphasis on small-and mid-capitalization companies. These services are
provided through its principal broker-dealer subsidiary, GKN Securities Corp.
(GKN Securities), and other wholly-owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation. Where appropriate, prior-year amounts have been reclassified to
conform to the current presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Fair value of financial instruments
Substantially all of the Company's financial assets and liabilities are
carried at market or fair values or at amounts that approximate current fair
value due to their short-term nature.
Cash and cash equivalents
Cash equivalents are highly liquid securities with maturities of three months
or less when purchased.
Receivable from brokers and dealers
Receivable from brokers and dealers consists primarily of amounts due from the
Company's clearing organization, which provides clearing and depository
services for brokerage transactions on a fully disclosed basis.
Securities
Securities transactions and the related revenues and expenses, including
commission revenues and expenses, are recorded on a trade-date basis.
Securities owned and securities sold, not yet purchased, consist primarily of
equities and are stated at quoted market values. Securities owned, not readily
marketable, consist primarily of warrants and are stated at management's
estimate of fair value based on a percentage of the market value of the
underlying securities. Unrealized gains and losses are included in revenues
from principal transactions.
Investments
Investments consist primarily of investments in limited partnerships, which
are accounted for using the equity method.
22
<PAGE>
Depreciation and amortization
Office furniture, equipment and leasehold improvements are stated at cost, net
of accumulated depreciation and amortization of $1,897,000 and $1,449,000, at
January 31, 1998 and 1997, respectively. Office furniture and equipment are
depreciated using an accelerated method over their estimated useful lives.
Leasehold improvements are amortized over the lesser of the life of the lease
or estimated useful life of the improvement.
Goodwill
Goodwill represents the excess of the purchase price over the net assets
acquired upon the Company's acquisition of Shochet Securities, Inc. (Shochet)
in November 1995, Dalewood Associates, Inc. (Dalewood) in December 1996, and
Southeast Research Partners, Inc. (Southeast) in March 1997. The goodwill is
being amortized over 25 years on a straight line basis. Accumulated
amortization was $222,000 and $77,000 at January 31, 1998 and 1997,
respectively. Management reviews goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable.
Deferred compensation
Deferred compensation represents amounts due to certain employees of the
Company upon the sale of certain equity securities held by the Company.
Employment agreements for the employees provide them with a percentage of the
proceeds from the sale of the securities, which were issued to the Company in
connection with investment banking transactions.
Investment banking fees
Investment banking management and underwriting fee revenues are recognized
when the deal is complete and the income is reasonably determinable.
Stock-based compensation
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is
recognized for stock option awards only if the quoted market price (or
estimated fair market value of the stock prior to the stock becoming publicly
traded) is greater than the amount the employee must pay to acquire the stock.
Pro forma disclosures required by Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123), based on the fair
value-based method are presented in note 9.
Investigations and settlements
Investigations and settlements expense is comprised of costs related to the
settlement of regulatory matters.
3. Business Acquisitions
On November 30, 1995, the Company acquired Shochet, a broker-dealer, for
approximately $2,135,000, including a three-year, 7% $1,000,000 subordinated
note. The acquisition was accounted for under the purchase method of
accounting. Accordingly, Shochet's results of operations have been included
from the acquisition date.
On December 31, 1996, the Company acquired Dalewood, the general manager of an
investment partnership that makes equity investments in companies that are
viewed as suitable candidates for future initial public offerings. The
acquisition, which is not material to the Company's results of operations and
financial position, was accounted for under the purchase method.
23
<PAGE>
On March 13, 1997, the Company acquired all of the outstanding stock of
Southeast for $499,000 cash, 152,000 shares of common stock, and 1,140,000
shares of Series A Preferred Stock. This preferred stock was authorized by the
Company's Board of Directors on March 3, 1997. Southeast is a research and
institutional brokerage boutique, located in Boca Raton, Florida, which
maintains research coverage primarily focused on small- and mid-capitalization
companies located in the southeastern United States.
4. Related Party Transactions
Loans receivable from officers and employees of the Company are included in
loans receivable at January 31, 1997 and 1996. Loans receivable from officers
were $94,000 in 1998 and $94,000 in 1997. Receivables representing advances to
brokers in anticipation of their continued employment and generating
commission revenue in accordance with loan agreements were $916,000 in 1998
and $1,062,000 in 1997. The brokers are liable to the Company for the advances
until the minimum employment period is completed and the specified commission
revenue is generated. The advances are not collateralized and do not bear
interest. The advances are amortized to compensation expense over the life of
the loan agreements, which ranged from periods of one to five years at January
31, 1998. Receivables from current employees were $382,000 and $326,000 at
January 31, 1998 and 1997, respectively.
Included in other assets are receivables from limited partnerships that are
managed by wholly owned subsidiaries of the Company totalling $180,000 and
$28,000 at January 31, 1998 and 1997, respectively.
5. Commitments and Contingencies
The Company leases office facilities and equipment under noncancelable
operating leases. Certain leases have renewal options and clauses for
escalation and operating cost adjustments. At January 31, 1998, future minimum
rental commitments under such leases were as follows for the fiscal years
ending in January:
1999 $ 2,505,000
2000 2,430,000
2001 2,430,000
2002 2,276,000
2003 2,139,000
Thereafter 16,202,000
---------------
$ 27,982,000
===============
Total rent expense was $2,211,000, $1,672,000, and $1,218,000 in fiscal years
1998, 1997 and 1996, respectively.
The Company's broker-dealer subsidiaries are involved in various other legal
proceedings arising from its securities activities. Management believes that
resolution of these proceedings will have no material adverse effect on the
Company's consolidated financial position or results of operations.
24
<PAGE>
6. Employee Benefits
The Company has a defined contribution 401(k) plan covering substantially all
employees meeting certain eligibility requirements. Prior to May 1, 1996,
Shochet employees were covered by a separate 401(k) plan. The Company makes
discretionary matching contributions to the plan annually, which amounted to
$79,000, $116,000, and $62,000, for fiscal years 1998, 1997, and 1996,
respectively.
7. Income Taxes
The components of income tax (benefit) expense were as follows for the fiscal
years ended January 31:
1998 1997 1996
-------------- --------------- -------------
Current:
Federal $ (3,323,000) $ 3,905,000 $ 1,110,000
State and local 218,000 1,769,000 502,000
-------------- --------------- -------------
(3,105,000) 5,674,000 1,612,000
Deferred (338,000) (647,000) 1,206,000
--------------- --------------- -------------
$ (3,443,000) $ 5,027,000 $ 2,818,000
============== =============== =============
The effective tax rates reflected in the consolidated financial statements
differ from the statutory federal income tax rate as follows:
1998 1997 1996
--------- -------- -------
Statutory tax rate 34.0% 35.0% 34.0%
State and local taxes,
net of federal tax benefit 1.3 9.0 5.2
Other (0.7) 0.3 5.6
------- ----- -----
Effective tax rate 34.6% 44.3% 44.8%
======= ===== =====
Deferred income taxes reflect temporary differences in the basis of the
Company's assets and liabilities for income tax purposes and for financial
reporting purposes, using current tax rates. These temporary differences
result in taxable or deductible amounts in future years.
The net deferred tax liabilities at January 31, 1998 and 1997 are comprised as
follows:
1998 1997
-------------- --------------
Gross deferred tax asset:
Net operating loss carryforwards $ (933,000) $ -
Depreciation and amortization (284,000) (614,000)
Reserve for contingencies (234,000) (8,000)
Other (140,000) (45,000)
------------- -------------
Total gross deferred tax asset (1,591,000) (667,000)
Less: valuation allowance 447,000 -
------------- -------------
Net deferred tax asset (1,144,000) (667,000)
------------- -------------
Gross deferred tax liability:
Unrealized gains on securities 1,109,000 1,026,000
Other 271,000 277,000
------------- -------------
Total gross deferred tax liability 1,380,000 1,303,000
------------- -------------
Net deferred tax liability $ 236,000 $ 636,000
============= =============
25
<PAGE>
Management believes that the valuation allowance at January 31, 1998 is
adequate as it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the deferred tax benefit.
The Company files consolidated federal and combined New York State and New
York City income tax returns.
8. Stockholders' Equity
In July 1996 the Company sold 2,875,000 shares of its common stock in an
initial public offering at a price of $6.00 per share. The proceeds from the
public offering were $16,375,000 after underwriting discounts and commissions,
and $15,264,000 after other expenses of the offering totaling $1,111,000. GKN
Securities served as a co-manager of the offering. GKN Securities received
underwriting discounts and commissions of $850,000, which were eliminated in
consolidation. The Company has used the net proceeds principally to expand its
existing business and also for working capital and general corporate purposes.
During the fiscal year ended January 31, 1998, the Company repurchased a total
of 597,000 shares of its common stock. The stock repurchases were authorized
in order to provide for future issuances of stock bonuses to employees and for
the purchase of Southeast. In March 1997, the Company authorized 1,200,000
shares of Series A preferred stock, of which 1,140,000 were issued for the
purchase of Southeast. The Series A preferred stock is convertible into shares
of the Company's common stock at a rate of 0.16 shares of common stock for
each share of preferred stock at any time prior to March 13, 2002.
9. Stock Compensation Plans
At January 31, 1998, the Company has two stock-based compensation plans, which
are described below. The Company has also granted stock options outside of the
plans.
Fixed stock option plan and other fixed stock option awards
The Company's 1991 Employee Incentive Plan (the 1991 Plan) provides for the
issuance of stock, stock options and other stock purchase rights to executive
officers, other key employees and consultants of the Company and its
subsidiaries. The Company may grant options for up to five million shares of
common stock under the 1991 Plan. The options may qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended.
The exercise price of each option granted under the 1991 Plan is determined by
the Company's Board of Directors at the time of grant. The exercise price of
incentive stock options must be at least equal to the fair market value of the
Company's stock on the date of grant. The exercise price of non-qualified
options must be at least equal to 65% of the fair market value of the
Company's stock on the date of grant. The vesting period is at least one year
for all grants, incentive stock options have maximum terms of ten years and
non-qualified options have maximum terms of 13 years.
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for stock options
granted under or outside of the 1991 Plan. Had compensation cost been
determined based on the fair value at the grant dates for stock option awards
consistent with the method of SFAS 123, the Company would have reported an
additional $330,000 of compensation expense for the fiscal year ended January
31, 1998. Net of
26
<PAGE>
taxes of $114,000, this additional compensation would have resulted in an
overall basic earnings per common share (EPS) of $(0.83) for the Company, a
variance of $(0.03) from EPS, as reported in the statement of operations, of
$(0.80) for the fiscal year ended January 31, 1998. The compensation cost
resulting from recognition of the stock option awards in the fiscal years ended
January 31, 1997 and 1996 would have had no material effect on the Company's
net earnings.
In May 1996 the Company offered employees holding certain options issued in
December 1992 through February 1995 under the 1991 Plan the opportunity to
convert their options into options for a fewer number of shares, but with
lower exercise prices and/or shorter vesting periods. Options for 432,000
shares were canceled and new options for 165,000 shares were granted in the
conversion.
The Company has also granted stock options outside of the 1991 Plan. The stock
options are authorized under specific agreements when the Company enters into
employment agreements or when a director joins the Board of Directors. The
number of shares subject to options, the exercise price, vesting, termination
and other provisions of such awards are determined by the Board of Directors
and specified in each individual stock option agreement. At January 31, 1998,
the Company has entered into four agreements awarding options for a total of
110,000 shares of common stock.
A summary of the status of the Company's 1991 Plan and other options granted
outside of the 1991 Plan as of January 31, 1998, 1997, and 1996, and changes
during the fiscal years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------- --------- -------
Shares Weighted-Average Shares Shares
Stock Options (000) Exercise Price (000) (000)
- ------------- --------------------------------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,045 $4.84 1,897 1,662
Granted 289 5.93 422 369
Exercised (35) 2.30 (781) -
Forfeited (103) 5.68 (493) (134)
------ ------- ------
Outstanding at end of year 1,196 5.56 1,045 1,897
====== ======= ======
Options exercisable at year-end 549
Weighted-average fair value of
options granted during the year $3.09
</TABLE>
27
<PAGE>
The following table summarizes information about stock options outstanding at
January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/31/98 Life Price at 1/31/98 Price
- ---------------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$2.20 105,000 3.9 years $2.20 105,000 $2.20
$4.00 to $5.00 464,000 6.0 4.55 279,000 4.56
$6.00 to $6.125 627,000 7.5 6.00 165,000 6.00
----------- -------
1,196,000 6.6 5.10 549,000 4.54
=========== =======
</TABLE>
Stock award plan
The Company's 1996 Incentive Compensation Plan provides for a portion of
annual incentive awards payable to executive management and business unit
managers to be made in restricted shares of the Company's common stock. All
awards are subject to a minimum three-year vesting period. The maximum number
of shares that may be awarded under the plan is one million. As of January 31,
1998, approximately 289,000 shares had been awarded. The Company recognized
$530,000 of compensation expense for stock awards under this plan for the
fiscal year ended January 31, 1998.
Non-employee stock compensation
The Company granted stock options to purchase 25,000 shares to the seller of
Shochet on the date of the Company's initial public offering in accordance
with the Shochet purchase agreement. The fair value of the options, which was
recorded as an adjustment to the Shochet purchase price, was estimated to be
$36,000 on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0%, expected volatility of 27%,
risk-free interest rate of 6.4%, and expected life of 2.5 years. All of the
options were outstanding at January 31, 1998.
10. Earnings per Common Share
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). This
statement changes the calculation and presentation of EPS. The new
presentation consists of basic EPS, which includes no dilution and is computed
by dividing net income by the weighted-average number of common shares
outstanding for the period, and diluted EPS, which is similar to the
previously disclosed fully diluted EPS. SFAS 128 will result in basic EPS
results higher than EPS as calculated under the previous method. All earnings
per share amounts for all periods have been presented and, where appropriate,
restated to conform to the SFAS 128 requirements. For the fiscal year ended
January 31, 1998, common stock equivalents, consisting of stock options and
warrants, were not included in the computation of diluted EPS, as the
inclusion of such shares would be anti-dilutive due to the Company's net loss
for the year.
28
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Year ended January 31, 1998
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator for basic and diluted EPS:
Net (loss) income $(6,513,000) $6,329,000 $3,469,000
Denominator for basic EPS:
Weighted-average common shares 8,114,245 6,824,156 5,037,019
Dilutive common stock equivalents - 351,111 699,622
Denominator for diluted EPS: 8,114,245 7,175,267 5,736,641
Basic EPS $(0.80) $0.93 $0.69
Diluted EPS $(0.80) $0.88 $0.60
</TABLE>
11. Concentration of Credit Risk and Off-Balance Sheet Risk
In the normal course of business, the Company's broker-dealer subsidiaries
execute securities transactions on behalf of customers through a clearing
broker. The execution of these transactions includes the purchase and sale of
securities, including the sale of securities not currently owned. These
activities expose the Company to off-balance sheet risk in the event that
customers fail to fulfill their contractual obligations and margin
requirements are not sufficient to fully cover losses. The Company is
obligated to its clearing broker for losses sustained from the Company's
customers. Should a customer fail to deliver cash or securities as agreed, the
Company may be required to purchase or sell securities at unfavorable market
prices. The Company limits its risk by requiring customers to maintain margin
collateral that is in compliance with regulatory and internal guidelines and
by making credit inquiries when establishing customer relationships.
Securities sold, not yet purchased, represent the Company's obligations to
deliver specified securities at contracted prices. The Company is exposed to
risk of loss if securities prices increase prior to closing the transactions.
12. Net Capital Requirements
GKN Securities, Southeast, and Shochet, all wholly-owned subsidiaries of the
Company, are registered broker-dealers with the Securities and Exchange
Commission (SEC) and member firms of the National Association of Securities
Dealers, Inc. (NASD). As such, GKN Securities, Southeast, and Shochet are
subject to the SEC's net capital rule, which requires the maintenance of
minimum net capital.
GKN Securities computes net capital using the alternative method permitted by
the net capital rule, which requires that it maintain minimum net capital, as
defined, to be greater than or equal to $250,000. At January 31, 1998, GKN
Securities had net capital of $5,035,000.
Southeast computes net capital under the standard aggregate indebtedness
method permitted by the net capital rule, which requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. At January 31, 1998, Southeast had net capital of $1,294,000 and a net
capital requirement of $100,000. Southeast's net capital ratio at January 31,
1998, was 0.70 to 1.
29
<PAGE>
Shochet computes net capital under the standard aggregate indebtedness method
permitted by the net capital rule. At January 31, 1998, Shochet had net
capital of $760,000 and a net capital requirement of $100,000. Shochet's net
capital ratio at January 31, 1998, was 0.62 to 1.
13. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------
1998 1997 1996
------------- ------------- ---------
<S> <C> <C> <C>
Cash paid for:
Income taxes $ 372,000 $ 5,763,000 $ 900,000
============= ============= =============
Interest $ 424,000 $ 48,000 $ -
============= ============= =============
Non-cash investing and financing transactions
relating to the Company's purchase
acquisition that are not reflected in the
consolidated statement of cash flows
Fair value of assets acquired $ 2,156,000 $ - $ -
Goodwill acquired 2,177,000 - -
Liabilities assumed (1,474,000) - -
Preferred stock issued (1,094,000) - -
Treasury stock issued (912,000) - -
------------- ------------- -------------
Cash paid 853,000 - -
Less: cash acquired (677,000) - -
------------- ------------- -------------
Net cash paid for acquisition $ 176,000 $ - $ -
============= ============= =============
</TABLE>
30
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of GKN Holding Corp.
We have audited the accompanying consolidated statements of financial
condition of GKN Holding Corp. and subsidiaries (the Company) as of January
31, 1998 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended January 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of January 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended January
31, 1998, in conformity with generally accepted accounting principles.
March 20, 1998
/s/ KPMG Peat Marwick LLP
---------------------
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
32
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
the information included in the Company's proxy statement under the caption
Election of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the information included in the proxy statement under the caption Executive
Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the information included in the proxy statement under the caption Voting
Securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the information included in the proxy statement under the caption Certain
Transactions.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
3. Exhibits:
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, File No. 333-05273 (Registration
Statement)
3.1(a) Amendment, effective as of May 31, 1994, to the Restated
Certificate of Incorporation (incorporated by reference to
Exhibit 3.1(a) to the Registration Statement)
3.1(b) Certificate of Elimination of Series A Preferred Stock dated
January 14, 1997 (old)(incorporated by reference to Exhibit
3.1(b) to the Company's Form 10-Q for the quarterly period
ended April 30, 1997 ("April 1997 10-Q")
3.1(c) Certificate of Designation of Series A Preferred Stock dated
March 4, 1997 (new) (incorporated by reference to Exhibit
3.1(c) to the April 1997 10-Q)
3.2 By-laws (incorporated by reference to Exhibit 3.2 to the
Registration Statement)
4.1 Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registration Statement)
10.1(a) Lease for One State Street Plaza, New York, New York 10004
10.2 Agreement between GKN Securities Corp. and managers of
Miami, Florida branch office (incorporated by reference to
Exhibit 10.8 to the Registration Statement)
10.3 Employment Agreement between the Company and David M.
Nussbaum (incorporated by reference to Exhibit 10.10 to the
Registration Statement)
10.4 Employment Agreement between the Company and Roger N.
Gladstone (incorporated by reference to Exhibit 10.11 to the
Registration Statement)
10.5 Employment Agreement between the Company and Robert H.
Gladstone (incorporated by reference to Exhibit 10.12 to the
Registration Statement)
10.6 Employment Agreement between the Company and Peter R. Kent
(incorporated by reference to Exhibit 10.13 to the
Registration Statement)
10.7 Warrant Agreement with Joachim Stahler (incorporated by
reference to Exhibit 10.14 to the Registration Statement)
10.8 Stock Purchase Agreement with Marvin and Sally Shochet,
including form of Option Agreement (incorporated by
reference to Exhibit 10.15 to the Registration Statement)
34
<PAGE>
10.9 Stock Option Agreement with Arnold B. Pollard (incorporated
by reference to Exhibit 4.2 to the Company's Form S-8 filed
on January 23, 1997, File No. 333-20273)
10.10 Stock Option Agreement with John P. Margaritis (incorporated
by reference to Exhibit 4.3 to the Company's Form S-8 filed
on January 23, 1997, File No. 333-20273)
10.11 1991 Employee Incentive Plan (incorporated by reference to
Exhibit 10.17 to the Registration Statement)
10.12 1996 Incentive Compensation Plan (incorporated by reference
to Exhibit 10.20 to the Registration Statement)
10.13 Amendment, effective as of December 19, 1996, to the 1996
Employee Incentive Plan (incorporated by reference to
Exhibit 10.13 to the Company's Form 10-K for the fiscal year
ended January 31, 1997)
10.14 Clearing Agent Agreement with Wertheim Schroder & Co.
Incorporated (incorporated by reference to Exhibit 10.18 to
the Registration Statement)
10.15 Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.19 to the Registration Statement)
10.16 Form of Indemnification Agreement (incorporated by reference
to Exhibit 10.21 to the Registration Statement)
10.17 Stock Option Agreement with Richard Y. Roberts
21 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule BD (1/31/98)
27.2 Restated Financial Data Schedule BD (1/31/97)
(b) Reports on Form 8-K:
None.
35
<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.
GKN HOLDING CORP.
By: /s/ Peter R. Kent
-----------------
Peter R. Kent
Chief Operating Officer and
Chief Financial Officer
Date: April 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 27, 1998.
/s/ David M. Nussbaum Chairman of the Board and
- ------------------------------ Chief Executive Officer (Principal
David M. Nussbaum Executive Officer)
/s/ Roger N. Gladstone President and Director
- ------------------------------
Roger N. Gladstone
/s/ Peter R. Kent Chief Operating Officer, Chief
- ------------------------------ Financial Officer and Director
Peter R. Kent (Principal Accounting and Financial
Officer)
/s/ Lester Rosenkrantz Executive Vice President and Director
- ------------------------------
Lester Rosenkrantz
/s/ James I. Krantz Director
- ------------------------------
James I. Krantz
/s/ John P. Margaritis Director
- ------------------------------
John P. Margaritis
/s/ Arnold B. Pollard Director
- ------------------------------
Arnold B. Pollard
/s/ Peter McMullin Director
- ------------------------------
Peter McMullin
/s/ Richard Y. Roberts Director
- ------------------------------
Richard Y. Roberts
36
<PAGE>
NUMBER 1 OF
ORIGINAL 4 EXECUTED
COUNTERPARTS
=======================================
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
=======================================
Agreement of Lease, made as of this 6th day of June 1997, between South Ferry
Building Company, having an office at One State Street Plaza, New York, New
York 10004
party of the first part, hereinafter referred to as OWNER,* and GKN
Securities, Corp. having an office at 61 Broadway, New York, New York party
of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner the
entire twenty-third (23rd) and twenty-fourth (24th) floors (hereinafter called
the "demised premises") in the building known as One State Street Plaza** in the
Borough of Manhattan, City of New York, for the term of fifteen (15) years (or
until such term shall sooner cease and expire as hereinafter provided) to
commence and to end on the dates set forth in Article 40 hereof both dates
inclusive, at an annual rental rate as set forth in Article 54 hereof,
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby convenant
as follows:
Rent
1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy
2. Tenant shall use and occupy demised premises for general and executive
offices and for no other purpose.
Tenant
Alterations:
3. Tenant shall make no changes in or to the demised premise of any nature
without Owner's prior written consent(1). Subject to the prior written consent
of Owner, and to the provisions of this article, Tenant at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations, or improvements, at its expense,
obtain all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may (2) require. If
any mechanic's lien is filed against the demised premises, or the building of
which the same forms a part, for work claimed to have been done for, or
materials furnished to, Tenant, whether or not done pursuant to this article,
the same shall be discharged by Tenant within thirty days (3), at Tenant's
expense, by filing the bond required by law. All fixtures and all paneling,
partitions, railings and like installations, installed in the premises at any
time, either by Tenant or by Owner in Tenant's behalf, shall, upon installation,
become the property of Owner and shall remain upon and be surrendered with the
demised premises unless owner, by notice to Tenant no later than twenty days
prior to the date fixed as the termination of this lease, elects to relinquish
Owner's right thereto and to have them removed by Tenant, in which event the
same shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense (4). Nothing in this Article shall be construed to
give Owner title to or to prevent Tenant's removal of trade fixtures, moveable
office furniture and equipment, but upon removal of any such from the premises
or upon removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the
condition existing prior to installation and repair any damage to the demised
premises or the building due to such removal. All property permitted or required
to be removed, by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner, at Tenant's expense.
Maintenance
and
Repairs
4. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other part
of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or and for no other purpose. which arise out
of any work, labor, service or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use or operation of the property
or equipment of Tenant or any subtenant. Tenant shall also repair all damage to
the building and the demised premises caused by the moving of Tenant's fixtures,
furniture and equipment. Tenant shall promptly make, at Tenant's expense, all
repairs in and to the demised premises for which Tenant is responsible, using
only the contractor for the trade or trades in question, selected from a list of
at least two contractors per trade submitted by Owner. Any other repairs in or
to the building or the facilities and systems thereof for which Tenant is
responsible shall be performed by Owner at the Tenant's expense. Owner shall
maintain in good working order and repair the exterior and the structural
portions of the building, including the structural portions of its demised
premises, and the public portions of the building interior and the building
plumbing, electrical, heating and ventilating systems (to the extent such
systems presently exist) serving the demised premises. Tenant agrees to give
prompt notice of any defective condition in the premises for which Owner may be
responsible hereunder. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or others making repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. It is specifically agreed that Tenant shall not be entitled to any
setoff or reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article 4 shall not apply
in the case of fire or other casualty which are dealt with in Article 9 hereof.
Window
Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
Requirements
of Law,
Fire Insurance,
Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, Insurance Services Office, or any similar body which shall impose
any violation, order or duty upon Owner or Tenant with respect to the demised
premised, arising out of Tenant's manner of use thereof,
* or Landlord
** hereinafter called the "building" or the "Building"
<PAGE>
Tenant may, after securing Owner to Owner's (6) satisfaction against all
damages, interest, penalties and expenses, including, but not limited to,
reasonable attorney's fees, by cash deposit or by surety bond in an amount and
in a company (2) satisfactory to Owner, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements provided same is done
with all reasonable promptness and provided such appeal shall not subject Owner
to prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Owner may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Tenant shall not do or permit any
act or thing to be done in or to the demised premises which is contrary to law,
or which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner with
respect to the demised premises or the building of which the demised premises
form a part, or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization
or other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the insurance
rate for the building or any property located therein over that in effect prior
to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses,
fines, penalties, or damages, which may be imposed upon Owner by reason of
Tenant's failure to comply with the provisions of this article and if by reason
of such failure the fire insurance rate shall, at the beginning of this lease,
or at any time thereafter, be higher than it otherwise would be, then Tenant
shall reimburse Owner, as additional rent hereunder, for that portion of all
fire insurance premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" of rate for the building or demised
premises issued by the New York Fire Insurance Exchange, or other body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rates then applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to (2) prescribe the weight and position of all safes, business
machines and mechanical equipment. Such installations shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's
(6) judgement, to absorb and prevent vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Property--
Loss, Damage,
Reimburse-
ment, Indem-
nity:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by operations
in construction of any private, public or quasi public work.
If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever including, but not limited to Owner's
own acts, Owner shall not be liable for any damage Tenant may sustain thereby
and Tenant shall not be entitled to any compensation therefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction(7). Tenant shall indemnify and save
harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorneys fees, paid, suffered or incurred as a
result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and ommissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case of any
action or proceeding is brought against Owner by reason of any such claim,
Tenant, upon written notice from Owner, will, at Tenant's expense, resist or
defend such action or proceeding by counsel approved by Owner in writing, such
approval not to be unreasonably withheld.
Destruction,
Fire and Other
Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall be continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered partially
unusable by fire or other casualty, the damages thereto shall be repaired by and
at the expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable (8) by fire or other casualty, then
the rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises (9) shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided. (d) If the demised premises are rendered
wholly unusable or (whether or not the demised premises are damaged in whole or
in part) if the building shall be so damaged that Owner shall decide to demolish
it or to rebuild it, then, in any of such events, Owner may elect to terminate
this lease by written notice to Tenant, given within 90 days after such fire or
casualty, specifying a date for the expiration of the lease, which date shall
not be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be returned to
Tenant. Unless Owner shall serve a termination notice as provided for herein,
Owner shall make the repairs and restorations under the conditions of (b) and
(c) hereof, with all reasonable expedition, subject to delays due to adjustment
of insurance claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (e) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. (10) Notwithstanding the
foregoing, each party shall look first to any insurance in its favor before
making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty, and to the extent that such insurance is
in force and collectible and to the extent permitted by law, Owner and Tenant
each hereby releases and waives all right of recovery against the other or any
one claiming through or under each of them by way of subrogation or otherwise.
The foregoing release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or waiver
shall not invalidate the insurance. If, and to the extent, that such waiver can
be obtained only by the payment of additional premiums, then the party
benefitting from the waiver shall pay such premium within ten days after written
demand or shall be deemed to have agreed that the party obtaining insurance
coverage shall be free of any further obligation under the provisions hereof
with respect to waiver of subrogation. Tenant acknowledges that Owner will not
carry insurance on Tenant's furniture and/or furnishings or any fixtures or
equipment, improvements, or appurtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage thereto or replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the Real Property Law
and agrees that the provisions of this article shall govern and control in lieu
thereof.
Eminent
Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease and assigns to Owner, Tenant's entire
interest in any such award.
Assignment,
Mortgage,
Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant shall be deemed an assignment (10a). If this
lease be assigned, or if the demised premises or any part thereof be underlet or
occupied by anybody other than Tenant, Owner may, after default by Tenant,
collect rent from the assignee, under-tenant or occupant, and apply the net
amount collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, under-tenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Owner to an assignment or
underletting shall not in any wise be construed to relieve Tenant from obtaining
the express consent in writing of Owner to any further assignment or
underletting.
Electric Current:
12. Rates and conditions in respect to submetering or rent inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capactty of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to
Premises:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, (11) to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Owner may elect to perform. (12) Tenant shall permit Owner to use and
maintain and replace pipes and conduits in and through the demised premises and
to erect new pipes and conduits therein provided they are concealed within the
walls, floor, or ceiling. Owner may, during the progress of any work in the
demised premises, take all necessary materials and equipment into said premises
without the same constituting an eviction nor shall the Tenant be entitled to
any abatement of rent while such work is in progress nor to any damages by
reason of loss or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right (11) to enter the demised premises at
reasonable hours for the purpose of showing the
- --------------------
[GRAPHIC] Rider to be added if necessary.
<PAGE>
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the premises,
Owner or Owner's agents may enter the same whenever such entry may be necessary
or permissible by master key or forcibly and provided reasonable care is
exercised to safeguard Tenant's property, such entry shall not render Owner or
its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected.
Vault,
Vault Space,
Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for any vault or area(13) shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by the sending of a written notice to
Tenant within a reasonable time after the happening of any one or more of the
following events: (1) the commencement of a case in bankruptcy or under the laws
of any state naming Tenant as the debtor(14), or (2) the making by Tenant of an
assignment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises; or if any execution or attachment shall be issued against
Tenant or any of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant; or if this lease be rejected under ss.
235 of Title 11 of the U.S. Code (bankruptcy code); then, in any one or more of
such events, upon Owner serving a written(14a) days notice upon Tenant
specifying the nature of said default and upon the expiration of said(14a) days,
if Tenant shall have failed to comply with or remedy such default, or if the
said default or omission complained of shall be of a nature that the same cannot
be completely cured or remedied within said(14a) day period, and if Tenant shall
not have diligently commenced curing such default within such(14a) day period,
and shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, the Owner may serve a written(14b) days notice of
cancellation of this lease upon Tenant, and upon the expiration of said 14b days
this lease and the term thereunder shall end and expire as fully and completely
as if the expiration of such(14b) day period were the day herein definitely
fixed for the end and expiration of this lease and the term thereof and Tenant
shall then quit and surrender the demised premises to Owner but Tenant shall
remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid, or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any other payment herein required; then and in
any of such events Owner may without notice, re-enter the demised premises
either by force or otherwise, and dispossess Tenant by summary proceedings or
otherwise, and the legal representative of Tenant or other occupant of demised
premises and remove their effects and hold the premises as if this lease had not
been made, and Tenant hereby waives the service of notice of intention to
re-enter or to institute legal proceedings to that end. If Tenant shall make
default hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
Remedies of
Owner and
Waiver of
Redemption:
18. In case of any such default, re-entry, expiration and/ or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner
may re-let the premises or any part or parts thereof, either in the name of
Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay Owner as liquidated damages for the failure of Tenant
to observe and perform said Tenant's convenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owner to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there shall
be added to the said deficiency such expenses as Owner may incur in connection
with re-letting, such as legal expenses, attorneys' fees, brokerage, advertising
and for keeping the demised premises in good order or for preparing the same for
re-letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owners option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
sole judgement, considers advisable and necessary for the purpose of re-letting
the demised premises, and the making of such alterations repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease or otherwise.
Fees and
Expenses
19. If Tenant shall default(15) in the observance performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, Owner may immediately or at any time
thereafter and without notice perform the obligation of Tenant thereunder. If
Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to(6)
attorney's fees, in instituting, prosecuting or defending any action or
proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within 15 days of rendition of any bill or
statement to Tenant therefor. If Tenant's lease term shall have expired at the
time of making of such expenditures or incurring of such obligations, such sums
shall be recoverable by Owner as damages.
Building
Alterations
and
Management:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be
known(16). There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
No Representations by Owner:
21. (17)Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which
<PAGE>
it is erected or the demised premises, the rents, leases, expenses of operation
or any other matter or thing affecting or related to the premises except as
herein expressly set forth and no rights, easements or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
End of
Term:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this Lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent
and additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless to the
terms and conditions of this lease including but not limited to, Article 31
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure
to Give
Possession:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's inability to obtain
possession) until after Owner shall have given Tenant written notice that the
premises are substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or to occupy
premises other than the demised premises prior to the date specified as the
commencement of the term of this lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner(18) of rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach and no provision of this lease shall
be deemed to have been waived by Owner(19) unless such waiver be in writing
signed by Owner (19). No payment by Tenant or receipt by Owner of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner may accept such check or payment
without prejudice to Owner's right to recover the balance of such rent or pursue
any other remedy in this lease provided. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of
Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary proceeding for
possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.(20)
Inability to
Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including, but not limited to, government
preemption in connection with a National Emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency.
Bills and
Notices:
28. Except as otherwise in this lease provided, a bill, statement, notice
or communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered if, in writing, sent by registered or
certified mail(20a) addressed to Tenant at the building of which the demised
premises form a part or at the last known residence address or business address
of Tenant or left at any of the aforesaid premises addressed to Tenant, and the
time of the rendition of such bill or statement and of the giving of such notice
or communication shall be deemed to be delivered to Tenant(20b). Any notice by
Tenant to Owner must be served by registered or certified mail addressed to
Owner at the address first hereinabove given or at such other address as Owner
shall designate by written notice.
Services
Provided by
Owners:
29. As long as Tenant is not in default under any of the covenants of this
lease, Owner shall provide: (a) necessary elevator facilities on business days
from 8 a.m. to 6 p.m. and have one elevator subject to call at all other times;
(b) heat to the demised premises when and as required by law, on business days
from 8 a.m. to 6 p.m.; (c) water for ordinary lavatory (21) purposes, but if
Tenant uses or consumes water for any other purposes or in unusual quantities
(of which fact Owner shall be the sole judge), Owner may install a water meter
at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense
in good working order and repair to register such water consumption and Tenant
shall pay for water consumed as shown on said meter as additional rent as and
when bills are rendered; (d) cleaning service for the demised premises (21a) on
business days at Owner's expense provided that the same are kept in order by
Tenant. Tenant shall pay Owner the cost of removal of any of Tenant's refuse and
rubbish(22) from the building; (e) If the demised premises are serviced by
Owner's air conditioning/cooling and ventilating system, air
conditioning/cooling will be furnished to tenant from May 15th through September
30th on business days (Mondays through Fridays, holidays excepted) from 8:00
a.m. to 6:00 p.m., and ventilation will be furnished on business days during the
aforesaid hours except when air conditioning/cooling is being furnished as
aforesaid(23). If Tenant requires air conditioning/cooling or ventilation for
more extended hours or on Saturdays, Sundays or on holidays, as defined under
Owner's contract with Operating Engineers Local 94-94A, Owner will furnish the
same at Tenant's expense. RIDER to be added in respect to rates and conditions
for such additional service; [GRAPHIC] (f) Owner reserves the right to stop
services of the heating, elevators, plumbing, air-conditioning, power systems or
cleaning or other services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or desirable in the
judgment of Owner for as long as may be reasonably required by reason
thereof(24). If the building of which the demised premises are a part supplies
manually operated elevator service, Owner at any time may substitute
automatic-control elevator service and upon ten days' written notice to Tenant,
proceed with alterations necessary therefor without in any wise affecting this
lease or the obligation of Tenant hereunder. The same shall be done with a
minimum of inconvenience to Tenant and Owner shall pursue the alteration with
due diligence.
Captions:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
Definitions:
31. The term "office", or "offices", wherever used in this lease, shall not
be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, (25) and it shall be deemed
and construed without further agreement between the parties or their successors
in interest, or between the parties and the purchaser, at any such sale or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 29
hereof), Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
- ----------
[GRAPHIC] Rider to be added if necessary.
<PAGE>
Adjacent
Excavation -
Shoring:
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
Rules and
Regulations:
33. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations annexed hereto as Exhibit D and such other and further reasonable
Rules and Regulations as Owner or Owner's agents may from time to time adopt.
Notice of any additional rules or regulations shall be given (26). In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
determination shall be final and conclusive upon to the parties hereto. The
right to dispute the reasonableness of any additional Rule or Regulation upon
Tenant's part shall be deemed waived unless the same shall be asserted by
service of a notice, in writing upon Owner within ten (10) days after the giving
of notice thereof. Nothing in this lease contained shall be construed to impose
upon Owner any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease, as against any other tenant and
Owner shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees. (27)
Security:
Estoppel
Certificate
35. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner shall execute, acknowledge and deliver to Owner, and/or to
any other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease, and, if so, specifying each such default. (28)
Successors
and Assigns
[GRAPHIC]
36. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
- ----------
[GRAPHIC] Space to be filled in or deleted.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: South Ferry Building Company
By: /s/ [ILLEGIBLE]
- ------------------------------ ------------------------------
General Partner
Witness for Tenant: GKN Securities, Corp.
By: /s/ David M. Nussbaum
- ------------------------------ ------------------------------
Chairman
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this_____________________ day of __________________, 19__, before me
personally came _______________________________________________________________
to me known, who being by me duly sworn, did depose and say that he resides in
________________________________________________________________________________
that he is the ______________________________of _______________________________
the corporation described in and which executed the foregoing instrument, as
OWNER: that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this ________________ day of __________________, 19__, before me
personally came _______________________________________________________________
to me known, who being by me duly sworn, did depose and say that he resides in
________________________________________________________________________________
that he is the ______________________________of _______________________________
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County or
On this _________________ day of __________________, 19__, before me
personally came _______________________________________________________________
to me known and known to me to be the individual described in and who, as OWNER,
executed the foregoing instrument and acknowledged to me that he executed the
same.
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this ________________ day of __________________, 19__, before me
personally came_________________________________________________________________
to me known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
<PAGE>
Rider to Printed Form of Lease between
South Ferry Building Company and GKN Securities, Corp.
1. except that Landlord's consent shall not be required with respect to
non-structural, interior alterations which do not affect the exterior of
the Building, any area of the Building outside the demised premises or any
Building System (hereinafter called"Non-Material Alterations") which cost
less than $100,000 in the aggregate and less than $50,000 in any one
instance in any calendar year. Landlord's consent to Non-Material
Alterations for which its consent shall be required hereunder shall not be
unreasonably withheld or delayed.
2. reasonably
3. after notice to Tenant
4. Notwithstanding the foregoing, Landlord shall not require Tenant to remove
any improvements made in the demised premises by Landlord as part of
"Landlord's Work" (as that term is hereinafter defined) whether or not the
same shall be of a building standard nature. In addition, Tenant shall not
be required to remove installations from the demised premises which were
installed by Tenant or at Tenant's expense and which are not shown on
Exhibit E annexed hereto, unless the same shall be of a non-building
standard nature (e.g. vaults, internal stairways, raised floors or other
installations which shall be unusually difficult or expensive to remove).
Landlord shall advise Tenant at such time as Landlord shall consent to any
installation whether Landlord will require that such installation be
removed at the end of the Lease term, provided that Tenant shall request
such advice in writing when Tenant requests Landlord's consent to such
installation.
5. and/or the building
6. reasonable
7. Landlord agrees that it shall not brick up the windows of the demised
premises unless same shall be required by law or the requirements of
Landlord's insurers or in connection with necessary repairs or alterations
to the building.
8. or inaccessible
9. and/or access thereto
10. If the demised premises or any part thereof shall be damaged by fire or
other casualty as set forth in Article 9, and Landlord is required to or
elects to repair and restore the demised premises, and if Landlord has not
substantially completed the required repairs and restored the demised
premises within twelve (12) months after the date of such fire or other
casualty, or within such period thereafter (not to exceed 5 months) as
shall equal the aggregate period Landlord may have been delayed in doing so
by labor trouble, governmental controls, acts of god, or any other cause
beyond Landlord's reasonable control, then Tenant shall have the right to
elect to terminate this Lease upon written notice to Landlord and such
election shall be effective upon the expiration of thirty (30) days after
the date of such notice, unless Landlord substantially completes such
restoration within such thirty (30) days period.
10a. The transfer of the outstanding capital stock of any corporate tenant shall
be deemed not to include the sale of such stock by persons or parties,
through the "over-the-counter market" or through any recognized stock
exchange, other than those deemed "insiders" within the meaning of the
Securities Exchange Act of 1934 as amended.
<PAGE>
11. upon reasonable notice and accompanied by a representative of Tenant to the
extent Tenant makes such a representative readily available.
12. Landlord shall use reasonable efforts to perform such repairs, replacements
and improvements in a manner designed to minimize interference with
Tenant's business operations in the demised premises provided Landlord
shall not be obligated to perform any such repairs, replacements, or
improvements on an overtime or premium pay basis.
13. used by Tenant
14. which in the case of an involuntary filing, is not dismissed within one
hundred twenty (120) days
14a. fifteen (15)
14b. five (5)
15. after notice and the expiration of any applicable grace period
16. In making any such changes, Landlord shall use reasonable efforts to
minimize interference with Tenant's business operations in the demised
premises provided Landlord shall not be obligated to perform any such
changes on an overtime or premium pay basis.
17. Except as expressly set forth in this lease,
18. or payment by Tenant
19. or Tenant
20. unless the failure to interpose such counterclaim shall result in its
waiver.
20a. or overnight courier service
20b. if mailed, two Business Days after the dated mailed, or if sent by
overnight courier, one Business Day after the day sent
20c. copies of notices sent to Landlord shall be sent to:
Bachner, Tally, Polevoy & Misher
380 Madison Avenue
New York, New York 10017
Attention: Martin D. Polevoy, Esq.
copies of notices sent to Tenant shall be sent to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: Lester Henner, Esq.
21. and drinking
21a. pursuant to the cleaning specifications annexed hereto as Exhibit B
22. in excess of ordinary office accumulations
23. in accordance with the specifications annexed hereto as Exhibit C.
<PAGE>
24. but Landlord shall use diligent efforts to restore same expeditiously.
25. from and after the date of such sale or lease
26. in accordance with Article 28 hereof.
27. Landlord shall not enforce or fail to enforce any of the Rules and
Regulations so as to impose same upon Tenant in a discriminatory manner.
28. Landlord agrees upon written request from Tenant to provide Tenant with a
statement certifying that this lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), certifying the
Commencement Date, Expiration Date and the dates to which the Fixed Rent
and Additional Charges, as billed, have been paid, stating whether or not,
to the best knowledge of Landlord, Tenant is in default in performance of
any of its obligations under this lease, and, if so, specifying each such
default of which Landlord shall have knowledge, it being intended that any
such statement delivered pursuant hereto shall be deemed a representation
and warranty to be relied upon by Tenant requesting the certificate and by
others with whom Tenant may be dealing, regardless of independent
investigation; provided, however, that except in connection with (x) a
proposed assignment of this lease by Tenant, or (y) a proposed subletting
of one or more floors of the Premises, in no event shall Landlord be
obligated to provide such statement more frequently than once during any
l2-month period.
<PAGE>
GUARANTY
Dated: ................................................................ 19......
................................................................................
Guarantor
................................................................................
Witness
................................................................................
Guarantor's Residence
................................................................................
Business Address
................................................................................
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this _________________ day of ____________________________, 19__, before
me personally came .............................................................
to me known and known to me to be the individual described in, and who executed
the foregoing Guaranty and acknowledged to me that he executed the same.
...........................................
Notary
[GRAPHIC] IMPORTANT - PLEASE READ [GRAPHIC]
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability, and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between the hours
of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all persons
who do not present a pass to the building signed by Owner. Owner will furnish
passes to persons for whom any Tenant requests same in writing. Each Tenant
shall be responsible for all persons for whom he requests such pass and shall be
liable to Owner for all acts of such persons.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance or cause or permit any odors of cooking or other
processes, or any unusual or other objectionable odors to permeate in or emanate
from the demised premises.
13. If the building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all rules
and regulations issued by the Owner with respect to such services. If Tenant
requires air conditioning or ventilation after the usual hours, Tenant shall
give notice in writing to the building superintendent prior to 3:00 P.M. in the
case of services required on week days, and prior to 3:00 P.M. on the day prior
in the case of after hours service required on weekends or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Qwner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
Address
Premises
================================================================================
TO
================================================================================
STANDARD FORM OF
Office
Lease
The Real Estate Board of New York, Inc.
(C) Copyright 1983. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================================================
Dated 19
Rent per Year
Rent per Month
Term
From
To
Drawn by ............................... Checked by ............................
Entered by ............................. Approved by ...........................
================================================================================
<PAGE>
RIDER ANNEXED TO AND MADE A PART OF LEASE
DATED AS OF JUNE , 1997
BETWEEN SOUTH FERRY BUILDING COMPANY, LANDLORD
AND GKN SECURITIES, INC., AS TENANT
COVERING THE ENTIRE RENTABLE PORTION OF THE 23RD AND 24TH FLOORS IN
THE BUILDING KNOWN AS ONE STATE STREET PLAZA, NEW YORK, NEW YORK
37. Definitions:
The following definitions shall have the meanings hereinafter
set forth wherever used in this lease or any Exhibits or Schedules annexed
hereto (if any):
(a) "Tax Base" shall mean one half of the sum of (x) the
product obtained by multiplying (i) the amount for which the Land and Building
are assessed for the purpose of establishing real estate taxes to be paid by
Landlord for the Tax Year (as defined in Section 38(a) hereof) commencing July
1, 1996 and ending on June 30, 1997 by (ii) the real estate tax rate for such
Tax Year, and (y) the product obtained by multiplying (i) the amount for which
the Land and Building are assessed for the purpose of establishing real estate
taxes to be paid by Landlord for the Tax Year (as defined in Section 38(a)
hereof) commencing July 1, 1997 and ending on June 30, 1998 by (ii) the real
estate tax rate for such Tax Year
(b) "Operating Year" shall mean each calendar year,
subsequent to the calendar year 1997, in which occurs any part of the term of
this lease.
(c) "Tenant's Proportionate Share" shall mean 6.712.%
pursuant to agreement between Landlord and Tenant.
(d) "Wage Rate Multiple" shall mean 47,775 pursuant to
agreement between Landlord and Tenant.
(e) "Base Wage Rate" shall mean the Wage Rate (as defined in
Section 38(a)(iii) hereof) for the calendar year 1997.
(f) "The Broker" shall mean Julien J. Studley, Inc.
(g) "Interest Rate" shall mean a rate per annum equal to the
lesser of (a) 2% above the lending rate announced from time to time by Chase
Manhattan Bank (New York) as such bank's prime rate for 90-day unsecured loans,
in effect from time to time or (b) the maximum applicable legal rate, if any.
(h) "Legal Requirements" shall mean laws, statutes and
ordinances (including building codes and zoning regulations and ordinances) and
the orders, rules, regulations, directives and requirements of all federal,
state, county, city and borough departments, bureaus, boards, agencies,
offices, commissions and other subdivisions thereof, or of any official
thereof, or of any other governmental public or quasi-public authority, whether
now or hereafter in force, which may be applicable to the land or building or
the demised premises or any part thereof, or the sidewalks, curbs or areas
adjacent thereto.
38. Adjustments of Rent:
(a) For the purposes of this Article 38, the following
definitions shall apply:
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(i) The term "Taxes" shall mean (A) all real estate
taxes, assessments, sewer rents and water charges, governmental levies,
municipal taxes, county taxes or any other governmental charge, general or
special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind
or nature whatsoever, which are or may be assessed levied or imposed upon all
or any part of the land, the building and the sidewalks, plazas or streets in
front of or adjacent thereto, and (B) any expenses incurred by Landlord in
contesting any of the foregoing set forth in clause (A) of this sentence or the
assessed valuations of all or any part of the land and building, etc. or
collecting any refund. If, due to a future change in the method of taxation or
in the taxing authority, a new or additional real estate tax, or a franchise,
income, transit, profit or other tax or governmental imposition, however
designated, shall be levied against Landlord, and/or the land and/or building,
in addition to, or in substitution in whole or in part for any tax which would
constitute "Taxes", or in lieu of additional Taxes, such tax or imposition
shall be deemed for the purposes hereof to be included within the term "Taxes".
(ii) The term "Tax Year" shall mean each period of
twelve months, commencing on the first day of July of each such period, in
which occurs any part of the term of this lease or such other period of twelve
months occurring during the term of this lease as hereafter may be duly adopted
as the fiscal year for real estate tax purposes of the City of New York.
(iii) The term "Wage Rate" with respect to any
Operating Year shall mean one half of (a) the combined total of the highest
minimum regular wage ("base pay") and all other sums, both computed on an
hourly basis, required to be paid to or for the benefit of porters and (b) the
combined total of the base pay and all other sums, both computed on an hourly
basis required to be paid to or for the benefit of office cleaners in each
instance engaged in the general maintenance and operation of the office
buildings of the type and in the vicinity of the Building pursuant to a
collective bargaining agreement negotiated by Realty Advisory Board on Labor
Relations, Inc., or any successor thereto, with Local 32B-32J, Building Service
Employees International Union, AFL-CIO, or any successor thereto. The Wage Rate
shall include, but not be limited to, base pay and all sums paid for pension,
welfare, dental and training fund contributions, mandatory bonuses, mandatory
or customary overtime pay, social security, unemployment, disability benefits,
absent fund, uniforms, incentive pay, health, life, accident, Workers'
Compensation and any other type of insurance or benefits. The Wage Rate shall
be computed by dividing the combined total amount so required to be paid to or
for the benefit of the employee annually, by the number of hours (including
mandatory or customary overtime) that the employee is actually required to work
annually if the employee takes all of the paid time off to which he or she may
be entitled. Such paid time off shall include but not be limited to vacations,
holidays, sick days, birthdays, medical check-ups, jury duty, funeral leave,
relief time and absence hours. As of the date hereof, a standard work week
pursuant to such agreement consists of forty (40) hours in the case of porters
and thirty (30) hours in the case of office cleaners. If any such agreement
shall require porters to be regularly employed on days or during hours when
overtime or other premium pay rates are in effect, then the term "regular
average hourly wage rate" shall mean the highest regular average hourly wage
rate for the hours in a calendar week during which porters or cleaners are
required to be regularly employed (whether or not actually at work in the
Building); e.g., if, for example, an agreement between R.A.B. and Local 32B
would require the regular employment of porters for 40 hours during a calendar
week at a regular average hourly wage of $4.00 for the first 30 hours and at an
overtime hourly average wage of $5.00 for the remaining 10 hours, then the
regular average hourly wage rate for porters under this subsection would be the
sum arrived at by dividing the total weekly average wages of $170.00 by the
total number of required hours of employment which is 40 and resulting in a
regular average hourly wage rate of $4.25. The computation of the regular
average hourly wage rate shall be on the same basis whether based on an hourly
or other pay scale but predicated on the number of hours in such respective
work weeks, whether paid by Landlord or any independent contractor. If length
of service shall be a factor in determining any element of Wage Rate, such as
vacation, it shall be conclusively presumed that the employee has had the
maximum years of service. Workers' Compensation shall be based on the manual
rates for cleaners published by the New York State Workers' Compensation Rating
Board. If any such agreement is not entered into or if said Realty Advisory
Board (or its successor) shall cease to
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bargain collectively, then the Wage Rate shall be one-half of the combined
total of the highest base pay and other sums as aforesaid, computed on an
hourly basis, annually to or for the benefits of porters and cleaning workers
engaged in the maintenance and operation of the Building and payable by either
Landlord or the contractor furnishing such services, but not in excess of
one-half of such combined total of the highest base pay and other sums as
aforesaid, computed on an hourly basis, payable annually to or for the benefit
of porters and cleaning women engaged in the general maintenance and operation
of the buildings of the same type as, and in the vicinity of, the Building.
(iv) The term "Class A Office Buildings" shall mean
office buildings in the same class or category as the Building under any
building operating agreement between R.A.B. and Local 32B, regardless of the
designation given to such office buildings in any such agreement.
(v) The term "Escalation Statement" shall mean a
statement setting forth the amount payable by Tenant for a specified Tax Year
or Operating Year (as the case may be) pursuant to this Article 38.
(b) If the Wage Rate for any Operating Year shall be greater
than the Base Wage Rate, then Tenant shall in the case of such an increase pay
to Landlord as additional rent for the demised premises for such Operating Year
an amount equal to the product obtained by multiplying seventy-five (75%)
percent of the difference between the Wage Rate for such Operating Year and the
Base Wage Rate, by the Wage Rate Multiple. (Example: if the Wage Rate in 1998
shall be ten cents higher than the Base Wage Rate, Tenant shall pay to Landlord
for 1998, $3,583.12, which is the product obtained by multiplying seven and one
half cents by 47,775.)
(c) (i) Tenant shall pay as additional rent for each Tax
Year a sum (hereinafter referred to as "Tenant's Tax Payment") equal to
Tenant's Proportionate Share of the amount by which the Taxes for such Tax Year
exceed the Tax Base. Tenant's Tax Payment for each Tax Year shall be due and
payable in two (2) equal installments, in advance, on the first day of each
June and December during each Tax Year, based upon the Escalation Statement
furnished to Tenant for such Tax Year. If there shall be any increase in Taxes
for any Tax Year, whether during or after such Tax Year, Landlord shall furnish
a revised Escalation Statement for such Tax Year, and Tenant's Tax Payment for
such Tax Year shall be adjusted and paid substantially in the same manner as
provided in the preceding sentence. Landlord shall, upon Tenant's written
request therefor, furnish Tenant with a copy of the tax bills from the
applicable taxing authorities for the Tax Year for which such request is made
provided such request is made by Tenant prior to 30 days after the expiration
of such Tax Year. If during the term of this Lease, Taxes are required to be
paid (either to the appropriate taxing authorities or as tax escrow payments to
a superior mortgagee) in full or in monthly, quarterly, or other installments,
on any other date or dates than as presently required, then at Landlord's
option, Tenant's Tax Payments shall be correspondingly accelerated or revised
so that said Tenant's Tax Payments are due at least 30 days prior to the date
payments are due to the taxing authorities or the superior mortgagee.
(ii) If the real estate tax fiscal year of The City
of New York shall be changed during the term of this Lease, any Taxes for such
fiscal year, a part of which is included within a particular Tax Year and a part
of which is not so included, shall be apportioned on the basis of the number of
days in such fiscal year included in the particular Tax Year for the purpose of
making the computations under this Section 38(c).
(iii) If Landlord shall receive a refund of the
Taxes for any Tax Year, Landlord shall either pay to Tenant, or permit Tenant
to credit against subsequent payments of fixed rent or additional rent under
this Lease, Tenant's Proportionate Share of the net refund (after deducting
from such refund the costs and expenses, including, without limitation,
reasonable appraisal, accounting and counsel fees of obtaining same, to the
extent that such costs and expenses were not included in the Taxes for such Tax
Year); provided, however, such
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payment or credit to Tenant shall in no event exceed Tenant's Tax Payment paid
for the Tax Year to which such refund relates. Notwithstanding anything to the
contrary contained in this Lease, in the event that Landlord receives any
refund or abatement of Taxes pursuant to the Lower Manhattan Plan or any other
similar plan or abatement that Landlord is required to pass through to tenants
of the Building, (as such term is defined in Section 56(a)(i) hereof), (i)
Tenant shall not be entitled to any payment or credit under this Lease in
connection with such refund or abatement except as set forth in Article 56
hereof and (ii) for purposes of computing Tenant's Tax Payment, there shall not
be deducted from Taxes all or any portion of such refund or abatement.
(iv) If the Tax Base is reduced as a result of a
certiorari proceeding or otherwise, Landlord shall adjust the amount of each
Tenant's Tax Payment previously made, and Tenant shall pay the amount of said
adjustment within thirty (30) days after demand setting forth the amount of said
adjustment.
(d) Tenant shall pay to Landlord upon demand, as additional
rent, any occupancy tax or rent tax now in effect or hereafter enacted which is
not included in Taxes and not payable directly by Tenant to the applicable
taxing authority, if payable by Landlord in the first instance or hereafter
required to be paid by Landlord.
(e) Any such adjustment payable by reason of the provisions of
Section 38(b) shall commence as of the first day of the relevant Operating Year
and, after Landlord shall furnish Tenant with an Escalation Statement relating
to such Operating Year, all monthly installments of rental shall reflect
one-twelfth of the annual amount of such adjustment until a new adjustment
becomes effective pursuant to the provisions of this Article 38, provided,
however, that if said Escalation Statement is furnished to Tenant after the
commencement of such Operating Year, there shall be promptly paid by Tenant to
Landlord, an amount equal to the portion of such adjustment allocable to the
part of such Operating Year which shall have elapsed prior to the first day of
the calendar month next succeeding the calendar month in which said Escalation
Statement is furnished to Tenant. In the event that by reason of any Legal
Requirement, an increase in the Wage Rate for any Operating Year is reduced or
does not take effect, or increases in the Wage Rate for any Operating Year are
limited or prohibited, then during the period beginning on the effective date
of any such Legal Requirement and ending on the date that such Legal
Requirement shall cease to be in effect (hereinafter called the "Control
Period"), the Wage Rate for purposes of the adjustment payments to be made by
Tenant in accordance with Section 38(b) hereof, shall be deemed to increase for
each Operating Year during the Control Period that the Wage Rate is affected by
such Legal Requirement at the same annual rate that the same increased for the
Operating Year immediately preceding the first Operating Year affected by such
Legal Requirement.
(f) In the event that the commencement date of the term of this
lease shall be other than the first day of a Tax Year or an Operating Year or
the date of the expiration or other termination of this lease shall be a day
other than the last day of a Tax Year or an Operating Year, then, in such
event, in applying the provisions of this Article 38 with respect to any Tax
Year or Operating Year in which such event shall have occurred, appropriate
adjustments shall be made to reflect the occurrence of such event on a basis
consistent with the principles underlying the provisions of this Article 38
taking into consideration the portion of such Tax Year or Operating Year which
shall have elapsed after the term hereof commences in the case of the
commencement date, and prior to the date of such expiration or termination in
the case of the expiration date or other termination.
(g) Payments shall be made pursuant to this Article 38
notwithstanding the fact that an Escalation Statement is furnished to Tenant
after the expiration of the term of this lease.
(h) In no event shall the fixed annual rent ever be reduced by
operation of this Article 38 and the rights and obligations of Landlord and
Tenant under the provisions of this Article 38 with respect to any additional
rent shall survive the termination of this lease.
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<PAGE>
(i) Landlord's failure to render an Escalation Statement with
respect to any Tax Year or Operating Year, respectively, shall not prejudice
Landlord's right to thereafter render an Escalation Statement with respect
thereto or with respect to any subsequent Tax Year or Operating Year. Tenant's
obligation to pay escalation for any Tax or Operating Year during the term of
this lease shall survive the expiration or earlier termination of this lease.
(j) Each Escalation Statement shall be conclusive and binding
upon Tenant unless within 90 days after receipt of such statement Tenant shall
notify Landlord that it disputes the correctness of such statement, specifying
the particular respects in which such statement is claimed to be incorrect.
Pending the determination of such dispute, Tenant shall pay additional rent in
accordance with the statement that Tenant is disputing, without prejudice to
Tenant's position. If the dispute shall be determined in Tenant's favor,
Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment
resulting from compliance with Landlord's statement.
(k) Tenant, upon no less than five days prior notice, may elect
to have Tenant's designated certified public accountant examine such of
Landlord's books and records (collectively, the "Records") as are directly
relevant to the Escalation Statement in question. Any such examination shall be
commenced by Tenant's designated certified public accountant within 30 days
after Tenant's receipt of such Escalation Statement and concluded within 30
days after Landlord shall make the Records available to Tenant for examination.
In making such examination, Tenant agrees, and shall cause its designated
certified public accountant to agree, to keep confidential any and all
information contained in the Records.
(l) Notwithstanding any language to the contrary contained
herein, Tenant shall not be obligated to pay any Tax Payments that may accrue
between the date hereof and the first (1st ) anniversary of the Commencement
Date.
39. Electricity:
(a) Seven and one-half (7.5) watts of electric current,
connected load, per usable square foot of the demised premises, will be
supplied by Landlord to the demised premises ( but in no event shall Landlord
be obligated to supply more than 6 watts per usable square foot of demand load)
and Tenant will pay Landlord or Landlord's designated agent, as additional rent
for the supplying of electric current, the sum of (i) an amount computed by
applying Tenant's consumption and demand for the billing period in question (as
measured by the meter(s) installed in the demised premises for that purpose) to
the rates in Service Classification No. 4-I of Consolidated Edison Company of
New York, Inc. then in effect (or any successor rate classification thereto),
plus, (ii) five (5%) percent of such amount. Where more than one (1) meter
measures the service of Tenant, the service rendered through each meter may be
computed and billed separately in accordance with the rates herein. Bills
therefor shall be rendered at such times as Landlord may elect and the amount,
as computed from a meter, shall be deemed to be, and be paid as, additional
rent within twenty (20) days of rendition thereof. If any tax is imposed on
Landlord's receipt from the sale or resale of electric energy to Tenant by any
federal, state or municipal authority other than a tax on the profits, if any,
earned by Landlord on such sale or resale of electric energy, Tenant covenants
and agrees that where permitted by law, Tenant's share of such taxes shall be
passed on to, and included in the bill of, and paid by, Tenant to Landlord. If
any meters or other equipment must be installed to furnish electric service to
the demised premises on a submetered basis, as herein provided, the same shall
be installed by Landlord and Tenant shall pay one half the cost of such
installation within thirty (30) days after demand by Landlord. If Tenant shall
occupy the demised premises for business purposes and consume electricity prior
to the installation of meters in the Premises, then Tenant agrees to pay
Landlord the sum of $2.75 per rentable square foot per annum for electricity
pursuant to this subsection 39(a) until such time as said meters are installed,
said amount to be subject to increase in the same percentage as any increase in
SC 4-I rates after the date hereof.
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(b) Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy, steam or other
utilities furnished to the demised premises by reason of any requirement, act
or omission of the public utility serving the Building with electricity or
steam or other utilities or for any other reason. Tenant's use of electric
energy in the demised premises shall not at any time exceed the capacity of any
of the electrical conductors, machinery and equipment in or otherwise serving
the demised premises. In order to ensure that such capacity is not exceeded and
to avert possible adverse effect upon the electric service in the Building,
Tenant agrees not to connect any additional electrical equipment, fixtures,
machinery or appliances of any type to the Building electric distribution
system, other than lamps, copiers, typewriters, quotrons, personal computers
and other machines incidental to Tenant's business operations which consume
comparable amounts of electricity, without Landlord's prior written consent,
which consent shall not be unreasonably withheld. Any additional risers,
feeders, or other equipment proper or necessary to supply Tenant's electrical
requirements, upon written request of Tenant, will be installed by Landlord, at
the sole cost and expense of Tenant, if, in Landlord's sole judgment, the same
are necessary and will not cause permanent damage or injury to the Building or
the demised premises, or cause or create a dangerous or hazardous condition or
entail excessive or unreasonable alterations, repair or expense or interfere
with or disturb other tenants or occupants.
(c) Landlord reserves the right to discontinue furnishing
electric energy to Tenant at any time upon thirty (30) days' written notice to
Tenant, provided that Landlord shall discontinue furnishing electricity to
tenants occupying 50% of the Building. From and after the effective date of
such termination, Landlord shall no longer be obligated to furnish Tenant with
electric energy and Tenant shall not be obligated to pay Landlord the amounts
specified in 39(a) hereof for electricity, provided, however, that such
termination date may be extended for a time reasonably necessary for Tenant to
obtain electric service directly from the public utility company servicing the
Building. If Landlord exercises such right of termination, this lease shall
remain unaffected thereby and shall continue in full force and effect, and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the public utility company servicing the Building, and may utilize the
then existing electric feeders, risers and wiring serving the demised premises
to the extent available and safely capable of being used for such purpose and
only to the extent of Tenant's then authorized connected load. Landlord shall
be obligated to pay no part of any cost required for Tenant's direct electric
service.
40. Commencement of Term:
(a) The term of this lease shall commence on a date (herein
referred to as the "Commencement Date") which shall be the earlier of (i) the
date the demised premises are ready for occupancy (as defined in paragraph (b)
hereof) and Landlord shall have given Tenant at least five (5) days prior
notice thereof, or (ii) the date Tenant or anyone claiming under or through
Tenant first occupies the demised premises for the conduct of its business, and
shall end on the last day of the month in which shall occur the day immediately
preceding the fifteenth (15th) anniversary of the Commencement Date (such date
on which the term of the lease expires is herein referred to as the "Expiration
Date") or until such term shall sooner cease and terminate as herein provided.
Landlord shall, in accordance with the foregoing, fix the
Commencement Date. When the Commencement Date has so been determined, at
Landlord's request, Tenant shall within ten (10) days after such request,
execute a written agreement confirming such date as the Commencement Date. Any
failure of Tenant to execute such written agreement shall not affect the
validity of the Commencement Date as fixed and determined by Landlord as
aforesaid.
(b) The demised premises shall be deemed ready for occupancy on
the date that, in Landlord's judgment, Landlord's Work (as defined in Article
43 hereof) in the demised premises shall have been substantially completed; and
it shall be so deemed (i) notwithstanding the fact that minor or insubstantial
details of construction, mechanical adjustment, or decoration remain to be
performed, the non-completion of which do not materially interfere with
Tenant's
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use of the demised premises (ii) notwithstanding the fact that Tenant's cabling
and installation of its landscape partitioning have not been completed, and
(iii) if Landlord's Work has been substantially completed except for portions
thereof which under good construction scheduling practice should be done after
still uncompleted Tenant's Finish Work.
Tenant agrees that within five (5) Business Days after Landlord's
request therefor, Tenant shall inspect the demised premises for purposes of
determining whether Landlord's Work has been substantially completed and advise
Landlord whether it agrees that Landlord's Work has been substantially
completed. If Tenant disputes that Landlord's Work has been substantially
completed , it shall specify its reasons therefor in reasonable detail. If
Tenant shall not dispute that Landlord's Work has been substantially completed
within five (5) Business Days after Landlord's request, then Landlord's Work
shall be deemed to be substantially completed for the purposes of establishing
the Commencement Date.
(c) If the occurrence of the conditions set forth in Section (b)
hereof and thereby the making of the demised premises ready for occupancy shall
be delayed due to any act or omission of Tenant or any of its employees, agents
or contractors (including, without limitation, any delay resulting from
subsequent changes made by Tenant to the plans annexed hereto) or any failure
to plan or to execute Tenant's Finish Work diligently and expeditiously, the
demised premises shall be deemed ready for occupancy on the date when they
would have been ready but for such delay.
(d) If and when Tenant shall take actual possession of the
demised premises or occupy all or any part thereof for the conduct of its
business, it shall be conclusively presumed that the same were in satisfactory
condition as of the date of such taking of possession, unless within twenty
(20) days after such date Tenant shall give Landlord notice specifying the
respects in which the demised premises were not in satisfactory condition.
Submission of a notice hereunder (i.e., a so-called "punch list") shall in no
way affect the occurrence of the Commencement Date. Landlord agrees that it
shall expeditiously complete any incomplete items of Landlord's Work listed on
any such punch list notice.
41. Subordination:
(a) In the event of any act or omission of Landlord that 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 writing and (ii) unless such act or omission shall be one that is not
capable of being remedied by Landlord or such 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 that such holder or lessor shall give Tenant
written notice of its intention to remedy such act or omission and shall, with
due diligence, commence and continue to do so.
(b) 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 the party so succeeding to Landlord's rights
(herein sometimes called the successor landlord) and upon such 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 any 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
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and covenants as are set forth in this lease and shall be applicable after such
attornment, except that the successor landlord shall not:
(i) be liable for any previous act or omission of Landlord under
this lease;
(ii) be subject to any defense or offset, not expressly provided
for in this lease, that shall have theretofore accrued to Tenant
against Landlord; or
(iii) be 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 or any additional
rent then due, 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) Landlord represents that as of the date hereof, there is
only one Superior Mortgage with respect to the Real Property, which is held by
State Street, L.P. (herein called "State Street"). Landlord shall deliver to
Tenant a subordination, non-disturbance and attornment agreement (hereinafter
called a "SNDA Agreement") in favor of Tenant from State Street in
substantially the form attached hereto as Exhibit D within fifteen (15) days
after the execution and unconditional delivery by and to both Landlord and
Tenant of this lease by and to both Landlord and Tenant. Tenant agrees that it
shall, at the request of Landlord, enter into a SNDA Agreement in the form as
annexed hereto as Exhibit D. If Landlord shall fail to obtain such SNDA
Agreement within fifteen (15) days after the execution and unconditional
delivery by and to both Landlord and Tenant of this lease, then except as
expressly set forth below, Landlord shall have no liability therefor, but
Tenant may terminate this lease upon ten (10) days' prior written notice to
Landlord furnished at any time during the five (5) day period following the
expiration of the foregoing fifteen (15) day period or following such earlier
date upon which Landlord has notified Tenant that Landlord will not be able to
obtain such SNDA Agreement, and following the expiration of said ten (10) days,
this lease shall forthwith terminate unless Landlord has delivered such SNDA
Agreement to Tenant and any monies delivered to Landlord by Tenant upon
Tenant's execution of this Lease shall be returned to Tenant.
42. Directory Listings
Landlord will, at the request of Tenant, maintain listings on
the Building directory of the names of Tenant and any other person, firm,
association or corporation in occupancy of the demised premises or any part
thereof as permitted hereunder, and the names of any partners or employees of
any of the foregoing provided the total number of such listings shall not
exceed 20. The listing of any name other than that of Tenant, whether on the
doors of the demised premises, on the Building directory, or otherwise, shall
not operate to vest any right or interest in this lease or in the demised
premises or be deemed to be the written consent of Landlord to the occupancy of
any portion of the demised premises by such person, firm, association or
corporation, it being expressly understood that any such listing is a privilege
extended by Landlord.
43. Preparation of Premises:
(a) Landlord shall, at Landlord's cost and expense ( subject to
Tenant's Contribution, as set forth below) perform demolition work in the
demised premises and construct and prepare same for Tenant's occupancy in
accordance with the plans and specifications listed on Exhibit E annexed hereto
(hereinafter called "Tenant's Final Plans"), which Final Plans are initialled
by Landlord and Tenant. The installations, facilities, materials and work so to
be furnished, installed and performed in the demised premises by Landlord are
hereinafter referred to as "Landlord's Work". All other installations,
facilities, materials and work which are not on Tenant's Final Plans and which
are by or for the account of Tenant to prepare, equip, decorate and furnish the
demised premises for Tenant's occupancy, shall be at Tenant's expense and are
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hereinafter referred to as "Tenant's Finish Work." Notwithstanding anything to
the contrary contained herein or on the Tenant's Final Plans, Landlord and
Tenant agree that (1) the items set forth on Exhibit E-1 shall in no event be
considered items of Landlord's Work, and (2) the Notes on Tenant's Final Plans
contain certain requirements for Landlord's general contractor to obtain the
approval or review of "Owner" and/or its architect to particular items on
Tenant's Final Plans and such references to the approval or review of "Owner"
or its architect shall be deemed to be references to the approval or review of
Landlord or its architect, it being agreed that Landlord's general contractor
shall not be required to obtain from Tenant or its architect any further
approval or review of the work set forth on the Tenant's Final Plans. During
the performance of Landlord's Work, however, Tenant and its representatives
shall be permitted access to the construction site for inspection purposes and
Landlord shall make available to Tenant and its representatives copies of shop
drawings for Landlord's Work.
The term "Tenant's Contribution" shall mean the aggregate sum of
One Million Sixty Thousand Dollars ($1,060,000.00). Tenant shall be liable to
pay to Landlord, as additional rent hereunder, the Tenant's Contribution which
shall be payable in three (3) equal installments as each one third (1/3) portion
of Landlord's Work are substantially completed, within thirty (30) days after
Landlord's demand therefor.
(b) All engineering drawings required in connection with the
Landlord's Work shall be performed by Tenant, at Tenant's expense, by an
engineer first approved by Landlord. Landlord hereby approves Robert Director
and Associates. Landlord or Landlord's designated agent shall, at Tenant's
expense, file all required architectural, mechanical, engineering and
electrical drawings and obtain all necessary permits.
(c) Tenant shall make no changes in the Final Plans submitted by
it for Landlord's Work except for de minimis changes based on field variations,
without Landlord's consent, which consent shall not be unreasonably withheld or
delayed. If Landlord shall consent thereto, Landlord shall advise Tenant of the
cost of such changes and if Tenant shall sign a change order for such changes,
Landlord shall incorporate such changes into Landlord's Work and the actual
cost of such changes, including, without limitation, reasonable architectural
and engineering fees actually incurred in connection therewith (without any
charge payable to Landlord for Landlord's overhead or general conditions, but
the overhead and general conditions payable to Landlord's general contractor
shall be included within such cost) shall be borne by Tenant and shall be paid
on demand, as additional rent hereunder. Tenant agrees that Tenant shall be
responsible pursuant to the provisions of 40(c) hereof for any delay in the
substantial completion of Landlord's Work occasioned by any such changes in the
Final Plans.
(d) Landlord shall deliver to Tenant an ACP-5 certificate
covering the demised premises from Landlord's licensed technician.
(e) Notwithstanding any language to the contrary contained
herein, in the event that Landlord fails to substantially complete Landlord's
Work on or before the date (the "Outside Date") which is eight (8) months after
the date this lease is executed by and delivered to both Landlord and Tenant,
then provided such failure is not due to the conditions described in Section
34.01 hereof or the acts or omissions of Tenant, its agents, employees,
consultants or contractors (such conditions and acts or omissions are
hereinafter called "Force Majeure"), then the fixed annual rent payable
hereunder shall be abated by one-half day for each day after the Outside Date
that Landlord's Work is not substantially complete. In the event that Landlord
fails to substantially complete Landlord's Work on or before the date which is
thirty (30) days after the Outside Date, then provided such failure is not due
to Force Majeure, the fixed annual rent shall be abated for one day for each
day after such thirty (30) day period that Landlord's Work is not substantially
complete.
(f) Tenant shall be entitled to enter the demised premises
between the date hereof and the Commencement Date to perform items of Tenant's
Finish Work which will not interfere (except to a de minimis extent) with
Landlord's performance of Landlord's Work, provided that:
(i) Tenant shall indemnify and hold harmless
Landlord from and against all cost,
expense, loss, damage or liability
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(including without limitation reasonable
attorney's fees) which may arise as a
result of or in connection with such entry
and performance of Tenant's Finish Work
prior to the Commencement Date, provided
however that this clause (f)(i) shall not
increase Tenant's liability for delays in
the substantial completion of Landlord's
Work beyond that set forth in Section 40(c)
hereof;
(ii) Tenant shall immediately upon notice from
Landlord cease any work that Landlord
reasonably determines is reasonably likely
to interfere with the performance and/or
substantial completion of Landlord's Work
except to a de minimis extent;
(iii) all the terms of this lease shall be
applicable from and after such entry except
for Tenant's obligations to pay fixed
annual rent and additional rent hereunder;
and
(iv) Tenant shall be responsible for any delays
caused to the substantial completion of Landlord's
Work in accordance with the provisions of 40 (c)
hereof.
Landlord agrees that it shall use its reasonable efforts to
coordinate the performance of Landlord's Work and Tenant's Finish Work,
provided however in no event shall Landlord be obligated to incur any
additional expense by reason thereof or be obligated to perform any of
Landlord's Work on an overtime or premium pay basis and any delay caused by or
arising from such coordination shall be Tenant's responsibility in accordance
with the provisions of 40(c) hereof. In the event Landlord uses non-union labor
in the performance of Landlord's Work and same shall result in a stoppage of
Tenant's Finish Work, Tenant shall be entitled to one day of abatement of the
fixed annual rent hereunder for each day of such stoppage of Tenant's Finish
Work caused solely by Landlord's use of non-union labor.
44. Limitation on Liability:
(a) Landlord represents that it is the fee owner of the Land and
the Building. Tenant shall look only to Landlord's estate and interest in the
Building and, where expressly so provided in this lease, to offset against the
rents payable under this lease, for the satisfaction of Tenant's remedies or
for the collection of a judgment (or other judicial process) requiring the
payment of money by Landlord in the event of any default or liability by
Landlord hereunder, and no other property or assets of Landlord and no property
of any officer, employee, director, shareholder, partner or principal of
Landlord 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.
(b) Landlord agrees that no property of any officer, employee,
director or shareholder of Tenant shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Landlord'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.
45. Miscellaneous:
(a) 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.
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(b) This lease shall be governed in all respects by the laws of
the State of New York.
(c) If, in connection with obtaining financing for the Building,
a bank, insurance company or other lending institution shall request reasonable
modifications in this lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder or materially
adversely affect the leasehold interest hereby created.
(d) Tenant shall not be entitled to exercise any right of
termination or other option granted to it by this lease (if any) at any time
when Tenant is in default after notice and the expiration of any applicable
cure period in the performance or observance of any of the covenants, terms,
provisions or conditions on its part to be performed or observed under this
lease.
(e) Tenant shall not place or permit to be placed any vending
machines in the demised premises, except with the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld.
(f) Neither Tenant nor any corporation or other entity
controlling, controlled by or under common control with Tenant shall occupy any
space in the Building (by assignment, sublease or otherwise) other than the
demised premises, except with the prior written consent of Landlord in each
instance.
(g) Tenant agrees that its sole remedies in cases where
Landlord's reasonableness in exercising its judgment or withholding its consent
or approval is applicable pursuant to a specific provision of this lease, or
any rider or separate agreement relating to this lease, if any, shall be those
in the nature of an action for injunction, declaratory judgment, or specific
performance, the rights to money damages or other remedies being hereby
specifically waived, provided however that if Tenant shall obtain a final
judgment, not subject to appeal, that Landlord has acted unreasonably and
directing that Landlord shall pay Tenant's attorney's fees in such action,
Landlord shall be responsible for the payment of such attorney's fees..
(h) The Article headings of this lease are for convenience only
and are not to be given any effect whatsoever in construing this lease.
(i) This lease shall not be binding unless and until it is
signed by both Landlord and Tenant and a fully executed copy thereof is
delivered to Landlord and Tenant.
(j) The Schedules annexed to this lease shall be deemed part of
this lease with the same force and effect as if such Schedules were numbered
Articles of this lease.
(k) If the rent hereunder shall commence on any day other than
the first day of a calendar month, the rent for such calendar month shall be
prorated.
(l) The listing of any name other than that of Tenant, whether
on the doors of the demised premises, on the Building directory, if any, 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, to any sublease of the demised
premises, or to the use or occupancy thereof by others.
(m) The terms "Owner" and "Landlord", whenever used in this
lease (including, without limitation, in Article 31), shall have the same
meaning.
(n) Notwithstanding any language to the contrary contained in
Article 28 hereof, rent bills may be sent to Tenant and shall be deemed
sufficiently given or rendered if delivered to Tenant by regular mail.
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46. Insurance:
(a) Tenant, at its expense, shall maintain at all times during
the term of this lease (a) "all risk" property insurance covering all present
and future Tenant's Property and Tenant's improvements and betterments
installed by or on behalf of Tenant to a limit of not less than the full
replacement value thereof, such insurance to include a replacement cost
endorsement, and (b) comprehensive general liability insurance, including
contractual liability, in respect of the demised premises and the conduct or
operation of business therein, with Landlord and its managing agent, if any,
and each Superior Mortgagee or Superior Lessor whose name and address shall
previously have been furnished to Tenant, as additional insureds, with limits
of not less than Three Million ($3,000,000) Dollars combined single limit for
bodily injury and property damage liability in any one occurrence, (c) steam
boiler, air-conditioning or machinery insurance, if there is a steam boiler or
pressure object or similar equipment in the demised premises, with Landlord and
its managing agent, if any, and each Superior Lessor or Superior Mortgagee
whose name and address shall previously have been furnished to Tenant, as
additional insureds, with limits of not less than Five Million ($5,000,000)
Dollars and (d) when Alterations are in progress, "Builders Risk" insurance and
general liability insurance, with completed operation endorsement, for any
occurrence in or about the Building, with Landlord and its managing agent, if
any, and each Superior Lessor or Superior Mortgagee whose name and address
shall previously have been furnished to Tenant, as additional insureds, with
limits as Landlord shall reasonably require. The limits of such insurance shall
not limit the liability of Tenant. Tenant shall deliver to Landlord and any
additional insureds such fully paid-for policies or certificates of insurance,
in form reasonably satisfactory to Landlord issued by the insurance company or
its authorized agent. Tenant shall procure and pay for renewals of such
insurance from time to time before the expiration thereof, and Tenant shall
deliver to Landlord and any additional insureds such renewal policy or a
certificate thereof at least thirty (30) days before the expiration of any
existing policy. 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 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. 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. The proceeds of policies providing "all risk" property
insurance of the leasehold improvements and betterments in the demised premises
shall be payable to Landlord, Tenant and each Superior Lessor and Superior
Mortgagee as their interests may appear. Landlord and Tenant shall cooperate
with each other in connection with the collection of any insurance monies that
may be due in the event of loss and each party shall execute and deliver to the
other such proofs of loss and other instruments which may be required to
recover any such insurance monies.
(b) Landlord and Tenant agree that they will endeavor to obtain
the clauses referred to in Article 9 hereof entitling them to give the releases
provided therein and Landlord and Tenant agree to advise the other promptly if
such clauses cannot be obtained. Landlord and Tenant hereby also agree to
notify the other promptly of any cancellation or change of the terms of any
such policy which would affect such clauses.
47. Late Payment Charge:
If Tenant shall make any payment of fixed rent, additional rent
or other charges more than ten (10) days after the same is due and payable
Tenant shall pay a late payment charge on the amount due equal to the interest
accrued on the amount due at the lower of the Interest Rate or the highest rate
permitted by law from the date such installation or payment shall have become
due to the date of the payment thereof. Such amount shall be payable as
additional rent hereunder.
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48. Brokerage:
Landlord and Tenant each covenants, represents and warrants that
it has had no dealings or communications with any broker or agent in connection
with the consummation of this lease other than the Broker, and Landlord and
Tenant each covenants and agrees to pay, hold harmless and indemnify the other
from and against any and all cost, expense (including reasonable attorneys'
fees) or liability for any compensation, commissions or charges claimed by any
broker or agent other than the Broker hereinabove set forth with whom the
indemnifying party dealt with respect to this lease or the negotiation thereof.
Landlord shall pay any commission or other charge which may be due to the
Broker in connection with this lease pursuant to separate agreement.
49. Condenser Water.
49.1. Landlord is installing as part of Landlord's Work
supplemental air conditioning units (hereinafter called the "Supplemental
Units")as shown on Tenant's Final Plans. Any such Supplemental Units so
installed in the demised premises shall be maintained by Tenant throughout the
term of this Lease at Tenant's sole cost and expense. During the term of the
Lease, Landlord shall furnish up to 44 tons of condenser water from the
Building tower for Tenant's use in connection with the Supplemental Units, and
Tenant shall pay, as additional rent, at the same time and together with the
payments of the monthly rent under this Lease, the amounts set forth in this
Section 49.1 ( hereinafter called the "Condenser Water Charges") The Condenser
Water Charges are twenty-five cents ($0.25) per ton per hour of the maximum
permitted use ( whether or not Tenant shall use such maximum )per year, which
rate shall be increased on each anniversary of the Commencement Date to an
amount equal to 104% of the Condenser Water Charges payable during the
immediately preceding year ( without regard to any abatement or setoff which
might then have been in effect). Tenant's Supplemental Units shall, upon
expiration or earlier termination of this Lease, become and remain the property
of Landlord and shall be surrendered by Tenant with the demised premises.
Tenant shall obtain and maintain, at Tenant's sole cost and expense, all
permits necessary for the operation of the Supplemental Units.
50. Addendum to Article 11:
50.1 Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise (a) assign in whole or in part or otherwise
transfer in whole or in part this lease or the term and estate hereby granted,
(b) sublet the demised premises or any part thereof, or allow the same to be
used, occupied or utilized by anyone other than Tenant, (c) mortgage, pledge,
encumber or otherwise hypothecate this lease or the demised premises or any
part thereof in any manner whatsoever or (d) permit the demised premises or any
part thereof to be occupied, or used for desk space, mailing privileges or
otherwise, by any person other than Tenant, without in each instance obtaining
the prior written consent of Landlord. Tenant shall not advertise or publicize
in any way the availability of the demised premises for assignment or
subletting in any way that shall state the name (as distinguished from the
address) of the Building or the proposed rental, or otherwise specifying a
rental rate.
50.02 (a) The Tenant named herein, shall have the right, without
requiring the prior consent of Landlord, to assign its interest in this lease,
for the use permitted in this lease, or sublet the whole or part of the demised
premises on one or more occasions to any number of affiliates of the Tenant
named herein. For the purposes of this Article 50, an "affiliate" of the Tenant
named herein shall mean any corporation, partnership or other business entity
which controls or is controlled by, or is under common control with Tenant and
the term "control" as used with respect to any corporation, partnership, or
other business entity shall mean the possession of the power to direct or cause
the direction of the management and policies of such corporation, partnership,
or other business entity whether through the ownership of voting
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securities or contract. Any transfer or cessation of control over any affiliate
to which this lease is assigned shall constitute an assignment of this lease to
which all of the provisions of this Article 50 (other than Section 50.02(c))
shall apply. No such assignment shall be valid or effective unless, within ten
(10) days after the execution thereof, Tenant shall deliver to Landlord all of
the following: (I) a duplicate original instrument of assignment, in form and
substance reasonably satisfactory to Landlord, duly executed by Tenant, in
which Tenant shall (A) waive all notices of default given to the assignee, and
all other notices of every kind or description now or hereafter provided in
this lease, by statute or rule of law, and (B) acknowledge that Tenant's
obligations with respect to this lease shall not be discharged, released or
impaired by (i) such assignment, (ii) any amendment or modification of this
lease (subject however to the provisions of Section 50.05 hereof) (iii) any
further assignment or transfer of Tenant's interest in this lease, (iv) any
exercise, non-exercise or waiver by Landlord of any right, remedy, power or
privilege under or with respect to this lease, (v) any waiver, consent,
extension, indulgence or other act or omission with respect to any other
obligations of Tenant under this lease, (vi) any act or thing which, but for
the provisions of such assignment, might be deemed a legal or equitable
discharge of a surety or assignor, to all of which Tenant shall consent in
advance, and (C) expressly waive and surrender any then existing defense to its
liability hereunder it being the purpose and intent of Landlord and Tenant that
the obligations of Tenant hereunder as assignor shall be absolute and
unconditional under any and all circumstances, and (II) an instrument, in form
and substance satisfactory to Landlord, duly executed by the assignee, in which
such assignee shall assume the observance and performance of, and agree to be
bound by, all of the terms, covenants and conditions of this lease on Tenant's
part to be observed and performed.
(b) Tenant may, upon written notice to Landlord, but without
Landlord's written consent, permit any "affiliates" (as hereinabove defined) to
use the whole or part of the demised premises for any of the uses permitted to
Tenant. Such use shall not be deemed to vest in any such affiliates any right
or interest in this lease or in the demised premises, nor shall such use
release, relieve, discharge or modify any of Tenant's obligations hereunder.
(c) Tenant may upon written notice to Landlord, but without
Landlord's written consent, assign or transfer its entire interest in the lease
and the leasehold estate hereby created or sublet the whole or a part of the
demised premises on one or more occasions to a "successor corporation" of
Tenant, as such term is hereinafter defined, provided that Tenant shall not be
in default, after notice and the expiration of any applicable grace period, in
any of the terms, covenants, conditions and agreements of this lease, including
but not limited to the payment of the Fixed Rent or Additional Charges payable
by Tenant hereunder. A "successor corporation" as used in this Section 50.02(c)
shall mean (i) a corporation into which or with which Tenant, its corporate or
other successors or assigns, is merged or consolidated, in accordance with
applicable statutory provisions for the merger or consolidation of corporations
or any other business entities, provided that by operation of law or by
effective provisions contained in the instruments of merger or consolidation,
the liabilities of the corporations or any other business entities or persons
participating in such merger or consolidation are assumed by the corporation
surviving such merger or consolidation or (ii) a corporation acquiring this
lease and the term hereby demised , the good-will and all or substantially all
of the other property and assets (other than capital stock of such acquiring
corporation) of Tenant, its corporate successors or assigns, and assuming all
or substantially all of the liabilities of Tenant, its corporate successors and
assigns, or (iii) any corporate successor to a successor corporation becoming
such by either of the methods described above in clauses (i) and (ii). The
acquisition by Tenant, its corporate successors or assigns, of all or
substantially all of the assets, together with the assumption of all or
substantially all of the obligations and liabilities of any corporation, shall
be deemed to be a merger of such corporation into Tenant for the purpose of
this Section 50.02(c). A "successor corporation" shall, pursuant to this
paragraph (c), have all of the rights and obligations of Tenant hereunder.
50.03. If this lease be assigned, whether or not in violation of
the provisions of this lease, Landlord may collect rent from the assignee. If
the demised premises or any part thereof are sublet or used or occupied by
anybody other than Tenant, whether or not in violation of this lease, Landlord
may, after default by Tenant, and expiration of Tenant's time to cure such
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default, collect rent from the subtenant or occupant. In either event, Landlord
may apply the net amount collected to the Fixed Rent and Additional Charges
herein reserved, but no such assignment, subletting, occupancy or collection
shall be deemed a waiver of any of the provisions of Section 50.01 hereof, or
the acceptance of the assignee, subtenant or occupant as tenant, or a release
of Tenant from the performance by Tenant of Tenant's obligations under this
lease. The consent by Landlord to a particular assignment, mortgaging,
subletting or use or occupancy by others shall not in any way be considered a
consent by Landlord to any other or further assignment, mortgaging or
subletting or use or occupancy by others not expressly permitted by this
Article 50. References in this lease to use or occupancy by others (that is,
anyone other than Tenant) shall not be construed as limited to subtenants and
those claiming under or through subtenants but shall also include licensees and
others claiming under or through Tenant, immediately or remotely.
50.04. Any assignment or transfer, whether made with Landlord's
consent pursuant to Section 50.01 hereof or without Landlord's consent pursuant
to Section 50.02 hereof, 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 reasonably 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 50.01 hereof 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
Charges 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 Charges and for the performance and observance of other
obligations of this lease on the part of Tenant to be performed or observed.
50.05. The joint and several liability of Tenant and any
immediate or subsequent 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. If any such agreement or modification
operates to increase the obligations of a tenant under this Lease, the liability
of the Tenant or any of its successors in interest as Tenant (unless such party
shall expressly consent in writing to such agreement or modification) shall
continue to be no greater than if such agreement or modification had not been
made.
50.06. 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.
50.07. Notwithstanding anything to the contrary contained in this
Article 50:
(a) If Tenant shall at any time or times during the term of
this lease desire to assign this lease other than by an assignment contemplated
by Section 50.02 hereof, Tenant shall give notice thereof to Landlord, which
notice shall be accompanied by (i) a term sheet specifying the terms of the
proposed assignment and all proposed ancillary documents to be executed in
connection with such proposed assignment (hereinafter called the "Assignment
Notice"), the effective date of which shall be at least thirty (30) days after
the giving of such notice, (ii) a statement setting forth in reasonable detail
the identity of the proposed assignee, the nature of its business and its
proposed use of the demised premises, (iii) any current financial information
with respect to the proposed assignee that Tenant has received in connection
with the proposed assignment and:
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(i) Upon receipt of the same, Landlord shall
then have the right to elect, by notifying Tenant within 30 days of such
delivery, to (A) terminate this lease and release Tenant hereunder, as of such
effective date as if it were the Expiration Date set forth in this lease or (B)
accept an assignment of this lease from Tenant upon the same terms as set forth
in the Assignment Notice, and Tenant shall then promptly execute and deliver to
Landlord, or Landlord's designee if so elected by Landlord, in form reasonably
satisfactory to Landlord's counsel, an assignment which shall be effective as
of such effective date.
(ii) In the event that this lease shall be assigned
to Landlord or Landlord's designee or if the demised premises shall be sublet
to Landlord or Landlord's designee pursuant to this Section 50.07 the
provisions of any such sublease or assignment and the obligations of Landlord
and the rights of Tenant with respect thereto shall not be binding upon or
otherwise affect the rights of any holder of a superior mortgage or of a
superior lease unless such holder shall elect by written notice to Tenant to
succeed to the position of Landlord or its designee, as the case may be,
thereunder.
(b) If Tenant shall at any time during the term of this lease,
desire to sublease all or any part of the Premises, other than by a sublease
contemplated by Section 50.02, Tenant shall, at least thirty (30) days prior to
the effective date of the contemplated sublease, deliver to Landlord, a term
sheet specifying the terms of the proposed sublease and all proposed ancillary
agreements with the proposed sublessee (hereinafter called the "Sublease
Notice"), and Landlord shall then have the right to elect, by notifying Tenant
within thirty (30)) days of such delivery, to (i) terminate this lease and
release Tenant hereunder as to the portion of the demised premises affected by
such subletting if such proposed subletting was for all or substantially all of
the balance of the term of this lease or as to the entire demised premises in
the case of a subletting thereof, as of such effective date, or (ii) accept a
sublease from Tenant of the portion of the demised premises affected by such
proposed subletting or the entire demised premises in the case of a proposed
subletting thereof, and Tenant shall then promptly execute and deliver a
sublease to Landlord, or Landlord's designee if so elected by Landlord, for the
remainder of the demised term less one day, commencing with such effective
date, at the rental terms reflected in the Sublease Notice.
(c) If Landlord should elect to have Tenant execute and
deliver a sublease pursuant to any of the provisions of this Section 50.07,
said sublease shall be in a form reasonably satisfactory to Landlord's counsel
and on all the terms contained in this lease, except that:
(i) The rental and other material terms, including
without limitation, initial rent concessions or work to be
performed for the subtenant, shall be as set forth in the
Sublease Notice.
(ii) Intentionally omitted
(iii) The subtenant thereunder shall have the right
to underlet the subleased premises, in whole or in part, without
Tenant's consent,
(iv) The subtenant thereunder shall have the right
to make, or cause to be made, any changes, alterations,
decorations, additions and improvements that subtenant may desire
or authorize provided that to the extent same is not permitted
under this lease, Landlord shall consent thereto,
(v) Such sublease shall expressly negate any
intention that any estate created by or under such sublease be
merged with any other estate held by either of the parties
thereto,
(vi) Any consent required of Tenant, as lessor under
that sublease, shall be deemed granted if consent with respect
thereto is granted by Landlord,
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(vii) There shall be no limitation as to the use of
the sublet premises by the subtenant thereunder, provided however
if such use shall not be permitted under this lease, Landlord
shall consent thereto,
(viii) Any default by subtenant under any such
sublease shall not give rise to a default under a similar
obligation included in this lease; nor shall Tenant be liable for
any default under this lease if such default is occasioned by or
arises from any act or omission of the subtenant under such
sublease, and
(ix) Such sublease shall provide that Tenant's
obligations with respect to vacating the demised premises and
removing any changes, alterations, decorations, additions or
improvements made in the subleased premises shall be limited to
those which accrued and related to such as were made prior to the
effective date of the sublease.
(d) If Landlord exercises its option to have this Lease
assigned to it in the case where Tenant desires either to assign this Lease ,
then Tenant shall assign this Lease to Landlord by an assignment in form and
substance reasonably satisfactory to Landlord. Such assignment shall be
effective on the date the proposed assignment was to be effective as specified
in the Assignment Notice If pursuant to the Assignment Notice or the Sublease
Notice, the proposed assignee or sublessee was to receive any consideration or
concessions from Tenant in connection with the proposed assignment or sublease,
then Tenant shall pay such consideration and/or grant any such concessions to
Landlord on the date Tenant was to pay the proposed assignee or sublessee such
consideration or grant such concession as set forth in the Assignment Notice or
the Sublease Notice, as the case may be. Landlord agrees that Landlord, as
landlord under this Lease, shall not have the right to hold Tenant liable for
any default by Landlord in its obligations as tenant under this Lease.
(e) If pursuant to the exercise of any of Landlord's options
pursuant to Section 50.07 hereof this lease is terminated as to only a portion
of the demised premises, then the Fixed Rent payable hereunder and the
Additional Charges payable pursuant to Article 3 hereof shall be adjusted in
proportion to the portion of the demised premises affected by such termination.
50.08. If the thirty (30) day period described in Section 50.07
shall have elapsed and Landlord shall not have exercised any of the options
granted to Landlord therein, then, following such thirty (30) day period,
providing that Tenant is not in default of any of Tenant's obligations under
this lease after notice and the expiration of any applicable cure period,
Landlord's consent to the proposed assignment or sublease shall not be
unreasonably withheld or delayed provided and upon condition that:
(a) Tenant shall have complied with the provisions of Section
50.07 hereof;
(b) The proposed assignee or subtenant is engaged in a
business and the demised premises, or the relevant part thereof, will be used
for general and executive offices pursuant to Article 2 hereof;
(c) The proposed assignee or subtenant is a reputable person
or entity of good reputation;
(d) Neither (i) the proposed assignee or sublessee nor (ii)
any person which, directly or indirectly, controls, is controlled by, or is
under common control with, the proposed assignee or sublessee or any person who
controls the proposed assignee or sublessee, is then an occupant of the
Building;
(e) The proposed assignee or sublessee is not a person with
whom Landlord is then negotiating to lease space in the Building or a party who
dealt with Landlord with respect to
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space in the Building during the six (6) months immediately preceding Tenant's
request for Landlord's consent.
(f) The form of the proposed sublease or assignment shall
comply with the applicable provisions of this Article 50;
(g) There shall not be more than three (3) occupants
(including Tenant) on each floor of the demised premises;
(h) The amount of the aggregate rent to be paid by the
proposed subtenant or the consideration to be paid by the proposed assignee, as
the case may be, was established as a result of a bona fide arm's-length
transaction between the Tenant and such subtenant or assignee;
(i) Tenant shall reimburse Landlord on demand for any actual
and reasonable costs that may be incurred by Landlord in connection with said
assignment or sublease, including, without limitation, the costs of making
investigations as to the acceptability of the proposed assignee or subtenant,
and actual and reasonable legal costs incurred in connection with the granting
of any requested consent;
(j) Tenant shall not have (i) advertised or publicized in any
way the availability of the demised premises stating the name (as distinguished
from the address) of the Building or the proposed rental, (ii) listed the
demised premises for subletting, whether through a broker, agent,
representative, or otherwise specifying a rental rate; and
(k) The space being offered, the rental rate or other
consideration payable by the proposed assignee or subtenant as determined
pursuant to Section 50.07 hereof, and the term of the proposed sublease are the
same as those contained in the Assignment Notice or the Sublease Notice, as the
case may be , provided however: (x) the proposed rental rate and/or other
payment payable by such assignee or subtenant may be less than the proposed
rental rate and/or other payment set forth in the Assignment Notice or the
Sublease Notice, as the case may be, by up to five (5%) percent (after taking
into account all relevant factors) or may exceed such proposed rental rate
and/or other payment; (y) the space being offered may vary from the space set
forth in the Assignment Notice or the Sublease Notice, as the case may be
therefor by up to five (5%) percent provided that the configuration of the
space being offered does not materially change; and (z) the term of the
proposed subletting may vary from the term set forth in the Assignment Notice
or the Sublease Notice, as the case may be therefor by six (6) months.
50.09. (a) In the event that in connection with Tenant's
request for Landlord's consent pursuant to Section 50.08 hereof, the provisions
of the proposed assignment or sublease differ with respect to the terms set
forth in the Assignment Notice or the Sublease Notice, as the case may be,
except to the extent specifically permitted pursuant to subsection 50.08(k)
hereof, then in such event, Tenant's request for consent pursuant to Section
50.08 hereof shall be deemed to be an offer from Tenant to Landlord as to which
Landlord shall have all of the options set forth in Section 50.07 hereof.
(b) If Landlord fails to exercise any of its options
under Section 50.07 hereof, and Tenant fails to request Landlord's consent to
an assignment or sublease on the terms and conditions set forth in the
Assignment Notice or the Sublease Notice, as the case may be within two (2)
months from the date of Landlord's response to the Assignment Notice or the
Sublease Notice, as the case may be, or if Landlord fails to exercise any of
its options under Section 50.07 hereof, and consents to a proposed assignment
or sublease, and Tenant fails to execute and deliver the assignment or sublease
to which Landlord consented within two (2) months after the giving of such
consent, then, in either event, Tenant shall again comply with all of the
provisions and conditions of Section 50.07 hereof before assigning this lease
or subletting all or part of the demised premises.
50.10. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this lease, it is further
agreed:
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(a) No subletting shall be for a term (including any renewal
or extension options contained in the sublease) 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 (and all ancillary documents executed in
connection with, with respect to or modifying such sublease) has been delivered
to Landlord.
(c) Each sublease shall provide that it is subject and
subordinate to this lease and to any matters to which this lease is or shall be
subordinate, and that in the event of termination, reentry or dispossess by
Landlord under this lease Landlord may, at its option, take over all of the
right, title and interest of Tenant, as sublessor, under such sublease, and
such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the
then executory provisions of such sublease, except that Landlord shall not be
(i) liable for any previous act or omission of Tenant under such sublease, (ii)
subject to any credit, offset, claim, counterclaim, demand or defense which
such subtenant may have against Tenant, (iii) bound by any previous
modification of such sublease or by any previous prepayment of more than one
(1) month's rent, (iv) bound by any covenant of Tenant to undertake or complete
any construction of the demised premises or any portion thereof, (v) required
to account for any security deposit of the subtenant, (vi) bound by any
obligation to make any payment to such subtenant or grant any credits, except
for services, repairs, maintenance and restoration provided for under the
sublease to be performed after the date of such attornment, (vii) responsible
for any monies owing by Landlord to the credit of Tenant or (viii) required to
remove any person occupying the demised premises or any part thereof.
(d) Each sublease shall provide that the subtenant may not
assign its rights thereunder or further sublet the space demised under the
sublease, in whole or in part, without Landlord's consent, which consent shall
not be withheld or delayed in accordance with this Article 50 and subject to
the provisions of Section 50.11 hereof.
50.11. (a) If in accordance with Section 50.08 hereof Landlord
shall give its consent to any assignment of this lease or to any sublease or
shall be deemed to so consent, Tenant shall in consideration therefor, pay to
Landlord, as Additional Charges an amount equal to fifty (50%) percent of the
Assignment Profit (hereinafter defined) or of the Sublease Profit (hereinafter
defined), as the case may be.
(b) For purposes of this Section 50.11, the term "Assignment
Profit" shall mean an amount equal to all sums and other considerations paid to
Tenant or any subtenant by the assignee for or by reason of such assignment
(including, but not limited to, sums paid for the sale or rental of Tenant's
fixtures, leasehold improvements, equipment, furniture, furnishings or other
personal property, less, in the case of a sale of any such items other than the
leasehold improvements, the then net unamortized cost thereof determined on the
basis of Tenant's federal income tax returns) in excess of Tenant's Costs (as
that term is hereinafter defined) incurred by Tenant in connection therewith.
(c) For purposes of this Section 50.11, the term "Sublease
Profit" shall mean in any year of the term of this lease (i) any rents,
additional charges or other consideration payable under the sublease to Tenant
by the subtenant or to any subtenant by an undertenant which is in excess of
the Fixed Rent and Additional Charges accruing during such year of the term of
this lease in respect of the subleased space (at the rate per square foot
payable by Tenant hereunder) pursuant to the terms hereof, and (ii) all sums
paid for the sale or rental of Tenant's fixtures, leasehold improvements,
equipment, furniture or other personal property, less, in the case of any such
items other than the leasehold improvements, the then net unamortized cost
thereof determined on the basis of Tenant's federal income tax returns , in
excess of Tenant's Costs incurred in connection therewith.
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(d) As used herein, the term "Tenant's Costs" shall mean the
reasonable brokerage commissions, legal expenses and advertising expenses
incurred by Tenant to third parties in connection with the subletting or
assignment in question and the commercially reasonable cost to Tenant of any
additional improvements made to prepare the space in question for the occupancy
of the subtenant thereof or the assignee and any commercially reasonable work
allowance granted by Tenant to such subtenant or assignee. "Tenant's Costs"
shall also include in the case of any assignment only, any commercially
reasonable rent abatement or rent concession given by Tenant to the assignee in
connection with such assignment.
Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord of Tenant's Costs within thirty (30) days after the
effective date of the assignment of this Lease or commencement date of the
sublease to which same apply. The sums payable under this Section 50.11 shall
be paid to Landlord as and when paid by the subtenant or assignee to Tenant.
The sums payable under this Section 50.11 shall be paid to Landlord as and when
paid by the assignee or subtenant to Tenant.
50.12. Each subletting 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 Charges by Landlord
from any subtenant, Tenant shall and will remain fully liable for the payment
of the Fixed Rent and Additional Charges 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 shall or will be made except upon compliance with and
subject to the provisions of this Article 50.
50.13. Notwithstanding the provisions of Article 50 of the Lease
to the contrary, Landlord agrees that Landlord shall not have any of the rights
of recapture described in Section 50.07 of the Lease with respect to a proposed
subletting (hereinafter called the "Initial Subletting") by Tenant of up to 5%
of the demised premises for a term of up to five (5) years commencing within
twelve (12) months after the Commencement Date, and Landlord agrees that it
shall not unreasonably withhold or delay its consent to the Initial Subletting,
provided such subletting complies with the provisions of subparagraphs (b), (c),
(d), (e), (f), (g), (h), (i), and (j) of Section 50.08 of the Lease. Nothing
contained herein shall be deemed to release Tenant from the obligation to pay to
Landlord any amounts due to Landlord pursuant to Section 50.11 of the Lease with
respect to the Initial Subletting
51. Addendum to Article 17:
This lease and the term and estate hereby granted are subject to
the following further limitation. 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 seven (7) days after
Landlord shall have given Tenant a notice specifying such default, then in any
such case 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) day notice
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 set forth herein for the expiration of the term hereof, but
Tenant shall remain liable for damages as provided in Article 18.
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52. Addendum to Article 29:
(a) Landlord shall furnish cleaning service to the demised
premises pursuant to the provisions of paragraph (d) of Article 29 of the
printed portion of this lease in accordance with the specifications annexed
hereto as Exhibit B.
(b) Tenant covenants and agrees that Tenant shall pay to
Landlord on demand the costs incurred by Landlord for (a) extra cleaning work
in the demised premises required because of (i) misuse or neglect on the part
of Tenant or its employees or visitors, (ii) use of portions of the demised
premises for preparation, serving or consumption of food or beverages, data
processing or reproducing operations, private lavatories or toilets or other
special purposes requiring greater or more difficult cleaning work than office
areas, (iii) unusual quantity of interior glass surfaces, (iv) non-building
standard materials or finishes installed by Tenant or at its request, and (b)
removal from the demised premises and the Building of so much of any refuse and
rubbish of Tenant as shall exceed that ordinarily accumulated daily in the
routine of business office occupancy. Landlord, its cleaning contractor and
their respective employees shall have access to the demised premises for
cleaning purposes after 6:00 p.m. and before 8:00 a.m. and shall have the right
to use, without charge therefor, all light, power and water in the Premises
reasonably required to clean the demised premises as required under this
subsection
(c) If Tenant shall require heating, ventilating or
air-conditioning ("HVAC") service at any time during the cooling season other
than during the hours of 8:00 A.M. to 6:00 P.M. on Business Days, Landlord
shall furnish such after hours HVAC service upon twenty-four (24) hours advance
notice from Tenant, and Tenant shall pay, on demand, Landlord's Building-
standard charge therefor, which charge is currently $150.00 per floor per hour,
with a four (4) hour minimum on non Business Days. Such charge shall be subject
to increase in proportion to increases in Landlord's actual costs to provide
the same. If any other tenant or tenants of the Building as Tenant request
overtime air-conditioning or heating for any period for which Tenant has
requested such service pursuant to the provisions of this Section then the
Landlord's charge for overtime HVAC, as set forth above, shall be discounted by
(x) twenty (20%) for the first additional floor in the same HVAC zone as Tenant
which is receiving overtime HVAC at the same time as Tenant, (y) an additional
twenty (20%) for the second such floor and (z)an additional ten (10%) for the
third such floor, but there shall be no additional discounts for any other
floors in the same HVAC zone as Tenant which is receiving overtime HVAC at the
same time as Tenant.
(d) Landlord shall provide freight elevator service to the
demised premises on a first come-first served basis (i.e., no advance
scheduling) during Business Hours of Business Days. Freight elevator service
shall also be provided to the demised premises on a reserved basis at all other
times, upon the payment of Landlord's then established charges therefor which
shall be Additional Charges hereunder, provided however that there will be no
charge for freight elevator service in connection with Tenant's initial move
into the Building even if during overtime hours. The use of all elevators shall
be on a non-exclusive basis and shall be subject to the Rules and Regulations.
Landlord and Tenant agree that there will be no charge to Tenant for Landlord's
use of the freight elevator in connection with the performance of Landlord's
Work or for Tenant's use of the freight elevator in connection with the
performance of Tenant's Finish Work during business hours of business days,
provided that Landlord gives to Tenant access to the demised premises and use
of freight elevator during business hours of business days for the performance
of Tenant's Finish Work.
53. Intentionally Omitted
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54. Fixed Annual Rent:
(a) Tenant shall pay a fixed annual rent (hereinafter called
the "fixed annual rent") to Landlord in the manner set forth in the preamble to
the printed portion of this lease as follows:
(i) ONE MILLION ONE HUNDRED NINETY-FOUR THOUSAND
THREE HUNDRED SEVENTY-FIVE AND 00/100 ($1,194,375.00) DOLLARS per annum during
the period commencing on the Commencement Date and ending on the last day of
the month preceding the month in which occurs the first (1st) anniversary of
the Commencement Date;
(ii) ONE MILLION TWO HUNDRED EIGHTY-NINE THOUSAND
NINE HUNDRED TWENTY-FIVE AND 00/100 ($1,289,925.00) DOLLARS per annum during
the period commencing on the first day of the month in which occurs the first
(1st) anniversary of the Commencement Date and ending on the last day of the
month preceding the month in which occurs the third (3rd) anniversary of the
Commencement Date;
(iii) ONE MILLION FOUR HUNDRED NINE THOUSAND THREE
HUNDRED SIXTY-THREE AND 00/100 ($1,409,363.00) DOLLARS per annum during the
period commencing on the first day of the month in which occurs the third (3rd)
anniversary of the Commencement Date and ending on the last day of the month
preceding the month in which occurs the seventh (7th) anniversary of the
Commencement Date;
(iv) ONE MILLION FIVE HUNDRED TWENTY-EIGHT
THOUSAND EIGHT HUNDRED AND 00/100 ($1,528,800.00) DOLLARS per annum during the
period commencing on the first day of the month in which occurs the seventh
(7th) anniversary of the Commencement Date and ending on the last day of the
month preceding the month in which occurs the tenth (10th) anniversary of the
Commencement Date; and
(v) ONE MILLION FIVE HUNDRED SEVENTY-SIX THOUSAND
FIVE HUNDRED SEVENTY-FIVE AND 00/100 ($1,576,575.00) DOLLARS per annum during
the period commencing on the first day of the month in which occurs the tenth
(10th) anniversary of the Commencement Date and ending on the Expiration Date.
55. Restrictions on Use:
(A) Annexed hereto as Exhibit F, is a copy of the current
Certificate of Occupancy for the Building. Tenant shall not at any time use or
occupy the demised premises or the Building, or suffer or permit anyone to use
or occupy the demised premises, or do anything in the demised premises or the
Building, or suffer or permit anything to be done in, brought into or kept on
the demised premises, which in any manner in the sole reasonable discretion of
Landlord (a) violates the Certificate of Occupancy for the Premises or for the
Building; (b) causes or is liable to cause injury to the demised premises or
the Building or any equipment, facilities or systems therein; (c) constitutes a
violation of the laws and requirements of any public authorities or the
requirements of insurance bodies; (d) impairs or tends to impair the character,
reputation or appearance of the Building as a first-class office building; (e)
impairs or tends to impair the proper and economic maintenance, operation and
repair of the Building and/or its equipment, facilities or systems; (f) annoys
or inconveniences or tends to annoy or inconvenience other tenants or occupants
of the Building; (g) constitutes a nuisance, public or private; (h) makes
unobtainable from reputable insurance companies authorized to do business in
New York State all-risk property insurance, or liability, elevator, boiler or
other insurance at standard rates required to be furnished by Landlord under
the terms of any mortgages covering the demised premises; or (i) discharges
objectionable fumes, vapors or odors into the Building's flues or vents or
otherwise.
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(B) Tenant shall not use, or suffer or permit anyone to use,
the demised premises or any part thereof, for (a) a retail banking, trust
company, or safe deposit business, (b) a savings bank, a savings and loan
association, or a loan company, (c) the sale of travelers' checks and/or
foreign exchange, (d) a retail stock brokerage office for "off the Street"
traffic, (e) a restaurant and/or bar and/or the sale of confectionery and/or
soda and/or beverages and/or sandwiches and/or ice cream and/or baked goods
(except if expressly provided otherwise elsewhere in this lease), (f) the
business of photographic reproductions and/or offset printing (except that
Tenant may use part of the demised premises for photographic reproductions
and/or offset printing in connection with, either directly or indirectly, its
own business and/or activities), (g) an employment or travel agency, (h) a
school or classroom, (i) medical or psychiatric offices, or for the delivery or
rendition of any other medical services (j) conduct of an auction, (k) gambling
activities or (1) the conduct of obscene, pornographic or similar disreputable
activities. Further, the demised premises may not be used by (i) an agency,
department or bureau of the United States Government, any state or municipality
within the United States or any foreign government, or any political
subdivision of any of them, (ii) any charitable, religious, union or other
not-for-profit organization, or (iii) any tax exempt entity within the meaning
of Section 168(j)(4)(A) of the Internal Revenue Code of 1986, as amended, or
any successor or substitute statute, or rule or regulation applicable thereto
(as same may be amended).
56. The Lower Manhattan Plan
(a) (i) For purposes of this Article 56,
unless otherwise defined in this Lease, all terms used herein shall have the
meanings ascribed to them in Title 4 of Article 4 of the New York Real Property
Tax Law (herein called the "Lower Manhattan Plan"). The term "LMP Abatement
Benefits" shall mean the real estate tax abatement benefits of the Lower
Manhattan Plan. The term "Department" shall mean the New York City Department
of Finance.
(ii) For purposes of the Lower Manhattan
Plan, Tenant's Percentage Share shall mean Tenant's Proportionate Share, as
such term is defined in subsection 37 (c)hereof (i.e., 6.712%).
(b) (i) For so long as Tenant continues to
be eligible for the real estate tax abatement benefits of the Lower Manhattan
Plan (herein called the "LMP Abatement Benefits") with respect to the demised
premises, Landlord agrees to cooperate with Tenant to obtain the LMP Abatement
Benefits as same relate to the demised premises and to Landlord (in connection
with Tenant's eligibility for the LMP Abatement Benefits); provided, however,
that Tenant shall promptly pay to Landlord, as additional rent hereunder, the
amount of any out-of-pocket costs incurred by Landlord in connection with such
compliance, including, without limitation, the amount of any administrative
charges or fees imposed by the New York City Department of Finance (herein
called the "Department") in connection with such cooperation and/or otherwise
related to or in connection with the Lower Manhattan Plan.
(ii) Tenant agrees to comply with the
provisions and requirements of the Lower Manhattan Plan and the rules
promulgated thereunder as same relate to the demised premises; and Tenant shall
indemnify and hold harmless Landlord and all Superior Lessors and Superior
Mortgagees and its and their respective partners, directors, officers,
principals, shareholders, agents and employees from and against any and all
claims arising from or in connection with Tenant's failure to so comply,
together with all costs, expenses and liabilities incurred in connection with
each such claim or action or proceeding brought thereon, including, without
limitation, all reasonable attorneys' fees and expenses.
(c) (i) In accordance with the Lower
Manhattan Plan and notwithstanding anything to the contrary contained in this
Lease, Landlord agrees to allow Tenant a credit against the fixed annual rent
and the recurring additional rent (including Tax Payments) payable by Tenant
hereunder in an amount that, in the aggregate, equals the full amount of any
abatement of Taxes granted for the Premises pursuant to the Lower Manhattan
Plan and actually received by Landlord (herein called the "Actual LMP
Benefits"). Landlord
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shall, within thirty (30) days after its receipt of the Actual LMP Benefits,
credit the full amount thereof against the next installment(s) of fixed annual
rent and/or additional rent becoming due hereunder.
(ii) Tenant shall promptly pay to
Landlord, as additional rent hereunder, the amount of all or any portion of the
Actual LMP Benefits that have been credited against fixed annual rent and/or
additional rent becoming due hereunder, and which are thereafter revoked
(including, without limitation, if such Actual LMP Benefits are revoked due to
the exercise by Tenant of its right to assign or sublease pursuant to Article
__ hereof), together with any interest and/or penalties imposed against
Landlord in connection with such Actual LMP Benefits.
(d) (i) In accordance with Section 499-C(5)
of the Lower Manhattan Plan, Landlord agrees and informs Tenant that the
availability of the LMP Abatement Benefits are subject to the following:
(1) an application for abatement
of real property taxes pursuant to Title 4 of Article 4 of the New York Real
Property Tax Law will be made for the demised premises;
(2) the rent, including amounts
payable by Tenant for real property taxes, will accurately reflect any
abatement of real property taxes granted pursuant to Title 4 of Article 4 of
the New York Property Tax Law for the demised premises;
(3) at least thirty-five dollars
per square foot must be spent on improvements to the demised premises and the
common areas; and
(4) all abatements granted with
respect to the Building pursuant to Title 4 of Article 4 of the New York Real
Property Law will be revoked if, during the Benefit Period, real estate taxes
or water or sewer charges or other lienable charges are unpaid for more than
one year, unless such delinquent amounts are paid as provided in subdivision
four of section four hundred ninety-nine-f of Title 4 of the New York Real
Property Law.
(ii) Nothing contained in this Article
(including, without limitation, the provisions of Section 56(d)(i)(3) hereof),
shall be construed to impose any obligation on Landlord to perform, or (except
as provided elsewhere in this Lease) to incur any cost for, any improvements to
the demised premises and/or the common areas to establish Tenant's eligibility
for the LMP Abatement Benefits.
(e) (i) Landlord, upon not less than thirty (30) days advance
written notice from Tenant, agrees to cooperate with Tenant to execute, deliver
and file, together with the Abatement Application (as hereinafter defined), the
affidavit required by Section 499-C(7) of the Lower Manhattan Plan, which shall
be prepared by Tenant at Tenant's sole expense.
(ii) Landlord, upon not less than ten (10)
days advance written notice from Tenant, agrees to cooperate with Tenant to
execute and deliver to Tenant within twenty (20) days after Tenant's request
therefor, an application (the "Abatement Application") prepared by Tenant at
Tenant's sole expense, for a certificate of abatement in accordance with
Section 499-D of the Lower Manhattan Plan. Landlord further agrees to provide
all other information required by the Department of Finance pursuant to Section
499-D of the Lower Manhattan Plan and to otherwise comply with the provisions
of said Section 499-D, which shall be prepared by Tenant at Tenant's sole
expense.
(iii) For so long as Tenant continues to be
eligible for the LMP Abatement Benefits with respect to the demised premises,
Landlord, upon not less than thirty (30) days advance written notice from
Tenant, agrees to cooperate with Tenant to annually execute and deliver to
Tenant a certificate prepared by Tenant at Tenant's sole expense of continuing
eligibility in accordance with Section 499-F of the Lower Manhattan Plan.
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(iv) Tenant shall promptly pay to Landlord,
as additional rent hereunder, the amount of any out-of-pocket costs incurred by
Landlord in connection with the performance of Landlord's obligations pursuant
to this Section 56(f), including, without limitation, the amount of any
administrative charges or fees imposed by the Department in connection with
such compliance.
(f) In the event that Landlord shall default in the
performance or observance of any of the covenants, terms, provisions or
conditions on its part to be performed or observed under this Article 56, or if
Landlord shall fail to pay the Taxes due the applicable taxing authorities with
respect to the Building, and such default or failure shall result in Tenant's
loss of all or some of its LMP Abatement Benefits, this Lease shall remain
unaffected thereby and shall continue in full force and effect, and Landlord's
liability for such default or failure, if any, shall be limited to the payment
of damages which shall in no event exceed the aggregate amount of the LMP
Abatement Benefits with respect to the demised premises to which Tenant would
have been entitled but for such default or failure. In the event that Landlord
fails to pay Tenant such damages within thirty (30) days after Tenant shall
make a written demand therefor. Tenant shall have the right to offset the
amount of such damages against the rent payable by Tenant hereunder.
(g) Notwithstanding anything contained in this
Article 56, Landlord makes no representation or warranty as to the amount, if
any, of Actual LMP Benefits that will be received by Landlord.
-25-
<PAGE>
SCHEDULE A
Floor Plan
[GRAPHIC]
ONE STATE STREET PLAZA
A-1
<PAGE>
SCHEDULE A
Floor Plan
[GRAPHIC]
ONE STATE STREET PLAZA
A-2
<PAGE>
EXHIBIT B
Office Cleaning Specifications
One State Street Plaza
New York, New York
I. GENERAL OFFICE AREAS INCLUDING PRIVATE OFFICES:
(A) Nightly
1. Damp mop all stone ceramic tile, terrazzo and other types of
unwaxed flooring.
2. Sweep all vinyl, asphalt, rubber and similar types of flooring
using an approved chemically treated cloth.
3. Vacuum clean all carpeted areas. Sweep all private stairways and
vacuum if carpeted.
4. Hand dust and wipe clean with damp or chemically treated cloth
all furniture, fill cabinets, fixtures, window sills, convector
enclosure tops and wash said sills and tops if necessary.
5. Dust all telephone as necessary.
6. Dust all chair rails, trim, etc.
7. Remove all gum and foreign matter on site.
8. Empty and clean all waste receptacles and remove waste paper and
waste materials to a designated area.
9. Damp dust interiors of all waste disposal receptacles.
10. Empty and wipe clean all ash trays and screen all sand urns.
11. Wash clean all water fountains and water coolers.
12. Spot clean all glass furniture tops.
13. Remove fingermarks and dust doors of elevator hatchways.
(B) Periodic
1. Hand dust all door louvers and other ventilating louvers within
reach one per week.
2. Dust all baseboards once per week.
3. Wipe clean all bright work weekly.
4. Wash floors in public stairwells once per week.
5. Move and vacuum clean once per week underneath all furniture that
can be moved.
6. Dust all picture frames, charts and similar hangings quarterly
which were not reached in nightly cleaning.
B-1
<PAGE>
7. dust all vertical surfaces such as walls, partitions, doors and
other surfaces not reached in nightly cleaning, quarterly.
8. Dust exterior of lighting fixtures quarterly.
9. dust all venetian blinds quarterly.
10. Dust quarterly all air-conditioning louvers, grills, etc. not
reached in nightly cleaning.
11. Vacuum clean peripheral induction units semi-annually.
12. Clean all windows, inside and outside, quarterly. At the same
time wipe clean window frames and metal trim.
2. TOILETS
(A) Nightly
1. Wash all floors.
2. Wash all mirrors and powder shelves.
3. Wash all bright work.
4. Wash all plumbing fixtures.
5. Wash and disinfect all toilet seats, both sides.
6. Scour, wash and disinfect all basins, bowls, urinals throughout
all toilets.
7. Empty paper towel receptacles and remove paper to designated
area.
8. Fill toilet tissue holders (tissue to be furnished at Tenant's
expense).
9. Fill soap dispenser systems and fill paper towel dispensers
(towels and soap to be furnished at Tenant's expense).
10. Empty and clean sanitary disposal receptacles.
11. Clean and wash receptacles and dispensers nightly.
12. Remove fingermarks from painted surfaces.
13. Coin operated sanitary napkin dispensers will be installed and
serviced by cleaning contractor.
(B) Periodic
1. Clean and wash all partitions once a week.
2. Scrub floors once every two weeks.
3. Hand dust, clean and wash all tile walls once each month.
B-2
<PAGE>
4. High dusting to be done once each month which includes lights,
walls and grills.
5. Wash toilet lighting fixtures as often as necessary but no less
than twice per year.
GENERAL
(A) Landlord may substitute for any of the methods or devices set forth in
this Cleaning Schedule, such other methods or devices as in Landlord's
reasonable judgment will achieve substantially the same results.
(B) As used in this Cleaning Schedule "nightly" means five nights a week,
Monday through Friday of Business Days, during regular cleaning hours
(between 6:00 p.m. and 8:00 a.m.).
(C) Tenant shall provide, or pay for, all electricity for lighting and
power and all hot and cold water required in the Tenant's premises
during regular cleaning hours.
B-3
<PAGE>
EXHIBIT C
HVAC Specifications
Landlord shall, subject to the design specifications of the systems and to
mandatory energy conservation requirements of governmental authorities, furnish
air conditioning to the Premises capable of maintaining interior conditions of
78 degrees Fahrenheit, 50% relative humidity when outside conditions do not
exceed 92 degrees Fahrenheit dry bulb and 73 degrees Fahrenheit wet bulb, based
upon a people load of one person per each 100 usable square feet in the Premises
and a total connected load not exceeding six watts per rentable square foot.
Landlord shall, subject to the design specifications of the systems and to
mandatory energy conservation requirements of governmental authorities, furnish
heat to the Premises capable of maintaining interior conditions of 68 degrees
Fahrenheit, based upon a people load of one person per 100 usable square feet in
the Premises.
C-1
<PAGE>
EXHIBIT D
NON-DISTURBANCE AGREEMENT
AGREEMENT, made as of the day of _____, 1997 among STATE STREET, L.P., a
limited partnership organized and existing under the laws of the State of New
York and having an office at One State Street Plaza, New York, New York 10004,
("Lender") and SOUTH FERRY BUILDING COMPANY, a partnership, having its principal
place of business at One State Street Plaza, New York, New York 10004
("Landlord") and GKN SECURITIES, CORP., a New York corporation, having an office
at ____________________ ("Tenant").
WHEREAS Lender is the holder of that certain Agreement to Consolidate,
Modify, Release and Spread Mortgages, dated July 31, 1986 between Landlord and
the predecessor of the Lender, The Prudential Insurance Company of America, as
such mortgage was thereafter assigned to the Lender;
WHEREAS, the Mortgage covers all that certain parcel of land (the "Land")
in the State, City and County of New York, described in Schedule A of said
Mortgage and made a part hereof, and the building (the "Building") and premises
known as One State Street Plaza, New York, New York and the other property,
rights, privileges and interests more particularly described in the Mortgage
(all of which real and personal property, interest and rights so mortgaged are
hereinafter collectively called the "Mortgaged Premises");
WHEREAS, by a lease dated concurrently herewith (which lease as the same
has been amended and supplemented is hereinafter called the "Lease"), Landlord
leased to Tenant certain space in the Building constituting a part of the
Mortgaged Premises; and
WHEREAS, the Lease provides, among other things, that the Lease shall be
subject and subordinate to all ground and/or underlying leases and to all
mortgages on the fee or on any ground and/or underlying leases which may now or
hereafter be placed on or affect such leases and/or the Land and/or Building,
and the Lease is contingent upon the granting by Lender of a non-disturbance
agreement.
NOW, THEREFORE, the parties hereto, in consideration of the covenants
contained herein, have agreed and hereby agree as follows:
1. The Lease, as the same may hereafter be modified, amended or extended,
is and shall be subject and subordinate to the Mortgage, to any and
every additional mortgage on the Mortgaged Premises hereafter held by
Lender, to each and every advance made or hereafter made under the
Mortgage or any such additional mortgage, and to all renewals,
modifications, consolidations, replacements and extensions of the
Mortgage and/or any such additional mortgage held by Lender; provided,
however, and Lender agrees, that so long as no default by Tenant has
occurred which has continued to exist for such period of time (after
notice, if any, required by the Lease) as would entitle Landlord to
terminate the Lease (hereinafter called an "event of default"), (i)
Lender shall not join Tenant as a party defendant in any foreclosure
action or proceeding which may be instituted or taken by Lender under
the Mortgage or any such additional mortgage held by Lender by reason
of any default thereunder, (ii) Tenant shall not be evicted from the
premises demised by the Lease, (iii) Tenant's leasehold estate under
the Lease shall not be terminated or disturbed or modified in any way
(except as otherwise set forth in this Agreement), and (iv) none of
Tenant's rights under the Lease shall be affected in any way by reason
of any default under the Mortgage or any such additional mortgage,
(except as otherwise set forth in this Agreement).
D-1
<PAGE>
2. Tenant hereby agrees that in the event of any act or omission by
Landlord (other than an act or omission which is not capable of being
remedied by Landlord within a reasonable period) which would give
Tenant the right, either immediately or after the lapse of a period of
time, to terminate the Lease, or to claim a partial or total eviction,
Tenant will not exercise any such right (i) until it has given written
notice of such act or omission to Lender by delivering such notice of
such act or omission by registered mail, addressed to Lender at
Lender's address as given herein or at the last address of Lender
furnished to Tenant in writing, and (ii) until a reasonable period for
remedying such act or omission shall have elapsed following such
giving of notice and following the time when Lender shall have become
entitled under the Mortgage or any additional mortgage to remedy the
same, provided Lender, with reasonable diligence, shall thereafter
have commenced and continued to remedy such act or omission or cause
the same to be remedied. Tenant's agreement herein shall not apply to
those situations specifically set forth in the Lease wherein Tenant
has an express option to cancel and terminate the Lease in whole or in
part.
3. Without limitation of any of the provisions of the Lease, in the event
that, by reason of any default on the part of the Landlord, Lender
shall succeed to the interest of Landlord or any successor to
Landlord, then subject to the provisions of this Non- Disturbance
Agreement, the Lease shall nevertheless continue in full force and
effect and Tenant shall and does hereby agree to (1) attorn to Lender
and to recognize Lender as its landlord, and upon request of Lender,
Tenant shall execute and deliver to Lender an agreement of attornment,
or, at Lender's option (2) enter into a new lease with Lender, as
Landlord, for the remaining term of the Lease and otherwise on the
identical terms and conditions and with the same options, if any, then
remaining, including all modifications set forth in this
Non-Disturbance Agreement.
4. If Lender shall succeed to the interest of Landlord or any successor
to Landlord in no event shall Lender have any liability under the
Lease prior to the date Lender shall succeed to the rights of Landlord
under the Lease, nor any liability for offsets or defenses which
Tenant might have had against Landlord, nor any liability for any
default by Landlord under the Lease occurring prior to the date on
which Lender shall have succeeded to the rights of Landlord under the
Lease. In any event Lender shall have no personal liability as
successor to Landlord and Tenant shall look only to the estate and
property of Lender in the Land and the Building for the satisfaction
of tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money in the event of any
default by Lender as Landlord under the Lease and no other property or
assets of Lender shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to the Lease, the relationship of Landlord and Tenant
thereunder or Tenant's use or occupancy of the leased premises. Lender
makes no representation concerning any municipal, zoning or other
requirements relating to the Mortgaged Premises and neither the
foregoing provisions nor any other provisions of the lease or of this
non-disturbance agreement shall be construed to impose any liability
upon Lender for damages arising from the violation of applicable
zoning regulations, variations or deviations from site plan approvals
or from any other governmental approval or permit.
5. Tenant agrees that no prepayment of rent or additional rent due under
the Lease of more than one month in advance, and no amendment,
modification, surrender or cancellation of the Lease (other than an
amendment, modification, surrender or cancellation pursuant to an
express provision set forth in the Lease), shall be binding, upon or
as against Lender, as holder of the Mortgage and/or any additional
mortgage, and as landlord under the Lease if it succeeds to that
position, unless consented to in writing by Lender if, after thirty
(30) days written notice to Lender (via certified mail,) Lender has
not objected to same.
D-2
<PAGE>
Tenant agrees to provide Lender with any information requested that is
reasonably related to said modification or amendment, and any such
request for information shall toll the running the 30-day period until
such date as Lender receives the information requested. Notices to
Lender shall be sent to the following address:
State Street L.P.
One State Street Plaza
New York, New York 10004
with copies to the following:
Roberts & Holland
825 Eighth Avenue
New York, New York 10019
Attention: Elliot Pisem, Esq.
South Ferry Building Co.
One State Street Plaza
New York, New York 10004
Attention: Eli Levitin, Esq.
6. This Agreement shall apply to, bind and inure to the benefit of the
parties hereto and their respective successor and assigns, including,
without limitation, any purchaser at a foreclosure sale and any
grantee of a deed in lieu of foreclosure. As used herein "Lender"
shall include any subsequent holder of the Mortgage or any additional
mortgages held by Lender as aforesaid, or any subsequent ground
lessor, mortgagee, grantee of a deed in lieu of foreclosure or
purchaser at a foreclosure sale, and the successors or assigns of all
the foregoing.
IN WITNESS WHEREOF, the parties hereunto have duly executed this Agreement
as of the day and year first above written.
ATTEST: STATE STREET, L.P.
___________________________
By: _______________________
Partner
ATTEST: GKN SECURITIES, CORP.
___________________________
By: _______________________
ATTEST: SOUTH FERRY BUILDING COMPANY
___________________________
By: _______________________
Partner
D-3
<PAGE>
EXHIBIT E
DRAWING LIST
Date Issued For
Attachment To Lease and
Drawing Number Drawing Title For Construction
- -------------- ------------- -----------------------
AA Master Legend May 23, 1997
AB Master Legend "
AC Master Legend June 2, 1997
A-1/24 Construction Plan May 23, 1997
A-1/23 Construction Plan "
A-2/24 Reflected Ceiling Plan "
A-2/23 Reflected Ceiling Plan "
A-3/24 Power & Communication Plan "
A-3/23 Power & Communication Plan "
A-4/24 Finish Plan "
A-4/23 Preliminary Finish Plan "
A-5/24 Furniture Plan "
A-5/23 Furniture Plan "
A-6 Elevator Lobby/Reception/Conf. "
Rooms - Elevations "
A-7 Elevations "
A-8 Pantry Elevations & Details "
A-9 Slab Opening Stair Details "
A-10 Details "
A-11 Details "
A-12 Details - Raised Floor/Ceiling "
A-13 Door & Hardware Schedule "
A-14 Special Guard Rail Details "
A-15 Reception Desk Detail & Podium "
S-1 New Stair Opening and Sections at May 28, 1997
23rd Fl (24th Fl. Tenant)
M-1 Mechanical Schedules May 23, 1997
M-2 Mechanical Detail Sheet 1 "
M-3 Mechanical Detail Sheet 2 "
M-23-1 23rd Floor Mechanical Plan "
M-23-2 23rd Floor Mechanical Piping Plan "
M-24-1 24th Floor Mechanical Plan "
M-24-2 24th Floor Mechanical Piping Plan "
P-23-1 23rd Floor Plumbing Plan "
P-24-1 24th Floor Plumbing Plan "
SP-1 Sprinkler Riser Diagram "
SP-23-1 23rd Floor Sprinkler Plan "
SP-24-1 24th Floor Sprinkler Plan "
E-1 General Notes, Symbol List & "
Power Riser Diagram
E-2 Electrical Details "
E-3 Communications Room Part Plan, "
Notes & Details
E-4 Panel Schedules Sheet #1 "
E-5 Panel Schedules Sheet #2 "
E-23-1 23rd Floor Lighting Plan "
E-23-2 23rd Floor Power Plan "
E-23-3 23rd Floor Mechanical Equipment "
Power Plan
E-24-1 24th Floor Lighting Plan "
E-24-2 24th Floor Power Plan "
E-24-3 24th Floor Mechanical Equipment "
Power Plan
FA-1 Fire Alarm Notes, Symbol List and "
Part Riser Diagram
FA-23-1 23rd Floor Fire Alarm Plan "
FA-24-1 24th Floor Fire Alarm Plan "
<PAGE>
Exhibit E-1
Items Excluded from Landlord's Work
1. Thermographic testing of electrical wiring
2. The furnishing of business equipment, furniture and furnishings including
without limitation (a) trading tables, (b) furniture partitions and (c)
reception desks.
3. the installation of any data/communication items including without
limitation: () terminations, (b) telephones and voice data equipment,
4. pulling of all low voltage cables and wires for telephone and data/
communication items
5. furnishing electronic card key readers
6. tombstone signage panels
E-1-1
<PAGE>
EXHIBIT F
THE CITY OF NEW YORK
DEPARTMENT OF BUILDINGS
CERTIFICATE OF OCCUPANCY
AMENDED
BOROUGH MANHATTAN DATE: DEC 17, [ILLEGIBLE] NO. 81985
This certificate Amends [ILLEGIBLE] C.O. No. 80743 ZONING DISTRICT C 5-5 CR
THIS CERTIFIES that the never-altered-existing-building-premises located at 1-0
State Street, 34-50 Whitehall Street, 20-22, Block 9 Lot ] Pearl Street
CONFORMS SUBSTANTIALLY TO THE APROVED PLANS AND SPECIFICATIONS AND TO THE
REQUIREMENTS OF ALL APPLICABLE LAWS, RULES, AND REGULATIONS FOR THE USES AND
OCCUPANCIES SPECIFIED HEREIN.
PERMISSIBLE USE AND OCCUPANCY
<TABLE>
<CAPTION>
=================================================================================================================
STORY LIVE LOAD MAXIMUM ZONING BUILDING ZONING BUILDING DESCRIPTION OF USE
LBS. PER NO. OF DWELLING CODE USE CODE
SQ. FT. PERSONS OR ROOMING HABITABLE GROUP OCCUPANCY
PERMITTED UNITS ROOMS GROUP
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Sub- On 240 - - - - Offices, A.C. Fan Room
Cellar Ground
#2
Sub- 100 240 - - - - Offices, Bank Vault, A.C.
Cellar 150 Fan Room
#1
Cellar 100 240 - - - - Offices, Tel. Equipment Room,
Elec. Switchboard Room
First 100 490 - - - - Lobby, Concession, Two (2)
Floor 175 loading berths, stores
300 6 permitted under Use Group 6
First 50 - - - - - A.C. Fan Room, Office space
Inter. 100 25
Level
2nd 50 240 - - - - Offices
Floor
3rd 50 440 - - - - Accessory Employees' Cafeteria,
Floor 120 Executive Dining,
Offices
4th to 12th50 240 - - - - Offices each floor
Floors ea. ea.
13th 150 10 - - - - A.C. Fan Room, Building
Floor 200 Engineer's office
14th to 50 240 - - - - Offices each floor
31st ea. ea.
Floors
32nd 100 110 - - - - Offices
Floor 150
=================================================================================================================
</TABLE>
(CONTINUED)
THIS CERTIFICATE OF OCCUPANCY MUST BE POSTED
WITHIN THE BUILDING IN ACCORDANCE WITH THE RULES
OF THE DEPARTMENT PROMULGATED MARCH 31ST, 1982
OPEN SPACE USES _______________________________________________________________
(SPECIFY - PARKING SPACES, LOADING BERTHS, OTHER USES, NONE)
================================================================================
NO CHANGES OF USE OF OCCUPANCY SHALL BE MADE UNLESS
A NEW AMENDED CERTIFICATE OF OCCUPANCY IS OBTAINED
THIS CERTIFICATE OF OCCUPANCY IS ISSUED SUBJECT TO FURTHER LIMITATIONS,
CONDITIONS AND SPECIFICATIONS NOTED ON THE REVERSE SIDE.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- --------------------------------- ---------------------------------
BOROUGH SUPERINTENDENT COMMISSIONER
|X| ORIGINAL |_| OFFICE COPY - DEPARTMENT OF BUILDINGS |_| COPY
<PAGE>
THE CITY OF NEW YORK
DEPARTMENT OF BUILDINGS
CERTIFICATE OF OCCUPANCY
BOROUGH MANHATTAN DATE: DEC 17, [ILLEGIBLE] NO. 81985
This certificate Amends [ILLEGIBLE] C.O. No. 80743 ZONING DISTRICT C 5-5 CR
THIS CERTIFIES that the never-altered-existing-building-premises at 1-0 State
Street, 34-50 Whitehall Street, 20-22, Block 9 Lot ]. Pearl Street
CONFORMS SUBSTANTIALLY TO THE APROVED PLANS AND SPECIFICATIONS AND TO THE
REQUIREMENTS OF ALL APPLICABLE LAWS, RULES, AND REGULATIONS FOR THE USES AND
OCCUPANCIES SPECIFIED HEREIN.
PERMISSIBLE USE AND OCCUPANCY
<TABLE>
<CAPTION>
=================================================================================================================
STORY LIVE LOAD MAXIMUM ZONING BUILDING ZONING BUILDING DESCRIPTION
LBS. PER NO. OF DWELLING CODE USE CODE OF USE
SQ. FT. PERSONS OR ROOMING HABITABLE GROUP OCCUPANCY
PERMITTED UNITS ROOMS GROUP
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
33rd 50 & 120 - - 6 - Offices, and Air Conditioning
floor 190 Room and Fan Room
34th 50 120 - - - - Offices, upper part of
floor Air Conditioning and
Fan Room
Rain 40 & - - - - - Cooling tower, elevator
Roof & 100 machine room, kitchen
Bulkhead exhaust, Fan Room and
House tank
TOTAL: Amended Certificate of Occupancy
Commercial and Offices
Old-Code (Offices and Stores)
New-Code (Egress)
This certificate is issued for an additional two (2)
floors for use of offices and air conditioning fan
rooms. Also for change of use on the main roof and
bulkhead.
=================================================================================================================
</TABLE>
THIS CERTIFICATE OF OCCUPANCY MUST BE POSTED
WITHIN THE BUILDING IN ACCORDANCE WITH THE RULES
OF THE DEPARTMENT PROMULGATED MARCH 31ST, 1982
OPEN SPACE USES ________________________________________________________________
(SPECIFY - PARKING SPACES, LOADING BERTHS, OTHER USES, NONE)
================================================================================
NO CHANGES OF USE OF OCCUPANCY SHALL BE MADE UNLESS
A NEW AMENDED CERTIFICATE OF OCCUPANCY IS OBTAINED
THIS CERTIFICATE OF OCCUPANCY IS ISSUED SUBJECT TO FURTHER LIMITATIONS,
CONDITIONS AND SPECIFICATIONS NOTED ON THE REVERSE SIDE.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- --------------------------------- ---------------------------------
BOROUGH SUPERINTENDENT COMMISSIONER
|X| ORIGINAL |_| OFFICE COPY - DEPARTMENT OF BUILDINGS |_| COPY
<PAGE>
EXHIBIT G
Building Rules and Regulations
If and to the extent that any of the provisions of the Building Rules and
Regulations set forth hereinbelow conflict or are otherwise inconsistent with
any of the provisions of the body of the Lease, whether or not such conflict or
inconsistency is expressly noted hereinbelow, the provisions of the body of the
Lease shall prevail.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
Premises and for delivery of merchandise equipment using elevators and
passageways reasonably designated for such delivery by Landlord. There shall not
be used in any space, or in the public hall of the Building, either by any
Tenant or by jobbers or others in the delivery or receipt of merchandise, any
hand trucks, except those equipped with rubber tires and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant if, but only if, caused by
Tenant or its agents, employees or visitors.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the Building, and no Tenant shall sweep or throw or permit to be swept
or thrown from the Premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the Building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in any manner prohibited by Section 2.04 of this
Lease. No animals (except seeing-eye dogs) or birds shall be kept in or about
the Building. Smoking or carrying lighted cigars or cigarettes in the elevators
of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of Landlord.
5. Subject to the provisions of Article 16 of this Lease, no sign,
advertisement, notice or other lettering shall be exhibited, inscribed, painted
or affixed by any Tenant on any part of the outside of the Premises or the
Building or on the inside of the Premises if the same is visible from the
outside of the Premises without the prior written consent of Landlord, except
that the name of Tenant may appear on the entrance doors of the Premises and
provided that Tenant is the only tenant or occupant of a particular floor in the
Building, Tenant may affix a sign or lettering visible from the elevator cabs
serving such floor. In the event of the violation of the foregoing by Tenant
which shall continue for five (5) days after Landlord shall have given Tenant a
notice of such violation, Landlord may remove same without any liability, and
may charge the expense incurred by such removal to Tenant or tenants violating
this rule.
6. Subject to Article 11 and the Alteration Rules and Regulations, except
in connection with normal interior decorating, no Tenant shall mark, paint,
drill into, or in any way deface any part of the Premises or the building of
which they form a part, except as otherwise permitted under the Lease. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof unless, in either such case, copies of all keys therefor
are provided to Landlord upon installation or change by Tenant. Each Tenant
must, upon the termination of his tenancy,
G-1
<PAGE>
restore to Landlord all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description (other than mail, packages and such other materials as Tenant
routinely receives in the normal course of its business provided the same is not
delivered by use of dollies, hand trucks and the like) shall be delivered to and
removed from the Premises only on the freight elevators and through the service
entrance and corridors, and, to the extent that the same shall unreasonably
deprive other tenants in the Building of the use of the freight elevator, only
after Business Hours. Landlord reserves the right to inspect all freight (other
than mail, packages or such other materials as Tenant routinely receives in the
normal course of its business) brought into the Building and to exclude from the
Building all freight (other than mail, packages or such other materials as
Tenant routinely receives in the normal course of its business) which violates
any of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part. During Tenant's move-in period, Landlord shall use
reasonable efforts to accommodate Tenant's needs to bring freight into its
Premises during regular business hours.
9. Canvassing, soliciting and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 8 a.m. and at all hours on Sundays and Holidays all persons
who do not present a pass to the Building signed by Landlord or are not
accompanied by an employee of Tenant. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Landlord for all
acts of such person to the extent provided in the Lease.
11. Landlord shall have the right reasonably exercised to prohibit any
advertising by Tenant which specifically identifies the Building or the
Premises, which in Landlord's opinion, reasonably exercised, impairs the
reputation of the Building or its desirability as a building for offices, and
upon written notice from Landlord, Tenant shall refrain from or discontinue such
advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises, any inflammable, combustible or explosive fluid, material, chemical or
substance except those substance commonly used for office purposes, or cause or
permit any odors of cooking or other processes, or any objectionable odors to
permeate in or emanate from the Premises.
13. Tenant agrees to abide by all reasonable rules and regulations issued
by the Landlord which are consistent with the Lease with respect to
air-conditioning and ventilation services. If Tenant requires air-conditioning
or ventilation after 6:00 p.m., Tenant shall give telephonic notice to the
Building superintendent prior to 4:00 p.m. in the case of services required on
weekdays, and prior to 4:00 p.m. on the Friday prior in the case of after hours
service required on weekends or on holiday Mondays and prior to 4:00 p.m. on the
day prior in the case of after hours service required on other holidays or
weekends following Fridays which are holidays. Overtime freight elevator service
will he requested on the same basis.
14. Tenant shall not move any heavy safe, heavy machinery, heavy equipment,
bulky matter, or heavy fixtures into or out of the Building except in compliance
with all applicable laws and regulations, including the load limitations set
forth in the Certificate of Occupancy, and except with Landlord's prior written
consent to the manner in which Tenant proposes to accomplish such move, which
consent shall not be unreasonably withheld or delayed. If such heavy safe, heavy
machinery, heavy equipment, bulky matter or heavy fixtures requires special
handling, all work in connection therewith shall comply with the Administrative
Code of the City of New York and all other laws and regulations applicable
thereto and shall be done during such hours as Landlord may reasonably
designate.
G-2
<PAGE>
NON-DISTURBANCE AGREEMENT
AGREEMENT, made as of the 6 day of June, 1997 among STATE STREET, L.P., a
limited partnership organized and existing under the laws of the State of New
York and having an office at One State Street Plaza, New York, New York 10004,
("Lender") and SOUTH FERRY BUILDING COMPANY, a partnership, having its principal
place of business at One State Street Plaza, New York, New York 10004
("Landlord") and GKN SECURITIES, CORP., a New York corporation, having an office
at 61 Broadway NY NY 10066 ("Tenant").
WHEREAS Lender is the holder of that certain Agreement to Consolidate,
Modify, Release and Spread Mortgages, dated July 31, 1986 between Landlord and
the predecessor of the Lender, The Prudential Insurance Company of America, as
such mortgage was thereafter assigned to the Lender;
WHEREAS, the Mortgage covers all that certain parcel of land (the "Land")
in the State, City and County of New York, described in Schedule A of said
Mortgage and made a part hereof, and the building (the "Building") and premises
known as One State Street Plaza, New York, New York and the other property,
rights, privileges and interests more particularly described in the Mortgage
(all of which real and personal property, interest and rights so mortgaged are
hereinafter collectively called the "Mortgaged Premises");
WHEREAS, by a lease dated concurrently herewith (which lease as the same
has been amended and supplemented is hereinafter called the "Lease"), Landlord
leased to Tenant certain space in the Building constituting a part of the
Mortgaged Premises; and
WHEREAS, the Lease provides, among other things, that the Lease shall be
subject and subordinate to all ground and/or underlying leases and to all
mortgages on the fee or on any ground and/or underlying leases which may now or
hereafter be placed on or affect such leases and/or the Land and/or Building,
and the Lease is contingent upon the granting by Lender of a non-disturbance
agreement.
NOW, THEREFORE, the parties hereto, in consideration of the covenants
contained herein, have agreed and hereby agree as follows:
1. The Lease, as the same may hereafter be modified, amended or extended,
is and shall be subject and subordinate to the Mortgage, to any and
every additional mortgage on the Mortgaged Premises hereafter held by
Lender, to each and every advance made or hereafter made under the
Mortgage or any such additional mortgage, and to all renewals,
modifications, consolidations, replacements and extensions of the
Mortgage and/or any such additional mortgage held by Lender; provided,
however, and Lender agrees, that so long as no default by Tenant has
occurred which has continued to exist for such period of time (after
notice, if any, required by the Lease) as would entitle Landlord to
terminate the Lease (hereinafter called an "event of default"), (i)
Lender shall not join Tenant as a party defendant in any foreclosure
action or proceeding which may be instituted or taken by Lender under
the Mortgage or any such additional mortgage held by Lender by reason
of any default thereunder, (ii) Tenant shall not be evicted from the
premises demised by the Lease, (iii) Tenant's leasehold estate under
the Lease shall not be terminated or disturbed or modified in any way
(except as otherwise set forth in this Agreement), and (iv) none of
Tenant's rights under the Lease shall be affected in any way by reason
of any default under the Mortgage or any such additional mortgage,
(except as otherwise set forth in this Agreement).
1
<PAGE>
2. Tenant hereby agrees that in the event of any act or omission by
Landlord (other than an act or omission which is not capable of being
remedied by Landlord within a reasonable period) which would give
Tenant the right, either immediately or after the lapse of a period of
time, to terminate the Lease, or to claim a partial or total eviction,
Tenant will not exercise any such right (i) until it has given written
notice of such act or omission to Lender by delivering such notice of
such act or omission by registered mail, addressed to Lender at
Lender's address as given herein or at the last address of Lender
furnished to Tenant in writing, and (ii) until a reasonable period for
remedying such act or omission shall have elapsed following such
giving of notice and following the time when Lender shall have become
entitled under the Mortgage or any additional mortgage to remedy the
same, provided Lender, with reasonable diligence, shall thereafter
have commenced and continued to remedy such act or omission or cause
the same to be remedied. Tenant's agreement herein shall not apply to
those situations specifically set forth in the Lease wherein Tenant
has an express option to cancel and terminate the Lease in whole or in
part.
3. Without limitation of any of the provisions of the Lease, in the event
that, by reason of any default on the part of the Landlord, Lender
shall succeed to the interest of Landlord or any successor to
Landlord, then subject to the provisions of this Non- Disturbance
Agreement, the Lease shall nevertheless continue in full force and
effect and Tenant shall and does hereby agree to (1) attorn to Lender
and to recognize Lender as its landlord, and upon request of Lender,
Tenant shall execute and deliver to Lender an agreement of attornment,
or, at Lender's option (2) enter into a new lease with Lender, as
Landlord, for the remaining term of the Lease and otherwise on the
identical terms and conditions and with the same options, if any, then
remaining, including all modifications set forth in this
Non-Disturbance Agreement.
4. If Lender shall succeed to the interest of Landlord or any successor
to Landlord in no event shall Lender have any liability under the
Lease prior to the date Lender shall succeed to the rights of Landlord
under the Lease, nor any liability for offsets or defenses which
Tenant might have had against Landlord, nor any liability for any
default by Landlord under the Lease occurring prior to the date on
which Lender shall have succeeded to the rights of Landlord under the
Lease. In any event Lender shall have no personal liability as
successor to Landlord and Tenant shall look only to the estate and
property of Lender in the Land and the Building for the satisfaction
of tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money in the event of any
default by Lender as Landlord under the Lease and no other property or
assets of Lender shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to the Lease, the relationship of Landlord and Tenant
thereunder or Tenant's use or occupancy of the leased premises. Lender
makes no representation concerning any municipal, zoning or other
requirements relating to the Mortgaged Premises and neither the
foregoing provisions nor any other provisions of the lease or of this
non-disturbance agreement shall be construed to impose any liability
upon Lender for damages arising from the violation of applicable
zoning regulations, variations or deviations from site plan approvals
or from any other governmental approval or permit.
5. Tenant agrees that no prepayment of rent or additional rent due under
the Lease of more than one month in advance, and no amendment,
modification, surrender or cancellation of the Lease (other than an
amendment, modification, surrender or cancellation pursuant to an
express provision set forth in the Lease), shall be binding, upon or
as against Lender, as holder of the Mortgage and/or any additional
mortgage, and as landlord under the Lease if it succeeds to that
position, unless consented to in writing by Lender if, after thirty
(30) days written notice to Lender (via certified mail,) Lender has
not objected to same.
2
<PAGE>
Tenant agrees to provide Lender with any information requested that is
reasonably related to said modification or amendment, and any such
request for information shall toll the running the 30-day period until
such date as Lender receives the information requested. Notices to
Lender shall be sent to the following address:
State Street L.P.
One State Street Plaza
New York, New York 10004
with copies to the following:
Roberts & Holland
825 Eighth Avenue
New York, New York 10019
Attention: Elliot Pisem, Esq.
South Ferry Building Co.
One State Street Plaza
New York, New York 10004
Attention: Eli Levitin, Esq.
6. This Agreement shall apply to, bind and inure to the benefit of the
parties hereto and their respective successor and assigns, including,
without limitation, any purchaser at a foreclosure sale and any
grantee of a deed in lieu of foreclosure. As used herein "Lender"
shall include any subsequent holder of the Mortgage or any additional
mortgages held by Lender as aforesaid, or any subsequent ground
lessor, mortgagee, grantee of a deed in lieu of foreclosure or
purchaser at a foreclosure sale, and the successors or assigns of all
the foregoing.
IN WITNESS WHEREOF, the parties hereunto have duly executed this Agreement
as of the day and year first above written.
ATTEST: STATE STREET, L.P.
----------------------------------------------
By: /s/ ABRAHAM WOLFSON
-----------------------------------------
Abraham Wolfson Gen. Partner South Ferry
Building Company, Gen. PTNR South Ferry, L.P.
ATTEST: GKN SECURITIES CORP.
---------------------------------------------
By: /s/ DAVID NUSSBAUM
-----------------------------------------
Chairman
ATTEST: SOUTH FERRY BUILDING COMPANY
---------------------------------------------
By: /s/ ZEV WOLFSON
-----------------------------------------
Zev Wolfson Partner
3
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 6 day of June, 1997, before me personally came David Nissbaum, to
me known, who being by me duly sworn, did depose and say that he is the Chariman
of GKN Securities Corp, the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
/s/ CARL GOODMAN
--------------------------
NOTARY PUBLIC
[NOTARY STAMP]
CARL GOODMAN
Notary Public, State of New York
No. 01GO9821038
Qualified in Rockland County
Commission Expires March 30, 1998
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 24th of June, 1997, before me personally came Abraham Wolf , to me
known and known to me to be a Gen. Ptnr of the firm of South Ferry Building
Company, the firm described in and which executed the foregoing instrument, and
said Abraham Wolfson, being by me duly affirmed did depose and say that he is a
member of said firm of South Ferry Building Company, Gen. Ptnr of South Ferry,
L.P. and that he executed the foregoing instrument for and on behalf of said
firm.
/s/ ANA D. FRATICELI
--------------------------
NOTARY PUBLIC
[NOTARY STAMP]
ANA D. FRATICELI
Notary Public, State of New York
No. 01FR4980337
Qualified in New York County
Commission Expires May 10, 1998
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 24th day of June, 1997, before me personally came Zev Wolfson , to
me known and known to me to be a Gen. Ptnr of the firm of South Ferry Building
Company, the firm described in and which executed the foregoing instrument, and
said Zev Wolfson , being by me duly affirmed did depose and say that he is a
member of said firm of South Ferry Building Company and that he executed the
foregoing instrument for and on behalf of said firm.
/s/ ANA D. FRATICELI
--------------------------
NOTARY PUBLIC
[NOTARY STAMP]
ANA D. FRATICELI
Notary Public, State of New York
No. 01FR4980337
Qualified in New York County
Commission Expires May 10, 1998
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
SOUTH FERRY BUILDING COMPANY o ONE STATE STREET PLAZA o NEW YORK, N.Y. 10004 o
(212) 344-5210
June 6, 1997
GKN Securities, Inc.
61 Broadway
10th Floor
New York, New York 10006
Re: Lease Between South Ferry Building Company and GKN Securities, Corp.
Dear Sirs:
Reference is made to that certain lease (the "Lease") between South Ferry
Building Company ("Landlord") and GKN Securities, Inc. ("Tenant") dated June 6,
1997 covering the entire rentable portion of the 23rd and 24th floors in the
building known as One State Street Plaza, New York, New York.
Whereas pursuant to Article 43 of the Lease, Tenant's Contribution under the
Lease is $1,060,000.
Whereas, the Tenant's Final Plans consist of plans and specifications prepared
by the Phillips Janson Group and Robert Derector Associates which were issued
for construction on May 23, 1997 and which were initialed by Landlord and
Tenant.
Whereas, a preliminary incomplete draft version of the Tenant's Final Plans were
prepared by Phillips Janson Group and Robert Derector Associates which were
issued for bid on March 28th, 1997 (the "Preliminary Plans").
The following sets forth the agreement of Landlord and Tenant:
1. Tenant may, at Tenant's option prior to the commencement of Landlord's Work
but in any event not later than 5 business days after the date hereof, notify
Landlord in writing (the "Change Notification") that Landlord's Work with
respect to one or more of the items set forth in paragraph two (2) hereof shall
be performed in all respects in accordance with the Preliminary Plans in lieu of
the Tenant's Final Plans. The Change Notification shall set forth the specific
item(s) in paragraph two (2) hereof which shall be performed in accordance with
the Preliminary Plans. In the event that Tenant timely
<PAGE>
SOUTH FERRY BUILDING COMPANY
Preliminary Plans. In the event that Tenant timely delivers the Change
Notification to Landlord, Landlord's obligations to perform Landlord's Work
shall be accordingly adjusted with respect to those item(s) specified by Tenant
to be built in accordance with the Preliminary Plans and Tenant's Contribution
shall be reduced by the amount(s) set forth in paragraph two (2) hereof which
corresponds with the particular item(s) that shall be built in accordance with
the Preliminary Plans.
2. (a) Lighting fixtures package - $27,000.00
(b) Storage room 2409a/2413a - $2,500.00
Please confirm your agreement with the foregoing by signing a copy of this
letter in the space provided.
Sincerely,
South Ferry Building Company
By: /s/ [ILLEGIBLE]
-----------------------------------
Name: [ILLEGIBLE]
Title: General Partner
AGREED TO AND ACCEPTED:
GKN Securities Corp.
By: /s/ David M. Nussbaum
-------------------------
Name: David M. Nussbaum
Title: Chairman
<PAGE>
Richard Y. Roberts
------------------
Name
GKN HOLDING CORP.
STOCK OPTION AGREEMENT
AGREEMENT, made as of December 10, 1997 between GKN HOLDING CORP., a
Delaware corporation ("Company"), and Richard Y. Roberts ("Director" or
"Grantee").
WHEREAS, on December 10, 1997 the Board of Directors of the Company or
a committee thereof (in either event, "Company") authorized the grant to the
Director of an option to purchase an aggregate of 10,000 of the authorized but
unissued or treasury shares of the Common Stock of the Company ("Common
Stock"), on the terms and conditions set forth in this Agreement;
WHEREAS, the Director desires to acquire said option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. The Company hereby grants to the Director the right and option to
purchase all or any part of an aggregate of 10,000 shares of the Common Stock
on the terms and conditions set forth herein ("Option"). The Option is designed
to qualify as an "incentive stock option" under Section 422 of the Internal
Revenue Code of 1986, as amended ("Code").
2. The purchase price of each share of Common Stock subject to the
Option ("Option Shares") shall be Four Dollars.
<PAGE>
3. (a) The Option shall be immediately exercisable and shall remain
exercisable, except as otherwise provided herein, until the close of business on
December 9, 2007 ("Exercise Period"). The Option may be exercised, except as
provided in subparagraph (b) below, only if the Director at the time of exercise
is employed by the Company or any Subsidiary (as defined in Section 424 of the
Code) as a Director and shall have been so employed as a Director continuously
since the date of this Agreement.
(b) If the Director's employment as a Director with the Company or
an Subsidiary terminates for any reason prior to the time that the Option has
been fully exercised, any portion of the Option which is exercisable on the date
of termination of employment and which has not yet been exercised ("Exercisable
Portion") shall expire unless exercised within three months after such
termination, but in no event after expiration of the Exercise Period; provided,
however, that (i) in the event of the death of the Grantee during this three
month period, the person or persons to whom the Grantee's rights are transferred
by will or the laws or descent and distribution ("Heir") shall have a period of
three months from the date of the Grantee's death to exercise any Exercisable
Portion, but in no event after expiration of the Exercise Period; (ii) if the
Board of Directors determines that the Grantee's employment was terminated for
cause, the Exercisable Portion will immediately expire; (iii) if the Grantee's
employment is terminated by reason of the Grantee's permanent disability (as
determined by the Board of Directors), the Exercisable Portion may be exercised
by the Grantee within twelve months after such termination, but in no event
after expiration of the Exercise Period; and (iv) in the event of the death of
the Grantee while in the employment of the Company or any Subsidiary or during
the twelve (12) month period referred to in (iii) above, the Heir shall have a
period of twelve months from the date of Grantee's death to exercise the
Exercisable Portion, but in no event after expiration of the Exercise Period.
(c) The Option shall not be assignable or transferable except in the
event of the death of the Director, by will or by the laws of descent and
distribution. No transfer of the
<PAGE>
Option by the Director by will or by the laws of descent and distribution shall
be effective to bind the Company unless the Company shall have been furnished
with written notice thereof and a copy of the will and such other evidence as
the Company may deem necessary to establish the validity of the transfer and
the acceptance by the transferee or transferees of the terms and conditions of
the Option.
4. The Director shall not have any of the rights of a stockholder with
respect to the Option Shares until such shares have been issued after the due
exercise of the Option.
5. In the event of a reorganization, recapitalization,
reclassification, stock split or exchange, stock dividend, combination of
shares, or any other similar change in the Common Stock of the Company, the
Board of Directors of the Company shall, in its sole discretion, make such
equitable, proportionate adjustments, if any, as it deems appropriate in the
number and kind of shares covered by the Option and in the option price
thereunder, in order to preserve the Director's proportionate interest in the
Company and to maintain the aggregate option price; provided, however, that
upon the dissolution or liquidation of the Company, or upon any merger,
consolidation or other form of reorganization, or upon the sale of all or
substantially all of the Company's assets, the Option may be terminated by the
Company or its successor and be of no further effect.
6. The Company hereby represents and warrants to the Director that the
Option Shares, when issued and delivered by the Company to the Director in
accordance with the terms and conditions hereof, will be duly and validly
issued and fully paid and non-assessable.
7. The Director hereby represents and warrants to the Company that
s/he is acquiring the Option and shall acquire the Option Shares for his/her
own account and not with a view to the distribution thereof.
8. Anything in this Agreement to the contrary notwithstanding, the
Director hereby agrees that s/he shall not sell, transfer by any means or
otherwise dispose of the Option Shares
<PAGE>
acquired by him/her without registration under the Securities Act of 1933, as
amended ("Act"), or in the event that they are not so registered, unless (a) an
exemption from the Act is available thereunder, and (b) the Director has
furnished the Company with notice of such proposed transfer and the Company's
legal counsel, in its reasonable opinion, shall deem such proposed transfer to
be so exempt.
9. The Director hereby acknowledges that:
(a) All reports and documents required to be filed by the
Company with the National Association of Securities Dealers, Inc. and
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 an other applicable laws within the last 12 months have been made
available to the Director for his/her inspection.
(b) If s/he exercises the Option, s/he mush bear the economic
risk of the investment in the Option Shares for an indefinite period of time
because the Option Shares will not have been registered under the Act and
cannot be sold by him/her unless they are registered under the Act or an
exemption therefrom is available thereunder.
(c) In his/her position with the Company, s/he has had both
the opportunity to ask questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent to the Company possesses or may possess such
information or can acquire it without unreasonable effort or expense necessary
to verify the accuracy of the information obtained pursuant to subparagraph (a)
above.
(d) The Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the Act or an exemption therefrom.
<PAGE>
(e) The certificates evidencing the Option Shares shall bear
the following legends:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the Securities
Act of 1933. The shares may not be sold or transferred in the
absence of such registration or an exemption therefrom under said
Act."
"The shares represented by this certificate have been acquired
pursuant to a Stock Option Agreement, dated as of December 10,
1997, a copy of which is on file with the Company, and may not be
transferred, pledged or disposed of except in accordance with the
terms and conditions thereof."
10. Subject to the terms and conditions of the Agreement, the Option
may be exercised by written notice to the Company at its principal place of
business. Such notice shall state the election to exercise the Option and the
number of Option Shares in respect to which it is being exercised, shall
contain a representation and agreement by the person or persons so exercising
the Option that the Option Shares are being purchased for investment and not
with a view to the distribution or resale thereof, and shall be signed by the
person or persons so exercising the Option. Such notice shall be accompanied by
payment of the full purchase price of the Option Shares as soon as practicable
after the notice and payment is received. The certificate or certificates
evidencing the Option Shares shall be registered in the name of the person or
persons so exercising the Option.
11. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall either be delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the parties at
their respective addresses set forth below, or to such other address as either
shall have specified by notice in the writing to the other, and shall be deemed
duly given hereunder when so delivered or mailed, as the case may be.
12. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
<PAGE>
13. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter thereof.
14. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and to the extent not prohibited herein, their respective
heirs, successors, assigns and representatives. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto and as provided above, their respective heirs, successors,
assigns and representatives any rights, remedies, obligations or liabilities.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the 20th day of April, 1998.
GKN HOLDING CORP. DIRECTOR:
One State Street Plaza
New York, New York 10004 ------------------------------
Signature
By:
----------------------------- --------------------------
Print Name
Address:
--------------------------
--------------------------
--------------------------
<PAGE>
Exhibit 21
GKN HOLDING CORP.
List of Subsidiaries
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
GKN Securities Corp. New York
Southeast Research Partners, Inc. Delaware
Shochet Securities, Inc. Florida
GKN Securities AG Switzerland
GKN Asset Management AG Switzerland
GKN Capital Management Corp. New York
Dalewood Associates, Inc. New York
GKN Property Management, Inc. New Jersey
GKN Realty Corp. New Jersey
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
GKN Holding Corp.:
We consent to the incorporation by reference in Registration Statement No.
33-20273 on Form S-8 of GKN Holding Corp. of our report dated March 20, 1998,
relating to the consolidated financial condition of GKN Holding Corp. and
subsidiaries as of January 31, 1998, and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended January 31, 1998, which report
appears in the Janaury 31, 1998 Annual Report on Form 10-K of GKN Holding Corp.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 8,111,000
<RECEIVABLES> 5,844,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 15,237,000
<PP&E> 1,043,000
<TOTAL-ASSETS> 36,972,000
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 2,320,000
<LONG-TERM> 576,000
0
114,000
<COMMON> 1,000
<OTHER-SE> 27,506,000
<TOTAL-LIABILITY-AND-EQUITY> 36,972,000
<TRADING-REVENUE> 1,715,000
<INTEREST-DIVIDENDS> 1,339,000
<COMMISSIONS> 38,328,000
<INVESTMENT-BANKING-REVENUES> 6,024,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 35,051,000
<INCOME-PRETAX> (9,956,000)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,513,000)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 17,856,000
<RECEIVABLES> 10,808,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 18,667,000
<PP&E> 1,251,000
<TOTAL-ASSETS> 51,633,000
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 6,997,000
<LONG-TERM> 738,000
0
0
<COMMON> 1,000
<OTHER-SE> 35,025,000
<TOTAL-LIABILITY-AND-EQUITY> 51,633,000
<TRADING-REVENUE> 4,277,000
<INTEREST-DIVIDENDS> 1,620,000
<COMMISSIONS> 50,153,000
<INVESTMENT-BANKING-REVENUES> 11,391,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 95,000
<COMPENSATION> 41,187,000
<INCOME-PRETAX> 11,356,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,329,000
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.88
</TABLE>
